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EX-13 - EX-13 - WEST SUBURBAN BANCORP INCa09-35829_1ex13.htm
EX-21 - EX-21 - WEST SUBURBAN BANCORP INCa09-35829_1ex21.htm
EX-32.1 - EX-32.1 - WEST SUBURBAN BANCORP INCa09-35829_1ex32d1.htm
EX-31.1 - EX-31.1 - WEST SUBURBAN BANCORP INCa09-35829_1ex31d1.htm
EX-32.2 - EX-32.2 - WEST SUBURBAN BANCORP INCa09-35829_1ex32d2.htm
EX-31.2 - EX-31.2 - WEST SUBURBAN BANCORP INCa09-35829_1ex31d2.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

x       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For fiscal year ended December 31, 2009

 

o          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For transition period from            to          

 

Commission File Number 000 – 17609

 

WEST SUBURBAN BANCORP, INC.

(Exact name of Registrant as specified in its charter)

 

Illinois

 

36-3452469

(State or other jurisdiction

 

(I.R.S. Employer Identification Number)

of incorporation or organization)

 

 

 

 

 

711 South Meyers Road, Lombard, Illinois

 

60148

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code:  (630) 652-2000

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

Name of Each Exchange

Title of Each Class

 

on which Registered

None

 

None

 

Securities registered pursuant to Section 12(g) of the Act:

 

Common Stock, no par value

(Title of Class)

 

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o  No x

 

Indicate by check mark if Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o  No x

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  o  No  o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes  o  No  x

 

The aggregate fair value of voting common stock of Registrant held by non-affiliates as of June 30, 2009 was $98,068,500(1)

 

At March 2, 2010, the total number of shares of Common Stock outstanding was 426,850.

 

Documents Incorporated by Reference:

 

Portions of the Annual Report to Shareholders for the fiscal year ended December 31, 2009, which is included as Exhibit 13 to this Form 10-K, are incorporated by reference into Parts I, II and IV hereof, to the extent indicated herein. Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held May 12, 2010 are incorporated by reference in Part III hereof, to the extent indicated herein.

 


(1)             Based on the last independently appraised fair value of the Registrant’s common stock as of March 2, 2010 and reports of beneficial ownership filed by directors and executive officers of Registrant and by beneficial owners of more than 5% of the outstanding shares of common stock of Registrant; however, such determination of shares owned by affiliates does not constitute an admission of affiliate status or beneficial interest in shares of common stock of Registrant.

 

 

 



 

Special Note Concerning Forward-Looking Statements

 

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

 

The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors that could have a material adverse effect on the operations and future prospects of the Company include, but are not limited to, those set forth in the “Risk Factors” section included under Item 1A and the following:

 

·            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.

 

·            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 laws and regulations intended to address the current stresses in the U.S. and global financial markets, national security and money laundering.

 

·            The effects of continued adverse market conditions and further volatility in investment securities generally, which may result in a deterioration in the value of the securities in the Company’s investment portfolio.

 

·            The ability of the Company to comply with, and satisfy the requirements of, its formal written agreements with its regulators and the consequences that may result from any inability to comply.

 

·            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.

 

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

 

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

 

·            The ability of the Company to maintain an acceptable net interest margin.

 

·            The ability of the Company to obtain new customers and to retain existing customers.

 

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

 

·            Technological changes implemented by the Company and by other parties, including third party vendors, which may be more difficult or more expensive than anticipated or which may have unforeseen consequences to the Company and its customers, including technological changes implemented for, or related to, the Company’s website or new products.

 

·            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.

 

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·            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.

 

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

 

·            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.

 

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

 

·            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.

 

·            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.

 

·            Credit risks and the risks from concentrations (by geographic area or industry) within the Company’s loan portfolio.

 

·            The failure of the Company’s Real Estate Investment Trust (“REIT”) to qualify as a REIT and the effects of such failure on the Company’s consolidated effective tax rate.

 

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

 

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

 

PART I

 

ITEM 1.        BUSINESS

 

REGISTRANT AND ITS SUBSIDIARY

 

West Suburban Bancorp, Inc., an Illinois corporation organized in 1986, is a bank holding company registered under the Bank Holding Company Act of 1956, as amended (the “BHCA”), and the parent company of West Suburban Bank.

 

The Bank is headquartered in Lombard, Illinois, and, as of December 31, 2009, maintained 35 full-service branches, five limited-service branches and four departments providing insurance, financial and other services for the convenience of the customers of the Bank throughout the western suburbs of Chicago. Due to the nature of the market areas served by the Bank, the Bank provides a wide range of financial services to individuals and small to medium sized businesses. The western suburbs of Chicago have a diversified economy with many corporate headquarters and numerous small to medium sized industrial and non-industrial businesses.

 

The Bank engages in a general full service retail banking business and offers a broad variety of consumer and commercial products and services. The Bank also offers insurance services through West Suburban Insurance Services, Inc., land trust services and safe deposit boxes. The Bank provides extended banking hours, including Sunday hours and 24-hour banking through a proprietary network of 64 automated teller machines, Tele-Bank 24 (a bank-by-phone system) and online banking at www.westsuburbanbank.com. Other consumer related services are also available, including investment products and a Visa card through West Suburban Bank card services.

 

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The following table sets forth financial and other information concerning the Bank as of and for the year ended December 31, 2009 (dollars in thousands):

 

Year Formed/Year

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliated with

 

Number of

 

Total

 

Shareholders’

 

Net

 

Return on Average

 

West Suburban

 

Locations

 

Assets

 

Equity

 

Loss

 

Assets

 

Equity

 

West Suburban Bank
(1962/1988)

 

40

 

$

1,933,032

 

$

145,630

 

$

(815

)

(0.04

)%

(0.55

)%

 

COMPETITION

 

The Company encounters competition in all areas of its business pursuits. It competes for loans, deposits, fiduciary and other services with financial and other institutions located both within and outside of its market area. The Company estimates that there are 108 other financial institutions operating over 819 separate banking offices within the Company’s market area. The Company also faces competition from finance companies, insurance companies, mortgage companies, securities brokerage firms, money market funds, loan production offices and other providers of financial services. In order to compete effectively, develop its market base, maintain flexibility and move in pace with changing economic, technological and social conditions, the Company continuously refines and develops its products and services. The principal methods of competition in the financial services industry are price, service and convenience.

 

EMPLOYEES

 

At December 31, 2009, the Company employed 584 persons (502 full-time equivalent employees). The Company believes that its relationship with its employees is good. None of the Company’s employees are covered by a collective bargaining agreement with the Company.

 

SUPERVISION AND REGULATION

 

General

 

Financial institutions, their holding companies and their affiliates are extensively regulated under federal and state law.  As a result, the growth and earnings performance of the Company may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory authorities, including the Illinois Department of Financial and Professional Regulation (the “DFPR”), the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and the Federal Deposit Insurance Corporation (the “FDIC”).  Furthermore, taxation laws administered by the Internal Revenue Service and state taxing authorities and securities laws administered by the Securities and Exchange Commission (the “SEC”) and state securities authorities have an impact on the business of the Company. The effect of these statutes, regulations and regulatory policies may be significant, and cannot be predicted with a high degree of certainty.

 

Federal and state laws and regulations generally applicable to financial institutions regulate, among other things, the scope of business, the kinds and amounts of investments, reserve requirements, capital levels relative to operations, the nature and amount of collateral for loans, the establishment of branches, mergers and consolidations and the payment of dividends. This system of supervision and regulation establishes a comprehensive framework for the respective operations of the Company and its subsidiaries and is intended primarily for the protection of the FDIC-insured deposits and depositors of the Bank, rather than shareholders.

 

The following is a summary of the material elements of the regulatory framework that currently applies to the Company and its subsidiaries.  It does not describe all of the statutes, regulations and regulatory policies that apply, nor does it restate all of the requirements of those that are described.  Additionally, in response to the global financial crisis that began in 2007, various legislative and regulatory proposals have been issued addressing, among other things, the restructuring of the federal bank regulatory system, more stringent regulation of consumer products such as mortgages and credit cards, and safe and sound compensation practices. At this time, the Company is unable to determine whether any of these proposals will be adopted as proposed.  As such, the following is qualified in its entirety by reference to applicable law.  Any change in statutes, regulations or regulatory policies may have a material effect on the business of the Company and its subsidiaries.

 

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The Company

 

General.  The Company, as the sole shareholder of the Bank, is a bank holding company.  As a bank holding company, the Company is registered with, and is subject to regulation by, the Federal Reserve under the BHCA.  In accordance with Federal Reserve policy, the Company is expected to act as a source of financial strength to the Bank and to commit resources to support the Bank in circumstances where the Company might not otherwise do so.  Under the BHCA, the Company is subject to periodic examination by the Federal Reserve.  The Company is required to file with the Federal Reserve periodic reports of the Company’s operations and such additional information regarding the Company and its subsidiaries as the Federal Reserve may require.

 

Acquisitions, Activities and Change in Control.  The primary purpose of a bank holding company is to control and manage banks.  The BHCA generally requires the prior approval of the Federal Reserve for any merger involving a bank holding company or any acquisition by a bank holding company of another bank or bank holding company. Subject to certain conditions (including deposit concentration limits established by the BHCA), the Federal Reserve may allow a bank holding company to acquire banks located in any state of the United States. In approving interstate acquisitions, the Federal Reserve is required to give effect to applicable state law limitations on the aggregate amount of deposits that may be held by the acquiring bank holding company and its insured depository institution affiliates in the state in which the target bank is located (provided that those limits do not discriminate against out-of-state depository institutions or their holding companies) and state laws that require that the target bank have been in existence for a minimum period of time (not to exceed five years) before being acquired by an out-of-state bank holding company.

 

The BHCA generally prohibits the Company from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company that is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries.  This general prohibition is subject to a number of exceptions. The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve to be “so closely related to banking ... as to be a proper incident thereto.”  This authority would permit the Company to engage in a variety of banking-related businesses, including the ownership and operation of a thrift or any entity engaged in consumer finance, equipment leasing, the operation of a computer service bureau (including software development), and mortgage banking and brokerage. The BHCA generally does not place territorial restrictions on the domestic activities of non-bank subsidiaries of bank holding companies.

 

Additionally, bank holding companies that meet certain eligibility requirements prescribed by the BHCA and elect to operate as financial holding companies may engage in, or own shares in companies engaged in, a wider range of nonbanking activities, including securities and insurance underwriting and sales, merchant banking and any other activity that the Federal Reserve, in consultation with the Secretary of the Treasury, determines by regulation or order is financial in nature, incidental to any such financial activity or complementary to any such financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally.  As of the date of this filing, the Company has not applied for approval to operate as a financial holding company.

