**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, 2010 of approximately $2.0 billion. The Bank is one of the largest independent banks headquartered in DuPage County, Illinois.

 

**West Suburban Bancorp, Inc.**

**Financial Highlights**

 
| ** **                                     | ** ** | **Years Ended December 31,**                                     | ** ** |
|------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| ** **                                     | ** ** | **(Dollars in thousands, except per share data)** | ** ** |
| ** **                                     | ** ** | **2010**                                                                        | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
| Net income (loss) from continuing operations   |       | $                                                                               | 1,154      |   | $ | (4,244 | ) | $ | 17,242 |   | $ | 22,814 |   | $ | 25,129 |   |
| Net income (loss) from discontinued operations |       | —                                                                          |       | 3,409 |   | (426 | ) | 599 |   | 222 |   |
| Net income (loss)                              |       | 1,154                                                                           |       | (835 | ) | 16,816 |   | 23,413 |   | 25,351 |   |
| Per share data                                 |       |                                                                            |       |   |   |   |   |   |   |   |   |
| Earnings (loss) from continuing operations     |       | 2.70                                                                            |       | (9.89 | ) | 39.87 |   | 52.75 |   | 58.11 |   |
| Earnings (loss) from discontinued operations   |       | —                                                                          |       | 7.94 |   | (0.99 | ) | 1.38 |   | 0.51 |   |
| Earnings (loss) per share                      |       | 2.70                                                                            |       | (1.95 | ) | 38.88 |   | 54.13 |   | 58.62 |   |
| Book value (GAAP)                              |       | 295.15                                                                          |       | 296.97 |   | 264.12 |   | 241.76 |   | 220.43 |   |
| Book value (non-GAAP) (1)                      |       | 365.11                                                                          |       | 370.14 |   | 372.03 |   | 373.34 |   | 359.18 |   |
| Net loans                                      |       | 1,008,272                                                                       |       | 1,167,675 |   | 1,233,595 |   | 1,226,571 |   | 1,153,885 |   |
| Total assets                                   |       | 1,961,624                                                                       |       | 1,938,583 |   | 1,867,420 |   | 1,851,357 |   | 1,876,643 |   |
| Total deposits                                 |       | 1,778,427                                                                       |       | 1,756,987 |   | 1,625,925 |   | 1,637,714 |   | 1,677,844 |   |
|                                                |            |                                                                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)          Book value per share (non-GAAP) represents the aggregate amount of shareholders’ equity and common stock in Employee Stock Ownership Plan (“ESOP”) subject to contingent repurchase obligation divided by the number of outstanding shares. See Note 8 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.

 

**Table of Contents**

 

| 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                                                                         | 38 |
| Selected   Financial Data                                                                              | 39 |
| Non-GAAP   Financial Measures                                                                          | 40 |
| Average   Balance Sheets, Net Interest Income and Average Rates and Yields on a Tax   Equivalent Basis | 41 |
| Management’s   Discussion and Analysis of Financial Condition and Results of Operations           | 42 |
| Boards   of Directors and Officers                                                                     | 55 |
| Addresses   of West Suburban Facilities                                                                | 58 |
| Map of   Facilities                                                                                    | 60 |
| Shareholder   Information                                                                              | 61 |

 

1

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***Special Note Concerning Forward-Looking Statements and Risk Factors***

 

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

 

*A number of factors, many of which are beyond the ability of the Company to control or predict, could cause actual results to differ materially from those in its forward-looking statements. These factors include, among others, the following: (i) the strength of the U.S. and global economies and financial markets in general and the strength of the local economies in which the Company conducts its operations, including the local residential and commercial real estate markets, which may be less favorable than expected and may result in, among other things, a deterioration in the credit quality and value of the Company’s assets; (ii) the effects of, and changes in, federal, state and local laws, regulations and policies affecting banking, securities, taxation, insurance and monetary and financial matters, as well as any laws and regulations otherwise affecting the Company, including, the Dodd-Frank Wall Street Reform and Consumer Protection Act and other laws and regulations intended to address the current stresses in the U.S. and global financial markets, national security and money laundering; (iii) the effects of continued adverse market conditions and volatility in investment securities generally, which may result in a deterioration in the value of the securities in the Company’s investment portfolio; (iv) t**he ability of the Company to comply with, and satisfy the requirements of, any informal or formal agreements with its regulators and the consequences that may result from any inability to comply;**(v) the ability**of the Company to comply with applicable federal, state and local laws, regulations and policies and the consequences that may result from any inability to comply; (vi) the effects of changes in interest rates (including the effects of changes in the rate of prepayments of the Company’s assets) and the policies of the Board of Governors of the Federal Reserve System; (vii) the ability of the Company to compete with other financial institutions as effectively as the Company currently intends due to increases in competitive pressures in the financial services sector; (viii) the ability of the Company to maintain an acceptable net interest margin; (ix) the ability of the Company to obtain new customers and retain existing customers; (x) the timely development and acceptance of products and services, including products and services offered through alternative delivery channels such as the Internet; (xi) technological changes implemented by the Company and by other parties, including third party vendors, which may be more difficult or more expensive than anticipated or which may have unforeseen consequences to the Company and its customers, including technological changes implemented for, or related to, the Company’s website or new products; (xii) the ability of the Company, and certain of its vendors, to develop and maintain secure and reliable electronic systems, including systems developed for the Company’s website or new products; (xiii) the ability of the Company to retain directors, executives and key employees, and the difficulty that the Company may experience in replacing directors, executives and key employees in an effective manner; (xiv) consumer spending and saving habits which may change in a manner that affects the Company’s business adversely; (xv) the economic impact of past and any future terrorist attacks, acts of war or threats thereof and the response of the U.S. to any such attacks and threats; (xvi) the costs, effects and outcomes of existing or future litigation and disputes with third parties, including, but not limited to, claims in connection with collection actions, employment matters and sales of business units; (xvii) changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies and the Financial Accounting Standards Board, the Public Company Accounting 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; and (xix) the ability of the Company to manage the risks associated with the foregoing as well as anticipated.*

 

*Additional information concerning the Company and its business, including risk factors that could materially affect the Company’s results of operations and financial condition, is included in the Company’s filings with the Securities and Exchange Commission, including the Company’s most recent Annual Report on Form 10-K.*

 

2

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**To Our Shareholders, Customers and Friends**

 

The challenges presented by the “Great Recession” continued throughout our markets during 2010.  Although the level of unemployment improved, it remains high at 6.7% throughout DuPage County.  Banks continued to fail in significant numbers, including 18 failures in Illinois during 2010 (and 40 failures since 2008).  Although the broad U.S. financial markets began to demonstrate stability and regained some of the losses from prior years, our local economies appear to be trailing and real estate values in our markets continued to decline in 2010.

 

While 2010 was disappointing to us, we were able to return to profitability.  Furthermore, although we continue to outperform many of our peers (U.S. banks between $1 and $3 billion in assets) according to Uniform Bank Performance, our performance is far from satisfactory and not consistent with our history of providing superior returns and attractive dividends.  Our efforts to continue to address the weaknesses in our real estate loan portfolio resulted in a small 2010 profit of $1.2 million.  As in 2009, during 2010 we continued to increase our allowance for loan losses (increasing the allowance to 2.71% of total loans) by recognizing an additional provision for loan losses of $18.7 million.  The contribution to the allowance, which almost entirely eliminated our pre-provision income of almost $20 million, was intended to reflect the increases that we continue to experience in the level of problem and nonaccrual loans in our loan portfolio.

 

On the positive side, we made significant progress in implementing improvements to our regulatory compliance systems.  During the last few years, we built our compliance staff to include more than 10 compliance professionals. Our progress was recognized by our regulators with the termination of regulatory orders that required us to implement improvements in the compliance and Bank Secrecy Act reporting areas.  These efforts will also position us well to address the significant regulatory changes that we anticipate will result from the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  Many of the regulatory initiatives mandated by the Dodd-Frank legislation will be introduced in 2011 and are likely to require banks, like West Suburban, to quickly implement changes to policies as well as to the products and services that we offer to our customers.

 

We did not pay a dividend during 2010 and do not anticipate paying dividends during 2011, as we continue to focus on building our regulatory capital levels and addressing problem loans.  Please be assured that it is our highest priority to protect your investment by continuing to evaluate all areas of our business, the local and national economies, as well as changes in banking regulations.  Our continuing focus on reducing or freezing operating costs, including salaries and discretionary benefits, evidences this commitment.

 

We would like to express our appreciation to everyone for the support that has allowed us to become and remain one of the largest independent banks headquartered in DuPage County, and we welcome your comments and suggestions. We could not have achieved our success without the support of our shareholders, customers, communities, friends and employees.  We are also mindful that providing high quality, responsive service is one element that distinguishes us from our competition and we will take great care to ensure that we don’t sacrifice this important advantage.

 

Thank you for your continued support and understanding.

 

 

Sincerely,

 

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

 

3

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**Common Stock, Book Value and Dividends**

 

West Suburban has a single class of common stock issued and outstanding. The common stock is not traded on any stock exchange or on the over-the-counter market. West Suburban’s per share book value as of the end of each quarter and dividends declared for the last two years are set forth below:

 
| **Year** | ** ** | **Quarter** | ** ** | **BookValue********GAAP** | ** ** | **BookValue********Non-GAAP (1)** | ** ** | **Dividends********Declared** | ** ** |
|----------|------------|-------------|------------|---------------------------|------------|----------------------------------------|------------|-------------------------------|------------|
| **2010** |       | 4th         |       | $                         | 295.15     |                                   | $          | 365.11                        |       | $ | — |   |
|     |       | 3rd         |       | 318.34                    |       | 385.64                                 |       | —                        |       |
|     |       | 2nd         |       | 291.17                    |       | 377.76                                 |       | —                        |       |
|     |       | 1st         |       | 290.85                    |       | 372.79                                 |       | —                        |       |
|     |       |        |       |                      |       |                                   |       |                          |       |
| 2009     |       | 4th         |       | $                         | 296.97     |                                   | $          | 370.14                        |       | $ | — |   |
|     |       | 3rd         |       | 290.74                    |       | 369.42                                 |       | —                        |       |
|     |       | 2nd         |       | 280.02                    |       | 365.53                                 |       | 2.00                          |       |
|     |       | 1st         |       | 271.55                    |       | 370.49                                 |       | 8.00                          |       |

 

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(1)          Book value per share (non-GAAP) represents the aggregate amount of shareholders’ equity and common stock in ESOP subject to contingent repurchase obligation divided by the number of outstanding shares. See Note 8 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.

 

As noted in the table above, during 2009, the Company’s Board of Directors decided to suspend the payment of the quarterly dividend.

 

**Business Review**

 

As of December 31, 2010, the Company had total assets of approximately $2.0 billion and maintained 35 full-service branches, six limited-service branches and four departments providing insurance, financial and other services for the convenience of the customers of the Bank throughout DuPage, Kane, Kendall and Will Counties in Illinois. The Bank focuses on providing retail and commercial banking products and services in its market area. The Company had 481 full-time equivalent employees at December 31, 2010.

 

****

 

4

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**MANAGEMENT’S REPORT ON INTERNAL CONTROL**

**OVER FINANCIAL REPORTING**

 

Management of the Company is responsible for establishing and maintaining an effective system of internal control over financial reporting. The Company’s system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. There are inherent limitations in the effectiveness of any system of internal control over financial reporting, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even an effective system of internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

 

Management assessed the Company’s systems of internal control over financial reporting as of December 31, 2010. This assessment was based on criteria for effective internal control over financial reporting described in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes that, as of December 31, 2010, the Company maintained effective internal control over financial reporting based on those criteria.

 

The Company’s independent auditors have issued an audit report on the effectiveness of the Company’s internal control over financial reporting.

 

 

March 14, 2011

 

Kevin J. Acker

Chairman of the Board and Chief Executive Officer

 

 

Duane G. Debs

President and Chief Financial Officer

 

5

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|  | **Crowe Horwath LLP**Independent Member Crowe Horwath International |
|--|---------------------------------------------------------------------|

 

**Report of Independent Registered Public Accounting Firm**

 

Board of Directors and Shareholders

West Suburban Bancorp, Inc.

Lombard, Illinois

 

We have audited the accompanying consolidated balance sheets of West Suburban Bancorp, Inc. (the “Company”) as of December 31, 2010 and 2009, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2010. We also have audited the Company’s internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing 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 reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the 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 to above present fairly, in all material respects, the financial position of the Company as of December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 
|   | /s/   Crowe Horwath LLP |
|--------|-------------------------|

 

Oak Brook, Illinois

March 14, 2011

 

6

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**WEST SUBURBAN BANCORP, INC.**

**CONSOLIDATED BALANCE SHEETS**

**DECEMBER 31, 2010 AND 2009**

(Dollars in thousands)

 
| ** **                                                                                                                                                  | ** ** | **2010**  | ** ** | **2009**  | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|
| **Assets**                                                                                                                                                  |       |      |       |      |       |
| Cash and due from banks                                                                                                                                     |       | $         | 70,490     |      | $          | 68,610 |   |
| Federal funds sold                                                                                                                                          |       | 200       |       | 80,000    |       |
| Total cash and cash equivalents                                                                                                                             |       | 70,690    |       | 148,610   |       |
| Securities                                                                                                                                                  |       |      |       |      |       |
| Available for sale (amortized cost of $517,589 in   2010 and $199,139 in 2009)                                                                              |       | 518,566   |       | 205,610   |       |
| Held to maturity (fair value of $222,761 in 2010   and $273,316 in 2009)                                                                                    |       | 215,365   |       | 265,908   |       |
| Federal Home Loan Bank stock                                                                                                                                |       | 7,599     |       | 7,599     |       |
| Total securities                                                                                                                                            |       | 741,530   |       | 479,117   |       |
| Loans, less allowance for loan losses of $28,072   in 2010 and $25,922 in 2009                                                                              |       | 1,008,272 |       | 1,167,675 |       |
| Bank-owned life insurance                                                                                                                                   |       | 39,511    |       | 37,601    |       |
| Premises and equipment, net                                                                                                                                 |       | 42,201    |       | 43,768    |       |
| Other real estate owned                                                                                                                                     |       | 20,479    |       | 25,994    |       |
| Accrued interest and other assets                                                                                                                           |       | 38,941    |       | 35,818    |       |
| **Total assets**                                                                                                                                            |       | $         | 1,961,624  |      | $          | 1,938,583 |   |
|                                                                                                                                                        |       |      |       |      |       |
| **Liabilities and shareholders’   equity**                                                                                                             |       |      |       |      |       |
| Deposits                                                                                                                                                    |       |      |       |      |       |
| Demand-noninterest-bearing                                                                                                                                  |       | $         | 152,064    |      | $          | 125,132 |   |
| Prepaid solutions card deposits                                                                                                                             |       | 29,161    |       | 30,577    |       |
| Interest-bearing                                                                                                                                            |       | 1,597,202 |       | 1,601,278 |       |
| Total deposits                                                                                                                                              |       | 1,778,427 |       | 1,756,987 |       |
| Prepaid solutions cards                                                                                                                                     |       | 8,778     |       | 6,315     |       |
| Accrued interest and other liabilities                                                                                                                      |       | 18,571    |       | 17,288    |       |
|                                                                                                                                                        |       |      |       |      |       |
| Common stock in ESOP subject to contingent repurchase   obligation                                                                                          |       | 29,865    |       | 31,230    |       |
|                                                                                                                                                        |       |      |       |      |       |
| Shareholders’ equity                                                                                                                                   |       |      |       |      |       |
| Common stock, no par value; 15,000,000 shares   authorized; 426,850 shares issued and outstanding at December 31, 2010   and at December 31, 2009 |       | 3,412     |       | 3,412     |       |
| Surplus                                                                                                                                                     |       | 35,453    |       | 35,453    |       |
| Retained earnings                                                                                                                                           |       | 116,698   |       | 115,544   |       |
| Accumulated other comprehensive income                                                                                                                      |       | 285       |       | 3,584     |       |
| Amount reclassified on ESOP shares                                                                                                                          |       | (29,865   | )          | (31,230   | )          |
| **Total shareholders’ equity**                                                                                                                         |       | 125,983   |       | 126,763   |       |
| **Total liabilities and   shareholders’ equity**                                                                                                       |       | $         | 1,961,624  |      | $          | 1,938,583 |   |

 

*See accompanying notes to consolidated financial statements.*

 

7

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**WEST SUBURBAN BANCORP, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008**

(Dollars in thousands, except per share data)

 
| ** **                                                         | ** ** | **2010** | ** ** | **2009** | ** ** | **2008** | ** ** |
|--------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Interest income**                                                |       |     |       |     |       |     |       |
| Loans, including fees                                              |       | $        | 57,437     |     | $          | 62,818   |       | $ | 72,577 |   |
| Securities                                                         |       |     |       |     |       |     |       |
| Taxable                                                            |       | 17,608   |       | 17,985   |       | 21,109   |       |
| Exempt from federal income tax                                     |       | 1,089    |       | 1,135    |       | 1,176    |       |
| Federal funds sold                                                 |       | 56       |       | 162      |       | 198      |       |
| Total interest income                                              |       | 76,190   |       | 82,100   |       | 95,060   |       |
|                                                               |       |     |       |     |       |     |       |
| **Interest expense**                                               |       |     |       |     |       |     |       |
| Deposits                                                           |       | 18,429   |       | 24,944   |       | 33,308   |       |
| Other                                                              |       | —   |       | 43       |       | 664      |       |
| Total interest expense                                             |       | 18,429   |       | 24,987   |       | 33,972   |       |
| **Net interest income**                                            |       | 57,761   |       | 57,113   |       | 61,088   |       |
| **Provision for loan losses**                                      |       | 18,725   |       | 24,925   |       | 10,360   |       |
| **Net interest income after   provision for loan losses**          |       | 39,036   |       | 32,188   |       | 50,728   |       |
|                                                               |       |     |       |     |       |     |       |
| **Noninterest income**                                             |       |     |       |     |       |     |       |
| Service fees on deposit accounts                                   |       | 5,115    |       | 5,941    |       | 6,357    |       |
| Debit card fees                                                    |       | 2,123    |       | 2,052    |       | 2,150    |       |
| Bank-owned life insurance                                          |       | 1,712    |       | 2,030    |       | (2,179   | )          |
| Net gain on sales of loans originated for sale                     |       | —   |       | 553      |       | 70       |       |
| Net gain on sale of portfolio loans                                |       | 2,803    |       | —   |       | —   |       |
| Net realized gains on securities transactions                      |       | 267      |       | 109      |       | 101      |       |
| Impairment of trust preferred securities                           |       | —   |       | (8,320   | )          | —   |       |
| Gain on redemption of VISA stock                                   |       | —   |       | —   |       | 2,075    |       |
| Other                                                              |       | 4,296    |       | 3,421    |       | 3,890    |       |
| Total noninterest income                                           |       | 16,316   |       | 5,786    |       | 12,464   |       |
|                                                               |       |     |       |     |       |     |       |
| **Noninterest expense**                                            |       |     |       |     |       |     |       |
| Salaries and employee benefits                                     |       | 23,703   |       | 24,671   |       | 19,925   |       |
| Other real estate owned expense                                    |       | 6,885    |       | 909      |       | 127      |       |
| Occupancy                                                          |       | 5,246    |       | 5,038    |       | 5,172    |       |
| Furniture and equipment                                            |       | 5,177    |       | 5,707    |       | 5,694    |       |
| FDIC assessments                                                   |       | 4,236    |       | 3,647    |       | 500      |       |
| Loan administration                                                |       | 2,830    |       | 1,252    |       | 383      |       |
| Professional fees                                                  |       | 2,194    |       | 3,492    |       | 1,703    |       |
| Advertising and promotion                                          |       | 997      |       | 727      |       | 1,834    |       |
| Other                                                              |       | 5,028    |       | 4,577    |       | 5,532    |       |
| Total noninterest expense                                          |       | 56,296   |       | 50,020   |       | 40,870   |       |
|                                                               |       |     |       |     |       |     |       |
| **(Loss) income from continuing   operations before income taxes** |       | (944     | )          | (12,046  | )          | 22,322   |       |
| **Income tax (benefit) expense**                                   |       | (2,098   | )          | (7,802   | )          | 5,080    |       |
| **Net income (loss) from continuing   operations**                 |       | 1,154    |       | (4,244   | )          | 17,242   |       |
| **Discontinued operations**                                        |       |     |       |     |       |     |       |
| Gain on sale of prepaid solutions group, net of   tax              |       | —   |       | 3,313    |       | —   |       |
| Discontinued operations, net of tax                                |       | —   |       | 96       |       | (426     | )          |
| **Net income (loss) from discontinued   operations**               |       | —   |       | 3,409    |       | (426     | )          |
| **Net income (loss)**                                              |       | $        | 1,154      |     | $          | (835     | )          | $ | 16,816 |   |
|                                                               |       |     |       |     |       |     |       |
| **Earnings (loss) from continuing   operations per share**         |       | $        | 2.70       |     | $          | (9.89    | )          | $ | 39.87 |   |
| **Earnings (loss) from discontinued   operations per share**       |       | $        | —     |     | $          | 7.94     |       | $ | (0.99 | ) |
| **Earnings (loss) per share**                                      |       | $        | 2.70       |     | $          | (1.95    | )          | $ | 38.88 |   |
| **Average shares outstanding**                                     |       | 426,850  |       | 429,137  |       | 432,495  |       |

 

*See accompanying notes to consolidated financial statements.*

 

8

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**WEST SUBURBAN BANCORP, INC.**

**CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY**

**YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008**

(Dollars in thousands, except per share data)

 
| ** **                                                                                                         | ** ** | **Common   Stock   and   Surplus** | ** ** | **Retained   Earnings** | ** ** | **Accumulated   Other   Compre-   hensive   Income   (Loss)** | ** ** | **Amount   Reclassified   on ESOP   Shares** | ** ** | **Total   Shareholders’   Equity** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|-------------------------|------------|---------------------------------------------------------------|------------|---------------------------------------------------|------------|-----------------------------------------|------------|
| Balance, January 1, 2008                                                                                      |       | $                                  | 41,523     |                    | $          | 121,160                                                       |       | $                                                 | (1,415     | )                                       | $          | (56,907 | ) | $ | 104,361 |   |
|                                                                                                               |       |                               |       |                    |       |                                                          |       |                                              |       |                                    |       |
| 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 postretirement 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                                 |       |
|                                                                                                               |       |                               |       |                    |       |                                                          |       |                                              |       |                                    |       |
| Repurchase and retirement of 5,645 shares of   common stock                                                        |       | (2,658                             | )          |                    |       |                                                          |       |                                              |       | (2,658                                  | )          |
| Comprehensive income                                                                                               |       |                               |       |                    |       |                                                          |       |                                              |       |                                    |       |
| Net loss                                                                                                           |       |                               |       | (835                    | )          |                                                          |       |                                              |       | (835                                    | )          |
| Change in unrealized loss on available for sale   securities, net of reclassification and tax effects              |       |                               |       |                    |       | 4,813                                                         |       |                                              |       | 4,813                                   |       |
| Change in postretirement obligations, net of   reclassificaton and tax effects                                     |       |                               |       |                    |       | 71                                                            |       |                                              |       | 71                                      |       |
| Total comprehensive income                                                                                         |       |                               |       |                    |       |                                                          |       |                                              |       | 4,049                                   |       |
| Cash dividends declared - $10.00 per share                                                                         |       |                               |       | (4,297                  | )          |                                                          |       |                                              |       | (4,297                                  | )          |
| Reclassification due to change in fair value of   common stock in ESOP subject to contingent repurchase obligation |       |                               |       |                    |       |                                                          |       | 15,440                                            |       | 15,440                                  |       |
| Balance, December 31, 2009                                                                                    |       | 38,865                             |       | 115,544                 |       | 3,584                                                         |       | (31,230                                           | )          | 126,763                                 |       |
|                                                                                                               |       |                               |       |                    |       |                                                          |       |                                              |       |                                    |       |
| Comprehensive income                                                                                               |       |                               |       |                    |       |                                                          |       |                                              |       |                                    |       |
| Net income                                                                                                         |       |                               |       | 1,154                   |       |                                                          |       |                                              |       | 1,154                                   |       |
| Change in unrealized gain on available for sale   securities, net of reclassification and tax effects              |       |                               |       |                    |       | (3,310                                                        | )          |                                              |       | (3,310                                  | )          |
| Change in postretirement obligations, net of   reclassificaton and tax effects                                     |       |                               |       |                    |       | 11                                                            |       |                                              |       | 11                                      |       |
| Total comprehensive loss                                                                                           |       |                               |       |                    |       |                                                          |       |                                              |       | (2,145                                  | )          |
| Reclassification due to change in fair value of   common stock in ESOP subject to contingent repurchase obligation |       |                               |       |                    |       |                                                          |       | 1,365                                             |       | 1,365                                   |       |
| **Balance, December 31, 2010**                                                                                |       | $                                  | 38,865     |                    | $          | 116,698                                                       |       | $                                                 | 285        |                                    | $          | (29,865 | ) | $ | 125,983 |   |

 

*See accompanying notes to consolidated financial statements.*

 

9

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**WEST SUBURBAN BANCORP, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008**

(Dollars in thousands)

 
| ** **                                                                                           | ** ** | **2010** | ** ** | **2009** | ** ** | **2008** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Cash flows from operating activities**                                                             |       |     |       |     |       |     |       |
| Net income (loss)                                                                                    |       | $        | 1,154      |     | $          | (835     | )          | $ | 16,816 |   |
| Adjustments to reconcile net income (loss) to net   cash provided by continuing operating activities |       |     |       |     |       |     |       |
| Depreciation                                                                                         |       | 3,025    |       | 3,246    |       | 3,342    |       |
| Provision for loan losses                                                                            |       | 18,725   |       | 24,925   |       | 10,360   |       |
| Deferred income tax benefit                                                                          |       | (4,157   | )          | (5,603   | )          | (1,861   | )          |
| Net discount accretion and premium amortization of   securities                                      |       | 2,161    |       | 673      |       | (148     | )          |
| Net realized gain on securities transactions                                                         |       | (267     | )          | (109     | )          | (101     | )          |
| Impairment of trust preferred securities                                                             |       | —   |       | 8,320    |       | —   |       |
| Gain on redemption of VISA stock                                                                     |       | —   |       | —   |       | (2,075   | )          |
| (Earnings) loss on bank-owned life insurance                                                         |       | (1,712   | )          | (2,030   | )          | 2,179    |       |
| Net gain on sales of loans originated for sale                                                       |       | —   |       | (553     | )          | (70      | )          |
| Sales of loans originated for sale                                                                   |       | —   |       | 53,168   |       | 5,480    |       |
| Origination of loans held for sale                                                                   |       | —   |       | (50,847  | )          | (6,828   | )          |
| Net loss (gain) on sales of premises and equipment                                                   |       | 4        |       | 19       |       | (5       | )          |
| Net (gain) loss on sales of other real estate   owned                                                |       | (159     | )          | 3        |       | (29      | )          |
| Write down of other real estate owned                                                                |       | 5,537    |       | 449      |       | 121      |       |
| Net gain on sale of portfolio loans                                                                  |       | (2,803   | )          | —   |       | —   |       |
| Decrease (increase) in accrued interest and other   assets                                           |       | 3,211    |       | (13,893  | )          | 3,122    |       |
| Increase (decrease) in accrued interest and other   liabilities                                      |       | 1,302    |       | (7,288   | )          | (5,637   | )          |
| Net cash provided by discontinued operating   activities                                             |       | —   |       | 4,768    |       | 756      |       |
| **Net cash provided by operating   activities**                                                      |       | 26,021   |       | 14,413   |       | 25,422   |       |
| **Cash flows from investing   activities**                                                           |       |     |       |     |       |     |       |
| Securities available for sale                                                                        |       |     |       |     |       |     |       |
| Sales                                                                                                |       | 964      |       | 19,777   |       | 89,838   |       |
| Maturities, calls and redemptions                                                                    |       | 115,777  |       | 83,762   |       | 167,248  |       |
| Purchases                                                                                            |       | (436,754 | )          | (85,592  | )          | (22,241  | )          |
| Securities held to maturity and FHLB stock                                                           |       |     |       |     |       |     |       |
| Maturities, calls and redemptions                                                                    |       | 118,536  |       | 79,754   |       | 23,603   |       |
| Purchases                                                                                            |       | (68,324  | )          | (105,520 | )          | (240,376 | )          |
| Net decrease (increase) in loans                                                                     |       | 68,459   |       | 13,520   |       | (20,411  | )          |
| Sales of portfolio loans                                                                             |       | 67,519   |       | —   |       | —   |       |
| Investment in bank-owned life insurance                                                              |       | (198     | )          | (129     | )          | (337     | )          |
| Purchases of premises and equipment                                                                  |       | (1,462   | )          | (2,616   | )          | (5,215   | )          |
| Sales of premises and equipment                                                                      |       | —   |       | 731      |       | 154      |       |
| Sales of other real estate owned                                                                     |       | 7,639    |       | 3,919    |       | 519      |       |
| Net cash used in discontinued investing activities                                                   |       | —   |       | (701     | )          | (779     | )          |
| **Net cash (used in) provided by   continuing investing activities**                                 |       | (127,844 | )          | 6,905    |       | (7,997   | )          |
| **Cash flows from financing   activities**                                                           |       |     |       |     |       |     |       |
| Net increase (decrease) in deposits                                                                  |       | 21,440   |       | 131,062  |       | (46,149  | )          |
| Net (decrease) increase in federal funds purchased                                                   |       | —   |       | (55,000  | )          | 55,000   |       |
| Repurchase and retirement of common stock                                                            |       | —   |       | (2,658   | )          | —   |       |
| Net increase in prepaid solutions cards                                                              |       | 2,463    |       | 2,711    |       | 13,315   |       |
| Dividends paid                                                                                       |       | —   |       | (4,297   | )          | (17,300  | )          |
| **Net cash provided by financing   activities**                                                      |       | 23,903   |       | 71,818   |       | 4,866    |       |
| **Net (decrease) increase in cash   and cash equivalents**                                           |       | (77,920  | )          | 93,136   |       | 22,291   |       |
| **Beginning cash and cash   equivalents**                                                            |       | 148,610  |       | 55,474   |       | 33,183   |       |
| **Ending cash and cash equivalents**                                                                 |       | $        | 70,690     |     | $          | 148,610  |       | $ | 55,474 |   |
| **Supplemental disclosures**                                                                         |       |     |       |     |       |     |       |
| Cash paid for interest                                                                               |       | $        | 19,992     |     | $          | 25,000   |       | $ | 35,031 |   |
| Cash paid for income taxes                                                                           |       | 3,503    |       | 1,918    |       | 7,824    |       |
| Other real estate acquired through loan   foreclosures                                               |       | 7,502    |       | 25,707   |       | 4,445    |       |

 

*See accompanying notes to consolidated financial statements.*

 

10

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**WEST SUBURBAN BANCORP, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

(Dollars in thousands, except per share data)

 

**Note 1 - Nature of Business and Summary of Significant Accounting Policies**

 

West Suburban Bancorp, Inc. (“West Suburban”) through the branch network of its subsidiary, West Suburban Bank (the “Bank” and, together with West Suburban, the “Company”), operates 35 full-service branches, six limited-service branches and four departments providing insurance, financial and other services for the convenience of the customers of the Bank throughout DuPage, Kane, Kendall and Will Counties in Illinois. Customers in these areas are the primary consumers of the Company’s loan and deposit products and services. Although borrower cash flow is expected to be the primary source of repayment, the Company’s loans are generally secured by various forms of collateral or security, including real estate, business assets, consumer goods, personal guarantees and other items.

 

***Operating Segments***

While the Company’s senior management monitors the revenue streams derived from various individual and groups of products and services, operations are managed and financial performance is evaluated on a company-wide basis. Accordingly, all of the Company’s operations are considered by management to be aggregated in one reportable operating segment. Discrete financial information is not available other than on a company-wide basis.

 

***Principles of Consolidation***

The consolidated financial statements include the accounts of West Suburban and the Bank. Significant intercompany accounts and transactions have been eliminated.

 

***Use of Estimates***

To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions, which are subject to change, based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ. The allowance for loan losses, fair values of financial instruments, fair value of common stock in ESOP subject to contingent repurchase obligation, carrying values of other real estate owned and other-than-temporary impairment of securities are particularly subject to change.

 

***Securities***

Debt and marketable equity securities are classified into two categories, “available for sale” and “held to maturity.” Available for sale securities are carried at fair value with net unrealized gains and losses (net of deferred tax) reported in accumulated other comprehensive income (loss) as a separate component of shareholders’ equity. Held to maturity securities are carried at amortized cost as the Company has both the ability and positive intent to hold them to maturity. Other securities such as Federal Home Loan Bank stock are carried at cost. Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method. The Company does not engage in trading activities.

 

Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.  For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer.  Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings.  For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement, and 2) OTTI related to other factors, which is recognized in other comprehensive income.  The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

 

11

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***Loans and Allowance for Loan Losses***

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned interest, deferred loan fees and costs and an allowance for loan losses. Interest income is accrued on the unpaid balance of the Company’s loans and includes amortization of net deferred loan fees and costs over the loan term. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments. Accrual of interest is generally discontinued on loans 90 days past due, or on an earlier date, if management believes, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that collection of principal or interest is doubtful. In some circumstances, a loan more than 90 days past due may continue to accrue interest if it is fully secured and in the process of collection. When a loan is classified as nonaccrual, interest previously accrued but not collected is charged back to interest income. When payments are received on nonaccrual loans they are first applied to principal, then to interest income and finally to expenses incurred for collection.

 

The allowance for loan losses is a valuation allowance for probable incurred credit losses in the loan portfolio. The allowance is increased by a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan has been established. Subsequent recoveries, if any, are credited to the allowance. The allowance consists of specific and general components. The specific component relates to specific loans that are individually classified as impaired. The allowance for loan losses is evaluated monthly based on management’s periodic review of loan collectibility in light of historical loan loss experience, the nature and volume of the loan portfolio, information about specific borrower situations and estimated collateral values and prevailing economic conditions. Although allocations of the allowance may be made for specific loans, the entire allowance is available for any loan that, in management’s judgment, should be charged-off. Management’s evaluation of loan collectibility is inherently subjective as it requires estimates that are subject to significant revision as more information becomes available or as relevant circumstances change.

 

The Company evaluates commercial, commercial real estate, construction and development and residential real estate (mortgage and home equity) loans monthly for impairment. A loan is considered impaired when, based on current information and events, full payment under the loan terms is not expected. Loans for which the terms have been modified and for which the borrower is experiencing financial difficulties are considered troubled debt restructurings (“TDR”) and classified as impaired. Impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the loan’s collateral, if repayment of the loan is collateral dependent. A valuation allowance is maintained for the amount of impairment. Generally, loans 90 days or more past due and loans classified as nonaccrual status are considered for impairment. Impairment is considered on an entire category basis for smaller-balance loans of similar nature such as residential real estate and consumer 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 a consumer or credit card loan becomes past due.

 

The general component covers pools of other loans not classified as impaired and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on a rolling one year net charge-off history. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These factors include consideration of the following: levels and trends in past dues; trends in charge-offs and recoveries; trends in volume and terms of loans; effects of collateral deterioration; other changes in lending policies, procedures and practices; experience, ability and depth of lending management and other relevant staff; national and local economic trends; and trends in impaired loans including impaired loans, without specific allowance for loan losses. The following portfolio segments have been identified: construction and development, residential loans, commercial real estate, commercial loans and consumer and other loans.

 

Commercial loans are made based primarily on the identified cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. Most often, this collateral is accounts receivable, inventory, equipment or real estate. Repayment is primarily dependent upon the borrower’s ability to service the debt based upon the cash flows generated from the underlying business. Secondary support involves liquidation of the pledged collateral and enforcement of a personal guarantee, if a guarantee is obtained.

 

12

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Residential real estate (mortgage and home equity) lending consists primarily of loans secured by first or second mortgages on primary residences. The loans are collateralized by owner-occupied properties located in the Company’s market area. Mortgage title insurance and hazard insurance are normally required.

 

Commercial real estate lending typically involves higher loan principal amounts, and the repayment of the loans generally is dependent, in large part, on sufficient income from the properties securing the loans to cover operating expenses and debt service. Economic events or governmental regulations outside of the control of the borrower or the Company may negatively impact the future cash flow and market values of the affected properties.

 

Construction and development lending involves additional risks because funds are advanced based upon values associated with the completed project, which are uncertain. Because of the uncertainties inherent in evaluating the construction cost estimates that the Company receives from its customers and other third parties, as well as the market value of the completed project and the effects of governmental regulation of real property, it is relatively difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio. As a result, construction and development loans often involve the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project and the ability of the borrower to sell or lease the property, rather than the ability of the borrower or guarantor to repay principal and interest.

 

The Company’s consumer and other loans are primarily made up of credit card lines, indirect dealer loans and installment loans. Credit card lines present inherent risk due to the unsecured nature of the product. The indirect dealer and installment loan portfolios represent a relatively small portion of the Company’s loan portfolio and are primarily secured by automobiles.

 

***Loans Held for Sale***

Loans are identified 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. Mortgage loans held for sale have historically been sold with servicing released.

 

***Bank-Owned Life Insurance (“BOLI”)***

The Company has purchased life insurance policies on certain officers and directors. Bank-owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

 

***Premises and Equipment***

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

 

***Other Real Estate Owned***

Other real estate owned includes properties acquired in partial or total settlement of problem loans. Assets acquired through or instead of loan foreclosure are initially recorded at fair value less anticipated costs to sell when acquired, establishing a new basis. If fair value declines subsequent to acquisition, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed as incurred.

 

***Long-term Assets***

Premises and equipment and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.

 

***Loan Commitments and Related Financial Instruments***

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

 

13

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***Discontinued Operations***

On December 4, 2009, the Company sold its prepaid solutions group. The operating results related to the prepaid solutions group have been reflected as discontinued operations for 2009 and 2008.

 

***Income Taxes***

Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

 

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

 

The Company recognizes interest and/or penalties related to income tax matters in income tax expense. During 2010, the Company did not record any interest or penalties related to income tax matters in income tax expense.

 

***401(k) Profit Sharing Plan, ESOP and Other Retirement Plans***

The West Suburban Bank 401(k) Profit Sharing Plan was established to assist the Company in recruiting and retaining its personnel. Participation in the plan is subject to certain age and service requirements. Although the Company currently intends to match a percentage of the contributions that each employee voluntarily makes to the plan, all contributions by the Company are discretionary and subject to review by the Board of Directors from time to time. The plan is also intended to enable long time employees of the Company that also participate in the ESOP to diversify their retirement savings.

 

The Bank also maintains an ESOP, which is a noncontributory tax qualified retirement plan that covers employees who have satisfied specific service requirements. Subject to review by the Board of Directors, the Bank makes contributions to the ESOP for the benefit of the participants from time to time. Dividends declared on common stock owned by the ESOP are charged against retained earnings.

 

Dividends paid on ESOP shares are passed through to participants. Earned and allocated ESOP shares are voted by the respective participants. The appraised fair market value of all earned and allocated ESOP shares is reclassified from shareholders’ equity because participants may request that the Company, when the Company is legally permitted, purchase their ESOP shares upon termination of their employment.

 

The Company has a postretirement heathcare plan covering certain executives. Postretirement benefit costs are net of service and interest costs and amortization of gains and losses not immediately recognized.

 

The Company has deferred compensation arrangements with certain former and current executive officers and directors. Deferred compensation expense allocates the benefits over years of service.

 

***Earnings Per Share***

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

 

***Cash Flows***

For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks and federal funds sold. Generally, federal funds are sold for one-day periods. Net cash flows are reported for customer loan, deposit, federal funds purchased and prepaid solutions card transactions.

 

***Comprehensive Income***

Comprehensive income includes net income and other comprehensive income. The Company’s other comprehensive income consists of the change in unrealized gains and losses on available for sale securities and change in postretirement obligations, net of reclassification adjustments and deferred tax effects.

 

14

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***Legal Proceedings***

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 an amount or range of loss can be reasonably estimated.

 

***Restrictions on Cash***

Cash on hand or on deposit with the Federal Reserve Bank of $10,225 and $12,546 was required to meet regulatory reserve and clearing requirements at year end 2010 and 2009, respectively.

 

***Dividend Restrictions***

Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to West Suburban or by West Suburban to shareholders. (See Note 12 in the Consolidated Financial Statements for more specific disclosure.)

 

***Fair Value of Financial Instruments***

Fair value of financial instruments are estimated using relevant market information and other assumptions. (See Note 10 for more specific disclosure.) Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

 

***Reclassifications***

Certain reclassifications have been made in prior years’ financial statements to conform to the current year’s presentation.

 

***Adoption of New Accounting Standards***

In July 2010, the Financial Accounting Standards Board (“FASB”) amended previous guidance relating to the disclosure of the allowance for credit losses and the credit quality of financing receivables. The objective of the amendments is for an entity to provide disclosures that facilitate financial statement users’ evaluation of the nature of credit risk inherent in the entity’s portfolio of financing receivables, how that risk is analyzed and assessed in arriving at the allowance for credit losses and the changes and reasons for those changes in the allowance for credit losses. This update provides a list of amendments to existing disclosures about financing receivables on a disaggregated basis with two levels - portfolio segment and class of financing receivable, as well as a list of additional disclosures about financing receivables. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. In January 2011, the FASB temporarily delayed the effective date of the disclosures about TDRs. Those disclosures are anticipated to be effective for interim and annual reporting periods ending after June 15, 2011. The required disclosures effective at December 31, 2010 are presented in these consolidated financial statements.

 

15

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**Note 2 - Securities**

 

The amortized cost, unrealized gains and losses and fair value of securities available for sale are as follows at December 31:

 
| ** **                            | ** ** | **2010**             | ** ** |
|---------------------------------------|------------|----------------------|------------|
| ** **                            | ** ** | **Amortized   Cost** | ** ** | **Gross   Unrealized   Gains** | ** ** | **Gross   Unrealized   Losses** | ** ** | **Fair   Value** | ** ** |
| U.S. Treasuries                       |       | $                    | 92,712     |   | $ | 585 |   | $ | (2,141 | ) | $ | 91,156 |   |
| U.S. government sponsored enterprises |       | 99,705               |       | 500 |   | (2,061 | ) | 98,144 |   |
| Mortgage-backed: residential          |       | 303,229              |       | 5,558 |   | (1,507 | ) | 307,280 |   |
| States and political subdivisions     |       | 11,726               |       | 183 |   | (31 | ) | 11,878 |   |
| Corporate                             |       | 10,217               |       | — |   | (109 | ) | 10,108 |   |
| Total                                 |       | $                    | 517,589    |   | $ | 6,826 |   | $ | (5,849 | ) | $ | 518,566 |   |

 
| ** **                            | ** ** | **2009**             | ** ** |
|---------------------------------------|------------|----------------------|------------|
| ** **                            | ** ** | **Amortized   Cost** | ** ** | **Gross   Unrealized   Gains** | ** ** | **Gross   Unrealized   Losses** | ** ** | **Fair   Value** | ** ** |
| U.S. government sponsored enterprises |       | $                    | 49,621     |   | $ | 909 |   | $ | (46 | ) | $ | 50,484 |   |
| Mortgage-backed: residential          |       | 139,151              |       | 5,313 |   | (13 | ) | 144,451 |   |
| States and political subdivisions     |       | 10,367               |       | 314 |   | (6 | ) | 10,675 |   |
| Total                                 |       | $                    | 199,139    |   | $ | 6,536 |   | $ | (65 | ) | $ | 205,610 |   |

 

The amortized cost, unrealized gains and losses and fair value of securities held to maturity are as follows at December 31:

 
| ** **                            | ** ** | **2010**             | ** ** |
|---------------------------------------|------------|----------------------|------------|
| ** **                            | ** ** | **Amortized   Cost** | ** ** | **Gross   Unrealized   Gains** | ** ** | **Gross   Unrealized   Losses** | ** ** | **Fair   Value** | ** ** |
| U.S. Treasuries                       |       | $                    | 9,956      |   | $ | 353 |   | $ | — |   | $ | 10,309 |   |
| U.S. government sponsored enterprises |       | 21,656               |       | 566 |   | — |   | 22,222 |   |
| Mortgage-backed: residential          |       | 136,095              |       | 6,515 |   | (49 | ) | 142,561 |   |
| States and political subdivisions     |       | 47,658               |       | 292 |   | (281 | ) | 47,669 |   |
| Total                                 |       | $                    | 215,365    |   | $ | 7,726 |   | $ | (330 | ) | $ | 222,761 |   |

 
| ** **                            | ** ** | **2009**             | ** ** |
|---------------------------------------|------------|----------------------|------------|
| ** **                            | ** ** | **Amortized   Cost** | ** ** | **Gross   Unrealized   Gains** | ** ** | **Gross   Unrealized   Losses** | ** ** | **Fair   Value** | ** ** |
| U.S. government sponsored enterprises |       | $                    | 41,199     |   | $ | 392 |   | $ | (48 | ) | $ | 41,543 |   |
| Mortgage-backed: residential          |       | 178,129              |       | 7,029 |   | (160 | ) | 184,998 |   |
| States and political subdivisions     |       | 46,580               |       | 429 |   | (234 | ) | 46,775 |   |
| Total                                 |       | $                    | 265,908    |   | $ | 7,850 |   | $ | (442 | ) | $ | 273,316 |   |