 

Federal law also prohibits any person or company from acquiring “control” of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal bank regulator.  “Control” is conclusively presumed to exist upon the acquisition of 25% or more of the outstanding voting securities of a bank or bank holding company, but may arise under certain circumstances between 10% and 24.99% ownership.

 

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Capital Requirements.  Bank holding companies are required to maintain minimum levels of capital in accordance with Federal Reserve capital adequacy guidelines.  If capital levels fall below the minimum required levels, a bank holding company, among other things, may be denied approval to acquire or establish additional banks or non-bank businesses.

 

The Federal Reserve’s capital guidelines establish the following minimum regulatory capital requirements for bank holding companies: (i) a risk-based requirement expressed as a percentage of total assets weighted according to risk; and (ii) a leverage requirement expressed as a percentage of total assets.  The risk-based requirement consists of a minimum ratio of total capital to total risk-weighted assets of 8% and a minimum ratio of Tier 1 capital to total risk-weighted assets of 4%.  The leverage requirement consists of a minimum ratio of Tier 1 capital to total assets of 3% for the most highly rated companies, with a minimum requirement of 4% for all others.  For purposes of these capital standards, Tier 1 capital consists primarily of permanent stockholders’ equity less intangible assets (other than certain loan servicing rights and purchased credit card relationships). Total capital consists primarily of Tier 1 capital plus Tier 2 capital which consists of other non-permanent capital items such as certain other debt and equity instruments that do not qualify as Tier 1 capital and a portion of the company’s allowance for loan and lease losses.

 

The risk-based and leverage standards described above are minimum requirements. Higher capital levels will be required if warranted by the particular circumstances or risk profiles of individual banking organizations. For example, the Federal Reserve’s capital guidelines contemplate that additional capital may be required to take adequate account of, among other things, interest rate risk, or the risks posed by concentrations of credit, nontraditional activities or securities trading activities.  Further, any banking organization experiencing or anticipating significant growth would be expected to maintain capital ratios, including tangible capital positions (i.e., Tier 1 capital less all intangible assets), well above the minimum levels.  As of December 31, 2009, the Company had regulatory capital in excess of the Federal Reserve’s minimum requirements.

 

Emergency Economic Stabilization Act of 2008.  Events in the U.S. and global financial markets over the past several years, including deterioration of the worldwide credit markets, have created significant challenges for financial institutions throughout the country.  In response to this crisis affecting the U.S. banking system and financial markets, on October 3, 2008, the U.S. Congress passed, and the President signed into law, the Emergency Economic Stabilization Act of 2008 (the “EESA”).  The EESA authorized the Secretary of the United States Department of Treasury (“Treasury”) to implement various temporary emergency programs designed to strengthen the capital positions of financial institutions and stimulate the availability of credit within the U.S. financial system.  Financial institutions participating in certain of the programs established under the EESA are required to adopt Treasury’s standards for executive compensation and corporate governance.

 

The TARP Capital Purchase Program.  On October 14, 2008, Treasury announced that it would provide Tier 1 capital (in the form of perpetual preferred stock) to eligible financial institutions.  This program, known as the TARP Capital Purchase Program (the “CPP”), allocated $250 billion from the $700 billion authorized by the EESA to Treasury for the purchase of senior preferred shares from qualifying financial institutions.  Under the program, eligible institutions were able to sell equity interests to the Treasury in amounts equal to between 1% and 3% of the institution’s risk-weighted assets.  The Company did not participate in the CPP.

 

Dividend Payments.  The Company’s ability to pay dividends to its shareholders may be affected by both general corporate law considerations and policies of the Federal Reserve applicable to bank holding companies. As an Illinois corporation, the Company is subject to the Illinois Business Corporation Act, as amended, which prohibits the Company from paying a dividend if, after giving effect to the dividend: (i) the Company would be insolvent; or (ii) the net assets of the Company would be less than zero; or (iii) the net assets of the Company would be less than the maximum amount then payable to shareholders of the Company who would have preferential distribution rights if the Company were liquidated. Additionally, policies of the Federal Reserve caution that a bank holding company should not pay cash dividends unless its net income available to common shareholders over the past year has been sufficient to fully fund the dividends and the prospective rate of earnings retention appears consistent with its capital needs, asset quality, and overall financial condition.  The Federal Reserve also possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations.  Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies.

 

Federal Securities Regulation.  The Company’s common stock is registered with the SEC under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Consequently,

 

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the Company is subject to the information, proxy solicitation, insider trading and other restrictions and requirements of the SEC under the Exchange Act.

 

The Bank

 

General.  The Bank is an Illinois-chartered bank, the deposit accounts of which are insured by the FDIC to the maximum extent provided under federal law and FDIC regulations.  As an Illinois-chartered bank, the Bank is subject to the examination, supervision, reporting and enforcement requirements of the DFPR, the chartering authority for Illinois banks, and the FDIC, designated by federal law as the primary federal regulator of state-chartered, FDIC-insured banks that, like the Bank, are not members of the Federal Reserve System (“non-member banks”).

 

Deposit Insurance.  As an FDIC-insured institution, the Bank is required to pay deposit insurance premium assessments to the FDIC.  The FDIC has adopted a risk-based assessment system whereby FDIC-insured depository institutions pay insurance premiums at rates based on their risk classification.  An institution’s risk classification is assigned based on its capital levels and the level of supervisory concern the institution poses to the regulators.  Under the regulations of the FDIC, as presently in effect, insurance assessments range from 0.07% to 0.78% of total deposits, depending on an institution’s risk classification, its levels of unsecured debt and secured liabilities, and, in certain cases, its level of brokered deposits.

 

Furthermore, as a result of the increased volume of bank failures in 2008 and 2009, on May 22, 2009, the FDIC approved a final rule imposing a special assessment on all depository institutions whose deposits are insured by the FDIC.  This one-time special assessment was imposed on institutions in the second quarter of 2009, and was collected on September 30, 2009.  Pursuant to the final rule, the FDIC imposed on the Bank a special assessment in the amount of $.9 million, which was due and paid on September 30, 2009.

 

On November 12, 2009, the FDIC adopted a final rule that required insured depository institutions to prepay on December 30, 2009, their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011, and 2012.  On December 30, 2009, the Bank paid the FDIC $10.1 million in prepaid assessments.  An institution’s prepaid assessments were calculated based on the institution’s actual September 30, 2009 assessment base, adjusted quarterly by an estimated 5 percent annual growth rate through the end of 2012.  The FDIC also used the institution’s total base assessment rate in effect on September 30, 2009, increasing it by an annualized 3 basis points beginning in 2011.  The FDIC will begin to offset prepaid assessments on March 30, 2010, representing payment of the regular quarterly risk-based deposit insurance assessment for the fourth quarter of 2009.  Any prepaid assessment not exhausted after collection of the amount due on June 30, 2013, will be returned to the institution.

 

FDIC Temporary Liquidity Guarantee Program.  In conjunction with Treasury’s actions to address the credit and liquidity crisis in financial markets, on October 14, 2008, the FDIC announced the Temporary Liquidity Guarantee Program.  One component of the Temporary Liquidity Guarantee Program is the Transaction Account Guarantee Program, which temporarily provides participating institutions with unlimited deposit insurance coverage for non-interest bearing and certain low-interest bearing transaction accounts maintained at FDIC insured institutions.  All institutions that did not opt out of the Transaction Account Guarantee Program were subject to a 10 basis point per annum assessment on amounts in excess of $250,000 in covered transaction accounts through December 31, 2009.  On August 26, 2009, the FDIC extended the Transaction Account Guarantee Program for an additional six months through June 30, 2010.  Beginning January 1, 2010, the assessment levels increased to 15 basis points, 20 basis points or 25 basis points per annum, based on the risk category to which an institution is assigned for purposes of the risk-based premium system.  The Bank did not opt out of the six-month extension of the Transaction Account Guarantee Program.  As a result, the Bank, like every other FDIC-insured depository institution in the United States that did not opt out of the Transaction Account Guarantee Program, is incurring fees on amounts in excess of $250,000 in covered transaction accounts.

 

FICO Assessments.   The Financing Corporation (“FICO”) is a mixed-ownership governmental corporation chartered by the former Federal Home Loan Bank Board pursuant to the Federal Savings and Loan Insurance Corporation Recapitalization Act of 1987 to function as a financing vehicle for the recapitalization of the former Federal Savings and Loan Insurance Corporation.  FICO issued 30-year non-callable bonds of approximately $8.2 billion that mature by 2019.  Since 1996, federal legislation has required that all FDIC-insured depository institutions pay assessments to cover interest payments on FICO’s outstanding obligations.  These FICO

 

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assessments are in addition to amounts assessed by the FDIC for deposit insurance. During the year ended December 31, 2009, the FICO assessment rate was approximately 0.01% of deposits.

 

Supervisory Assessments.  All Illinois banks are required to pay supervisory assessments to the DFPR to fund the operations of the DFPR.  The amount of the assessment is calculated on the basis of an institution’s total assets, including consolidated subsidiaries, as reported to the DFPR.  During the year ended December 31, 2009, the Bank paid supervisory assessments to the DFPR totaling $.25 million.

 

Capital Requirements.  Banks are generally required to maintain capital levels in excess of other businesses.  The FDIC has established the following minimum capital standards for state-chartered insured non-member banks, such as the Bank: (i) a leverage requirement consisting of a minimum ratio of Tier 1 capital to total assets of 3% for the most highly-rated banks with a minimum requirement of at least 4% for all others; and (ii) a risk-based capital requirement consisting of a minimum ratio of total capital to total risk-weighted assets of 8% and a minimum ratio of Tier 1 capital to total risk-weighted assets of 4%. In general, the components of Tier 1 capital and total capital are the same as those for bank holding companies discussed above.

 

The capital requirements described above are minimum requirements.  Higher capital levels will be required if warranted by the particular circumstances or risk profiles of individual institutions.  For example, regulations of the FDIC provide that additional capital may be required to take adequate account of, among other things, interest rate risk or the risks posed by concentrations of credit, nontraditional activities or securities trading activities.

 

Further, federal law and regulations provide various incentives for financial institutions to maintain regulatory capital at levels in excess of minimum regulatory requirements. For example, a financial institution that is “well-capitalized” may qualify for exemptions from prior notice or application requirements otherwise applicable to certain types of activities and may qualify for expedited processing of other required notices or applications. Additionally, one of the criteria that determines a bank holding company’s eligibility to operate as a financial holding company is a requirement that all of its financial institution subsidiaries be “well-capitalized.” Under the regulations of the FDIC, in order to be “well-capitalized” a financial institution must maintain a ratio of total capital to total risk-weighted assets of 10% or greater, a ratio of Tier 1 capital to total risk-weighted assets of 6% or greater and a ratio of Tier 1 capital to total assets of 5% or greater.