 

16

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Securities with unrealized losses at year end 2010 and 2009 not recognized in income are presented below by the length of time the securities have been in a continuous unrealized loss position:

 
| ** **                            | ** ** | **2010**                               | ** ** |
|---------------------------------------|------------|----------------------------------------|------------|
| ** **                            | ** ** | **Less than 12 Months** | ** ** | **12 Months or More** | ** ** | **Total** | ** ** |
| ** **                            | ** ** | **Fair   Value**                       | ** ** | **Unrealized   Loss** | ** ** | **Fair   Value** | ** ** | **Unrealized   Loss** | ** ** | **Fair   Value** | ** ** | **Unrealized   Loss** | ** ** |
| U.S. Treasuries                       |       | $                                      | 60,937     |   | $ | (2,141 | ) | $ | — |   | $ | — |   | $ | 60,937 |   | $ | (2,141 | ) |
| U.S. government sponsored enterprises |       | 80,386                                 |       | (2,061 | ) | — |   | — |   | 80,386 |   | (2,061 | ) |
| Mortgage-backed: residential          |       | 86,467                                 |       | (1,507 | ) | 654 |   | (49 | ) | 87,121 |   | (1,556 | ) |
| States and political subdivisions     |       | 5,863                                  |       | (292 | ) | 1,227 |   | (20 | ) | 7,090 |   | (312 | ) |
| Corporate                             |       | 10,108                                 |       | (109 | ) | — |   | — |   | 10,108 |   | (109 | ) |
| Total temporarily impaired            |       | $                                      | 243,761    |   | $ | (6,110 | ) | $ | 1,881 |   | $ | (69 | ) | $ | 245,642 |   | $ | (6,179 | ) |

 
| ** **                            | ** ** | **2009**                               | ** ** |
|---------------------------------------|------------|----------------------------------------|------------|
| ** **                            | ** ** | **Less than 12 Months** | ** ** | **12 Months or More** | ** ** | **Total** | ** ** |
| ** **                            | ** ** | **Fair   Value**                       | ** ** | **Unrealized   Loss** | ** ** | **Fair   Value** | ** ** | **Unrealized   Loss** | ** ** | **Fair   Value** | ** ** | **Unrealized   Loss** | ** ** |
| U.S. government sponsored enterprises |       | $                                      | 25,637     |   | $ | (94 | ) | $ | — |   | $ | — |   | $ | 25,637 |   | $ | (94 | ) |
| Mortgage-backed: residential          |       | 21,072                                 |       | (136 | ) | 751 |   | (37 | ) | 21,823 |   | (173 | ) |
| States and political subdivisions     |       | 2,964                                  |       | (97 | ) | 1,001 |   | (143 | ) | 3,965 |   | (240 | ) |
| Total temporarily impaired            |       | $                                      | 49,673     |   | $ | (327 | ) | $ | 1,752 |   | $ | (180 | ) | $ | 51,425 |   | $ | (507 | ) |

 

***Other-Than-Temporary Impairment Evaluation***

 

Management evaluates securities for OTTI at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The investment securities portfolio is evaluated for OTTI by segregating the portfolio into two general segments and applying the appropriate OTTI model. Investment securities classified as available for sale or held to maturity are generally evaluated for OTTI under FASB guidance “Investments in Debt and Equity Securities.” However, certain purchased beneficial interests, including non-agency mortgage-backed securities and collateralized debt obligations that had credit ratings at the time of purchase of below AA are evaluated using the model outlined in FASB guidance “Beneficial Interests in Securitized Financial Assets.”

 

In determining OTTI on debt securities, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost; (2) the financial condition and near-term prospects of the issuer; (3) whether the market decline was affected by macroeconomic conditions; and (4) whether the Company has the intent to sell the debt security or whether it is more likely than not the Company will be required to sell the debt security before its anticipated recovery. The assessment of whether OTTI exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

 

In determining OTTI on purchased beneficial interests, the Company evaluates the present value of future cash flows to determine if there has been an adverse change in the remaining expected future cash flows.

 

When management determines that OTTI exists under either model, the amount of the OTTI recognized in earnings depends on whether the Company intends to sell the security or whether it is more likely than not the Company will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss. If the Company intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss, the OTTI is recognized in earnings in an amount equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If the 

 

17

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Company does not intend to sell the security and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the OTTI is separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the portion of the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

 

The majority of the unrealized losses at December 31, 2010 were in U.S Treasury securities, U.S government sponsored enterprises and residential mortgage backed securities. The Company’s residential mortgage backed securities were issued by U.S government-sponsored enterprises, primarily Fannie Mae and Freddie Mac, institutions which the government has affirmed its commitment to support. Because the decline in fair value on the debt securities in unrealized losses is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at December 31, 2010.

 

In September 2009, the Company wrote-down the pooled trust preferred securities to fair value. The Company’s pooled trust preferred securities were investment grade at purchase, but at June 30, 2009 Moody’s rated these securities as Ca, which are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest, and C, which are judged to be of poor standing and are subject to very high credit risk. The issuers of these securities were primarily banks, but also included a limited number of insurance companies.

 

The OTTI analysis uses a model which considers the structure and term of the investments and the financial condition of the underlying issuers. Assumptions used in the model include expected future default rates, prepayments, and recovery. In addition, management uses the model to “stress” each investment, or make assumptions more severe than expected activity, to determine the degree to which assumptions could deteriorate before the investment could no longer fully support repayment of the Company’s note class. Based on the analysis, the Company recognized $891 of OTTI in the second quarter and third quarter of 2009 as the model indicated that all of these securities had continued to experience significant additional defaults or deferrals. Management decided to sell the pooled trust preferred securities and wrote down these investments to fair value as of September 30, 2009. The fair value was calculated using bid prices obtained from independent brokerage houses. For the five pooled trust preferred securities owned by the Company, only one of the securities received multiple bids and the Company wrote this investment, with an amortized cost of $2,779, down to $255 as of September 30, 2009. On October 27, 2009, the Company sold this pooled trust preferred security for $255. The remaining four pooled trust preferred securities, with an aggregate amortized cost of $4,905, received a bid totaling $19, which management considered to be inconsequential and thus wrote these securities down to $0, as a full impairment loss.

 

The amortized cost and fair value of debt securities available for sale and held to maturity at December 31, 2010 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              |       | $                                | 5,751      |                           | $          | 5,931 |   | $ | 1,644 |   | $ | 1,661 |   |
| Due after 1 year through 5 years   |       | 94,252                           |       | 94,136                         |       | 65,775 |   | 66,732 |   |
| Due after 5 years through 10 years |       | 108,761                          |       | 105,511                        |       | 3,528 |   | 3,597 |   |
| Due after 10 years                 |       | 5,596                            |       | 5,708                          |       | 8,323 |   | 8,210 |   |
| Mortgage-backed: residential       |       | 303,229                          |       | 307,280                        |       | 136,095 |   | 142,561 |   |
| Total                              |       | $                                | 517,589    |                           | $          | 518,566 |   | $ | 215,365 |   | $ | 222,761 |   |

 

Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Approximately $77,717 of securities are callable in 2011. Most of these callable securities were issued by U.S. government sponsored enterprises.

 

18

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At year-end 2010 and 2009, the Company held one $30,000 municipal security from one issuer that was in excess of 10% of shareholders’ equity. The security was issued by a local municipality, is a general obligation bond, and is classified by the Company as held to maturity.

 

Securities with a carrying value of approximately $94,720 and $114,177 at December 31, 2010 and 2009, respectively, were pledged to secure public deposits, fiduciary activities and for other purposes required or permitted by law.

 

Sales of securities available for sale were as follows:

 
| ** **            | ** ** | **2010** | ** ** | **2009** | ** ** | **2008** | ** ** |
|-----------------------|------------|----------|------------|----------|------------|----------|------------|
| Proceeds from sales   |       | $        | 964        |     | $          | 19,777   |       | $ | 89,838 |   |
| Gross realized gains  |       | 267      |       | 245      |       | 135      |       |
| Gross realized losses |       | —   |       | (136     | )          | (98      | )          |
|                       |            |          |            |          |            |          |            |  |  |  |

 

The tax benefit/expense recorded on securities transactions was not material.

 

**Note 3 - Loans**

 

Major classifications of loans were as follows at December 31:

 
| ** **                   | ** ** | **2010**  | ** ** | **2009**  | ** ** |
|------------------------------|------------|-----------|------------|-----------|------------|
| Commercial                   |       | $         | 253,746    |      | $          | 267,432 |   |
| Commercial real estate       |       | 272,856   |       | 280,442   |       |
| Construction and development |       | 138,959   |       | 175,186   |       |
| Residential real estate:     |       |      |       |      |       |
| Mortgage                     |       | 150,248   |       | 219,551   |       |
| Home equity                  |       | 206,191   |       | 232,607   |       |
| Consumer and other           |       | 14,344    |       | 18,379    |       |
| Total                        |       | 1,036,344 |       | 1,193,597 |       |
| Allowance for loan losses    |       | (28,072   | )          | (25,922   | )          |
| Loans, net                   |       | $         | 1,008,272  |      | $          | 1,167,675 |   |

 

The Company makes commercial, consumer and residential real estate loans primarily to customers throughout the western suburbs of Chicago. Construction and development loans are primarily made to customers engaged in the construction and development of residential real estate projects within the Company’s market area. From time to time, the Company will make loans outside of its market area. At December 31, 2010, the loans outside the market area totaled $12,386 and represented 1.2% of the total loans. There were no loans held for sale at December 31, 2010 and 2009.

 

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

 
| ** **                 | ** ** | **2010** | ** ** | **2009** | ** ** | **2008** | ** ** |
|----------------------------|------------|----------|------------|----------|------------|----------|------------|
| Balance, beginning of year |       | $        | 25,922     |     | $          | 15,578   |       | $ | 9,269 |   |
| Provision for loan losses  |       | 18,725   |       | 24,925   |       | 10,360   |       |
| Loans charged-off          |       | (16,820  | )          | (14,952  | )          | (4,295   | )          |
| Recoveries                 |       | 245      |       | 371      |       | 244      |       |
| Balance, end of year       |       | $        | 28,072     |     | $          | 25,922   |       | $ | 15,578 |   |

 

19

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The following table presents the balance of the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2010:

 
| ** **                            | ** ** | **Commercial** | ** ** | **Commercial   Real   Estate** | ** ** | **Construction   and   Development** | ** ** | **Residential   Real   Estate** | ** ** | **Consumer   and Other** | ** ** | **Total** | ** ** |
|---------------------------------------|------------|----------------|------------|--------------------------------|------------|--------------------------------------|------------|---------------------------------|------------|-------------------------------|------------|-----------|------------|
| Allowance for loan losses:            |       |           |       |                           |       |                                 |       |                            |       |                          |       |      |       |
| Ending balance attributable to loans: |       |           |       |                           |       |                                 |       |                            |       |                          |       |      |       |
| Individually evaluated for impairment |       | $              | 2,137      |                           | $          | 250                                  |       | $                               | 2,485      |                          | $          | —    |       | $ | — |   | $ | 4,872 |   |
| Collectively evaluated for impairment |       | 10,501         |       | 3,929                          |       | 3,758                                |       | 4,308                           |       | 704                           |       | 23,200    |       |
|                                  |       |           |       |                           |       |                                 |       |                            |       |                          |       |      |       |
| Total ending Allowance Balance        |       | $              | 12,638     |                           | $          | 4,179                                |       | $                               | 6,243      |                          | $          | 4,308     |       | $ | 704 |   | $ | 28,072 |   |
|                                  |       |           |       |                           |       |                                 |       |                            |       |                          |       |      |       |
| Loans:                                |       |           |       |                           |       |                                 |       |                            |       |                          |       |      |       |
| Individually evaluated for impairment |       | $              | 41,184     |                           | $          | 14,372                               |       | $                               | 70,513     |                          | $          | 8,937     |       | $ | — |   | $ | 135,006 |   |
| Collectively evaluated for impairment |       | 212,562        |       | 258,484                        |       | 68,446                               |       | 347,502                         |       | 14,344                        |       | 901,338   |       |
| Total ending loan balance             |       | $              | 253,746    |                           | $          | 272,856                              |       | $                               | 138,959    |                          | $          | 356,439   |       | $ | 14,344 |   | $ | 1,036,344 |   |

 

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2010:

 
| ** **                          | ** ** | **Unpaid   Principal   Balance** | ** ** | **Recorded   Investment** | ** ** | **Allowance for   Loan Losses   Allocated** | ** ** |
|-------------------------------------|------------|----------------------------------|------------|---------------------------|------------|-------------------------------------------------------|------------|
| With no related allowance recorded: |       |                             |       |                      |       |                                                  |       |
| Commercial                          |       | $                                | 39,142     |                      | $          | 34,740                                                |       | $ | — |   |
| Commercial real estate              |       | 13,563                           |       | 13,563                    |       | —                                                |       |
| Construction and development        |       | 56,737                           |       | 51,871                    |       | —                                                |       |
| Residential real estate:            |       |                             |       |                      |       |                                                  |       |
| Mortgage                            |       | 8,224                            |       | 8,164                     |       | —                                                |       |
| Home equity                         |       | 773                              |       | 773                       |       | —                                                |       |
| Consumer and other                  |       | —                           |       | —                    |       | —                                                |       |
| With an allowance recorded:         |       |                             |       |                      |       |                                                  |       |
| Commercial                          |       | 8,799                            |       | 6,444                     |       | 2,137                                                 |       |
| Commercial real estate              |       | 1,081                            |       | 809                       |       | 250                                                   |       |
| Construction and development        |       | 23,073                           |       | 18,642                    |       | 2,485                                                 |       |
| Residential real estate:            |       |                             |       |                      |       |                                                  |       |
| Mortgage                            |       | —                           |       | —                    |       | —                                                |       |
| Home equity                         |       | —                           |       | —                    |       | —                                                |       |
| Consumer and other                  |       | —                           |       | —                    |       | —                                                |       |
| Total                               |       | $                                | 151,392    |                      | $          | 135,006                                               |       | $ | 4,872 |   |

 

20

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Impaired loans are summarized as follows at December 31:

 
| ** **                                                                        | ** ** | **2010** | ** ** | **2009** | ** ** | **2008** | ** ** |
|-----------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Year-end loans with no allocated allowance for   loan losses                      |       | $        | 109,111    |     | $          | 30,754   |       | $ | 21,187 |   |
| Year-end loans with allocated allowance for loan   losses                         |       | 25,895   |       | 14,636   |       | 9,036    |       |
| Total                                                                             |       | $        | 135,006    |     | $          | 45,390   |       | $ | 30,223 |   |
|                                                                              |       |     |       |     |       |     |       |
| Amount of the allowance for loan losses allocated to   impaired loans at year-end |       | $        | 4,872      |     | $          | 1,527    |       | $ | 1,684 |   |
| Average impaired loans during the year                                            |       | 64,852   |       | 47,768   |       | 20,642   |       |
| Interest income recognized during impairment                                      |       | 1,325    |       | 301      |       | 223      |       |

 

Nonperforming loans and loans past due 90 days or more still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

 

The following table presents the recorded investment in nonaccrual and loans past due 90 days or more still on accrual by class of loans as of December 31, 2010:

 
| ** **                   | ** ** | **Nonaccrual** | ** ** | **Loans Past Due   90 Days or More   Still on Accrual** | ** ** |
|------------------------------|------------|----------------|------------|--------------------------------------------------------------------------------------------|------------|
| Commercial                   |       | $              | 22,224     |                                                                                       | $          | 4 |   |
| Commercial real estate       |       | 6,586          |       | —                                                                                     |       |
| Construction and development |       | 47,951         |       | —                                                                                     |       |
| Residential real estate:     |       |           |       |                                                                                       |       |
| Mortgage                     |       | 1,919          |       | 108                                                                                        |       |
| Home equity                  |       | 1,664          |       | —                                                                                     |       |
| Consumer and other           |       | —         |       | 79                                                                                         |       |
| Total                        |       | $              | 80,344     |                                                                                       | $          | 191 |   |

 

Nonperforming loans at December 31, 2009 totaled $38,828, which included $38,038 of nonaccrual loans and $790 of loans past due 90 days or more still on accrual.

 

The following table presents the aging of the recorded investment in past due loans as of December 31, 2010:

 
| ** **                   | ** ** | **30 - 59   Days   Past Due** | ** ** | **60 - 89   Days   Past Due** | ** ** | **90 Days   or More   Past Due** | ** ** | **Total   Past Due** | ** ** | **Loans Not   Past Due** | ** ** | **Total** | ** ** |
|------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|-------------------------------------------------|------------|---------------------------|------------|------------------------------------|------------|-----------|------------|
| Commercial                   |       | $                                            | 324        |                                         | $          | 5,652                                           |       | $                         | 20,807     |                               | $          | 26,783    |       | $ | 226,963 |   | $ | 253,746 |   |
| Commercial real estate       |       | 619                                          |       | —                                       |       | 6,586                                           |       | 7,205                     |       | 265,651                            |       | 272,856   |       |
| Construction and development |       | —                                       |       | —                                       |       | 47,951                                          |       | 47,951                    |       | 91,008                             |       | 138,959   |       |
| Residential real estate:     |       |                                         |       |                                         |       |                                            |       |                      |       |                               |       |      |       |
| Mortgage                     |       | 2,280                                        |       | 1,063                                        |       | 2,026                                           |       | 5,369                     |       | 144,879                            |       | 150,248   |       |
| Home equity                  |       | 49                                           |       | 237                                          |       | 1,504                                           |       | 1,790                     |       | 204,401                            |       | 206,191   |       |
| Consumer and other           |       | 82                                           |       | 97                                           |       | 79                                              |       | 258                       |       | 14,086                             |       | 14,344    |       |
| Total                        |       | $                                            | 3,354      |                                         | $          | 7,049                                           |       | $                         | 78,953     |                               | $          | 89,356    |       | $ | 946,988 |   | $ | 1,036,344 |   |

 

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At December 31, 2010, the Company had $21,555 of loans considered TDRs, which are considered impaired loans. Based on the nature of the modifications on these loans, no specific reserves have been allocated against these loans as of December 31, 2010. The Company has not committed to lend additional amounts to customers with outstanding loans that are classified as TDRs.

 

The Company categorized its non-homogeneous loans into risk categories based on relevant information about the ability of borrowers to service their debt such as, among other factors: current financial information; historical payment experience; credit documentation; public information; and current economic trends. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes certain non-homogeneous loans, such as commercial, commercial real estate and construction and development loans. This analysis is done annually on a loan by loan basis. The Company uses the following definitions for classified risk ratings:

 

Substandard: Loans designated as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

 

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

 

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. As of December 31, 2010, and based on the most recent analysis performed, the risk categories of loans are as follows:

 
| ** **                   | ** ** | **Classified** | ** ** | **Pass** | ** ** | **Total** | ** ** |
|------------------------------|------------|----------------|------------|----------|------------|-----------|------------|
| Commercial                   |       | $              | 56,323     |     | $          | 197,423   |       | $ | 253,746 |   |
| Commercial real estate       |       | 15,970         |       | 256,886  |       | 272,856   |       |
| Construction and development |       | 77,350         |       | 61,609   |       | 138,959   |       |
| Total                        |       | $              | 149,643    |     | $          | 515,918   |       | $ | 665,561 |   |

 

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer loan classes, the Company evaluates credit quality based on the payment and aging status of the loan. Payment status is reviewed on a daily basis by the Bank’s collection department and on a monthly basis with respect to determining adequacy of the allowance for loan losses.

 

The Company generally sells mortgage loans with servicing rights released, although in 2010 the Company did not originate mortgage loans for the purpose of selling the loans. Activity during the year is as follows:

** **
| ** **                                       | ** ** | **2010** | ** ** | **2009** | ** ** | **2008** | ** ** |
|--------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Origination of loans originated for sale         |       | $        | —     |     | $          | 50,847   |       | $ | 6,828 |   |
| Proceeds from sales of loans originated for sale |       | —   |       | 53,168   |       | 5,480    |       |
| Net gains on sales of loans originated for sale  |       | —   |       | 553      |       | 70       |       |
|                                                  |            |          |            |          |            |          |            |  |  |  |

 

As part of an overall strategy to improve the Bank’s interest rate risk and to maintain strong regulatory capital in the present economic environment, the Company sold $64,716 of portfolio residential loans during the fourth quarter of 2010 at a gain of $2,803. The loans sold were fully amortizing first mortgage loans that had a lower yield, yet above the market rates at the time of sale. The sale was on a non-recourse basis, with servicing retained by the Company. The Company does not currently expect that portfolio loan sales will be part of management’s strategy, and therefore the Company does not expect that additional loans will be classified as held for sale.

 

At December 31, 2010, the outstanding balance of these serviced loans totaled $59,757. The related mortgage servicing rights and amortization of the mortgage servicing rights was not material.

 

22

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**Note 4 - Premises and Equipment**

 

Major classifications of assets comprising premises and equipment are summarized as follows at December 31:

 
| ** **                    | ** ** | **2010** | ** ** | **2009** | ** ** |
|-------------------------------|------------|----------|------------|----------|------------|
| Land                          |       | $        | 15,263     |     | $          | 15,263 |   |
| Premises                      |       | 48,168   |       | 47,607   |       |
| Furniture and equipment       |       | 50,671   |       | 49,812   |       |
| Total                         |       | 114,102  |       | 112,682  |       |
| Less accumulated depreciation |       | (71,901  | )          | (68,914  | )          |
| Premises and equipment, net   |       | $        | 42,201     |     | $          | 43,768 |   |

 

The Company leases certain branch properties and equipment under operating leases. Rent expense was $649, $454 and $421 for 2010, 2009 and 2008, respectively. Rent commitments before considering renewal options that generally are present, are summarized as follows:

 
| 2011       |   | $      |   | 562    |   |   |   |   |
|------------|--------|--------|--------|--------|--------|--------|--------|--------|
| 2012       |   |   | 402    |   |   |   |   |
| 2013       |   |   | 300    |   |   |   |   |
| 2014       |   |   | 298    |   |   |   |   |
| 2015       |   |   | 235    |   |   |   |   |
| Thereafter |   |   | 151    |   |   |   |   |
| Total      |   | $      |   | 1,948  |   |   |   |   |

 

**Note 5 - Other Real Estate Owned**

 

Activity in other real estate owned was as follows at December 31:

 
| ** **                        | ** ** | **2010** | ** ** | **2009** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|
| Beginning balance                 |       | $        | 25,994     |     | $          | 4,658 |   |
| Acquired through loan foreclosure |       | 7,502    |       | 25,707   |       |
| Reductions from sales             |       | (7,480   | )          | (3,922   | )          |
| Write-downs                       |       | (5,537   | )          | (449     | )          |
| Ending balance                    |       | $        | 20,479     |     | $          | 25,994 |   |

 

Included in the write-downs is a valuation allowance totaling $3,625 on one property at December 31, 2010. There was no valuation allowance at December 31, 2009. Expenses, excluding write-downs relating to other real estate owned, for 2010, 2009 and 2008 were $1,348, $460 and $127, respectively.

 

Activity in the valuation allowance on other real estate owned was as follows:

 
|                         | ** ** | **2010** | ** ** | ** ** | ** ** |
|------------------------------|------------|----------|------------|------------|------------|
| Beginning balance            | ** ** | $        | —     | ** ** | ** ** | ** ** |
| Additions charged to expense | ** ** | 3,625    | ** ** | ** ** | ** ** |
| Write-downs                  | ** ** | —   | ** ** | ** ** | ** ** |
| Ending balance               | ** ** | $        | 3,625      | ** ** | ** ** | ** ** |

 

23

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**Note 6 - Deposits**

 

The major categories of deposits are summarized as follows at December 31:

 
| ** **                      | ** ** | **2010** | ** ** | **2009** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|
| Demand-noninterest-bearing      |       | $        | 152,064    |     | $          | 125,132 |   |
| Prepaid solutions card deposits |       | 29,161   |       | 30,577   |       |
| NOW                             |       | 349,246  |       | 328,405  |       |
| Money market checking           |       | 422,465  |       | 403,155  |       |
| Savings                         |       | 346,539  |       | 330,197  |       |
| Time deposits                   |       |     |       |     |       |
| Less than $100,000              |       | 348,930  |       | 392,501  |       |
| $100,000 and greater            |       | 130,022  |       | 147,020  |       |
| Total                           |       | $        | 1,778,427  |     | $          | 1,756,987 |   |

 

At December 31, 2010, the scheduled maturities of time deposits were as follows:

 
| 2011       |   | $      | 292,852 |   |
|------------|--------|--------|---------|--------|
| 2012       |   | 62,166 |    |
| 2013       |   | 75,448 |    |
| 2014       |   | 18,453 |    |
| 2015       |   | 29,865 |    |
| Thereafter |   | 168    |    |
| Total      |   | $      | 478,952 |   |

 

At December 31, 2010, the Company did not have brokered deposits.

 

**Note 7 - Income Taxes**

 

Income tax (benefit) expense is as follows for the years ended December 31:

 
| ** **                    | ** ** | **2010** | ** ** | **2009** | ** ** | **2008** | ** ** |
|-------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Current tax expense (benefit) |       |     |       |     |       |     |       |
| Federal                       |       | $        | 2,059      |     | $          | (2,199   | )          | $ | 8,252 |   |
| State                         |       | —   |       | —   |       | (1,311   | )          |
| Deferred tax benefit          |       | (4,157   | )          | (5,603   | )          | (1,861   | )          |
| Total                         |       | $        | (2,098     | )        | $          | (7,802   | )          | $ | 5,080 |   |

 

A reconciliation between taxes computed at the statutory federal income tax rate and the consolidated effective tax rates follows:

 
| ** **                                     | ** ** | **2010**  | ** ** | **2009**  | ** ** | **2008**   | ** ** |
|------------------------------------------------|------------|-----------|------------|-----------|------------|------------|------------|
| Statutory federal income tax rate              |       | (35.0)    | %          | (35.0)    | %          | 35.0  | %          |
| (Decrease) increase in taxes resulting from:   |       |      |       |      |       |       |       |
| Tax-exempt income                              |       | (61.8)    | %          | (8.8)     | %          | (2.7)      | %          |
| State income taxes, net of federal tax benefit |       | (24.0)    | %          | (10.1)    | %          | (3.4)      | %          |
| Dividends on ESOP shares                       |       | (41.8)    | %          | (22.0)    | %          | (5.2)      | %          |
| Bank-owned life insurance                      |       | (63.5)    | %          | (11.1)    | %          | (3.5)      | %          |
| Other items, net                               |       | 3.9  | %          | 0.1  | %          | 2.0   | %          |
| Effective tax rate                             |       | (222.2)   | %          | (86.9)    | %          | 22.2  | %          |

 

24

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The temporary differences which created deferred tax assets and liabilities at December 31 are summarized below:

 
| ** **                                             | ** ** | **2010**   | ** ** | **2009**   | ** ** |
|--------------------------------------------------------|------------|------------|------------|------------|------------|
| Deferred tax assets                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Allowance for loan losses                              |       | $          | 11,157     |       | $          | 10,304 |   |
| Deferred compensation                                  |       | 3,369      |       | 2,990      |       |
| Nonaccrual loan interest income                        |       | 2,352      |       | 827        |       |
| Pension obligation adjustment                          |       | 200        |       | 207        |       |
| State net operating loss                               |       | 1,763      |       | 2,029      |       |
| Other real estate owned                                |       | 2,110      |       | 122        |       |
| Other                                                  |       | 210        |       | 691        |       |
| Total deferred tax assets                              |       | 21,161     |       | 17,170     |       |
| Deferred tax liabilities                               |       |       |       |       |       |
| Net unrealized gain on securities available for   sale |       | 389        |       | 2,573      |       |
| Depreciation                                           |       | 343        |       | 499        |       |
| Federal Home Loan Bank stock dividends                 |       | 611        |       | 611        |       |
| Deposit base intangible                                |       | 286        |       | 277        |       |
| Qualified prepaid expenses                             |       | 352        |       | 365        |       |
| Total deferred tax liabilities                         |       | 1,981      |       | 4,325      |       |
| Net deferred tax assets                                |       | $          | 19,180     |       | $          | 12,845 |   |

 

In 2010, the State of Illinois passed new tax legislation that restricts companies from utilizing state net operating loss carry forwards to offset state income tax expense for the next three years (2011-2013). At December 31, 2010, the Company had state net operating loss carry forwards totaling approximately $37,200, which expire at various dates beginning in 2021. As of December 31, 2010, the Company believes that it will generate sufficient taxable income to utilize the net operating loss carry forwards prior to expiration, and therefore, no valuation allowance has been established.

 

Based on the carry back available and expected future taxable income, management believes it is more likely than not that the remaining deferred tax asset as of December 31, 2010 and 2009, will be realized. Therefore, no valuation allowance has been established.

 

There were no unrecognized tax benefits as of December 31, 2010 and 2009. The Company does not expect a significant change in the unrecognized tax benefit in the next twelve months.

 

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of the State of Illinois. The Company is no longer subject to examination by taxing authorities for years before 2007.

 

**Note 8 - Benefit Plans**

 

The Bank maintains the West Suburban Bank 401(k) Profit Sharing Plan (the “401(k) Plan”), which currently serves as the Company’s principal retirement plan. The 401(k) Plan was established to address the limited availability of West Suburban common stock for acquisition by the ESOP and to offer participants an avenue to diversify their retirement savings. The Company recorded expenses totaling $625, $668 and $1,623 during 2010, 2009 and 2008, respectively, for contributions to the 401(k) Plan.

 

The Bank also maintains an ESOP, which is a noncontributory tax qualified retirement plan that covers employees who have satisfied specific service requirements. The ESOP provides incentives to employees by granting participants an interest in West Suburban common stock, which represents the ESOP’s primary investment.

 

At December 31, 2010 and 2009, the ESOP held 90,775 and 91,317 shares of West Suburban common stock, respectively, that were allocated to ESOP participants. Upon termination of their employment, participants who elect to receive their benefit distributions in the form of West Suburban common stock may request the Company to purchase, when the Company is legally permitted to purchase its common stock, the common stock distributed at the

 

25

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appraised fair market value during two 60-day periods. The first purchase period begins on the date the benefit is distributed and the second purchase period begins on the first anniversary of the distribution date. This contingent repurchase obligation is reflected in the Company’s financial statements as “Common stock in ESOP subject to contingent repurchase obligation” and reduces shareholders’ equity by an amount that represents the independently appraised fair market value of all West Suburban common stock held by the ESOP and allocated to participants, without regard to whether it is likely that the shares would be distributed or that the recipients of the shares would be likely to exercise their right to require the Company to purchase the shares.

 

During 2010 and 2009, the ESOP distributed $434 and $788, respectively, in cash representing the interests of participants. In addition, the ESOP distributed 542 shares of West Suburban common stock in 2010 and 80 shares in 2009.

 

An individual account is established for each participant under the 401(k) Plan and the ESOP, and the benefits payable upon retirement, termination, disability or death are based upon service, the amount of the employer’s, and for the 401(k) Plan, an employee’s, contributions and any income, expenses, gains and losses and forfeitures allocated to the participant’s account.

 

The Company maintains deferred compensation arrangements with certain former and current executive officers and certain members of the Board of Directors. The deferred compensation expense was $150, $165 and $165 for the years ended December 31, 2010, 2009 and 2008, respectively. Executive officers can elect to defer the payment of a percentage of their salaries and cash bonuses, if any, and members of the Board of Directors can elect to defer the payment of their directors’ fees. In addition, the Company can elect to make annual contributions for the benefit of current participants in the Company’s deferred compensation arrangements. The annual contributions for certain senior executive officers were $25 in 2010, 2009 and 2008 and the annual contributions for certain other executive officers were $0, $5 and $5 in 2010, 2009 and 2008. An additional $50 was contributed to the plan in 2010 for the benefit of a former senior executive officer in conjunction with a severance payment.

 

The total accumulated liability for all deferred compensation arrangements was $8,478 and $7,522 at December 31, 2010 and 2009, respectively. These amounts are included in accrued interest and other liabilities in the consolidated balance sheets.

 

The Company maintains a noncontributory postretirement benefit plan covering certain senior executives. The plan provides postretirement medical, dental and long term care coverage for certain executives and their surviving spouses. The eligible retirement age under the plan is age 62. The Company used a December 31 measurement date for its postretirement benefit plan. The plan is unfunded.

 

Information about changes during 2010 and 2009 in obligations of the postretirement benefit plan follows:

 
| ** **                            | ** ** | **2010** | ** ** | **2009** | ** ** |
|---------------------------------------|------------|----------|------------|----------|------------|
| Change in benefit obligation:         |       |     |       |     |       |
| Beginning benefit obligation          |       | $        | 993        |     | $          | 980 |   |
| Service cost                          |       | 34       |       | 41       |       |
| Interest cost                         |       | 58       |       | 61       |       |
| Actuarial loss (gain)                 |       | 23       |       | (70      | )          |
| Benefits paid                         |       | (20      | )          | (19      | )          |
| Ending benefit obligation             |       | 1,088    |       | 993      |       |
|                                  |       |     |       |     |       |
| Change in plan assets, at fair value: |       |     |       |     |       |
| Beginning plan assets                 |       | —   |       | —   |       |
| Employer contributions                |       | 20       |       | 19       |       |
| Benefits paid                         |       | (20      | )          | (19      | )          |
| Ending plan assets                    |       | —   |       | —   |       |
|                                  |       |     |       |     |       |
| Unfunded status at December 31   |       | $        | 1,088      |     | $          | 993 |   |

 

26

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Amounts recognized in accumulated other comprehensive loss at December 31 consist of:

 
| ** **         | ** ** | **2010** | ** ** | **2009** | ** ** |
|--------------------|------------|----------|------------|----------|------------|
| Net actuarial loss |       | $        | 293        |     | $          | 290 |   |
| Prior service cost |       | 211      |       | 231      |       |
| Total              |       | $        | 504        |     | $          | 521 |   |

 

The accumulated benefit obligation was $1,088 and $993 at December 31, 2010 and 2009, respectively.

 

Net postretirement benefit costs included the following components for the years ended December 31:

 
| ** **                                                 | ** ** | **2010** | ** ** | **2009** | ** ** | **2008** | ** ** |
|------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Service cost                                               |       | $        | 34         |     | $          | 41       |       | $ | 37 |   |
| Interest cost                                              |       | 58       |       | 61       |       | 52       |       |
| Amortization of unrecognized prior service cost            |       | 21       |       | 21       |       | 21       |       |
| Amortization of net loss                                   |       | 21       |       | 27       |       | 21       |       |
| Net periodic postretirement benefit cost                   |       | 134      |       | 150      |       | 131      |       |
|                                                       |       |     |       |     |       |     |       |
| Net loss (gain)                                            |       | 23       |       | (70      | )          | 28       |       |
| Prior service cost                                         |       | —   |       | —   |       | —   |       |
| Amortization of net loss                                   |       | (21      | )          | (27      | )          | (21      | )          |
| Amortization of prior service cost                         |       | (21      | )          | (21      | )          | (21      | )          |
| Total recognized in other comprehensive income             |       | (19      | )          | (118     | )          | (14      | )          |
| Postretirement benefit cost and other   comprehensive loss |       | $        | 115        |     | $          | 32       |       | $ | 117 |   |

 

The estimated net loss and the prior service cost for the defined postretirement benefit plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $21 and $21, respectively.

 

The discount rate used to determine the benefit obligations in 2010 and 2009 was 5.25% and 5.95%, respectively. The discount rate used to determine the net periodic benefit costs were 5.95% and 6.25% for 2010 and 2009, respectively.

 

For measurement purposes, an 8.5% annual rate of increase in the per capita premium cost of covered health care benefits was assumed for 2011, with rates reducing .5% per annum to an ultimate rate of 5% in 2018. Dental benefits were assumed to increase 5.5% for 2011 with rates reducing to an ultimate rate of 5% in 2012.

 

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

 
| ** **                                                | ** ** | **One-Percentage-Point   Increase** | ** ** | **One-Percentage-Point   Decrease** | ** ** |
|-----------------------------------------------------------|------------|-------------------------------------|------------|-------------------------------------|------------|
| Effect on total service and interest cost                 |       | $                                   | 14         |                                | $          | (12 | ) |
| Effect on accumulated postretirement benefit   obligation |       | 169                                 |       | (142                                | )          |
|                                                           |            |                                     |            |                                     |            |  |  |

 

27

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The Company expects to contribute amounts in 2011 to satisfy its obligations. The following benefit payments, which reflect expected future service, are expected for the years indicated:

 
| 2011              |   | $  | 20     |   |
|-------------------|--------|---------|--------|--------|
| 2012              |   | 14      |   |
| 2013              |   | 21      |   |
| 2014              |   | 29      |   |
| 2015              |   | 38      |   |
| Following 5 Years |   | 306     |   |

 

**Note 9 - Off-Balance-Sheet Risk, Contingent Liabilities and Guarantees**

 

The Company is a party to off-balance-sheet financial instruments to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These financial instruments involve, to varying degrees, elements of credit and interest rate risks. Such financial instruments are recorded when funded.

 

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the agreement. These commitments primarily consist of unused lines of credit, undrawn portions of construction and development loans and commitments to make new loans. Commitments generally have fixed expiration dates or other termination provisions and may require the payment of a fee. Since many of the commitments are expected to expire without being exercised or drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

 

The Company’s exposure to credit risk in connection with commitments to extend credit and standby letters of credit is the contractual amount of those instruments before considering customer collateral or ability to repay. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. The Company generally requires collateral or other security to support financial instruments with credit risk. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company, is based on management’s credit evaluation of the customer. Collateral held varies and may include accounts receivable, inventory and equipment or commercial or residential properties.

 

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

 
| ** **                           | ** ** | **2010**         | ** ** | **2009**            | ** ** |
|--------------------------------------|------------|------------------|------------|---------------------|------------|
| ** **                           | ** ** | **Fixed   Rate** | ** ** | **Variable   Rate** | ** ** | **Total** | ** ** | **Fixed   Rate** | ** ** | **Variable   Rate** | ** ** | **Total** | ** ** |
| Commercial loans and lines of credit |       | $                | 821        |                | $          | 117,484 |   | $ | 118,305 |   | $ | 1,434 |   | $ | 169,158 |   | $ | 170,592 |   |
| Check credit lines of credit         |       | 919              |       | —              |       | 919 |   | 1,027 |   | — |   | 1,027 |   |
| Mortgage loans                       |       | 5,141            |       | —              |       | 5,141 |   | 8,419 |   | — |   | 8,419 |   |
| Home equity lines of credit          |       | 654              |       | 135,767             |       | 136,421 |   | 2,508 |   | 152,281 |   | 154,789 |   |
| Letters of credit                    |       | —           |       | 11,814              |       | 11,814 |   | — |   | 14,650 |   | 14,650 |   |
| Credit card lines of credit          |       | —           |       | 37,483              |       | 37,483 |   | — |   | 38,771 |   | 38,771 |   |
| Total                                |       | $                | 7,535      |                | $          | 302,548 |   | $ | 310,083 |   | $ | 13,388 |   | $ | 374,860 |   | $ | 388,248 |   |

 

Fixed rate commercial loan commitments at December 31, 2010 had interest rates ranging from 3.8% to 7.3% with terms ranging from 1 month to 5 years. Fixed rate check credit lines of credit at December 31, 2010 had interest rates of 18.0%. Fixed rate mortgage loan commitments at December 31, 2010 had interest rates ranging from 4.3% to 5.3% with terms ranging from 10 to 30 years. Fixed rate home equity lines of credit at December 31, 2010 had interest rates ranging from 3.0% to 7.0% with terms ranging from 1 to 5 years.

 

28

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**Note 10 - Fair Value of Financial Instruments**

 

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

 

Level 1 — Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 — Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

 

The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:

 

Securities:  The fair value of securities is determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair value is calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair value is calculated using discounted cash flows or other market indicators (Level 3). At December 31, 2010 and 2009, the Company did not have any securities where the fair value price was designated as Level 3. There were no transfers between Level 1 and Level 2 during 2010.

 

Impaired Loans:  The fair value of impaired loans secured by real estate with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches, including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

 

Other Real Estate Owned:  Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned are measured at the lower of carrying amount or fair value, less costs to sell. Fair values are generally based on third party appraisals of the property, resulting in a Level 3 classification. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.

 

29

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Assets and liabilities measured at fair value on a recurring basis and a non-recurring basis, are as follows at year end:

 
| ** **                            | ** ** | **Carrying   Value** | ** ** | **Quoted Prices in   Active Markets for   Identical Assets   (Level 1)** | ** ** | **Significant   Other   Observable   Inputs   (Level 2)** | ** ** | **Significant   Unobservable   Inputs   (Level 3)** | ** ** |
|---------------------------------------|------------|----------------------|------------|--------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| 2010 Recurring basis                  |       |                 |       |                                                                                                   |       |                                                           |       |                                                     |       |
| U.S. Treasuries                       |       | $                    | 91,156     |                                                                                                   | $          | 91,156                                                         |       | $                                                        | —     |   | $ | — |   |
| U.S. government sponsored enterprises |       | 98,144               |       | —                                                                                                 |       | 98,144                                                         |       | —                                                   |       |
| Mortgage-backed: residential          |       | 307,280              |       | —                                                                                                 |       | 307,280                                                        |       | —                                                   |       |
| State and political subdivisions      |       | 11,878               |       | —                                                                                                 |       | 11,878                                                         |       | —                                                   |       |
| Corporate                             |       | 10,108               |       | —                                                                                                 |       | 10,108                                                         |       | —                                                   |       |
| Total securities available for sale   |       | $                    | 518,566    |                                                                                                   | $          | 91,156                                                         |       | $                                                        | 427,410    |   | $ | — |   |
|                                  |       |                 |       |                                                                                                   |       |                                                           |       |                                                     |       |
| 2010 Non-recurring basis              |       |                 |       |                                                                                                   |       |                                                           |       |                                                     |       |
| Impaired loans:                       |       |                 |       |                                                                                                   |       |                                                           |       |                                                     |       |
| Commercial                            |       | $                    | 4,307      |                                                                                                   | $          | —                                                         |       | $                                                        | —     |   | $ | 4,307 |   |
| Commercial real estate                |       | 559                  |       | —                                                                                                 |       | —                                                         |       | 559                                                      |       |
| Construction and development          |       | 16,157               |       | —                                                                                                 |       | —                                                         |       | 16,157                                                   |       |
| Other real estate owned:              |       |                 |       |                                                                                                   |       |                                                           |       |                                                     |       |
| Construction and development          |       | 10,919               |       | —                                                                                                 |       | —                                                         |       | 10,919                                                   |       |
| Commercial real estate                |       | 984                  |       | —                                                                                                 |       | —                                                         |       | 984                                                      |       |
|                                  |       |                 |       |                                                                                                   |       |                                                           |       |                                                     |       |
| 2009 Recurring basis                  |       |                 |       |                                                                                                   |       |                                                           |       |                                                     |       |
| U.S. government sponsored enterprises |       | $                    | 50,484     |                                                                                                   | $          | —                                                         |       | $                                                        | 50,484     |   | $ | — |   |
| Mortgage-backed: residential          |       | 144,451              |       | —                                                                                                 |       | 144,451                                                        |       | —                                                   |       |
| State and political subdivisions      |       | 10,675               |       | —                                                                                                 |       | 10,675                                                         |       | —                                                   |       |
| Total securities available for sale   |       | $                    | 205,610    |                                                                                                   | $          | —                                                         |       | $                                                        | 205,610    |   | $ | — |   |
|                                  |       |                 |       |                                                                                                   |       |                                                           |       |                                                     |       |
| 2009 Non-recurring basis              |       |                 |       |                                                                                                   |       |                                                           |       |                                                     |       |
| Impaired loans                        |       | $                    | 13,109     |                                                                                                   | $          | —                                                         |       | $                                                        | —     |   | $ | 13,109 |   |
| Other real estate owned               |       | 25,994               |       | —                                                                                                 |       | —                                                         |       | 25,994                                                   |       |

 

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $25,895 with a valuation allowance of $4,872 at December 31, 2010. At December 31, 2009, impaired loans had a carrying amount of $14,636, with a valuation allowance of $1,527. Provision for loan losses made for these loans for 2010 and 2009 was $4,872 and $1,527, respectively.

 

Other real estate owned, which are at fair value less costs to sell, had a net carrying amount of $11,903, which consisted of the outstanding balance of $15,528, net of a valuation allowance of $3,625 at December 31, 2010. Write-downs on the other real estate owned totaled $4,854 during 2010. At December 31, 2009, other real estate owned, had a net carrying amount of $25,994. Write-downs on other real estate owned totaled $275 during 2009.