 

Federal law also provides the federal banking regulators with broad power to take prompt corrective action to resolve the problems of undercapitalized institutions.  The extent of the regulators’ powers depends on whether the institution in question is “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized,” in each case as defined by regulation.  Depending upon the capital category to which an institution is assigned, the regulators’ corrective powers include: (i) requiring the institution to submit a capital restoration plan; (ii) limiting the institution’s asset growth and restricting its activities; (iii) requiring the institution to issue additional capital stock (including additional voting stock) or to be acquired; (iv) restricting transactions between the institution and its affiliates; (v) restricting the interest rate the institution may pay on deposits; (vi) ordering a new election of directors of the institution; (vii) requiring that senior executive officers or directors be dismissed; (viii) prohibiting the institution from accepting deposits from correspondent banks; (ix) requiring the institution to divest certain subsidiaries; (x) prohibiting the payment of principal or interest on subordinated debt; and (xi) ultimately, appointing a receiver for the institution.

 

As of December 31, 2009: (i) the Bank was not subject to a directive from the FDIC to increase its capital to an amount in excess of the minimum regulatory capital requirements; (ii) the Bank exceeded its minimum regulatory capital requirements under FDIC capital adequacy guidelines; and (iii) the Bank was “well-capitalized,” as defined by FDIC regulations.

 

Dividend Payments.  The primary source of funds for the Company is dividends from the Bank.  Under the Illinois Banking Act, Illinois-chartered banks generally may not pay dividends in excess of their net profits.

 

The payment of dividends by any financial institution is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and a financial institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized.  As described above, the Bank exceeded its minimum capital requirements under applicable guidelines as of December 31, 2009.  As of December 31, 2009, approximately $17.4 million was available to be paid as dividends by the Bank.  Notwithstanding the availability of funds for dividends, however, the FDIC may prohibit the payment of any dividends by the Bank if the FDIC determines such payment would constitute an unsafe or unsound practice.

 

8



 

Insider Transactions.  The Bank is subject to certain restrictions imposed by federal law on extensions of credit to the Company, on investments in the stock or other securities of the Company and the acceptance of the stock or other securities of the Company as collateral for loans made by the Bank.  Certain limitations and reporting requirements are also placed on extensions of credit by the Bank to its directors and officers, to directors and officers of the Company, to principal shareholders of the Company and to “related interests” of such directors, officers and principal shareholders.  In addition, federal law and regulations may affect the terms upon which any person who is a director or officer of the Company or the Bank or a principal shareholder of the Company may obtain credit from banks with which the Bank maintains a correspondent relationship.

 

Safety and Soundness Standards.  The federal banking agencies have adopted guidelines that establish operational and managerial standards to promote the safety and soundness of federally insured depository institutions.  The guidelines set forth standards for internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, asset quality and earnings.  In general, the safety and soundness guidelines prescribe the goals to be achieved in each area, and each institution is responsible for establishing its own procedures to achieve those goals.  If an institution fails to comply with any of the standards set forth in the guidelines, the institution’s primary federal regulator may require the institution to submit a plan for achieving and maintaining compliance. If an institution fails to submit an acceptable compliance plan, or fails in any material respect to implement a compliance plan that has been accepted by its primary federal regulator, the regulator is required to issue an order directing the institution to cure the deficiency. Until the deficiency cited in the regulator’s order is cured, the regulator may restrict the institution’s rate of growth, require the institution to increase its capital, restrict the rates the institution pays on deposits or require the institution to take any action the regulator deems appropriate under the circumstances. Noncompliance with the standards established by the safety and soundness guidelines may also constitute grounds for other enforcement action by the federal banking regulators, including cease and desist orders and civil money penalty assessments.

 

Branching Authority.  Illinois banks, such as the Bank, have the authority under Illinois law to establish branches anywhere in the State of Illinois, subject to receipt of all required regulatory approvals.

 

Federal law permits state and national banks to merge with banks in other states subject to: (i) regulatory approval; (ii) federal and state deposit concentration limits; and (iii) state law limitations requiring the merging bank to have been in existence for a minimum period of time (not to exceed five years) prior to the merger.  The establishment of new interstate branches or the acquisition of individual branches of a bank in another state (rather than the acquisition of an out-of-state bank in its entirety) is permitted only in those states the laws of which expressly authorize such expansion.

 

State Bank Investments and Activities.  The Bank generally is permitted to make investments and engage in activities directly or through subsidiaries as authorized by Illinois law.  However, under federal law and FDIC regulations, FDIC-insured state banks are prohibited, subject to certain exceptions, from making or retaining equity investments of a type, or in an amount, that are not permissible for a national bank.  Federal law and FDIC regulations also prohibit FDIC-insured state banks and their subsidiaries, subject to certain exceptions, from engaging as principal in any activity that is not permitted for a national bank unless the bank meets, and continues to meet, its minimum regulatory capital requirements and the FDIC determines the activity would not pose a significant risk to the deposit insurance fund of which the bank is a member.  These restrictions have not had, and are not currently expected to have, a material impact on the operations of the Bank.

 

Federal Reserve System.  Federal Reserve regulations, as presently in effect, require depository institutions to maintain reserves against their transaction accounts (primarily NOW and regular checking accounts), as follows: for transaction accounts aggregating $55.2 million or less, the reserve requirement is 3% of total transaction accounts; and for transaction accounts aggregating in excess of $55.2 million, the reserve requirement is $1.335 million plus 10% of the aggregate amount of total transaction accounts in excess of $55.2 million.  The first $10.7 million of otherwise reservable balances are exempted from the reserve requirements.  These reserve requirements are subject to annual adjustment by the Federal Reserve.  We believe the Bank will continue to maintain compliance with the foregoing requirements.

 

9



 

Recent Regulatory Issues

 

On December 3, 2008, the Bank entered into an Order to Cease and Desist (the “2008 Order”) with the FDIC and the DFPR, which is based on FDIC and DFPR findings that the Bank’s Secrecy Act/Anti-Money Laundering Program (“BSA/AML Program”) was inadequate and that the Bank had violated various laws and regulations related to the Bank Secrecy Act (the “BSA”). The 2008 Order requires the Bank to take certain corrective actions aimed at resolving any outstanding violations of BSA-related laws or regulations and to implement a revised BSA/AML Program, which is designed to ensure compliance with these BSA-related laws and regulations. The 2008 Order also requires the Bank to, among other things, assess its BSA Department staffing needs, provide for independent testing of BSA/AML Program compliance, conduct a review of certain historical deposit and transaction activity and submit periodic reports of progress to the FDIC and DFPR. The 2008 Order does not relate to the Bank’s asset quality, capital position or the safety and soundness of its financial operations. The Bank has taken all of the corrective actions that it believes are required by the 2008 Order to address its BSA/AML Program compliance issues.

 

On April 23, 2009, the Bank entered into an Order to Cease and Desist (the “2009 Order”) with the FDIC based on FDIC findings that the Bank’s program to implement consumer protection related laws and regulations was inadequate and that the Bank had violated certain consumer protection related laws and regulations.  The 2009 Order requires the Bank to take certain corrective actions aimed at resolving outstanding violations and to implement an improved compliance program. The 2009 Order also requires the Bank to, among other things, assess its compliance department staffing needs, provide for independent testing of the Bank’s compliance program, conduct a review of certain historical activity and submit periodic reports of progress to the FDIC. The 2009 Order does not relate to the Bank’s asset quality, capital position, the safety and soundness of its financial operations or internal controls over financial reporting. The Bank is in the process of implementing all of the corrective actions required by the 2009 Order to address its consumer compliance issues.

 

AVAILABLE INFORMATION

 

The Company’s Internet address is www.westsuburbanbank.com. The Company makes available free of charge on or through its Internet website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after the reports are electronically filed with, or furnished to, the Securities and Exchange Commission.

 

10



 

EXECUTIVE OFFICERS OF WEST SUBURBAN

 

The names and ages of the executive officers of West Suburban, along with a brief description of the business experience of each person during the past five years, and certain other information is set forth below:

 

Name (Age) and Position and Offices with West
Suburban (year first elected to office)

 

Principal Occupations and Employment for Past Five
Years and Other Information

 

 

 

Kevin J. Acker (60)
Chairman and Chief Executive Officer (1993)
and Vice President (1986)

 

Senior Vice President, Marketing of the Bank since 1997

 

 

 

Keith W. Acker (60)
Chief Operations Officer (1996)

 

Director, President and Trust Officer of the Bank since 1986

 

 

 

Duane G. Debs (53)
President (1997) and Chief Financial Officer (1993)

 

Senior Vice President, Trust Officer of the Bank since 1997 and Vice President, Comptroller of the Bank since 1987

 

 

 

Michael P. Brosnahan (60)
Vice President (1997)

 

Senior Vice President, Lending of the Bank since 1989

 

STATISTICAL DATA

 

The statistical data required by Exchange Act Industry Guide 3, “Statistical Disclosure By Bank Holding Companies,” has been incorporated by reference from the Company’s 2009 Annual Report to Shareholders (attached as Exhibit 13 hereto) or is set forth below. This data should be read in conjunction with the Company’s 2009 Consolidated Financial Statements and related notes, and the discussion included in Management’s Discussion and Analysis of Financial Condition and Results of Operations as set forth in the Company’s 2009 Annual Report to Shareholders.