 

30

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The table below presents a reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31, 2009:

 

 
| ** **                              | ** ** | **Securities Available   For Sale** | ** ** |
|-----------------------------------------|------------|-----------------------------------------------|------------|
| Beginning balance, January 1, 2009 |       | $                                             | 3,463      |   |
| Increase in unrealized loss             |       | 5,048                                         |       |
| Included in earnings - realized         |       | (8,320                                        | )          |
| Sales                                   |       | (255                                          | )          |
| Interest income on securities           |       | 64                                            |       |
| Ending balance, December 31, 2009  |       | $                                             | —     |   |

 

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

 
| ** **                            | ** ** | **2010**             | ** ** | **2009**                        | ** ** |
|---------------------------------------|------------|----------------------|------------|---------------------------------|------------|
| ** **                            | ** ** | **Carrying   Value** | ** ** | **Estimated   Fair Value** | ** ** | **Carrying   Value** | ** ** | **Estimated   Fair Value** | ** ** |
| Financial assets                      |       |                 |       |                            |       |   |   |   |   |
| Cash and cash equivalents             |       | $                    | 70,690     |                            | $          | 70,690 |   | $ | 148,610 |   | $ | 148,610 |   |
| Securities                            |       |                 |       |                            |       |   |   |   |   |
| Available for sale                    |       | 518,566              |       | 518,566                         |       | 205,610 |   | 205,610 |   |
| Held to maturity                      |       | 215,365              |       | 222,761                         |       | 265,908 |   | 273,316 |   |
| Federal Home Loan Bank stock          |       | 7,599                |       | N/A                             |       | 7,599 |   | N/A |   |
| Loans, less allowance for loan losses |       | 1,008,272            |       | 1,018,030                       |       | 1,167,675 |   | 1,166,369 |   |
| Accrued interest receivable           |       | 5,217                |       | 5,217                           |       | 6,048 |   | 6,048 |   |
|                                  |       |                 |       |                            |       |   |   |   |   |
| Financial liabilities                 |       |                 |       |                            |       |   |   |   |   |
| Deposits                              |       | 1,778,427            |       | 1,791,761                       |       | 1,756,987 |   | 1,774,132 |   |
| Accrued interest payable              |       | 3,431                |       | 3,431                           |       | 4,994 |   | 4,994 |   |
|                                       |            |                      |            |                                 |            |  |  |  |  |  |  |  |  |

 

Estimated fair value for cash and cash equivalents, accrued interest receivable and payable, demand deposits and variable rate loans or deposits that reprice frequently and fully are each based on carrying value. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to estimated life and credit. Fair value of debt is based on current rates for similar financing. It was not practical to determine the fair value of FHLB stock due to the restrictions placed on its transferability. The fair value of off-balance-sheet items is not considered material.

 

**Note 11 - Related Party Transactions**

 

Certain executive officers and directors of the Company, their affiliates and companies in which they have 10% or more beneficial ownership, are customers of the Bank and received loans from the Bank totaling $21,574 and $8,672 at December 31, 2010 and 2009, respectively. During 2010, $16,574 in new loans and $3,672 in principal payments were made. Related parties maintained deposits at the Bank totaling $32,492 and $39,946 at December 31, 2010 and 2009, respectively.

 

**Note 12 - Capital Requirements**

 

As of December 31, 2010 and 2009, the Bank exceeded the minimum capital ratios required for it to qualify as “well-capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well-

 

31

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capitalized”, the Bank must maintain minimum ratios for total capital to risk weighted assets, Tier 1 capital to risk weighted assets and Tier 1 capital to average assets as set forth in the table below. There were no conditions or events since December 31, 2010, that management believes would result in a change of the category.

 

On January 13, 2011, the Bank agreed with its regulators to maintain minimum capital ratios in excess of the minimum ratios required by applicable federal regulations. Specifically, the Bank agreed to maintain minimum capital ratios equal to or exceeding 7.75% for Tier 1 capital to average total assets and equal to or exceeding 12.00% for total capital to risk-weighted assets, effective January 13, 2011. If these capital requirements were effective at December 31, 2010, the Bank would not have been in compliance with the Tier 1 capital to average total assets ratio. Additionally, effective after March 31, 2011, the minimum required ratio of Tier 1 capital to average total assets will increase from 7.75% to 8.00%. The Bank does not currently expect to be in compliance with these capital requirements at March 31, 2011. If the Bank is not in compliance with the regulatory requirements, the Bank may be subject to additional regulatory actions or restrictions.

 

Management has taken, and has the ability to continue to take, various steps to preserve and increase capital and strengthen the capital ratios of the Bank. These steps include the following, among others:

 

·      The Bank intends to continue the suspension of dividends to West Suburban.

·      The Bank intends to reduce its assets, including through normal run-offs of deposits and by ceasing to hold deposits on most prepaid solutions cards.

·      West Suburban intends to apply to participate in the U.S. Treasury’s Small Business Lending Fund, a program established by the U.S. Treasury for community banks, which will provide eligible institutions with between $1 billion and $10 billion in assets with Tier 1 capital of up to 3% of the institutions’ risk-weighted assets. There is no assurance that West Suburban will be accepted to participate in the program or that it will elect to participate if it is accepted.

·      West Suburban has the ability to inject capital into the Bank as West Suburban had $3.8 million in cash on hand at December 31, 2010.

 

In order to be considered compliant with the capital requirements had they been in effect at December 31, 2010, the Bank would have needed to have approximately $11,800 in additional Tier 1 capital or to shrink average assets by approximately $147,900 or a combination thereof. By implementing management’s strategies to preserve and increase capital, management believes that the Bank has the ability to become in compliance with the higher capital requirements during 2011.

 

The Bank also has agreed not to pay dividends to West Suburban without obtaining prior approval of its bank regulators. In addition, West Suburban’s Board of Directors has resolved to obtain regulatory approval prior to paying dividends or redeeming West Suburban common stock in order to preserve capital and maintain the Company’s financial strength given the economic environment and its impact on the Company.

 

32

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The capital amounts and ratios of the Company and the Bank for purposes of the prompt 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, 2010** |       |       |       |                                                    |       |                                              |       |   |   |   |   |   |   |
| Total   capital (to risk weighted assets)       |       |       |       |                                                    |       |                                              |       |   |   |   |   |   |   |
| Company                                         |       | $          | 171,452    |                                                    | 12.99      | %                                                 | $          | 105,608 |   | 8.00 | % | N/A |   | N/A |   |
| Bank   (1)                                      |       | 160,089    |       | 12.22                                                   | %          | 104,795                                           |       | 8.00 | % | 130,993 |   | 10.00 | % |
| Tier   1 capital (to risk weighted assets)      |       |       |       |                                                    |       |                                              |       |   |   |   |   |   |   |
| Company                                         |       | 154,808    |       | 11.73                                                   | %          | 52,804                                            |       | 4.00 | % | N/A |   | N/A |   |
| Bank                                            |       | 143,570    |       | 10.96                                                   | %          | 52,397                                            |       | 4.00 | % | 78,596 |   | 6.00 | % |
| Tier   1 capital (to average assets)            |       |       |       |                                                    |       |                                              |       |   |   |   |   |   |   |
| Company                                         |       | 154,808    |       | 7.93                                                    | %          | 78,101                                            |       | 4.00 | % | N/A |   | N/A |   |
| Bank   (2)                                      |       | 143,570    |       | 7.39                                                    | %          | 77,699                                            |       | 4.00 | % | 97,124 |   | 5.00 | % |
|                                            |       |       |       |                                                    |       |                                              |       |   |   |   |   |   |   |
| As   of December 31, 2009                  |       |       |       |                                                    |       |                                              |       |   |   |   |   |   |   |
| Total   capital (to risk weighted assets)       |       |       |       |                                                    |       |                                              |       |   |   |   |   |   |   |
| Company                                         |       | $          | 171,609    |                                                    | 12.04      | %                                                 | $          | 114,005 |   | 8.00 | % | N/A |   | N/A |   |
| Bank                                            |       | 159,818    |       | 11.22                                                   | %          | 113,908                                           |       | 8.00 | % | 142,385 |   | 10.00 | % |
| Tier   1 capital (to risk weighted assets)      |       |       |       |                                                    |       |                                              |       |   |   |   |   |   |   |
| Company                                         |       | 153,696    |       | 10.79                                                   | %          | 57,003                                            |       | 4.00 | % | N/A |   | N/A |   |
| Bank                                            |       | 141,920    |       | 9.97                                                    | %          | 56,954                                            |       | 4.00 | % | 85,431 |   | 6.00 | % |
| Tier   1 capital (to average assets)            |       |       |       |                                                    |       |                                              |       |   |   |   |   |   |   |
| Company                                         |       | 153,696    |       | 8.05                                                    | %          | 76,396                                            |       | 4.00 | % | N/A |   | N/A |   |
| Bank                                            |       | 141,920    |       | 7.46                                                    | %          | 76,091                                            |       | 4.00 | % | 95,114 |   | 5.00 | % |

 

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(1)          The Bank has agreed to maintain minimum total capital to risk weighted assets of 12.00% effective as of January 13, 2011.

(2)          The Bank has agreed to minimum Tier 1 capital to risk-weighted assets of 7.75% effective as of January 13, 2011 and 8.00% effective after March 31, 2011.

 

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

 

**Note 13 - Other Comprehensive Income**

 

Other comprehensive income components and related taxes were as follows:

 
| ** **                                                                     | ** ** | **2010** | ** ** | **2009** | ** ** | **2008** | ** ** |
|--------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Net unrealized holding (loss) gain on available   for sale securities          |       | $        | (5,227     | )        | $          | 8,098    |       | $ | 277 |   |
| Reclassification adjustments for losses and gains   later recognized in income |       | (267     | )          | (109     | )          | (101     | )          |
| Tax effect                                                                     |       | 2,184    |       | (3,176   | )          | (70      | )          |
| Net unrealized (loss) gain on available for sale   securities                  |       | (3,310   | )          | 4,813    |       | 106      |       |
|                                                                           |       |     |       |     |       |     |       |
| Change in postretirement obligation, gain                                      |       | 19       |       | 118      |       | 15       |       |
| Tax effect                                                                     |       | (8       | )          | (47      | )          | (6       | )          |
| Net change in postretirement obligation, gain                                  |       | 11       |       | 71       |       | 9        |       |
| Other comprehensive (loss) income                                              |       | $        | (3,299     | )        | $          | 4,884    |       | $ | 115 |   |

 

33

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A summary of the accumulated other comprehensive (loss) income balances, net of tax were as follows:

 
| ** **                                        | ** ** | **Balance   at   12/31/09** | ** ** | **Current   Period   Change** | ** ** | **Balance   at   12/31/10** | ** ** |
|---------------------------------------------------|------------|-----------------------------|------------|-------------------------------|------------|-----------------------------|------------|
| Unrealized gains on securities available for sale |       | $                           | 3,898      |                          | $          | (3,310                      | )          | $ | 588 |   |
| Unrealized loss on postretirement obligation      |       | (314                        | )          | 11                            |       | (303                        | )          |
| Total                                             |       | $                           | 3,584      |                          | $          | (3,299                      | )          | $ | 285 |   |

 

**Note 14 - Condensed Financial Information - Parent Only**

 

**Condensed Balance Sheets**

**December 31, 2010 and 2009**

 
| ** **                                                                     | ** ** | **2010** | ** ** | **2009** | ** ** |    |   |
|--------------------------------------------------------------------------------|------------|----------|------------|----------|------------|---------|--------|
| **Assets**                                                                     |       |     |       |     |       |    |   |
| Cash                                                                           |       | $        | 3,789      |     | $          | 6,844   |   |   |   |
| Securities held to maturity (fair value of $0 in   2010 and of $4,710 in 2009) |       | —   |       | 4,841    |       |    |   |
| Investment in subsidiary                                                       |       | 151,354  |       | 145,630  |       |    |   |
| Other assets                                                                   |       | 2,995    |       | 959      |       |    |   |
| **Total assets**                                                               |       | $        | 158,138    |     | $          | 158,274 |   |   |   |
|                                                                           |       |     |       |     |       |    |   |
| **Liabilities and shareholders’   equity**                                |       |     |       |     |       |    |   |
| Other liabilities                                                              |       | $        | 2,290      |     | $          | 281     |   |   |   |
|                                                                           |       |     |       |     |       |    |   |
| Common stock in ESOP subject to contingent   repurchase obligation             |       | 29,865   |       | 31,230   |       |    |   |
|                                                                           |       |     |       |     |       |    |   |
| Shareholders’ equity                                                      |       | 125,983  |       | 126,763  |       |    |   |
| **Total liabilities and   shareholders’ equity**                          |       | $        | 158,138    |     | $          | 158,274 |   |   |   |

 

34

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**Condensed Statements of Operations**

**Years Ended December 31, 2010, 2009 and 2008**

 
| ** **                                                                  | ** ** | **2010** | ** ** | **2009** | ** ** | **2008** | ** ** |
|-----------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Income**                                                                  |       |     |       |     |       |     |       |
| Dividends from subsidiary                                                   |       | $        | —     |     | $          | 3,262    |       | $ | 11,761 |   |
| Interest income                                                             |       |     |       |     |       |     |       |
| Deposits                                                                    |       | 34       |       | 78       |       | 242      |       |
| Securities                                                                  |       | 158      |       | 211      |       | 279      |       |
| Net realized gains on securities transactions                               |       | —   |       | —   |       | 16       |       |
| Other                                                                       |       | 5        |       | —   |       | 13       |       |
| Total income                                                                |       | 197      |       | 3,551    |       | 12,311   |       |
|                                                                        |       |     |       |     |       |     |       |
| **Expense**                                                                 |       |     |       |     |       |     |       |
| Other                                                                       |       | 406      |       | 452      |       | 659      |       |
| Total expense                                                               |       | 406      |       | 452      |       | 659      |       |
| **(Loss) income before income taxes**                                       |       | (209     | )          | 3,099    |       | 11,652   |       |
| **Income tax benefit**                                                      |       | (144     | )          | (143     | )          | (190     | )          |
| **(Loss) income before equity in   undistributed net income of subsidiary** |       | (65      | )          | 3,242    |       | 11,842   |       |
| **Equity in undistributed net   income (loss) of subsidiary**               |       | 1,219    |       | (4,077   | )          | 4,974    |       |
| **Net income (loss)**                                                       |       | $        | 1,154      |     | $          | (835     | )          | $ | 16,816 |   |

 

35

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**Condensed Statements of Cash Flows**

**Years Ended December 31, 2010, 2009 and 2008**

** **
| ** **                                                                         | ** ** | **2010** | ** ** | **2009** | ** ** | **2008** | ** ** |
|------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Cash flows from operating   activities**                                         |       |     |       |     |       |     |       |
| Net income (loss)                                                                  |       | $        | 1,154      |     | $          | (835     | )          | $ | 16,816 |   |
| Adjustments to reconcile net income to net cash   provided by operating activities |       |     |       |     |       |     |       |
| Deferred income tax provision (benefit)                                            |       | —   |       | 7        |       | (7       | )          |
| Equity in undistributed net (income) loss of   subsidiary                          |       | (1,219   | )          | 4,077    |       | (4,974   | )          |
| Net discount accretion of securities                                               |       | (104     | )          | (139     | )          | (131     | )          |
| Net realized gains on securities transactions                                      |       | —   |       | —   |       | (16      | )          |
| (Increase) decrease in other assets                                                |       | (2,037   | )          | 19       |       | 37       |       |
| Increase (decrease) in other liabilities                                           |       | 2,135    |       | 18       |       | (37      | )          |
| **Net cash (used in) provided by   operating activities**                          |       | (71      | )          | 3,147    |       | 11,688   |       |
| **Cash flows from investing activities**                                           |       |     |       |     |       |     |       |
| Investments in subsidiary                                                          |       | (3,024   | )          | —   |       | —   |       |
| Securities available for sale                                                      |       |     |       |     |       |     |       |
| Sales                                                                              |       | —   |       | —   |       | 2,472    |       |
| Maturities and calls                                                               |       | —   |       | —   |       | 485      |       |
| Securities held to maturity                                                        |       |     |       |     |       |     |       |
| Maturities and calls                                                               |       | 40       |       | —   |       | —   |       |
| **Net cash (used in) provided by   investing activities**                          |       | (2,984   | )          | —   |       | 2,957    |       |
| **Cash flows from financing   activities**                                         |       |     |       |     |       |     |       |
| Repurchase and retirement of common stock                                          |       | —   |       | (2,658   | )          | —   |       |
| Cash dividends paid                                                                |       | —   |       | (8,622   | )          | (17,300  | )          |
| **Net cash used in financing   activities**                                        |       | —   |       | (11,280  | )          | (17,300  | )          |
| **Net decrease in cash**                                                           |       | (3,055   | )          | (8,133   | )          | (2,655   | )          |
| **Beginning cash**                                                                 |       | 6,844    |       | 14,977   |       | 17,632   |       |
| **Ending cash**                                                                    |       | $        | 3,789      |     | $          | 6,844    |       | $ | 14,977 |   |

 

36

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**Note 15 - Quarterly Results of Operations (Unaudited)**

 

The following table sets forth certain unaudited income, expense and per share data on a quarterly basis for the three-month periods indicated:

 
| ** **                                                     | ** ** | **Fourth   Quarter** | ** ** | **Third   Quarter** | ** ** | **Second   Quarter** | ** ** | **First   Quarter** | ** ** |
|----------------------------------------------------------------|------------|----------------------|------------|---------------------|------------|----------------------|------------|---------------------|------------|
| **Year   Ended December 31, 2010**                        |       |                 |       |                |       |                 |       |                |       |
| Interest income                                                |       | $                    | 17,710     |                | $          | 19,553               |       | $                   | 19,507     |   | $ | 19,420 |   |
| Interest expense                                               |       | 3,632                |       | 4,501               |       | 4,928                |       | 5,368               |       |
| Net interest income                                            |       | 14,078               |       | 15,052              |       | 14,579               |       | 14,052              |       |
| Provision for loan losses                                      |       | 10,300               |       | 2,875               |       | 3,175                |       | 2,375               |       |
| Net interest income after provision for loan   losses          |       | 3,778                |       | 12,177              |       | 11,404               |       | 11,677              |       |
| Noninterest income                                             |       | 7,662                |       | 2,730               |       | 2,794                |       | 3,130               |       |
| Noninterest expense                                            |       | 18,375               |       | 12,756              |       | 12,387               |       | 12,778              |       |
| (Loss) income before income taxes                              |       | (6,935               | )          | 2,151               |       | 1,811                |       | 2,029               |       |
| Income tax (benefit) expense                                   |       | (3,395               | )          | 348                 |       | 563                  |       | 386                 |       |
| Net (loss) income                                              |       | $                    | (3,540     | )                   | $          | 1,803                |       | $                   | 1,248      |   | $ | 1,643 |   |
| Earnings (loss) per share                                      |       | $                    | (8.29      | )                   | $          | 4.22                 |       | $                   | 2.92       |   | $ | 3.85 |   |
|                                                           |       |                 |       |                |       |                 |       |                |       |
| Year Ended   December 31, 2009                            |       |                 |       |                |       |                 |       |                |       |
| Interest income                                                |       | $                    | 19,825     |                | $          | 20,145               |       | $                   | 20,793     |   | $ | 21,337 |   |
| Interest expense                                               |       | 6,083                |       | 6,082               |       | 6,295                |       | 6,527               |       |
| Net interest income                                            |       | 13,742               |       | 14,063              |       | 14,498               |       | 14,810              |       |
| Provision for loan losses                                      |       | 10,375               |       | 5,600               |       | 7,650                |       | 1,300               |       |
| Net interest income after provision for loan   losses          |       | 3,367                |       | 8,463               |       | 6,848                |       | 13,510              |       |
| Noninterest income                                             |       | 3,480                |       | (3,516              | )          | 3,243                |       | 2,579               |       |
| Noninterest expense                                            |       | 12,163               |       | 13,146              |       | 13,578               |       | 11,133              |       |
| (Loss) income from continuing operations before   income taxes |       | (5,316               | )          | (8,199              | )          | (3,487               | )          | 4,956               |       |
| Income tax (benefit) expense                                   |       | (2,749               | )          | (5,132              | )          | (1,190               | )          | 1,269               |       |
| Net (loss) income from continuing operations                   |       | (2,567               | )          | (3,067              | )          | (2,297               | )          | 3,687               |       |
| Gain on sale of prepaid solutions group, net of   tax          |       | 3,313                |       | —              |       | —               |       | —              |       |
| Discontinued operations, net of tax                            |       | (335                 | )          | 333                 |       | (109                 | )          | 207                 |       |
| Net income (loss) from discontinued operations                 |       | 2,978                |       | 333                 |       | (109                 | )          | 207                 |       |
| Net income (loss)                                              |       | $                    | 411        |                | $          | (2,734               | )          | $                   | (2,406     | ) | $ | 3,894 |   |
| (Loss) earnings from continuing operations per   share         |       | $                    | (5.91      | )                   | $          | (7.16                | )          | $                   | (5.36      | ) | $ | 8.54 |   |
| Earnings (loss) from discontinued operations per   share       |       | 6.93                 |       | 0.78                |       | (0.25                | )          | 0.48                |       |
| Earnings (loss) per share                                      |       | 1.02                 |       | (6.38               | )          | (5.61                | )          | 9.02                |       |

 

During, the fourth quarter of 2010, the Company made a provision for loan losses of $10,300 due to increased charge-offs of $11,314 during the quarter primarily as a result of identification of new impaired loans and updated valuations received on other impaired loans during the quarter. Noninterest income increased $4,932 primarily due to the Company recording a gain on sale of loans of $2,803 along with an increase in BOLI income. Noninterest expense increased $5,619, the majority of which was due to write-downs on other real estate owned.

 

During the fourth quarter of 2009, the Company’s provision for loan losses increased $4,775 from the third quarter of 2009, primarily due to $9,688 in loan charge-offs during the quarter. Noninterest income increased $6,996 primarily due to the Company writing off its holdings of pooled trust preferred securities totaling $7,429 during the third quarter of 2009. Additionally, during the fourth quarter of 2009, the Company recorded a gain of $3,313, net of tax, on the sale of the prepaid solutions group.

 

37

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**STOCK PERFORMANCE PRESENTATION**

 

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

 

The Securities and Exchange Commission requires that West Suburban include a line-graph presentation comparing cumulative, five-year shareholder returns on an indexed basis with the Standard & Poor’s 500 Stock Index (“S&P 500”) and either a nationally recognized industry standard or an index of peer companies selected by West Suburban. The Board of Directors has elected to compare an investment in its stock to a peer group index rather than a published industry index because it believes the peer group index includes companies whose businesses are more similar to that of the Company than any published index. The peer group index is comprised of the following companies selected by West Suburban (based on their similarity in size, loan portfolios and business markets): 1st Source Corporation; AMCORE Financial Inc.**; Corus Bankshares Inc.**; MB Financial Inc.; Midwest Banc Holdings Inc.**; Old Second Bancorp, Inc.; PrivateBancorp, Inc.; Taylor Capital Group, Inc.; and Wintrust Financial Corporation.

 

 

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**Note: The banking subsidiaries of AMCORE Financial Inc., Corus Bankshares Inc. and Midwest Banc Holdings Inc. failed during the course of 2010.

 

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

 
| ** **  | ** ** | **Total Return Based on Initial Investment of $100.00** | ** ** |
|-------------|------------|--------------------------------------------------------------------------------------------|------------|
| ** **  | ** ** | **2005**                                                                                   | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** |
| The Company |       | $                                                                                          | 100.00     |   | $ | 116.35 |   | $ | 117.67 |   | $ | 100.60 |   | $ | 67.93 |   | $ | 65.35 |   |
| S&P 500 |       | 100.00                                                                                     |       | 115.79 |   | 122.16 |   | 76.96 |   | 97.33 |   | 111.99 |   |
| Peer Group  |       | 100.00                                                                                     |       | 101.67 |   | 69.63 |   | 44.74 |   | 30.52 |   | 34.09 |   |
|             |            |                                                                                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The Total Returns of the companies included in the above peer groups have been assigned various weights based on their relative market capitalizations.

 

38

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**SELECTED FINANCIAL DATA**

(Dollars in thousands, except per share data)

 

The following information should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Company’s Consolidated Financial Statements and Notes to Consolidated Financial Statements included in this annual report. All periods reported have been reclassified, as appropriate, for discontinued operations comparative purposes.

 
| ** **                                                                                                                            | ** ** | **Years Ended December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                                                            | ** ** | **2010**                                    | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Selected operating data**                                                                                                           |       |                                        |       |   |   |   |   |   |   |   |   |
| Interest income                                                                                                                       |       | $                                           | 76,190     |   | $ | 82,100 |   | $ | 95,060 |   | $ | 108,462 |   | $ | 105,736 |   |
| Interest expense                                                                                                                      |       | 18,429                                      |       | 24,987 |   | 33,972 |   | 48,206 |   | 45,334 |   |
| Net interest income                                                                                                                   |       | 57,761                                      |       | 57,113 |   | 61,088 |   | 60,256 |   | 60,402 |   |
| Provision for loan losses                                                                                                             |       | 18,725                                      |       | 24,925 |   | 10,360 |   | 375 |   | 150 |   |
| Net interest income after provision for loan   losses                                                                                 |       | 39,036                                      |       | 32,188 |   | 50,728 |   | 59,881 |   | 60,252 |   |
| Noninterest income (1)                                                                                                                |       | 16,316                                      |       | 5,786 |   | 12,464 |   | 13,684 |   | 14,570 |   |
| Noninterest expense                                                                                                                   |       | 56,296                                      |       | 50,020 |   | 40,870 |   | 42,648 |   | 39,929 |   |
| **(Loss) income from continuing   operations****before income   taxes**                                                               |       | (944                                        | )          | (12,046 | ) | 22,322 |   | 30,917 |   | 34,893 |   |
| **Income tax (benefit) expense**                                                                                                      |       | (2,098                                      | )          | (7,802 | ) | 5,080 |   | 8,103 |   | 9,764 |   |
| **Net income (loss) from continuing   operations**                                                                                    |       | 1,154                                       |       | (4,244 | ) | 17,242 |   | 22,814 |   | 25,129 |   |
| Gain on sale of prepaid solutions group, net of   tax                                                                                 |       | —                                      |       | 3,313 |   | — |   | — |   | — |   |
| Discontinued operations, net of tax                                                                                                   |       | —                                      |       | 96 |   | (426 | ) | 599 |   | 222 |   |
| **Net income (loss) from   discontinued operations**                                                                                  |       | —                                      |       | 3,409 |   | (426 | ) | 599 |   | 222 |   |
| **Net income (loss)**                                                                                                                 |       | $                                           | 1,154      |   | $ | (835 | ) | $ | 16,816 |   | $ | 23,413 |   | $ | 25,351 |   |
|                                                                                                                                  |       |                                        |       |   |   |   |   |   |   |   |   |
| **Per share data**                                                                                                                    |       |                                        |       |   |   |   |   |   |   |   |   |
| Earnings (loss) from continuing operations per   share                                                                                |       | $                                           | 2.70       |   | $ | (9.89 | ) | $ | 39.87 |   | $ | 52.75 |   | $ | 58.11 |   |
| Earnings (loss) from discontinued operations per   share                                                                              |       | —                                      |       | 7.94 |   | (0.99 | ) | 1.38 |   | 0.51 |   |
| Earnings (loss) per share                                                                                                             |       | 2.70                                        |       | (1.95 | ) | 38.88 |   | 54.13 |   | 58.62 |   |
| Cash dividends declared                                                                                                               |       | —                                      |       | 10.00 |   | 40.00 |   | 50.00 |   | 50.00 |   |
| Book value (2)                                                                                                                        |       | 365.11                                      |       | 370.14 |   | 372.03 |   | 373.34 |   | 359.18 |   |
|                                                                                                                                  |       |                                        |       |   |   |   |   |   |   |   |   |
| **Selected balances, end of year**                                                                                                    |       |                                        |       |   |   |   |   |   |   |   |   |
| Securities                                                                                                                            |       | $                                           | 741,530    |   | $ | 479,117 |   | $ | 472,192 |   | $ | 488,739 |   | $ | 503,201 |   |
| Loans, less allowance for loan losses                                                                                                 |       | 1,008,272                                   |       | 1,167,675 |   | 1,233,595 |   | 1,226,571 |   | 1,153,885 |   |
| Total assets                                                                                                                          |       | 1,961,624                                   |       | 1,938,583 |   | 1,867,420 |   | 1,851,357 |   | 1,876,643 |   |
| Deposits                                                                                                                              |       | 1,778,427                                   |       | 1,756,987 |   | 1,625,925 |   | 1,637,714 |   | 1,677,844 |   |
| Shareholders’ equity plus common stock in ESOP   subject to contingent repurchase obligation (2)                                 |       | 155,848                                     |       | 157,993 |   | 160,899 |   | 161,468 |   | 155,344 |   |
|                                                                                                                                  |       |                                        |       |   |   |   |   |   |   |   |   |
| **Ratios**                                                                                                                            |       |                                        |       |   |   |   |   |   |   |   |   |
| Return on average total assets                                                                                                        |       | 0.06                                        | %          | (0.04 | )% | 0.90 | % | 1.26 | % | 1.38 | % |
| Return on average shareholders’ equity plus common   stock in ESOP subject to contingent repurchase obligation (2)               |       | 0.71                                        | %          | (0.52 | )% | 10.40 | % | 14.83 | % | 16.83 | % |
| Cash dividends declared to net income                                                                                                 |       | 0.00                                        | %          | (514.61 | )% | 102.88 | % | 92.36 | % | 85.30 | % |
| Average shareholders’ equity plus common stock in   ESOP subject to contingent repurchase obligation to average total assets (2) |       | 8.25                                        | %          | 8.57 | % | 8.67 | % | 8.49 | % | 8.18 | % |
| Net interest margin (3)                                                                                                               |       | 3.45                                        | %          | 3.39 | % | 3.58 | % | 3.50 | % | 3.54 | % |

 

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(1)          Noninterest income includes gain on sale of portfolio residential real estate loans of $2,803 in 2010. Noninterest income for 2009 includes ($8,320) for the impairment of pooled trust preferred securities and for 2007 includes the impairment of FHLMC stock of ($381).

(2)          See Note 8 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%.

 

39

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**NON-GAAP FINANCIAL MEASURES**

 

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States (“GAAP”). However, management uses certain non-GAAP measures and ratios to evaluate and measure the Company’s performance. These measures and ratios include book value per share, return on average shareholders’ equity and average shareholders’ equity to average total assets. For each of these measures and ratios, the Company adds to shareholders’ equity the amount in “common stock in ESOP subject to contingent repurchase obligation.” Under the ESOP, the Company has certain contingent repurchase obligations to buy back common stock distributed to participants, as described in more detail in Note 8 to the Company’s audited financial statements. This contingent repurchase obligation is reflected in the Company’s financial statements as “common stock in ESOP subject to contingent repurchase obligation” and, in accordance with GAAP, reduces shareholders’ equity. The Company believes that it is unlikely that the Company would be required to satisfy its contingent repurchase obligation and therefore believes that adjusting shareholders’ equity by adding “common stock in ESOP subject to contingent repurchase obligation” to that amount 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 performance of bank holding companies, would be significantly overstated.

 

The following table presents a reconciliation of certain non-GAAP performance measures and ratios used by the Company to the most directly comparable GAAP financial measures for the years ended December 31 (dollars in thousands, except per share data):

** **
| ** **                                                                                                                                         | ** ** | **2010** | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| Shareholders’ equity (GAAP)                                                                                                                   |       | $        | 125,983    |     | $          | 126,763  |       | $        | 114,229    |     | $          | 104,561 |   | $ | 95,335 |   |
| Shareholders’ equity plus common stock in ESOP   subject to contingent repurchase obligation (non-GAAP)                                       |       | 155,848  |       | 157,993  |       | 160,899  |       | 161,468  |       | 155,344  |       |
| Book Value Per Share (GAAP) (1)                                                                                                                    |       | 295.15   |       | 296.97   |       | 264.12   |       | 241.76   |       | 220.43   |       |
| Book Value Per Share (non-GAAP) (2)                                                                                                                |       | 365.11   |       | 370.14   |       | 372.03   |       | 373.34   |       | 359.18   |       |
| Return on average shareholders’ equity (GAAP) (3)                                                                                             |       | 0.90     | %          | (0.70    | )%         | 16.01    | %          | 24.04    | %          | 27.05    | %          |
| Return on average shareholders’ equity plus common   stock in ESOP subject to contingent repurchase obligation (non-GAAP) (4)                 |       | 0.71     | %          | (0.52    | )%         | 10.40    | %          | 14.83    | %          | 16.83    | %          |
| Average shareholders’ equity to average total   assets (GAAP) (5)                                                                             |       | 6.52     | %          | 6.34     | %          | 5.63     | %          | 5.24     | %          | 5.09     | %          |
| Average shareholders’ equity plus common stock in   ESOP subject to contingent repurchase obligation to average total assets   (non-GAAP) (6) |       | 8.25     | %          | 8.57     | %          | 8.67     | %          | 8.49     | %          | 8.18     | %          |
|                                                                                                                                                    |            |          |            |          |            |          |            |          |            |          |            |  |  |  |  |  |

 

----

(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.

 

40

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**AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND**

**AVERAGE RATES AND YIELDS ON A TAX EQUIVALENT BASIS**

(Dollars in thousands)

 

The following table presents for the years indicated the total dollar amount of interest income from average interest-earning assets and their yields, as well as the interest expense on average interest-bearing liabilities and their costs, expressed both in dollars and rates. All average balances are daily average balances. To the extent received, interest on nonaccruing loans has been included in the table.

 
| ** **                                                                                              | ** ** | **Years Ended December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                              | ** ** | **2010**                                    | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                                                                              | ** ** | **Average   Balance**                       | ** ** | **Interest** | ** ** | **Rate** | ** ** | **Average   Balance** | ** ** | **Interest** | ** ** | **Rate** | ** ** | **Average   Balance** | ** ** | **Interest** | ** ** | **Rate** | ** ** |
| **Assets**                                                                                              |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal   funds sold                                                                                    |       | $                                           | 22,517     |   | $ | 56 |   | 0.2 | % | $ | 61,280 |   | $ | 162 |   | 0.3 | % | $ | 7,898 |   | $ | 198 |   | 2.5 | % |
| Securities                                                                                              |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                                                                 |       | 553,802                                     |       | 17,608 |   | 3.2 | % | 420,986 |   | 17,985 |   | 4.3 | % | 465,555 |   | 21,109 |   | 4.5 | % |
| Exempt   from federal income tax (1)                                                                    |       | 28,951                                      |       | 1,676 |   | 5.8 | % | 28,253 |   | 1,730 |   | 6.1 | % | 30,428 |   | 1,809 |   | 5.9 | % |
| Total   securities (1)                                                                                  |       | 582,753                                     |       | 19,284 |   | 3.3 | % | 449,239 |   | 19,715 |   | 4.4 | % | 495,983 |   | 22,918 |   | 4.6 | % |
| Loans   (1)(2)                                                                                          |       | 1,094,309                                   |       | 57,774 |   | 5.3 | % | 1,201,646 |   | 63,131 |   | 5.3 | % | 1,231,226 |   | 72,916 |   | 5.9 | % |
| Total   interest-earning assets (1)(2)                                                                  |       | 1,699,579                                   |       | 77,114 |   | 4.5 | % | 1,712,165 |   | 83,008 |   | 4.8 | % | 1,735,107 |   | 96,032 |   | 5.5 | % |
| Cash   and due from banks                                                                               |       | 100,779                                     |       |   |   |   |   | 39,982 |   |   |   |   |   | 34,877 |   |   |   |   |   |
| Premises   and equipment, net                                                                           |       | 42,882                                      |       |   |   |   |   | 45,448 |   |   |   |   |   | 43,827 |   |   |   |   |   |
| Other   real estate owned                                                                               |       | 24,161                                      |       |   |   |   |   | 10,426 |   |   |   |   |   | 997 |   |   |   |   |   |
| Allowance   for loan losses                                                                             |       | (27,961                                     | )          |   |   |   |   | (19,859 | ) |   |   |   |   | (11,505 | ) |   |   |   |   |
| Accrued   interest and other assets (2)                                                                 |       | 122,427                                     |       |   |   |   |   | 82,489 |   |   |   |   |   | 61,977 |   |   |   |   |   |
| **Total assets**                                                                                        |       | $                                           | 1,961,867  |   |   |   |   |   | $ | 1,870,651 |   |   |   |   |   | $ | 1,865,280 |   |   |   |   |   |
| **Liabilities and****shareholders’   equity**                                                      |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing   deposits                                                                             |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NOW                                                                                                     |       | $                                           | 326,489    |   | 215 |   | 0.1 | % | $ | 314,199 |   | 275 |   | 0.1 | % | $ | 307,033 |   | 1,347 |   | 0.4 | % |
| Money   market checking                                                                                 |       | 419,385                                     |       | 3,516 |   | 0.8 | % | 370,914 |   | 6,507 |   | 1.8 | % | 326,367 |   | 8,021 |   | 2.5 | % |
| Savings                                                                                                 |       | 342,602                                     |       | 993 |   | 0.3 | % | 333,243 |   | 1,392 |   | 0.4 | % | 334,266 |   | 2,627 |   | 0.8 | % |
| Time   deposits                                                                                         |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Less   than $100,000                                                                                    |       | 381,132                                     |       | 9,625 |   | 2.5 | % | 372,061 |   | 12,079 |   | 3.2 | % | 368,943 |   | 15,282 |   | 4.1 | % |
| $100,000   and greater                                                                                  |       | 143,174                                     |       | 4,080 |   | 2.8 | % | 135,242 |   | 4,691 |   | 3.5 | % | 146,492 |   | 6,031 |   | 4.1 | % |
| Total   interest-bearing deposits                                                                       |       | 1,612,782                                   |       | 18,429 |   | 1.1 | % | 1,525,659 |   | 24,944 |   | 1.6 | % | 1,483,101 |   | 33,308 |   | 2.2 | % |
| Other   interest-bearing liabilities                                                                    |       | 7,285                                       |       | — |   | 0.0 | % | 8,468 |   | 43 |   | 0.5 | % | 32,375 |   | 664 |   | 2.1 | % |
| Total   interest-bearing liabilities                                                                    |       | 1,620,067                                   |       | 18,429 |   | 1.1 | % | 1,534,127 |   | 24,987 |   | 1.6 | % | 1,515,476 |   | 33,972 |   | 2.2 | % |
| Demand-noninterest-bearing   deposits                                                                   |       | 163,906                                     |       |   |   |   |   | 152,332 |   |   |   |   |   | 138,106 |   |   |   |   |   |
| Accrued   interest and other liabilities                                                                |       | 15,950                                      |       |   |   |   |   | 23,953 |   |   |   |   |   | 50,035 |   |   |   |   |   |
| Shareholders’   equity plus common stock in ESOP subject to contingent repurchase obligation   (3) |       | 161,944                                     |       |   |   |   |   | 160,239 |   |   |   |   |   | 161,663 |   |   |   |   |   |
| **Total liabilities and****shareholders’   equity**                                                |       | $                                           | 1,961,867  |   |   |   |   |   | $ | 1,870,651 |   |   |   |   |   | $ | 1,865,280 |   |   |   |   |   |
| Net   interest income                                                                                   |       |                                        |       | $ | 58,685 |   |   |   |   |   | $ | 58,021 |   |   |   |   |   | $ | 62,060 |   |   |   |
| Interest   rate spread                                                                                  |       |                                        |       |   |   | 3.4 | % |   |   |   |   | 3.2 | % |   |   |   |   | 3.3 | % |
| Net   interest margin (1)                                                                               |       |                                        |       |   |   | 3.5 | % |   |   |   |   | 3.4 | % |   |   |   |   | 3.6 | % |

 

----

(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 8 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.

 

41

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**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION**

**AND RESULTS OF OPERATIONS**

 

The following discussion and analysis provides information regarding the Company’s financial condition as of December 31, 2010 and 2009, and the results of operations for each of the three years in the period ended December 31, 2010. This discussion and analysis should be read in conjunction with the Company’s Consolidated Financial Statements and Notes to Consolidated Financial Statements included in this annual report. The financial information provided below is rounded in order to simplify the presentation of management’s discussion and analysis. However, the ratios and percentages provided below are calculated using the more detailed financial information contained in the financial statements, notes and tables included elsewhere in this annual report.

 

**Executive Overview**

 

At the end of 2007, the United States economy experienced a downturn that continued into 2010. During this period, the United States economy experienced rising unemployment, declining home values, extremely low liquidity in the debt markets and declining values and high volatility in the equity markets. As a result of these conditions, consumer confidence and spending decreased substantially and asset values declined. Like many other financial institutions, the Company’s financial results in recent reporting periods, including 2010, were impacted by the continuing economic downturn.

 

The economic downturn has impacted the entire State of Illinois, including the Company’s primary market area, located in the western suburbs of Chicago, Illinois. According to the Bureau of Labor and Statistics, the unemployment rate in the State of Illinois at December 31, 2010, was 9.2%. High levels of unemployment has adversely impacted the ability of certain of the Company’s borrowers to meet their ongoing debt obligations. In addition, real estate demand in the Company’s market area remains weak, resulting in declines in the values of the real estate serving as collateral for certain of the Company’s loans.

 

As a result of the continuing economic downturn in the national and local economies and declining real estate values, management has focused its attention primarily on improving the performance of the Bank’s loan portfolio. During 2010, the Bank’s nonaccrual loans increased, which adversely impacted its interest income. The deterioration in the Bank’s loan portfolio has forced the Bank to increase its allowance for loan losses to absorb additional losses in the loan portfolio. The Bank’s Board of Directors reviews the level of its allowance for loan losses on a monthly basis. The Board responds as promptly as practical to new developments in the Bank’s loan portfolio, but it often takes time to implement appropriate changes to the Bank’s allowance. Although management has increased the Bank’s allowance for loan losses in response to increasing levels of nonaccrual loans and believes that the allowance for loan losses is a reasonable estimate for probable incurred losses in the loan portfolio, future loan losses in excess of the allowance for loan losses would adversely affect the Bank’s financial condition and results of operations. In addition, as a result of increasing levels of foreclosures, the Bank’s other real estate owned portfolio increased dramatically in 2009 and remained at a high level in 2010, further decreasing the Bank’s interest income. Management believes that the level of the Bank’s other real estate owned portfolio will remain at a high level in 2011 and may increase. Management has had to focus additional time and effort on selling these properties, and the Bank has incurred significant costs in connection with maintaining the properties, including real estate taxes, management fees and insurance costs. Management continues to aggressively pursue sales of the foreclosed assets in the Bank’s portfolio, but due to weak real estate demand in the Bank’s market area, management is not able to dispose of these properties as promptly as desired.

 

During this difficult economic period the Bank has seen low levels of quality demand for credit. Although concerns over the credit quality in the Bank’s loan portfolio exist, the Bank continues to be willing to make loans to qualified applicants that meet its traditional, prudent lending standards, which have not changed.

 

In response to the economic downturn, the Federal Reserve has maintained interest rates at historically low levels and has used various forms of monetary policy in an attempt to drive down long-term interest rates. The presence of these historically low interest rates has created net interest challenges for the banking industry in general and the Bank in particular. This interest rate environment has resulted in low-yielding investment opportunities, adding to

 

42

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the downward pressure on the Bank’s interest income. Because management believes that interest rates will increase over the next few years, management has been focused on investments for the Bank’s securities portfolio that are expected to retain their value in a rising rate environment. Specifically, the Bank has invested in mortgage-backed securities issued by U.S. government sponsored enterprises with average maturities of less than five years. In addition, movements in general market interest rates are a key element in changes in the Bank’s interest rate margin, and management expects the interest rate environment to remain at historically low levels throughout 2011.

 

During 2010, management remained focused on resolving the issues raised by the Bank’s regulators in two Cease and Desist Orders, one related to the Bank’s Secrecy Act/Anti-Money Laundering Program and the other related to consumer compliance issues. Each of these orders was terminated in the fourth quarter of 2010.

 

On January 13, 2011, the Bank agreed with its regulators to maintain minimum capital ratios in excess of the minimum ratios required by applicable federal regulations. Specifically, the Bank agreed to maintain minimum capital ratios equal to or exceeding 7.75% for Tier 1 capital to average total assets and equal to or exceeding 12.00% for total capital to risk-weighted assets, effective January 13, 2011. If these capital requirements were effective at December 31, 2010, the Bank would not have been in compliance with the Tier 1 capital to average total assets ratio. Additionally, effective after March 31, 2011, the minimum required ratio of Tier 1 capital to average total assets will increase from 7.75% to 8.00%. The Bank does not currently expect to be in compliance with these capital requirements at March 31, 2011. If the Bank is not in compliance with the regulatory requirements, the Bank may be subject to additional regulatory actions or restrictions.

 

**Recent Regulatory Developments**

 

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”), which is perhaps the most significant financial reform since the Great Depression. Among other things, the law:

 

·                  Creates a Financial Services Oversight Council to identify emerging systemic risks and improve interagency cooperation;

·                  Creates a Consumer Financial Protection Agency authorized to promulgate and enforce consumer protection regulations relating to financial products, which would affect both banks and non-bank finance companies;

·                  Establishes strengthened capital standards for banks and bank holding companies, and disallows trust preferred securities from being included in the Tier 1 capital determination for certain financial institutions;

·                  Enhances regulation of financial markets, including derivatives and securitization markets;

·                  Contains a series of provisions covering mortgage loan original standards affecting, among other things, originator compensation, minimum repayment standards and pre-payments;

·                  Grants the Board of Governors of the Federal Reserve System the power to regulate debit card interchange fees;

·                  Prohibits certain trading activities by banks;

·                  Permanently increases the maximum standard FDIC deposit insurance amount to $250,000; and

·                  Creates an Office of National Insurance with the U.S. Department of Treasury.