 

Securities

 

The following table sets forth by category the amortized cost of securities at December 31 (dollars in thousands):

 

 

 

2009

 

2008

 

2007

 

Available for sale

 

 

 

 

 

 

 

Corporate

 

$

 

$

24,430

 

$

35,488

 

Trust preferred

 

 

8,511

 

8,578

 

U.S. government sponsored enterprises

 

49,621

 

22,170

 

195,193

 

Mortgage-backed: residential

 

139,151

 

162,062

 

207,302

 

States and political subdivisions

 

10,367

 

10,160

 

13,918

 

Preferred stock

 

 

 

621

 

Total securities available for sale

 

199,139

 

227,333

 

461,100

 

Held to maturity

 

 

 

 

 

 

 

U.S. government sponsored enterprises

 

41,199

 

28,072

 

 

Mortgage-backed: residential

 

178,129

 

193,187

 

11,450

 

States and political subdivisions

 

46,580

 

18,975

 

12,626

 

Total securities held to maturity

 

265,908

 

240,234

 

24,076

 

Federal Home Loan Bank stock

 

7,599

 

6,144

 

5,258

 

Total securities

 

$

472,646

 

$

473,711

 

$

490,434

 

 

11



 

The following table sets forth, by contractual maturity, the amortized cost and weighted average yield of debt securities available for sale at December 31, 2009. Although the mortgage-backed: residential securities are listed by contractual maturity, the effective maturity is significantly shorter due to regularly scheduled payments and prepayments of principal. Yields on tax-exempt securities represent tax equivalent yields, net of premium amortization and discount accretion (dollars in thousands):

 

 

 

U.S. Government
Sponsored Enterprises

 

Mortgage-backed:
Residential

 

States and Political
Subdivisions

 

 

 

Amortized
Cost

 

Weighted
Average
Yield

 

Amortized
Cost

 

Weighted
Average
Yield

 

Amortized
Cost

 

Weighted
Average
Yield

 

Within 1 year

 

$

6,480

 

4.08

%

$

1,786

 

2.90

%

$

2,058

 

4.76

%

After 1 year but within 5 years

 

33,219

 

2.44

%

13,294

 

2.44

%

726

 

5.25

%

After 5 years but within 10 years

 

9,922

 

1.17

%

50,412

 

4.34

%

1,269

 

6.59

%

After 10 years

 

 

%

73,659

 

4.60

%

6,314

 

6.39

%

Total

 

$

49,621

 

2.40

%

$

139,151

 

4.27

%

$

10,367

 

6.01

%

 

Income on Federal Home Loan Bank stock is dependent on the declaration of dividends by the Federal Home Loan Bank.

 

The following table sets forth, by contractual maturity, the amortized cost and weighted average yield of securities held to maturity at December 31, 2009. Although the mortgage-backed: residential securities are listed by contractual maturity, the effective maturity is significantly shorter due to regularly scheduled payments and prepayments of principal. Yields on tax-exempt securities represent tax equivalent yields, net of premium amortization and discount accretion (dollars in thousands):

 

 

 

U.S. Government
Sponsored Enterprises

 

Mortgage-backed:
Residential

 

States and Political
Subdivisions

 

 

 

Amortized
Cost

 

Weighted
Average
Yield

 

Amortized
Cost

 

Weighted
Average
Yield

 

Amortized
Cost

 

Weighted
Average
Yield

 

Within 1 year

 

$

 

%

$

 

%

$

30,713

 

1.34

%

After 1 year but within 5 years

 

8,950

 

4.06

%

5,967

 

3.17

%

3,287

 

4.71

%

After 5 years but within 10 years

 

26,215

 

3.05

%

53,980

 

4.49

%

3,624

 

5.68

%

After 10 years

 

6,034

 

1.29

%

118,182

 

4.51

%

8,956

 

6.11

%

Total

 

$

41,199

 

3.01

%

$

178,129

 

4.47

%

$

46,580

 

2.83

%

 

No securities holdings of a single issuer, other than U.S. government sponsored enterprises, exceed 10% of the shareholders’ equity of the Company at December 31, 2009. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Approximately $66.2 million of securities are callable in 2010. Most of these callable securities were issued by U.S. government sponsored enterprises.

 

12



 

Loan Portfolio

 

The following table sets forth the major loan categories at December 31 (dollars in thousands):

 

 

 

2009

 

2008

 

2007

 

2006

 

2005

 

Commercial

 

$

267,432

 

$

288,234

 

$

270,293

 

$

282,826

 

$

276,898

 

Consumer

 

3,031

 

4,276

 

5,653

 

6,821

 

7,501

 

Indirect automobile

 

2,395

 

4,454

 

8,559

 

13,855

 

24,939

 

Real estate

 

 

 

 

 

 

 

 

 

 

 

Residential

 

219,551

 

242,947

 

224,755

 

177,885

 

160,902

 

Commercial

 

280,442

 

276,995

 

249,836

 

232,865

 

225,794

 

Home equity

 

232,607

 

257,150

 

272,098

 

240,720

 

229,514

 

Construction

 

175,186

 

161,532

 

191,952

 

197,528

 

165,484

 

Held for sale

 

 

1,768

 

350

 

 

140

 

Credit card

 

9,874

 

10,484

 

11,191

 

10,375

 

10,545

 

Other

 

3,079

 

1,333

 

1,153

 

1,660

 

711

 

Total

 

1,193,597

 

1,249,173

 

1,235,840

 

1,164,535

 

1,102,428

 

Allowance for loan losses

 

(25,922

)

(15,578

)

(9,269

)

(10,650

)

(10,681

)

Loans, net

 

$

 1,167,675

 

$

1,233,595

 

$

1,226,571

 

$

1,153,885

 

$

1,091,747

 

 

The following table sets forth the maturity and interest rate sensitivity of selected loan categories at December 31, 2009 (dollars in thousands):

 

 

 

Remaining Maturity

 

 

 

One year
or less

 

One to
five years

 

Over
five years

 

Total

 

Commercial

 

$

186,812

 

$

71,565

 

$

9,055

 

$

267,432

 

Real estate-construction

 

164,799

 

10,387

 

 

175,186

 

Other loans

 

24,211

 

88,341

 

638,427

 

750,979

 

Total

 

$

375,822

 

$

170,293

 

$

647,482

 

$

1,193,597

 

 

 

 

 

 

 

 

 

 

 

Variable rate

 

$

342,463

 

$

81,357

 

$

388,084

 

$

811,904

 

Fixed rate

 

33,359

 

88,936

 

259,398

 

381,693

 

Total

 

$

375,822

 

$

170,293

 

$

647,482

 

$

1,193,597

 

 

Nonperforming Loans

 

The following table sets forth the aggregate amount of nonperforming loans and selected ratios at December 31 (dollars in thousands):

 

 

 

2009

 

2008

 

2007

 

2006

 

2005

 

Loans past due 90 days or more still on accrual

 

$

790

 

$

1,705

 

$

480

 

$

319

 

$

1,665

 

Nonaccrual loans

 

38,038

 

23,569

 

2,297

 

1,131

 

533

 

Total nonperforming loans

 

38,828

 

25,274

 

2,777

 

1,450

 

2,198

 

Other real estate

 

25,994

 

4,658

 

824

 

351

 

210

 

Total nonperforming assets

 

$

64,822

 

$

29,932

 

$

3,601

 

$

1,801

 

$

2,408

 

Nonperforming loans as a percent of total loans

 

3.3

%

2.0

%

0.2

%

0.1

%

0.2

%

Nonperforming assets as a percent of total assets

 

3.3

%

1.6

%

0.2

%

0.1

%

0.1

%

 

The Company’s general policy is to discontinue accruing interest on a loan when it becomes 90 days past due or on an earlier date if management believes, after considering economic and business conditions and collection efforts,

 

13



 

that the borrower’s financial condition is such that collection of principal or interest is doubtful. In some circumstances, a loan that is more than 90 days past due can remain on accrual status if it is fully secured and in process of collection. When a loan has been placed on nonaccrual, interest earned but not collected is charged back to interest income. When payments are received on nonaccrual loans, the payment is first applied to principal, then to interest income and finally to expenses incurred for collection. Potential problem loans are loans included on a watch list presented to the board of directors that do not meet the definition of a nonperforming loan. Our decision to include performing loans on a watch list does not necessarily mean that we expect losses to occur or that we believe these loans to be impaired, rather, that we believe a higher degree of monitoring is appropriate for these loans. Potential problem loans as of December 31, 2009 were $32.0 million.

 

Allowance for Loan Losses

 

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

 

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

 

Management adjusts the allowance for loan losses by an amount sufficient to maintain the allowance at the level determined appropriate. A loan is fully or partially charged-off when all or a portion of the loan is deemed to be uncollectible by management. The Company believes that the allowance for loan losses is adequate to provide for estimated probable incurred credit losses in the loan portfolio.

 

14



 

The following table sets forth the activity in the allowance for loan losses for the years ended and at December 31 (dollars in thousands):

 

 

 

2009

 

2008

 

2007

 

2006

 

2005

 

Allowance for loan losses at beginning of period

 

$

15,578

 

$

9,269

 

$

10,650

 

$

10,681

 

$

10,527

 

Loan charge-offs

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

8,087

 

1,848

 

1,446

 

72

 

1,250

 

Consumer

 

31

 

10

 

17

 

5

 

12

 

Indirect automobile

 

46

 

20

 

37

 

62

 

79

 

Real estate

 

 

 

 

 

 

 

 

 

 

 

Residential

 

666

 

3

 

 

 

 

Commercial

 

36

 

13

 

 

 

 

Home equity

 

911

 

288

 

275

 

11

 

 

Construction

 

4,548

 

1,708

 

 

 

 

Credit card

 

550

 

321

 

210

 

196

 

192

 

Other

 

77

 

84

 

61

 

72

 

56

 

Total loan charge-offs

 

14,952

 

4,295

 

2,046

 

418

 

1,589

 

Loan recoveries

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

214

 

142

 

129

 

144

 

252

 

Consumer

 

4

 

5

 

5

 

6

 

4

 

Indirect automobile

 

37

 

25

 

59

 

37

 

47

 

Real estate

 

 

 

 

 

 

 

 

 

 

 

Residential

 

19

 

 

 

 

 

Commercial

 

 

 

 

 

 

Home equity

 

25

 

 

 

 

 

Construction

 

 

 

 

 

 

Credit card

 

62

 

48

 

91

 

39

 

57

 

Other

 

10

 

24

 

6

 

11

 

8

 

Total loan recoveries

 

371

 

244

 

290

 

237

 

368

 

Net loan charge-offs

 

14,581

 

4,051

 

1,756

 

181

 

1,221

 

Provision for loan losses

 

24,925

 

10,360

 

375

 

150

 

1,375

 

Allowance for loan losses at end of period

 

$

25,922

 

$

15,578

 

$

9,269

 

$

10,650

 

$

10,681

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses to total loans

 

2.17

%

1.25

%

0.75

%

0.91

%

0.97

%

Net charge-offs to average total loans

 

1.21

%

0.33

%

0.15

%

0.02

%

0.11

%

 

The amount of the additions to the allowance for loan losses charged to expense for the periods indicated were based on a variety of factors, including actual loans charged-off during the respective year, historical loss experience, changes in the nature and volume of the loan portfolio including nonperforming loans, specific loss allocations for individual loans and an evaluation of current economic conditions.

 

15



 

The allocation shown in the following table, encompassing the major segments of the loan portfolio, represents only an estimate for each category of loans based on historical loss experience and management’s judgment of amounts deemed reasonable to provide for probable losses within each category.