 

While the provisions of the Act receiving the most public attention have generally been those more likely to affect larger institutions, the Act also contains many provisions which will affect smaller institutions such as the Company in substantial and unpredictable ways. Consequently, compliance with the Act’s provisions may curtail the Company’s revenue opportunities, increase its operating costs, require it to hold higher levels of regulatory capital and/or liquidity or otherwise adversely affect the Company’s business or financial results in the future. The Company’s management is actively reviewing the provisions of the Act and assessing its probable impact on the Company’s business, financial condition, and result of operations. However, because many aspects of the Act are subject to future rulemaking, it is difficult to precisely anticipate its overall financial impact on the Company and the Bank at this time.

 

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**Critical Accounting Policies**

 

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

 

In management’s view, the accounting policies that are critical to the Company are those relating to estimates, assumptions and judgments regarding the determination of the adequacy of the allowance for loan losses, the Company’s federal and state income tax obligations, the determination of the fair value of certain of the Company’s investment securities, the fair value of common stock subject to contingent repurchase obligation and the carrying value of other real estate owned.

 

**Allowance for Loan Losses.** The allowance for loan losses is a valuation allowance for probable incurred credit losses in the loan portfolio. The allowance is increased by a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan has been established. Subsequent recoveries, if any, are credited to the allowance. The allowance consists of specific and general components. The specific component relates to specific loans that are individually classified as impaired. The allowance for loan losses is evaluated monthly based on management’s periodic review of loan collectibility in light of historical loan loss experience, the nature and volume of the loan portfolio, information about specific borrower situations and estimated collateral values and prevailing economic conditions. Although allocations of the allowance may be made for specific loans, the entire allowance is available for any loan that, in management’s judgment, should be charged-off. Management’s evaluation of loan collectibility is inherently subjective as it requires estimates that are subject to significant revision as more information becomes available or as relevant circumstances change.

 

The Company evaluates commercial, construction and development and commercial real estate loans monthly for impairment. A loan is considered impaired when, based on current information and events, full payment under the loan terms is not expected. Loans for which the terms have been modified and for which the borrower is experiencing financial difficulties are considered troubled debt restructurings (“TDR”) and classified as impaired. Impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the loan’s collateral, if repayment of the loan is collateral dependent. A valuation allowance is maintained for the amount of impairment. Generally, loans 90 days or more past due and loans classified as nonaccrual status are considered for impairment. Impairment is considered on an entire category basis for smaller-balance loans of similar nature such as residential real estate and consumer 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 a consumer or credit card loan becomes past due.

 

The general component covers pools of other loans not classified as impaired and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on a rolling one year net charge-off history. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These factors include consideration of the following: levels and trends in past dues; trends in charge-offs and recoveries; trends in volume and terms of loans; effects of collateral deterioration; other changes in lending policies, procedures and practices; experience, ability and depth of lending management and other relevant staff; national and local economic trends; and trends in impaired loans including impaired loans, without specific allowance for loan losses. The following portfolio segments have been identified: construction and development, residential loans, commercial real estate, commercial loans and consumer and other loans.

 

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**Income Taxes.** The Company is subject to income tax laws of the U.S. and the State of Illinois. These laws are complex and subject to different interpretations by the taxpayer and the various taxing authorities. Management makes certain judgments and estimates about the application of these inherently complex laws when determining the provision for income taxes. Federal and state taxing authorities have recently become increasingly aggressive in challenging tax positions taken by financial institutions, including positions that may be taken by the Company. During the preparation of the Company’s tax returns, management makes reasonable interpretations of the tax laws which are subject to challenge upon audit by the tax authorities. These interpretations are also subject to reinterpretation based on management’s ongoing assessment of facts and evolving case law.

 

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

 

**Temporary Decline in Fair Value of Securities.** The Company evaluates its debt and equity securities for OTTI under FASB guidance “Investments in Debt and Equity Securities.” The guidance applies to debt securities, as well as equity securities not accounted for under the equity method (i.e., cost method investments), unless the investments are subject to other accounting guidance, such as FASB guidance “Beneficial Interest in Securitized Financial Assets.” Investments in securitized structures such as collateralized mortgage obligations and collateralized debt obligations that are not high quality investment grade securities upon acquisition are subject to this guidance. High quality investment grade securities are defined as securities with an investment grade of “AA” or higher.

 

In accordance with FASB guidance “Investments in Debt and Equity Securities,” declines in the fair value of securities below their cost that are other-than-temporary are reflected as realized losses. In determining OTTI on debt securities, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost; (2) the financial condition and near-term prospects of the issuer; (3) whether the market decline was affected by macroeconomic conditions; and (4) whether the Company has the intent to sell the debt security or whether it is more likely than not the Company will be required to sell the debt security before its anticipated recovery. The assessment of whether OTTI exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

 

In order to determine OTTI for purchased beneficial interests that, on the purchase date, were not highly rated, the Company compares the present value of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows. OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.

 

**Other Real Estate Owned.**Assets acquired through or instead of loan foreclosure are initially recorded at fair value less anticipated costs to sell when acquired, establishing a new basis. If fair value declines subsequent to acquisition, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed as incurred.

 

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

 

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

 

The following table presents the Company’s significant fixed and determinable contractual obligations and significant commitments by payment date as of December 31, 2010 (dollars in thousands). The payment amounts represent those amounts contractually due to the recipient and do not include any carrying value adjustments.  Further discussion of the nature of each obligation is included in the referenced Note to the Company’s Consolidated Financial Statements included in this annual report.

 

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| ** **                         | ** ** | **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 |       | 6                    |       | $                                | 1,270,314  |                                                | $          | —                                                |       | $                          | —     |      | $          | — |   | $ | 1,270,314 |   |
| Time deposits                      |       | 6                    |       | 292,852                          |       | 137,614                                             |       | 48,318                                                |       | 168                        |       | 478,952   |       |
| Prepaid solutions card deposits    |       | 6                    |       | 29,161                           |       | —                                              |       | —                                                |       | —                     |       | 29,161    |       |
| Operating leases                   |       | 4                    |       | 562                              |       | 702                                                 |       | 533                                                   |       | 151                        |       | 1,948     |       |
| Commitments to extend credit       |       |                 |       |                             |       |                                                |       |                                                  |       |                       |       |      |       |
| Fixed rate                         |       | 9                    |       |                             |       |                                                |       |                                                  |       |                       |       | 7,535     |       |
| Variable rate                      |       | 9                    |       |                             |       |                                                |       |                                                  |       |                       |       | 302,548   |       |
| Deferred compensation              |       | 8                    |       |                             |       |                                                |       |                                                  |       |                       |       | 8,478     |       |
| Postretirement benefit plan        |       | 8                    |       |                             |       |                                                |       |                                                  |       |                       |       | 1,088     |       |
|                                    |            |                      |            |                                  |            |                                                     |            |                                                       |            |                            |            |           |            |  |  |  |  |  |

 

**Balance Sheet Analysis**

 

***Total Assets.*** Total consolidated assets at December 31, 2010, increased 1.2% from the prior year-end. This increase was primarily due to an increase in the securities portfolio, offset by decreases in federal funds sold and the loan portfolio. Total average assets in 2010 increased 4.9% from the prior year primarily due to an increase in average investment securities, cash and due from banks and accrued interest and other assets.

 

***Cash and Cash Equivalents.*** Cash and cash equivalents at December 31, 2010 decreased 52.4% from the prior year-end due to a decrease in federal funds sold. As rates paid on federal funds sold remained at historically low levels, the Company increased its available for sale securities portfolio to earn a higher rate of return compared to the rate paid on federal funds sold while maintaining a high level of liquidity in response to the uncertain economy.

 

***Securities.*** The Company’s securities portfolio increased 54.8% at December 31, 2010 from the prior year-end. This increase was primarily due to investments in U.S. government sponsored enterprise issued residential mortgage-backed securities and U.S. Treasury securities. The Company made these investments to earn a higher yield when compared to alternative investments such as federal funds sold to offset the effects resulting from the decrease in the Company’s loan portfolio.

 

The Company manages its investment portfolio to maximize the return on invested funds within acceptable risk guidelines, to meet pledging and liquidity requirements, and to adjust balance sheet interest rate sensitivity in an effort to insulate net interest income against the impact of interest rate changes. The Company will continue to monitor its level of available for sale and held to maturity securities and will classify new securities purchased in the appropriate category at the time of purchase.

 

Securities available for sale are carried at fair value, while securities held to maturity and Federal Home Loan Bank stock are carried at cost. The securities available for sale portfolio had gross unrealized gains of $6.8 million, which were offset by gross unrealized losses of $5.8 million as of December 31, 2010, as compared with gross unrealized gains of $6.5 million and gross unrealized losses of $.1 million as of December 31, 2009.

 

***Loans.***Total loans outstanding at December 31, 2010 decreased 13.2% from the prior year-end with the Company experiencing decreases in all loan segments but particularly in the residential real estate loan portfolio. The decrease in the residential real estate portfolio was due to management’s decision to sell residential real estate loans that were at the lower end of the interest earning yield of the portfolio, yet were still above current market rates. This was done as part of an overall strategy to improve the Bank’s interest rate risk and to maintain strong regulatory capital in the present economic environment. In the fourth quarter of 2010, the Company sold $64.7 million of portfolio residential mortgage loans, which represented fully amortizing first mortgage loans, to a third party, on a non-recourse basis, with servicing retained. The sale of these portfolio loans resulted in a gain of $2.8 million. The Company does not currently expect that portfolio loan sales will continue to be part of management’s strategy in the future. The decrease in the construction and development loan portfolio was primarily due to the reduction, payoff

 

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or partial charge-off of loans. The decrease in the home equity loan portfolio was primarily due to payoffs resulting from financing activity, as well as a decrease in home equity originations. The decrease in the commercial loan portfolio was primarily due to customers paying down their commercial revolving lines of credit and charge-offs.

 

***Allowance for Loan Losses and Asset Quality.*** The ratio of the allowance for loan losses to total loans outstanding was 2.71% and 2.17% at December 31, 2010 and 2009, respectively. The following table is an analysis of the Company’s nonperforming loans and other real estate owned at December 31 (dollars in thousands):

 
| ** **                                                      | ** ** | **2010** | ** ** | **2009** | ** ** | **2008** | ** ** |
|-----------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Loans past due 90 days or more still on accrual                 |       | $        | 191        |     | $          | 790      |       | $ | 1,705 |   |
| Nonaccrual loans                                                |       | 80,344   |       | 38,038   |       | 23,569   |       |
| Total nonperforming loans                                       |       | $        | 80,535     |     | $          | 38,828   |       | $ | 25,274 |   |
| Nonperforming loans as a percent of total loans                 |       | 7.77     | %          | 3.25     | %          | 2.02     | %          |
| Allowance for loan losses as a percent of   nonperforming loans |       | 35       | %          | 67       | %          | 62       | %          |
| Other real estate owned                                         |       | $        | 20,479     |     | $          | 25,994   |       | $ | 4,658 |   |
| Nonperforming assets as a percent of total assets               |       | 5.15     | %          | 3.34     | %          | 1.60     | %          |

 

The level of the allowance for loan losses is determined by evaluating the general allowance, which is allocated to pools of loans, as well as the specific allowance allocated to impaired loans. The Company utilizes a matrix which tracks changes in various factors that management has determined to have direct effects on the performance of the loan portfolio. These factors include consideration of the following: levels and trends in past dues; trends in charge-offs and recoveries; trends in volume and terms of loans; effects of collateral deterioration; other changes in lending policies, procedures and practices; experience, ability and depth of lending management and other relevant staff; national and local economic trends; and trends in impaired loans including impaired loans without specific allowance for loan losses. The matrix assigns factors to each loan category which is used to determine the amount of the general allowance. The specific allowance allocated to impaired loans is based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the loan’s collateral, if repayment of the loan is collateral dependent. A loan is considered impaired when, based on current information and events, full payment under the loan terms is not expected. Loans for which the terms have been modified and for which the borrower is experiencing financial difficulties are considered troubled debt restructurings and classified as impaired.

 

Net loan charge-offs were $16.6 million and $14.6 million in 2010 and 2009, respectively. This increase was primarily due to the increase in the level of nonperforming loans and declines in collateral values. Nonperforming loans (nonaccrual and loans past due 90 days or more still on accrual) increased to $80.5 million at December 31, 2010, from $38.8 million at December 31, 2009. Nonaccrual loans increased to $80.3 million at December 31, 2010 from $38.0 million at December 31, 2009. The increase in nonaccrual loans is directly related to the continued deterioration experienced by the Company in its construction and development loan portfolio and, to a lesser extent, deterioration in its commercial loan portfolio. Construction and development nonaccrual loans and commercial nonaccrual loans totaled $48.0 million and $22.2 million, respectively, at December 31, 2010. Included in nonaccrual loans is one loan relationship that has both construction and development loans and commercial loans, totaling $39.3 million, or 48% of the December 31, 2010 nonaccrual balance. This relationship was added to nonaccrual status during the fourth quarter of 2010. Management completed an impairment analysis on this loan relationship using the fair value of the underlying collateral, which was based on recent third party appraisals. The specific allowance allocated against this loan relationship totaled $.6 million at December 31, 2010. For additional discussion on nonaccrual loans, refer to Note 3 to the consolidated financial statements.

 

Impaired loans totaled $135.0 million at December 31, 2010 as compared to $45.4 million at December 31, 2009. Although impaired loans increased significantly, the allowance for loan losses allocated to impaired loans totaled $4.9 million at December 31, 2010 as compared to $1.5 million at December 31, 2009. The relatively low specific reserves on impaired loans is a result of the majority of the impaired loans being sufficiently collateralized as of December 31, 2010 and due to the Company being aggressive in recording partial charge-offs on impaired loans.

 

The general reserve as a percent of non-impaired loans was 2.57% at December 31, 2010, as compared to 2.12% at December 31, 2009. The increase in the general reserve as a percent of loans is due to actual historical loss history, 

 

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management’s review of internal classified loans, management’s expectation of overall economic conditions in the areas in which the Company operates, management’s expected losses with the overall level of real estate loans and management’s expectations of future collateral values within the Company’s portfolio.

 

The provision for loan losses was $18.7 million and $24.9 million for 2010 and 2009, respectively. Based on the above discussions on nonperforming loans, impaired loans and overall decline in total loans of $157.3 million, the Company determined that the provision for loan losses of $18.7 million was necessary to have the allowance for loan losses at an adequate level for probable incurred losses inherent in the loan portfolio as of December 31, 2010.

 

At December 31, 2010, the Company had $21.6 million of loans considered troubled debt restructurings, which are considered impaired loans. The Company has not allocated any specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2010. The Company has not committed to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

 

***Bank-Owned Life Insurance (“BOLI”).*** The carrying value of BOLI increased to $39.5 million at December 31, 2010 from $37.6 million at December 31, 2009. This increase was due to an increase in the market value of the underlying investments associated with the insurance policies that are tied to the deferred compensation plan. The increase was a direct result of the market conditions that existed during the year. The underlying investments consist of mutual funds and the investment decisions are made by the participants in the deferred compensation plan.

 

***Other Real Estate Owned.*** At December 31, 2010, the Company had $20.5 million in other real estate owned, compared to $26.0 million at December 31, 2009. During 2010, the Company acquired properties with an aggregate carrying value of $7.5 million, and the Company sold properties with an aggregate carrying value of $7.5 million. These sales produced a net gain of $.2 million. On a monthly basis, the Company evaluates the carrying value of all other real estate owned properties and takes write-downs on these properties as necessary. During 2010, the Company recorded aggregate write-downs of $5.5 million due to continued declines in real estate values. The Company is actively marketing the properties it holds in its other real estate owned portfolio in a continuing effort to reduce the size of this portfolio.

 

***Deposits.***Total deposits at December 31, 2010 increased 1.2% from the prior year-end due to increases in all non-maturity deposit components with the exception of prepaid solutions deposits. These increases were partially offset by continued decreases in time deposit components. Management believes that due to the current state of the economy, some customers have migrated from non-liquid time deposits to more liquid deposit products such as money market checking and savings. In general, management promotes the Company’s deposit products when it believes appropriate and prices its products in a manner intended to retain the Company’s current customers as well as attract new customers while maintaining an acceptable net interest margin. The Company currently holds $29.2 million of deposits related to balances on cards issued by the Bank’s former prepaid solutions group. The Bank plans to terminate or transfer its issuing bank responsibilities under the prepaid card programs originated by the Bank’s former prepaid solutions group. To the extent the Bank terminates, or is able to transfer, its issuing bank responsibilities under the prepaid card programs originated by the Bank’s former prepaid solutions group, the Company expects to cease to hold the deposits. As of December 31, 2010, in accordance with applicable regulatory call report instructions, the Bank reported that it had no brokered deposits.

 

***Prepaid Solutions Cards.***Outstanding balances on prepaid solutions cards, which represent the total of prepaid solution cards deposits and prepaid solutions cards liabilities, increased 2.8% at December 31, 2010 from the prior year-end. On December 4, 2009, the Company sold its prepaid solutions card division. The Bank remains the card issuing bank under the card programs transferred, although the Bank plans to terminate such responsibilities or to transfer such responsibilities and the related assets and liabilities, to another financial institution, if the former prepaid solutions group can identify an institution which is approved to hold such deposits by the financial institution’s regulators. The outstanding balances on prepaid solutions cards will remain on the Company’s balance sheet for a period of time, however, the Company will no longer record the income and expense associated with the prepaid solutions cards.

 

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**Capital Resources**

 

Shareholders’ equity at December 31, 2010 decreased .6% from December 31, 2009. The decrease resulted from a decrease in accumulated other comprehensive income of $3.3 million. The decrease was partially offset by an increase in the amount reclassified on ESOP shares of $1.4 and net income of $1.2 million.

 

Banking regulations require the Company and the Bank to maintain minimum capital amounts and ratios. Regulatory capital requirements call for a minimum total risk-based capital ratio of 8% for each of the Company and the Bank, a minimum Tier 1 risk-based capital ratio 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 expect significant growth; all other institutions are required to maintain a minimum leverage capital ratio of 4% to 5% depending on their particular circumstances and risk and growth profiles) for each of the Company and the Bank. Bank holding companies and their subsidiaries are generally expected to operate at or above the minimum capital requirements. As of December 31, 2010 and 2009, all capital ratios were in excess of these regulatory minimums.

 

On January 13, 2011, the Bank agreed with its regulators to maintain minimum capital ratios in excess of the minimum ratios required by applicable federal regulations. Specifically, the Bank agreed to maintain minimum capital ratios equal to or exceeding 7.75% for Tier 1 capital to average total assets and equal to or exceeding 12.00% for total capital to risk-weighted assets, effective January 13, 2011. If these capital requirements were effective at December 31, 2010, the Bank would not have been in compliance with the Tier 1 capital to average total assets ratio. Additionally, effective after March 31, 2011, the minimum required ratio of Tier 1 capital to average total assets will increase from 7.75% to 8.00%. The Bank does not currently expect to be in compliance with these capital requirements at March 31, 2011. If the Bank is not in compliance with the regulatory requirements, the Bank may be subject to additional regulatory actions or restrictions.

 

Management has taken, and has the ability to continue to take, various steps to preserve and increase capital and strengthen the capital ratios of the Bank. These steps include the following, among others:

 

·      The Bank intends to continue the suspension of dividends to West Suburban.

·      The Bank intends to reduce its assets, including through normal run-offs of deposits and by ceasing to hold deposits on most prepaid solutions cards.

·      West Suburban intends to apply to participate in the U.S. Treasury’s Small Business Lending Fund, a program established by the U.S. Treasury for community banks, which will provide eligible institutions with between $1 billion and $10 billion in assets with Tier 1 capital of up to 3% of the institutions’ risk-weighted assets. There is no assurance that West Suburban will be accepted to participate in the program or that it will elect to participate if it is accepted.

·      West Suburban has the ability to inject capital into the Bank as West Suburban had $3.8 million in cash on hand at December 31, 2010.

 

The Bank also has agreed not to pay dividends to West Suburban without obtaining prior approval of its bank regulators. In addition, West Suburban’s Board of Directors has resolved to obtain regulatory approval prior to paying dividends or redeeming West Suburban common stock in order to preserve capital and maintain the Company’s financial strength given the economic environment and its impact on the Company.

 

As of December 31, 2010 and 2009, the Bank exceeded the minimum capital ratios required for it to qualify as “well-capitalized” under the regulatory framework for prompt corrective action. There were no conditions or events since December 31, 2010, that management believes would result in a change of the Bank being considered “well-capitalized.”

 

On a consolidated basis, West Suburban also exceeded minimum regulatory capital requirements. In accordance with applicable regulations, the appraised fair market value of West Suburban common stock owned by the ESOP is included in Tier 1 capital.

 

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**Liquidity**

 

Effective liquidity management ensures the availability of funding sources at minimum cost to meet fluctuating deposit balances, loan demand needs and to take advantage of earnings enhancement opportunities. A large, stable core deposit base and a strong capital position are the solid foundation for the Company’s liquidity position. Liquidity is enhanced by a securities portfolio structured to provide liquidity as needed. The Company also maintains relationships with correspondent banks to purchase federal funds subject to underwriting and collateral requirements. Additionally, subject to credit underwriting, collateral, capital stock, and other requirements of the Federal Home Loan Bank of Chicago (the “FHLB”), the Company is able to borrow from the FHLB on a “same day” basis. As of December 31, 2010, the Company could have borrowed up to approximately $152 million from the FHLB secured by certain of its real estate loans and securities. Furthermore, the Company has agreements in place to borrow up to $40 million in federal funds. The Company manages its liquidity position through continuous monitoring of profitability trends, asset quality, interest rate sensitivity and maturity schedules of interest-earning assets and interest-bearing liabilities.

 

Generally, the Company uses cash and cash equivalents to meet its liquidity needs. As of December 31, 2010 and 2009, these liquid assets represented 30.0% and 18.3% of total assets, respectively. During 2010, the Company’s cash and cash equivalents decreased $77.9 million primarily due to a $79.8 million decrease in federal funds sold. As discussed above in the securities section of this annual report, the Company made significant investments in investment securities as an alternative to federal funds sold, as the Company has experienced reduced loan volume. If the Company’s cash and cash equivalents are not sufficient to meet its liquidity needs, the Company would access the federal funds available for a short period of time. If longer term liquidity is needed, the Company would meet those needs by using securities available for sale.

 

Net cash provided by operating activities during 2010 was $26.0 million. Net cash used in investing activities was $127.8 million, while net cash provided by financing activities for this period was $23.9 million.

 

**Income Statement Analysis — 2010 Compared to 2009**

 

***General*****.** The Company had net income in 2010 of $1.2 million compared to a net loss of $.8 million in 2009. The net loss in 2009 resulted primarily from an $8.3 million write-down of pooled trust preferred securities during 2009, while no similar write-downs were taken in 2010. Additionally, the Company recorded a $24.9 million provision for loan losses in 2009 compared to $18.7 million in 2010.

 

***Net Interest Income.*** Net interest income in 2010 (on a fully tax-equivalent basis) increased 1.1% compared to 2009. Net interest income is the primary source of income for the Company. Net interest income is the difference between interest income earned on interest-earning assets and interest expense incurred on interest-bearing liabilities. Net interest income is affected by changes in volume and yield on interest-earning assets and the volume and rates on interest-bearing liabilities. Interest-earning assets consist of federal funds sold, securities and loans. Interest-bearing liabilities primarily consist of deposits. The net interest margin is the percentage of tax-equivalent net interest income to average earning assets. The Company’s net interest margin (on a fully tax-equivalent basis) increased to 3.5% at December 31, 2010 compared to 3.4% at December 31, 2009.

 

Total interest income (on a tax-equivalent basis) decreased 7.1% in 2010 primarily due to decreased balances in the Company’s loan portfolio and an increase in loans classified as nonaccrual. Average loan balances decreased 8.9% during this period while the average yield on the loan portfolio increased 3 basis points. Securities average balances increased 29.7% in 2010, and the average yield on the securities portfolio decreased 108 basis points due to the purchased securities in 2010 being lower yielding than existing securities in the portfolio.

 

Total interest expense decreased 26.2% in 2010. The decline was primarily due to lower cost of funds on interest-bearing deposits which decreased 49 basis points to 1.14% in 2010 from 1.63% in 2009. Approximately 61% of the Company’s time deposits are scheduled to mature in 2011, which will reduce the cost of funds as management expects that the time deposits will be either renewed at a substantially lower rate or replaced with lower costing alternative funding sources.

 

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The following table reflects the impact of changes in volume and rates of interest-earning assets and interest-bearing liabilities on a tax equivalent basis for the years ended December 31, 2010 and 2009 (dollars in thousands):

 
| ** **                         | ** ** | **2010 compared to 2009** | ** ** | **2009 compared to 2008** | ** ** |
|------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|
| ** **                         | ** ** | **Change due to**              | ** ** | **Total**                                | ** ** | **Change due to** | ** ** | **Total** | ** ** |
| ** **                         | ** ** | **Volume**                               | ** ** | **Rate**                                 | ** ** | **Change** | ** ** | **Volume** | ** ** | **Rate** | ** ** | **Change** | ** ** |
| **Interest Income**                |       |                                     |       |                                     |       |   |   |   |   |   |   |   |   |
| Federal funds sold                 |       | $                                        | (96        | )                                        | $          | (10 | ) | $ | (106 | ) | $ | 141 |   | $ | (177 | ) | $ | (36 | ) |
| Securities                         |       | 4,418                                    |       | (4,849                                   | )          | (431 | ) | (2,051 | ) | (1,152 | ) | (3,203 | ) |
| Loans                              |       | (5,667                                   | )          | 310                                      |       | (5,357 | ) | (1,554 | ) | (8,231 | ) | (9,785 | ) |
| Total interest income              |       | (1,345                                   | )          | (4,549                                   | )          | (5,894 | ) | (3,464 | ) | (9,560 | ) | (13,024 | ) |
|                               |       |                                     |       |                                     |       |   |   |   |   |   |   |   |   |
| **Interest Expense**               |       |                                     |       |                                     |       |   |   |   |   |   |   |   |   |
| Interest-bearing deposits          |       | 996                                      |       | (7,511                                   | )          | (6,515 | ) | 696 |   | (9,060 | ) | (8,364 | ) |
| Other interest-bearing liabilities |       | (42                                      | )          | (1                                       | )          | (43 | ) | (121 | ) | (500 | ) | (621 | ) |
| Total interest expense             |       | 954                                      |       | (7,512                                   | )          | (6,558 | ) | 575 |   | (9,560 | ) | (8,985 | ) |
| Net interest income                |       | $                                        | (2,299     | )                                        | $          | 2,963 |   | $ | 664 |   | $ | (4,039 | ) | $ | — |   | $ | (4,039 | ) |

 

***Provision for Loan Losses.***The provision for loan losses decreased $6.2 million in 2010. A more detailed discussion concerning the allowance for loan losses is presented in the Allowance for Loan Losses and Asset Quality section of this annual report.

 

***Noninterest Income.*******Total noninterest income increased $10.5 million during 2010 compared to 2009. Although the Company did not record any OTTI on its securities portfolio in 2010, during 2009, the Company recorded OTTI on its pooled trust preferred securities in the amount of $8.3 million, which reduced noninterest income. The Company recorded a gain on sale of portfolio loans held for sale of $2.8 million. A more detailed discussion concerning this transaction is presented in the Balance Sheet Analysis of this annual report. The Company recorded BOLI income of $1.7 million for 2010, compared to $2.0 million for 2009. This decrease in BOLI income was primarily due to a smaller increase, in 2010 compared to 2009, in the market value of the underlying investments with specific account assets. The Company experienced an increase in net realized gains on securities transactions of $.2 million primarily due to a one-time sale of Mastercard stock. Service fees on deposit accounts decreased $.8 million primarily due to decreased fees associated with the overdraft honors program.

 

***Noninterest Expense.*** Total noninterest expense increased 12.5% during 2010 compared to 2009. Salaries and employee benefits decreased $1.0 million primarily due to a smaller increase in 2010, compared to 2009, in the market value of the underlying investments associated with the insurance policies that are tied to the Company’s deferred compensation plans. Other real estate owned expense increased primarily due to $5.5 million of write-downs on other real estate owned in 2010 compared to write-downs on other real estate owned of $.4 million in 2009. Occupancy expense increased $.2 million primarily due to increased rent and real estate taxes. Furniture and equipment expense decreased $.5 million primarily due to reduced depreciation and maintenance expense. FDIC assessments increased $.6 million due to several factors, including increased assessments issued by the FDIC in support of the deposit insurance fund as well as the Temporary Liquidity Guarantee Program and the Company’s participation in the FDIC’s Transaction Account Guarantee Program. Loan administration expense increased $1.6 million primarily due to real estate tax payments on several nonaccrual commercial, commercial real estate and construction and development loans along with expenses incurred in connection with the collection of lease payments from a nonaccrual commercial loan. Professional fees decreased $1.3 million primarily due to reduced costs associated with the Company’s compliance with the enforcement actions related to the Bank Secrecy Act and other regulatory compliance related matters. Advertising and promotion expense increased $.3 million primarily due to increased advertising on cable television in 2010. Other expense increased $.5 million due to increased regulatory examination fees as a rebate occurred in the 2009 period. Additionally, Visa cardholder expense increased due to the increase in the accrual for quarterly Visa costs.

 

***Income Taxes.*** The Company recorded an income tax benefit of $2.1 million for 2010 as compared to an income tax benefit of $7.8 million for 2009. The effective tax rates for 2010 and 2009 were (222.2%) and (86.9%), respectively. 

 

51

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The decrease in the income tax benefit in 2010 from 2009 was a result of a lower loss before income taxes. The Company recorded a larger income tax benefit than pre-tax net loss for 2010 due to the impact of large permanent differences resulting from tax-exempt income, BOLI income and ESOP dividends.

 

**Income Statement Analysis — 2009 Compared to 2008**

 

***General*****.** The Company’s net income decreased 105.0% in 2009 to a net loss of $.8 million compared to 2008. The net loss resulted primarily from an increase in the provision for loan losses of $14.6 million and the write-off of $8.3 million of its holdings of pooled trust preferred securities in 2009. Total noninterest income decreased $6.7 million while total noninterest expense increased $9.2 million primarily from increases in salaries and employee benefits expense and FDIC assessments. Net interest income before provision for loan losses decreased $4.0 million. Income tax expense decreased $10.4 million to a benefit position in 2009. On December 4, 2009, the Company sold its prepaid solutions group and recorded a gain of $3.3 million, net of tax.

 

***Net Interest Income.*** Net interest income in 2009 (on a fully tax-equivalent basis) decreased 6.5% compared to 2008. Net interest income is the primary source of income for the Company. The Company’s net interest margin (on a fully tax-equivalent basis) decreased to 3.4% at December 31, 2009 compared to 3.6% at December 31, 2008.

 

Total interest income (on a tax-equivalent basis) decreased 13.6% in 2009 primarily due to decreasing yields in the Company’s loan portfolio. Average loan balances decreased 2.4% during this period. The yield on the Company’s home equity loan portfolio decreased 60 basis points during this period primarily due to decreases in the interest rates charged for home equity lines of credit that adjusted as a result of decreases in the prime rate. These decreases were a direct result of the Federal Reserve initiating interest rate reductions of 400 basis points in 2008 and 100 basis points during the last six months of 2007. The average prime rate was 3.25% for 2009 and 5.08% for 2008. Yields on the Company’s commercial loan portfolio decreased 137 basis points during this period. This decrease was partially due to the majority of adjustable rate commercial loans being tied to the prime rate, as well as an $8.2 million increase in commercial nonaccrual loans during 2009, which accounted for $1.8 million of lost interest and a reduction in yield of 42 basis points. Yields on federal funds sold decreased 225 basis points due to decreases in interest rates initiated by the Federal Reserve. Yields on investment securities decreased 23 basis points as the Company liquidated its corporate securities portfolio, sold one of its holdings of pooled trust preferred securities and wrote-off all of its remaining holdings of pooled trust preferred securities which had experienced increased interest payment deferrals during 2009.

 

Total interest expense decreased 26.4% in 2009. Lower interest on deposits, resulting from lower yields on interest-bearing deposits, accounted for most of the decrease. The decline was primarily due to lower cost of funds on interest-bearing deposits which decreased 62 basis points to 1.63% in 2009 from 2.25% in 2008.

 

***Provision for Loan Losses.***The provision for loan losses increased $14.6 million in 2009. The Company determined that additional loan loss provisions were necessary due to the increased levels of charge-offs and nonperforming loans and continued downward trends in the national and local economies.

 

***Noninterest Income.*******Total noninterest income decreased 53.6% during 2009 compared to 2008. During 2009, the Company wrote-off $8.3 million of the Company’s holdings in pooled trust preferred securities. Service fees on deposit accounts decreased $.4 million primarily due to decreased fees associated with the overdraft honors program. The BOLI investment increased $4.2 million to a gain of $2.0 million from a loss of $2.2 million for 2008 primarily due to an increase in the market value of the underlying investments associated with the insurance policies that are tied to the deferred compensation plans. Net gains on loans held for sale increased $.5 million primarily due to increased sales of loans held for sale in the secondary market. During 2008, the Company recorded a one-time gain of $2.1 million related to the redemption of VISA stock as part of the VISA initial public offering and recovery of expenses recorded for the Company’s obligation to indemnify VISA during the fourth quarter of 2007. Other income decreased $.5 million.

 

***Noninterest Expense.*** Total noninterest expense increased 22.4% during 2009 compared to 2008. Salaries and employee benefits increased $4.7 million primarily due to an increase in the market value of the underlying investments associated with the insurance policies that are tied to the Company’s deferred compensation plans.

 

52

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Additionally, the Company experienced increased salary and employee benefits expense related to Bank Secrecy compliance and other compliance related matters as well as $.6 million in severance payments associated with the sale of the prepaid solutions group. Occupancy expense decreased $.1 million, primarily due to reduced utilities expense. Advertising and promotion expense decreased $1.1 million primarily due to the Company reducing its use of an advertising agency and reduced newspaper advertising. Professional fees expense increased $1.8 million primarily due to increased costs related to Bank Secrecy Act compliance and other compliance related matters and increased legal costs related to commercial lending matters. FDIC assessments increased $3.1 million due to several factors, including increased assessments issued by the FDIC in support of the deposit insurance fund as well as the Temporary Liquidity Guarantee Program, the Company’s participation in the FDIC’s Transaction Account Guarantee Program, the prepaid solutions card deposits becoming eligible for FDIC Insurance and the use of a credit balance the Company had with the FDIC in prior years. A portion of the increase in FDIC assessments is due to a one-time special assessment of $.9 million recognized during the second quarter of 2009. Loan administration expense increased $.9 million primarily due to real estate tax payments made for several commercial accounts.

 

***Income Taxes.*** For 2009, the Company recorded an income tax benefit of $5.6 million compared to an income tax expense of $5.1 million for 2008. The effective tax rates for 2009 and 2008 were (86.9%) and 22.2%, respectively. The decline was due to a pretax loss and the impact of permanent differences resulting from, among other items, ESOP dividends, municipal income and BOLI income.

 

**Interest Rate Sensitivity**

 

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

 

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

 

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

 

·                  Balance sheet volume reflects the current balances and does not project future growth or changes. The current balances establish the base case from which all percent changes are calculated.

 

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

 

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

 

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

 

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

 
| ** **                   | ** ** | **Amount** | ** ** | **Dollar   Change** | ** ** | **Percent   Change** | ** ** |
|------------------------------|------------|------------|------------|---------------------|------------|----------------------|------------|
| **December 31,   2010** |       |       |       |                |       |                 |       |
| +200 basis points            |       | $          | 56,061     |                | $          | (3,246               | )          | (5.5 | )% |
| +100 basis points            |       | 56,799     |       | (2,508              | )          | (4.2                 | )%         |
| Base                         |       | 59,307     |       |                |       |                 |       |
| -100 basis points            |       | 53,338     |       | (5,969              | )          | (10.1                | )%         |
| -200 basis points            |       | 49,072     |       | (10,235             | )          | (17.3                | )%         |
|                         |       |       |       |                |       |                 |       |
| December 31, 2009       |       |       |       |                |       |                 |       |
| +200 basis points            |       | $          | 58,194     |                | $          | 2,388                |       | 4.3 | % |
| +100 basis points            |       | 56,317     |       | 511                 |       | 0.9                  | %          |
| Base                         |       | 55,806     |       |                |       |                 |       |
| -100 basis points            |       | 49,048     |       | (6,758              | )          | (12.1                | )%         |
| -200 basis points            |       | 44,371     |       | (11,435             | )          | (20.5                | )%         |

 

In a falling rate environment, the Company is projected to have a decrease in net interest income. However, it is not possible for many of the Company’s deposit rates to fall 100 or 200 basis points due to their current rates already being below 100 basis points at December 31, 2010. The target federal funds rate is currently set by the Federal Reserve at a rate between 0 and 25 basis points. As a result, a 200 basis point decline in overall rates would only have between a 0 and 25 basis point decline in both federal funds and the prime rate. Further, other rates that are currently below 1% or 2% (e.g. U.S. Treasuries and LIBOR) would not fall below 0% with an overall 100 or 200 basis point decrease in rates. Many of the Company’s variable rate loans are set to an index tied to prime, federal funds or LIBOR, and as a result, a further decrease in rates would not have a substantial impact on loan yields. Accordingly, management believes that the analyses resulting from 100 and 200 basis point downward changes are not meaningful in light of current interest rate levels.

 

**Effects of Inflation**

 

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

 

54

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**BOARDS OF DIRECTORS**

 

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** **

**West Suburban 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, Administrative Pastor |
| Peggy P. LoCicero | Former   Bank Officer                              |

 

**West Suburban Bank**

 
| Keith W. Acker   | Chairman   of the Board, President  |
|------------------|-------------------------------------|
| Craig R. Acker   | Former   Bank Officer               |
| David S. Bell    | Certified   Public Accountant       |
| Earl K. Harbaugh | Ditch   Witch Midwest, President    |
| Keith Kotche     | Levato &   Kotche, Partner |
| John G. Williams | Bracing   Systems, Vice President   |

 

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**OFFICERS**

 

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**West Suburban Bancorp, 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 |
|                    |                                                   |
| **Bank Secrecy Act**    |                                                   |
| Matthew Beckman         | Bank   Secrecy Act Officer                             |
|                    |                                                   |
| **Building Management** |                                                   |
| Edward J. Garvey        | Vice   President, Building Management                  |
| Matthew R. Acker        | Property   and OREO Manager                            |
|                    |                                                   |
| **Cash Management**     |                                                   |
| Gary Raczek             | Vice   President, Cash Management Manager              |

 

55

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| **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                                                           |
|                                                       |                                                                                       |
| **Compliance**                                             |                                                                                       |
| Alice Anne Gaultney                                        | Compliance Officer                                                                         |
|                                                       |                                                                                       |
| **Comptroller**                                            |                                                                                       |
| Jay J.P. Greifenkamp                                       | Vice President, Financial Analyst, Investment   Officer and Secretary to the Board    |
| Michael J. Lynch                                           | Vice President, Accounting Officer                                                         |
| George E. Ranstead                                         | Vice President, Assistant Comptroller and   Investment Officer                             |
|                                                       |                                                                                       |
| **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                                              |
|                                                       |                                                                                       |
| **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**                                        |                                                                                       |
| Kevin G. Carani                                            | Vice President, Mortgage Processing, Loan   Servicing                                      |
| Sandra C. Boyce                                            | Vice President, Residential Mortgage Loan   Processing                                     |
| 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                                                                      |
|                                                       |                                                                                       |
| **Regulatory Compliance and   Community Reinvestment Act** |
| Carolyn M. Hagner                                          | Vice President, Director of Regulatory Compliance   and Community Reinvestment Act Officer |

 

56

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| **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                     |
| John   Bruner                          | Assistant Vice President, Branch Manager -   Bartlett                      |
| Jill   E. Castillo                     | Assistant Vice President, Branch Manager -   Oakbrook Terrace              |
| 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 - Bolingbrook   West              |
| 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 - South   Main                    |
| Priya   Hira                           | Assistant Vice President, Branch Manager - Danada,   Wheaton               |
| Mary   L. Kureja                       | Assistant Vice President, Branch Manager - Finley   Road, Downtown Downers |
| Terry   Leitner                        | Assistant Vice President, Branch Manager - Cass   Avenue, 75th Street |
| Jeffery   W. Miska                     | Assistant Vice President, Branch Manager - North   Main                    |
| Carlos   Muzquiz                       | Assistant Vice President, Branch Manager - Lake   Street                   |
| Brian   S. Nickleski                   | Assistant Vice President, Branch Manager -   Westmont                      |
| Sandra   Ochoa                         | Assistant Vice President, Branch Manager - Randall   Road                  |
| 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                   |
| Matthew   Remus                        | Assistant Vice President, Branch Manager - Fair   Oaks                     |
| Laura   Saad                           | Assistant Vice President, Branch Manager - Yorkville,   Oswego             |
| Gloria   Santiago                      | Assistant Vice President, Branch Manager -   Montgomery                    |
| Lisa   M. Schmidt                      | Assistant Vice President, Branch Manager - South   Elgin                   |
| Ann   M. Talavera                      | Assistant Vice President, Branch Manager -   President Street              |
| Patience   K. Tannenbaum               | Assistant Vice President, Branch Manager -   Charlestowne                  |
| Mihaela   Tonchevici                   | Assistant Vice President, Branch Manager - River   Run                     |
|                                   |                                                                       |
| **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: 335 North Eola Road, Aurora, Illinois 60504

West Galena Branch: 2000 West Galena Boulevard, Aurora, Illinois 60506

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

 

**Bartlett**

Bartlett Branch: 1061 West 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

 

**Carol Stream**

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

Fair Oaks Branch: 1380 West 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: 8001 South Cass Avenue, Darien, Illinois 60561

 

**Downers Grove**

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

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

 

**Glendale Heights**

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

 

**Lombard**

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

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

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

 

**Montgomery**

Montgomery Branch: 1830 Douglas Road, Montgomery, Illinois 60538

 

**Naperville**

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

Naperville Branch: 2020 Feldott Lane, Naperville, Illinois 60540

River Run Branch: 1004 104th Street, Naperville, IL 60564

 

**Oakbrook Terrace**

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

 

**Oswego**

Oswego Branch: 2830 Route 34, Oswego, Illinois 60543

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

 

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**Romeoville**

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

 

**South Elgin**

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

 

**St. Charles**

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

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

 

**Villa Park**

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

 

**Warrenville**

Warrenville Branch: 3S041 Route 59, Warrenville, Illinois 60555

 

**Westmont**

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

 

**Wheaton**

Danada Branch: 295 West Loop Road, Wheaton, Illinois 60187

Wheaton Branch: 221 South West Street, Wheaton, Illinois 60187

 

**Yorkville**

Yorkville Branch: 10 Saravanos Drive, Yorkville, Illinois 60560

 

ATMs are available at all of the above banking branches.

 

**Limited-Service Branches**

*Beacon Hill Retirement Community: Lombard, Illinois 60148*

*Clare Oaks: Bartlett, Illinois 60103*

*Financial Center: 717 South Meyers Road, Lombard, Illinois 60148*

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

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

*Villa St. Benedict: Lisle, Illinois 60532*

 

**Other Services**

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

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

*West Suburban 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*

 

59

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**[MAP OF MARKET AREA THAT INDICATES LOCATION OF FACILITIES]**

 

 

****

 

***Unlike Any Other Bank***

 

60

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**SHAREHOLDER INFORMATION**

 

**Annual Report on Form 10-K**

A copy of West Suburban Bancorp, Inc.’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission, is available on their web site at www.sec.gov or without charge to shareholders by writing to:

 

Duane G. Debs

President and Chief Financial Officer

West Suburban Bancorp, Inc.

2800 Finley Road

Downers Grove, Illinois 60515

(630) 652-2801

 

**Annual Meeting of Shareholders**

The annual meeting of shareholders of West Suburban Bancorp, Inc. will be held at West Suburban Bank, 711 South Meyers Road, Lombard, Illinois on Wednesday, May 11, 2011 at 8:00 a.m. All shareholders are cordially invited to attend.

 

**Stock Transfer Agent and Registrar**

Inquiries regarding stock transfers, registration, lost certificates and changes of name and address should be directed to the stock transfer agent and registrar by writing to:

 

George E. Ranstead

Secretary to the Board and Treasurer

West Suburban Bancorp, Inc.

2800 Finley Road

Downers Grove, Illinois 60515

(630) 652-2802

 

**Community Reinvestment Act**

West Suburban Bank adheres to a well-established policy of helping to meet the credit needs of our local communities, consistent with safe and sound lending practices, in accordance with the Community Reinvestment Act. For additional information, contact:

 

Carolyn M. Hagner

Community Reinvestment Act Officer

West Suburban Bank

711 South Meyers Road

Lombard, Illinois 60148

(630) 652-2193

 

**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 Ferrazzano Kirschbaum & Nagelberg LLP

200 West Madison Street, Suite 3900

Chicago, Illinois 60606

 
| **MEMBER   FDIC** |  |  |
|-------------------|--|--|

 

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