 

Estimated losses for categories of homogeneous loan types are generally made on an aggregate basis (dollars in thousands).

 

 

 

2009

 

2008

 

2007

 

2006

 

2005

 

 

 

Amount

 

Percent
of Loans
in Each
Category
to Total
Loans

 

Amount

 

Percent
of Loans
in Each
Category
to Total
Loans

 

Amount

 

Percent
of Loans
in Each
Category
to Total
Loans

 

Amount

 

Percent
of Loans
in Each
Category
to Total
Loans

 

Amount

 

Percent
of Loans
in Each
Category
to Total
Loans

 

Commercial

 

$

11,434

 

22.4

%

$

5,620

 

23.1

%

$

4,038

 

21.9

%

$

7,151

 

24.3

%

$

6,616

 

25.1

%

Consumer (1)

 

162

 

0.5

%

106

 

0.3

%

193

 

0.6

%

179

 

0.7

%

154

 

0.7

%

Indirect automobile

 

54

 

0.2

%

33

 

0.4

%

42

 

0.7

%

60

 

1.2

%

117

 

2.3

%

Real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential (2)

 

2,518

 

18.4

%

1,224

 

19.5

%

675

 

18.2

%

285

 

15.3

%

354

 

14.6

%

Commercial

 

2,386

 

23.5

%

3,863

 

22.2

%

1,249

 

20.2

%

489

 

20.0

%

609

 

20.5

%

Home equity

 

2,812

 

19.5

%

1,337

 

20.6

%

926

 

22.0

%

746

 

20.7

%

826

 

20.8

%

Construction

 

5,787

 

14.7

%

3,003

 

12.9

%

1,607

 

15.5

%

1,481

 

16.9

%

1,489

 

15.0

%

Credit card

 

674

 

0.8

%

305

 

1.0

%

250

 

0.9

%

242

 

0.9

%

258

 

1.0

%

Unallocated

 

95

 

%

87

 

%

289

 

%

17

 

%

258

 

%

Total

 

$

25,922

 

100.0

%

$

15,578

 

100.0

%

$

9,269

 

100.0

%

$

10,650

 

100.0

%

$

10,681

 

100.0

%

 


(1)          Consumer loans include consumer and other loans.

(2)          Residential real estate loans include real estate loans - held for sale.

 

Deposits

 

The following table sets forth by category average daily deposits and interest rates for the years ended December 31 (dollars in thousands):

 

 

 

2009

 

2008

 

2007

 

 

 

Average
Balance

 

Rate

 

Average
Balance

 

Rate

 

Average
Balance

 

Rate

 

Demand-noninterest-bearing

 

$

152,332

 

%

$

138,106

 

%

$

145,314

 

%

NOW

 

314,199

 

0.1

%

307,033

 

0.4

%

306,680

 

0.9

%

Money market checking

 

370,914

 

1.8

%

326,367

 

2.5

%

290,610

 

4.3

%

Savings

 

333,243

 

0.4

%

334,266

 

0.8

%

359,173

 

1.8

%

Time deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than $100,000

 

372,061

 

3.2

%

368,943

 

4.1

%

393,708

 

4.7

%

$100,000 and greater

 

135,242

 

3.5

%

146,492

 

4.1

%

164,785

 

4.9

%

Total

 

$

1,677,991

 

1.5

%

$

1,621,207

 

2.1

%

$

1,660,270

 

2.9

%

 

16



 

The following table sets forth by maturity time deposits $100,000 and greater at December 31 (dollars in thousands):

 

 

 

2009

 

Within 3 months

 

$

18,736

 

After 3 months but within 6 months

 

14,820

 

After 6 months but within 12 months

 

53,490

 

After 1 year but within 5 years

 

59,974

 

Over 5 years

 

 

Total

 

$

147,020

 

 

Return on Equity and Assets and Other Financial Ratios

 

The following table sets forth selected financial ratios at and for the years ended December 31:

 

 

 

2009

 

2008

 

2007

 

Return on average total assets

 

(0.04

)%

0.90

%

1.26

%

Return on average shareholders’ equity (GAAP) (1)

 

(0.70

)%

16.01

%

24.04

%

Return on average shareholders’ equity plus common stock in ESOP subject to contingent repurchase obligation (non-GAAP) (1)

 

(0.52

)%

10.40

%

14.83

%

Cash dividends declared to net income

 

(514.61

)%

102.88

%

92.36

%

Average shareholders’ equity (GAAP) (1)

 

6.34

%

5.63

%

5.24

%

Average shareholders’ equity plus common stock in ESOP subject to contingent repurchase obligation to average total assets (non-GAAP) (1)

 

8.57

%

8.67

%

8.49

%

 


(1)          See Note 8 to the Company’s consolidated financial statements and the section entitled “Non-GAAP Financial Measures” on page 38 of West Suburban’s Annual Report to Shareholders for the fiscal year ended December 31, 2009 (attached as Exhibit 13 hereto). 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.

 

ITEM 1A.     RISK FACTORS

 

In addition to the other information in this Annual Report on Form 10-K, shareholders, prospective investors and other interested parties should carefully consider the following risk factors:

 

A continued downturn in the economy, particularly in the western suburbs of Chicago, Illinois, where the Company’s business is primarily conducted, could have a material adverse affect on the Company’s business, financial condition and results of operations.

 

The Company’s business and earnings are directly affected by general business and economic conditions in the U.S. and, in particular, economic conditions in the western suburbs of Chicago, Illinois. These conditions include legislative and regulatory changes, short-term and long-term interest rates, inflation, and changes in government monetary and fiscal policies, all of which are beyond our control.

 

At the end of 2007, the U.S. economy experienced a downturn that has continued into 2010. A continued downturn in economic conditions, in particular within the Company’s primary market area within the western suburbs of Chicago, Illinois, could result in a decrease in the demand for the Company’s products and services, an increase in the Company’s loan delinquencies and defaults, and an increase in the Company’s problem assets and foreclosures. The value of real estate pledged as collateral for loans made by the Company has declined, and may continue to decline, in turn reducing customers’ borrowing power, and reducing the value of assets and collateral securing the Company’s existing loans. These factors could lead to reduced interest income and an increase in the provision for loan losses.

 

If current economic conditions continue or worsen, the Company’s business, growth and profitability are likely to suffer a material adverse effect. To the extent that the Company’s business customers’ underlying businesses are harmed as a result of the general economic environment, the Company’s customers are more likely to default on

 

17



 

their loans. Negative economic trends could lead to higher past due and non-accrual loans, resulting in a material adverse effect on the Company’s financial condition and results of operations.

 

A further deterioration of the Company’s current non-performing loans or an increase in the number of non-performing loans may have a material adverse affect on the Company’s financial condition and results of operations.

 

Weakening economic conditions in the residential and commercial real estate sectors have adversely affected, and may continue to adversely affect, the Company’s loan portfolio. The Company’s ratio of non-performing assets to total assets increased in 2009 to 3.3%, from 1.6% at December 31, 2008. If loans that currently are non-performing further deteriorate or loans that are currently performing become non-performing loans, the Company may need to increase its allowance for loan losses. Such an increase may have a material adverse effect on the Company’s financial condition and results of operations.

 

The Company must effectively manage its credit risk.

 

There are risks inherent in making any loan, including risks inherent in dealing with individual borrowers, risks of nonpayment, risks resulting from uncertainties as to the future value of collateral and risks resulting from changes in economic and industry conditions. The Company attempts to minimize its credit risk through prudent loan application approval procedures, careful monitoring of the concentration of its loans within specific industries and periodic independent reviews of outstanding loans by its credit review department. However, the Company cannot ensure that its approval and monitoring procedures effectively manage its credit risks. Should the economic climate continue to worsen, borrowers may experience difficulty, and the level of non-performing loans, charge-offs, and delinquencies could rise and require further increases in the allowance for loan losses which could have a material adverse effect on the Company’s business, financial condition and results of operations.

 

The Company’s allowance for loan losses may prove to be insufficient to absorb probable incurred credit losses.

 

The Company’s estimate of the level of allowance for loan losses requires management to apply significant judgment. The Company establishes its allowance for loan losses in consultation with management and maintains it at a level considered adequate by management to absorb probable incurred credit losses in the loan portfolio. The amount of future loan losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates, which may be beyond the Company’s control, and such losses may exceed current estimates. At December 31, 2009, the Company’s allowance for loan losses as a percentage of total loans was 2.17% and as a percentage of total nonperforming loans was approximately 67%. Although management believes that the allowance for loan losses is adequate to absorb probable incurred credit losses in the Company’s loan portfolio, the Company cannot predict loan losses with certainty, and the Company cannot assure you that its allowance for loan losses will prove sufficient to cover actual loan losses. Loan losses in excess of its allowance for loan losses may adversely affect the Company’s financial condition and results of operations.

 

The Company’s business is concentrated in, and dependent upon the continued growth and prosperity of, the western suburbs of Chicago.

 

The Company and its operating subsidiaries operate primarily in the western suburbs of Chicago, and as a result, the Company’s business, financial condition and results of operations are subject to changes in the economic conditions in this area. The Company has developed a strong presence in the counties it serves, with particular concentration in DuPage County, and surrounding counties. Based upon the 2000 census, these counties together represent a market of more than 1.8 million people. The Company’s success depends upon the business activity, population, income levels, deposits and real estate activity in this market. Although the Company’s customers’ business and financial interests may extend well beyond its market area, adverse economic conditions that affect its specific market area could reduce the Company’s growth rate, affect the ability of its customers to repay their loans and generally affect the Company’s business, financial condition and results of operations. Because of this geographic concentration, the Company is less able to diversify its credit risks across multiple markets than other regional or national financial institutions.

 

18



 

Interest rates and other conditions impact the Company’s results of operations.

 

The Company’s profitability is in part a function of the spread between the interest rates earned on investments and loans and the interest rates paid on deposits and other interest-bearing liabilities. Like most banking institutions, the Company’s net interest spread and margin will be affected by general economic conditions and other factors, including fiscal and monetary policies of the federal government, that influence market interest rates and its ability to respond to changes in those rates. At any given time, the Company’s assets and liabilities will be such that they are affected differently by a given change in interest rates. As a result, an increase or decrease in rates, the length of loan terms or the mix of adjustable and fixed rate loans in the Company’s portfolio could have a positive or negative effect on its net income, capital and liquidity. The Company measures interest rate risk under various rate scenarios and using specific criteria and assumptions. A summary of this process, along with the results of the Company’s net interest income simulations is presented at “Quantitative and Qualitative Disclosures About Market Risk” included under Item 7A of Part II of this Form 10-K. Although management believes the Company’s current level of interest rate sensitivity is reasonable and effectively managed, significant fluctuations in interest rates may have an adverse effect on the Company’s business, financial condition and results of operations.

 

The Company’s loan portfolio has a significant concentration of real estate loans, which are exposed to weaknesses in the U.S. and local housing markets and the overall state of the economy.

 

Real estate lending (including residential, commercial, home equity and construction) is a large portion of the Company’s loan portfolio. These categories represent $907.8 million, or approximately 76.1% of the Company’s total loan portfolio as of December 31, 2009. The market value of real estate can fluctuate significantly in a short period of time as a result of market conditions in the geographic area in which the real estate is located, and adverse developments affecting real estate values in one or more of the Company’s markets could increase the credit risk associated with its loan portfolio. Additionally, construction and 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.

 

If the loans that are collateralized by real estate become troubled during a time when market conditions are declining or have declined, then the Company may not be able to realize the amount of security that it anticipated at the time of originating the loan, which could cause the Company to increase its provision for loan losses and adversely affect its business, financial condition and results of operations. The ongoing weakness in the U.S. and local housing markets and the overall economy has lead to declines in home prices in many markets. Continued declines in real estate values, home sales volumes and financial stress on borrowers as a result of job losses, interest rate resets on adjustable rate mortgage loans or other factors could have continued adverse effects on borrowers that result in higher delinquencies and greater charge-offs in future periods, which could adversely affect the Company’s business, financial condition and results of operations.

 

Commercial loans also make up a significant portion of the Company’s loan portfolio.

 

Commercial loans were approximately $267.4 million (excluding $280.4 million of commercial real estate loans), or approximately 22.4% of the Company’s total loan portfolio as of December 31, 2009. The Company’s commercial loans are primarily made based 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. Credit support provided by the borrower for most of these loans and the probability of repayment is based on the liquidation of the pledged collateral and enforcement of a personal guarantee, if a guarantee is obtained. As a result, in the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. The collateral securing these loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business. A continued decline in the U.S. economy could harm the businesses of the Company’s borrowers and reduce the value of the assets securing the Company’s commercial loans.

 

19



 

The Company’s construction loans are based upon estimates of costs and values associated with the completed project. These estimates may be inaccurate, and the Company may be exposed to more losses on these construction loans than on other loans.

 

At December 31, 2009, construction loans, including land acquisition and development, totaled $175.2 million, or 14.7%, of the Company’s total loan portfolio. Construction and land acquisition 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 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 market values of real estate throughout the U.S., including in the Company’s market area, dramatically declined in 2009. The ongoing weakness in the U.S. real estate markets may negatively impact the ability of the Company’s borrowers to sell or lease their properties. If the Company’s appraisal of the anticipated value of the completed project proves to be overstated, the Company may have inadequate security for the loan.

 

Government regulation can result in limitations on the Company’s operations.

 

The Company and its operating subsidiaries operate in a highly regulated environment and are subject to supervision and regulation by a number of governmental regulatory agencies, including the Federal Reserve, the FDIC and the DFPR. Regulations adopted by these agencies, which are generally intended to provide protection for depositors and customers rather than for the benefit of shareholders, govern a comprehensive range of matters relating to ownership and control of the Company’s shares, its acquisition of other companies and businesses, permissible activities in which the Company may engage, maintenance of adequate capital levels and other aspects of the Company’s operations. These bank regulators possess broad authority to prevent or remedy unsafe or unsound practices or violations of law.

 

As a financial institution, the Company is required to develop programs to implement numerous consumer protection related laws and regulations and to prevent the Company from being used for money laundering and terrorist activities. The Company is also obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network in certain circumstances. On December 3, 2008, the Bank entered into 2008 Order with the FDIC and the DFPR that requires the Bank to take certain corrective actions intended to resolve outstanding violations of the USA PATRIOT Act and Bank Secrecy Act related laws or regulations and to implement a revised Bank Secrecy Act/Anti-Money Laundering program.  In addition, on April 23, 2009, the Bank entered into 2009 Order (together with the 2008 Order, the “Orders”) with the FDIC which requires the Bank to take corrective actions intended to resolve outstanding violations of certain consumer protection related laws and regulations and to implement an improved compliance program.  Although the Orders do not relate to the Bank’s asset quality, capital position or the safety and soundness of its financial operations, the Orders require the Bank to, among other things, assess its staffing needs, provide for independent testing, conduct a review of certain historical activity and submit periodic reports of progress to the FDIC and DFPR. As a result, the Company expects the Orders to increase the Company’s cost of regulatory compliance, which may adversely affect its earnings. In addition, if the Bank is not successful in its efforts to comply with the Orders, the FDIC and the DFPR may take further regulatory actions, which could significantly limit the Company’s operations and growth.

 

In addition, as result of ongoing challenges facing the U.S. economy, the potential exists for new laws and regulations regarding lending and funding practices and liquidity standards to be promulgated, and bank regulatory agencies are expected to be active in responding to concerns and trends identified in examinations, including the expected issuance of many formal or informal enforcement actions or orders. The laws and regulations applicable to the banking industry could change at any time and we cannot predict the effects of these changes on our business and profitability. Increased regulation could increase our cost of compliance and adversely affect profitability.  For example, new legislation or regulation may limit the manner in which we may conduct our business, including our ability to offer new products, obtain financing, attract deposits, make loans and achieve satisfactory interest spreads.

 

20



 

The Company may experience difficulties in managing its growth, and its growth strategy involves risks that may negatively impact net income.

 

The Company has pursued and continues to pursue an internal growth strategy, the success of which will depend primarily upon generating an increasing level of loans and deposits at acceptable risk levels without corresponding increases in non-interest expenses. The Company’s growth strategy has been to operate out of a number of branches. The Company may establish other new branches and product areas, expand into new markets or make strategic acquisitions of other financial institutions, which may require significant upfront investments in technology, personnel and site locations. There can be no assurance that the Company will be successful in continuing its growth strategy and in continuing to improve or maintain its net income by leveraging its non-interest expenses.

 

The Company may expand into additional communities or attempt to strengthen its position in its current markets by undertaking additional branch openings. Based on experience, management believes that it generally takes up to two years for new banking facilities to first achieve operational profitability, due to the impact of overhead expenses and the start-up phase of generating loans and deposits. To the extent that the Company undertakes additional branching, it is likely to continue to experience the effects of higher operating expenses relative to operating income from the new operations, which may have an adverse effect on the Company’s levels of reported net income, return on average equity and return on average assets.

 

The Company faces intense competition in all aspects of its business from other banks and financial institutions.

 

The banking and financial services business in its market is highly competitive. The Company’s competitors include large regional banks, local community banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market mutual funds, credit unions and other non-bank financial service providers. Increased competition in the Company’s market may result in a decrease in the amounts of its loans and deposits, reduced spreads between loan rates and deposit rates or loan terms that are more favorable to the borrower. Any of these results could have a material adverse effect on the Company’s ability to grow and remain profitable. If increased competition causes the Company to significantly discount the interest rates it offers on loans or increase the amount it pays on deposits, net interest income could be adversely impacted. If increased competition causes the Company to modify its underwriting standards, it could be exposed to higher losses from lending activities. Additionally, many of the Company’s competitors are much larger in total assets and capitalization, have greater access to capital markets and offer a broader range of financial services than the Company can offer.

 

The Company may need to raise additional capital in the future, but that capital may not be available when it is needed.

 

The Company is required by federal and state regulatory authorities to maintain adequate levels of capital to support its operations. Absent any changes in the regulatory framework, the Company anticipates that its existing capital resources will satisfy its capital requirements for the foreseeable future. However, the Company may at some point need to raise additional capital to support continued growth, both internally and through acquisitions.

 

The Company’s ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside its control, and on its financial performance. Accordingly, the Company cannot assure you of its ability to raise additional capital, if needed, on terms acceptable to the Company. If the Company cannot raise additional capital when needed, its ability to further expand its operations through internal growth and acquisitions could be materially impaired.

 

The Company’s community banking strategy relies heavily on its management team, and the unexpected loss of key managers may adversely affect its operations.

 

Much of the Company’s success to date has been influenced strongly by its ability to attract and to retain senior management experienced in banking and financial services and familiar with the communities in its market area. The Company’s ability to retain executive officers, the current management teams and loan officers of its operating subsidiaries will continue to be important to the successful implementation of its strategy. It is also critical, as the Company grows, to be able to attract and retain qualified additional management and loan officers with the appropriate level of experience and knowledge about its market area to implement its community-based operating strategy. The unexpected loss of services of any key management personnel, or the inability to recruit and retain

 

21



 

qualified personnel in the future, could have an adverse effect on the Company’s business, financial condition and results of operations.

 

Liquidity risks could affect operations and jeopardize the Company’s business, results of operations and financial condition.

 

Liquidity is essential to the Company’s business.  An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on the Company’s liquidity. The Company’s primary sources of funds consist of cash from operations, investment maturities and sales and deposits. Additional liquidity is provided by the Company’s ability to borrow from the Federal Reserve Bank and the Federal Home Loan Bank. The Company’s access to funding sources in amounts adequate to finance or capitalize its activities or on terms that are acceptable to the Company could be impaired by factors that affect it directly or the financial services industry or economy in general, such as further disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry.

 

Since late 2007, and particularly during the second half of 2008 and all of 2009, the financial services industry and the credit markets generally were materially and adversely affected by significant declines in asset values and by a lack of liquidity. The liquidity issues have been particularly acute for regional and community banks, as many of the larger financial institutions have significantly curtailed their lending to regional and community banks to reduce their exposure to the risks of other banks. In addition, many of the larger correspondent lenders have reduced or even eliminated federal funds lines for their correspondent customers. Furthermore, regional and community banks generally have less access to the capital markets than do the national and super-regional banks because of their smaller size and limited analyst coverage. Any decline in available funding could adversely impact the Company’s ability to originate loans, invest in securities, meet its expenses, pay dividends to its shareholders, or fulfill obligations such as repaying borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on the Company’s liquidity, business, results of operations and financial condition.

 

The amount of “other real estate” (“ORE”) may increase significantly, resulting in additional losses, and costs and expenses that may negatively affect the Company’s operations.

 

At December 31, 2009, the Company had a total of $26.0 million of ORE as compared to $4.7 million at December 31, 2008. This increase in ORE is due, among other things, to the continued deterioration of the commercial and residential real estate markets and the tightening of the credit market. As the amount of ORE increases, the Company’s losses and the costs and expenses of maintaining the real estate will likewise increase. Due to the on-going economic crisis, the amount of ORE may continue to increase throughout 2010. Any additional increase in losses, and maintenance costs and expenses due to ORE could have a material adverse impact on the Company’s business, results of operations and financial condition. Such effects may be particularly pronounced in a market of reduced real estate values and excess inventory, which may make the disposition of ORE properties more difficult, increase maintenance costs and expenses, and reduce the Company’s ultimate realization from any ORE sales.

 

Higher FDIC deposit insurance premiums and assessments could adversely affect the Company’s financial condition.

 

Recently, higher levels of bank failures have dramatically increased resolution costs of the FDIC and depleted the Deposit Insurance Fund.  In addition, the FDIC instituted two temporary programs in 2008 to further insure customer deposits at FDIC-member banks through December 31, 2009: deposit accounts are now insured up to $250,000 per customer (up from $100,000) and non-interest bearing transactional accounts are fully insured (unlimited coverage). These programs have placed additional stress on the Deposit Insurance Fund. On May 20, 2009, the FDIC extended the $250,000 per customer insurance limit through December 31, 2013.

 

In order to maintain a strong funding position and restore reserve ratios of the Deposit Insurance Fund, the FDIC increased assessment rates of insured institutions uniformly by 7 cents for every $100 of deposits beginning with the first quarter of 2009, with additional changes effective April 1, 2009, which required riskier institutions to pay a larger share of premiums by factoring in rate adjustments based on secured liabilities and unsecured debt levels.

 

22



 

On May 22, 2009, the FDIC adopted a final rule that imposed a special assessment on all insured depository institutions. Pursuant to the final rule, the FDIC imposed on the Bank a special assessment of $.9 million, which was paid on September 30, 2009.

 

On November 12, 2009, the FDIC adopted a final rule that required insured depository institutions to prepay on December 30, 2009, their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011, and 2012.  On December 30, 2009, the Bank paid the FDIC $10.1 in prepaid assessments.  These actions by the FDIC increased the Company’s noninterest expense in 2009 and are expected to increase the Company’s costs for the foreseeable future. We anticipate that our FDIC insurance premiums may continue to increase in the future, perhaps significantly, which will adversely impact our future earnings.

 

The Company and its subsidiaries are subject to examination and challenges by taxing authorities, and the Company’s effective tax rates may be adversely affected by changes in federal and state tax laws.

 

The Company’s effective tax rates may be adversely affected by changes in federal or state tax laws, regulations and agency interpretations. Tax 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.

 

The Company has a continuing need for technological change, and it may not have the resources to effectively implement new technology.

 

The financial services industry continues to undergo rapid technological changes with frequent introductions of new technology-driven products and services. In addition to better serving customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs. The Company’s future success will depend in part upon its ability to address the needs of its customers by using technology to provide products and services that will satisfy customer demands for convenience as well as to create additional efficiencies in its operations as it continues to grow and expand its market area. Many of the Company’s larger competitors have substantially greater resources to invest in technological improvements. As a result, they may be able to offer additional or superior products to those that the Company will be able to offer, which would put it at a competitive disadvantage. Accordingly, the Company cannot provide you with assurance that it will be able to effectively implement new technology-driven products and services or be successful in marketing such products and services to its customers.

 

Changes in accounting standards could impact the Company’s results of operations.

 

The accounting standard setters, including the Financial Accounting Standards Board, the Securities and Exchange Commission and other regulatory bodies, periodically change the financial accounting and reporting standards that govern the preparation of the Company’s consolidated financial statements. These changes can be hard to predict and can materially impact how the Company records and reports its financial condition and results of operations. In some cases, the Company could be required to apply a new or revised standard retroactively, resulting in the restatement of prior period financial statements.

 

The Company’s ability to pay dividends on its common stock is limited by law.

 

West Suburban’s ability to pay dividends on its common stock largely depends on its receipt of dividends from the Bank. The amount of dividends that the Bank may pay to West Suburban is limited by federal and state laws and regulations relating to financial institutions. As of December 31, 2009, approximately $17.4 million was available to be distributed as dividends by the Bank to West Suburban while remaining a “well-capitalized” institution. However, the FDIC may restrict the payment of dividends by the Bank. In addition, West Suburban and the Bank may decide to limit the payment of dividends even when they have the legal ability to pay them in order to retain earnings for use in their businesses.

 

23



 

There is no established trading market for West Suburban’s common shares.

 

West Suburban’s common stock is not traded on any exchange or quoted on the NASDAQ or traded on any other established trading market, and West Suburban does not intend to apply for listing or quotation. West Suburban cannot assure you that a liquid market will develop for West Suburban’s common stock. If no trading market develops for West Suburban’s common stock, it may be difficult to sell your shares or, if sold, it may be difficult to resell the shares for a price at or above the price you paid for your shares. Even if a trading market is established, there is no assurance that such a trading market can be sustained.

 

System failure or breaches of the Company’s network security could subject the Company to increased operating costs as well as litigation and other liabilities.

 

The information technology systems and network infrastructure the Company uses could be vulnerable to unforeseen problems. The Company’s operations are dependent upon its ability to protect its information technology equipment against damage from physical theft, fire, power loss, telecommunications failure or a similar catastrophic event, as well as from security breaches, denial of service attacks, viruses, worms and other disruptive problems caused by hackers. Any damage or failure that causes an interruption in the Company’s operations could have a material adverse effect on its business, financial condition and results of operations. System break-ins, phishing and other disruptions could also jeopardize the security of information stored in and transmitted through the Company’s information technology systems and network infrastructure, which may result in significant liability to the Company and may cause existing and potential customers to refrain from doing business with it. Although the Company, with the help of third-party service providers, intends to continue to implement security technology and establish operational procedures to prevent such damage, there can be no assurance that these security measures will be successful. In addition, advances in information technology capabilities, new discoveries in the field of cryptography or other developments could result in a compromise or breach of the algorithms the Company and its third-party service providers use to encrypt and protect customer transaction data. A failure of such security measures could have a material adverse effect on the Company’s business, financial condition and results of operations.

 

The Company is subject to certain operational risks, including customer or employee fraud and data processing system failures and errors.

 

Employee errors and misconduct could subject the Company to financial losses or regulatory sanctions and seriously harm its reputation. Misconduct by the Company’s employees could include hiding unauthorized activities from the Company, improper or unauthorized activities on behalf of its customers or improper use of confidential information. It is not always possible to prevent employee errors and misconduct, and the precautions the Company takes to prevent and detect this activity may not be effective in all cases. Employee errors could also subject the Company to financial claims for negligence. The Company maintains a system of internal controls and insurance coverage to mitigate against operational risks, including data processing system failures and errors and customer or employee fraud. Should the Company’s internal controls fail to prevent or detect an occurrence, and if any resulting loss is not insured or exceeds applicable insurance limits, such failure could have a material adverse effect on the Company’s business, financial condition and results of operations.

 

ITEM 1B.     UNRESOLVED STAFF COMMENTS

 

None.

 

24



 

ITEM 2.        PROPERTIES

 

West Suburban and the Bank occupy a total of approximately 270,300 square feet in 35 full-service branches, five limited-service branches and four departments providing insurance, financial and other services. West Suburban’s principal office is located in approximately 32,500 square feet of office space at 711 South Meyers Road, Lombard, Illinois. As indicated below, the Bank also operates its principal office as a branch. West Suburban Bank Land Trust, West Suburban Financial Services and West Suburban Insurance Services, Inc. are located at 711 South Meyers Road, Lombard, Illinois. West Suburban Bank VISA is located at 701 South Meyers Road, Lombard, Illinois.

 

The following table sets forth certain information concerning the branches of the Bank as of December 31, 2009:

 

Location of Branches and Other Services

 

Approximate
Square Feet

 

Status

 

 

 

 

 

 

 

711 South Meyers Road
Lombard, Illinois

 

32,500

 

Owned

 

 

 

 

 

 

 

40 East St. Charles Road
Villa Park, Illinois

 

2,700

 

Owned

 

 

 

 

 

 

 

17W754 22nd Street
Oakbrook Terrace, Illinois

 

6,100

 

Owned

 

 

 

 

 

 

 

707 North Main Street
Lombard, Illinois

 

4,100

 

Owned

 

 

 

 

 

 

 

221 South West Street
Wheaton, Illinois

 

800

 

Owned

 

 

 

 

 

 

 

895 East Geneva Road
Carol Stream, Illinois

 

3,000

 

Leased

 

 

 

 

 

 

 

1104 West Boughton Road
Bolingbrook, Illinois

 

4,500

 

Owned

 

 

 

 

 

 

 

295 West Loop Road
Wheaton, Illinois

 

4,500

 

Owned

 

 

 

 

 

 

 

6400 South Cass Avenue
Westmont, Illinois

 

3,100

 

Leased

 

 

 

 

 

 

 

2800 Finley Road
Downers Grove, Illinois

 

10,700

 

Owned

 

 

 

 

 

 

 

1122 South Main Street
Lombard, Illinois

 

6,400

 

Owned

 

 

 

 

 

 

 

3S041 Route 59
Warrenville, Illinois

 

3,700

 

Owned

 

 

 

 

 

 

 

5330 Main Street
Downers Grove, Illinois

 

10,500

 

Owned

 

 

 

 

 

 

 

8001 South Cass Avenue
Darien, Illinois

 

17,800

 

Owned

 

 

 

 

 

 

 

672 East Boughton Road
Bolingbrook, Illinois

 

7,100

 

Owned

 

 

25



 

Location of Branches and Other Services

 

Approximate
Square Feet

 

Status

 

 

 

 

 

 

 

1005 75th Street
Darien, Illinois

 

1,000

 

Owned

 

 

 

 

 

 

 

505 North Weber Road
Romeoville, Illinois

 

4,400

 

Owned

 

 

 

 

 

 

 

401 North Gary Avenue
Carol Stream, Illinois

 

6,400

 

Owned

 

 

 

 

 

 

 

355 West Army Trail Road
Bloomingdale, Illinois

 

10,700

 

Owned

 

 

 

 

 

 

 

1657 Bloomingdale Road
Glendale Heights, Illinois

 

4,100

 

Owned

 

 

 

 

 

 

 

1061 West Stearns Road
Bartlett, Illinois

 

3,400

 

Owned

 

 

 

 

 

 

 

1380 West Army Trail Road
Carol Stream, Illinois

 

2,300

 

Leased

 

 

 

 

 

 

 

315 South Randall Road
St. Charles, Illinois

 

1,400

 

Owned

 

 

 

 

 

 

 

3000 East Main Street
St. Charles, Illinois

 

4,200

 

Owned

 

 

 

 

 

 

 

1870 McDonald Road
South Elgin, Illinois

 

4,600

 

Owned

 

 

 

 

 

 

 

101 North Lake Street
Aurora, Illinois

 

19,000

 

Owned

 

 

 

 

 

 

 

1830 Douglas Road
Montgomery, Illinois

 

2,500

 

Owned

 

 

 

 

 

 

 

2000 West Galena Boulevard
Aurora, Illinois

 

48,000

 

Owned

 

 

 

 

 

 

 

335 North Eola Road
Aurora, Illinois

 

4,200

 

Owned

 

 

 

 

 

 

 

2830 Route 34
Oswego, Illinois

 

4,800

 

Owned

 

 

 

 

 

 

 

10 Saravanos Drive
Yorkville, Illinois

 

3,200

 

Leased

 

 

 

 

 

 

 

1071 Station Drive
Oswego, Illinois

 

3,200

 

Leased

 

 

 

 

 

 

 

1296 East Chicago Avenue
Naperville, Illinois

 

2,300

 

Owned

 

 

 

 

 

 

 

2020 Feldott Lane
Naperville, Illinois

 

4,500

 

Owned

 

 

 

 

 

 

 

1004 104th Street
Naperville, Illinois

 

5,900

 

Owned

 

 

26



 

Location of Branches and Other Services

 

Approximate
Square Feet

 

Status

 

 

 

 

 

 

 

Beacon Hill Retirement Community
2400 South Finley Road
Lombard, Illinois

 

100

 

Leased

 

 

 

 

 

 

 

Clare Oaks
825 Carillon Drive
Bartlett, Illinois

 

100

 

Leased

 

 

 

 

 

 

 

717 South Meyers Road
Lombard, Illinois

 

7,100

 

Owned

 

 

 

 

 

 

 

701 South Meyers Road
Lombard, Illinois

 

5,200

 

Owned

 

 

 

 

 

 

 

Lexington Health Care Center of Elmhurst
400 West Butterfield Road
Elmhurst, Illinois

 

100

 

Leased

 

 

 

 

 

 

 

Lexington Health Care Center of Lombard
555 Foxworth Boulevard
Lombard, Illinois

 

100

 

Leased

 

 

ITEM 3.

LEGAL PROCEEDINGS

 

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

 

ITEM 4.

[RESERVED]

 

PART II

 

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

West Suburban’s authorized and outstanding equity securities consist of common stock, no par value.

 

West Suburban hereby incorporates by reference the information called for by Item 5 of this Form 10-K from the sections entitled “Common Stock, Book Value and Dividends” and “Stock Performance Presentation” on page 4 and page 34, respectively, of West Suburban’s Annual Report to Shareholders for the fiscal year ended December 31, 2009 (attached as Exhibit 13 hereto). The Company’s ability to pay dividends to shareholders is largely dependent upon dividends it receives from the Bank, which is subject to regulatory limitations on the amount of cash dividends it may pay. See “Business — Supervision and Regulation — The Company — Dividend Payments” and “Business — Supervision and Regulation — The Bank — Dividend Payments” for a more detailed description of theses limitations.

 

West Suburban’s common stock is not traded on any national or regional exchange. While there is no established trading market for West Suburban’s common stock, West Suburban is aware that from time to time limited or infrequent quotations are made with respect to West Suburban’s common stock and that there occurs limited trading in West Suburban’s common stock resulting from private transactions not involving brokers or dealers. Transactions in West Suburban’s common stock have been infrequent. As of March 2, 2010, West Suburban had 426,850 shares of common stock outstanding held by 1,109 shareholders of record. Management is aware of 16 transactions during 2009 involving the sale, in the aggregate, of 6,771 shares of West Suburban’s common stock, and 43 transactions during 2008 involving the sale, in the aggregate, of 3,846 shares of West Suburban’s common stock. The average sale price of transactions in 2009 and 2008 was $478.51 and $635.27 per share of common stock, respectively.

 

27



 

The following table sets forth information concerning the security repurchases made by the Company in the fourth quarter of 2009:

 

Issuer Purchases of Equity Securities

 

Period

 

Total Number
of Shares
Purchased

 

Average Price
Paid per Share

 

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs

 

Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs

 

October 1, 2009 through October 31, 2009

 

 

 

 

 

November 1, 2009 through November 30, 2009

 

1,761

(1)

$

369.00

 

 

 

December 1, 2009 through December 31, 2009

 

 

 

 

 

Total

 

1,761

(2)

$

369.00

(2)

 

 


(1)   Purchased by the Company in an open-market transaction with a third party.

(2)   During the first and fourth quarters of 2009, the Company purchased an aggregate of 5,645 shares for an average purchase price per share of $470.83 in open-market transactions with third parties.

 

ITEM 6.

SELECTED FINANCIAL DATA

 

West Suburban hereby incorporates by reference the information called for by Item 6 of this Form 10-K from the section entitled “Selected Financial Data” on page 36 of West Suburban’s Annual Report to Shareholders for the fiscal year ended December 31, 2009 (attached as Exhibit 13 hereto).

 

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

West Suburban hereby incorporates by reference the information called for by Item 7 of this Form 10-K from the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages 39 through 49 of West Suburban’s Annual Report to Shareholders for the fiscal year ended December 31, 2009 (attached as Exhibit 13 hereto).

 

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

West Suburban hereby incorporates by reference the information called for by Item 7A of this Form 10-K from the “Interest Rate Sensitivity” section included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages 39 through 49 of West Suburban’s Annual Report to Shareholders for the fiscal year ended December 31, 2009 (attached as Exhibit 13 hereto).

 

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

West Suburban hereby incorporates by reference the information called for by Item 8 of this Form 10-K from the Consolidated Financial Statements and Notes to Consolidated Financial Statements on pages 7 through 33 of West Suburban’s Annual Report to Shareholders for the fiscal year ended December 31, 2009 (attached as Exhibit 13 hereto).

 

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

28



 

ITEM 9A.

CONTROLS AND PROCEDURES

 

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chairman and Chief Executive Officer and the President and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Exchange Act) as of December 31, 2009. Based on that evaluation, the Company’s Chairman and Chief Executive Officer and the President and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified.

 

There have been no significant changes in the Company’s internal control over financial reporting that have affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

West Suburban’s management report on internal control over financial reporting is set forth in, and West Suburban hereby incorporates by reference, the section entitled “Management’s Report on Internal Control over Financial Reporting” on page 5 of West Suburban’s Annual Report to Shareholders for the fiscal year ended December 31, 2009 (attached as Exhibit 13 hereto).

 

ITEM 9B.

OTHER INFORMATION

 

None.

 

29



 

PART III

 

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

In addition, and as a supplement to the information provided under the caption “Executive Officers of West Suburban” in Part I of this Form 10-K, West Suburban hereby incorporates by reference the information called for by Item 10 of this Form 10-K regarding directors and corporate governance of West Suburban from the sections entitled “Election of Directors” and “Corporate Governance and the Board of Directors” of West Suburban’s 2010 Proxy Statement.

 

Section 16(a) of the Exchange Act requires that the Company’s executive officers and directors and persons who own more than 10% of the Company’s Common Stock file reports of ownership and changes in ownership with the Securities and Exchange Commission and with the exchange on which West Suburban’s Common Stock is traded. Such persons are also required to furnish the Company with copies of all Section 16(a) forms they file. Based solely on the Company’s review of the copies and forms furnished to the Company and, if appropriate, representations made to the Company by any such reporting person concerning whether a Form 5 was required to be filed for the 2009 fiscal year, the Company is not aware that any of its directors and executive officers or 10% shareholders failed to comply with the filing requirements of Section 16(a) during 2009.

 

West Suburban adopted a code of ethics that applies to West Suburban’s principal executive officer, principal financial officer and principal accounting officer or controller, or persons performing similar functions. West Suburban’s code of ethics is available in the Shareholder Information section of West Suburban’s website, www.westsuburbanbank.com.

 

Since the date of West Suburban’s 2009 Proxy Statement, there have been no material changes to the procedures by which shareholders may recommend nominees to West Suburban’s board of directors.

 

ITEM 11.

EXECUTIVE COMPENSATION

 

West Suburban hereby incorporates by reference the information called for by Item 11 of this Form 10-K from the section entitled “Executive Compensation” of West Suburban’s 2010 Proxy Statement; provided, however, that “Report of the Compensation Committee on Executive Compensation” is specifically not incorporated into this Form 10-K.

 

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

 

West Suburban hereby incorporates by reference the information called for by Item 12 of this Form 10-K from the sections entitled “Security Ownership of Certain Beneficial Owners” and “Security Ownership of Management” of West Suburban’s 2010 Proxy Statement.

 

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

West Suburban hereby incorporates by reference the information called for by Item 13 of this Form 10-K from the section entitled “Transactions with Directors, Officers and Associates” and “Corporate Governance and the Board of Directors” of West Suburban’s 2010 Proxy Statement.

 

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

 

West Suburban hereby incorporates by reference the information called for by Item 14 of this Form 10-K from the section entitled “Accounting Fees and Services” of West Suburban’s 2010 Proxy Statement.

 

30



 

PART IV

 

ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

Item (a)(1) and (2). Financial Statements

 

WEST SUBURBAN BANCORP, INC. AND SUBSIDIARIES

LIST OF FINANCIAL STATEMENTS AND

FINANCIAL STATEMENT SCHEDULES

 

The following audited Consolidated Financial Statements of West Suburban and its subsidiaries and related notes and report of independent registered public accounting firm are incorporated by reference from West Suburban’s Annual Report to Shareholders for the fiscal year ended December 31, 2009 (attached as Exhibit 13 hereto).

 

 

 

Annual Report
Page No.

Report of Independent Registered Public Accounting Firm

 

6

 

 

 

Consolidated Balance Sheets — December 31, 2009 and 2008

 

7

 

 

 

Consolidated Statements of Income — Years Ended December 31, 2009, 2008 and 2007

 

8

 

 

 

Consolidated Statements of Changes in Shareholders’ Equity — Years Ended December 31, 2009, 2008 and 2007

 

9

 

 

 

Consolidated Statements of Cash Flows — Years Ended December 31, 2009, 2008 and 2007

 

10

 

 

 

Notes to Consolidated Financial Statements

 

11

 

The following Condensed Financial Information-Parent Only is incorporated by reference from Note 14 to West Suburban’s audited Consolidated Financial Statements as set forth in West Suburban’s Annual Report to Shareholders for the fiscal year ended December 31, 2009 (attached as Exhibit 13 hereto).

 

 

 

Annual Report Page No.

 

 

 

Condensed Balance Sheets — December 31, 2009 and 2008

 

31

 

 

 

Condensed Statements of Income — Years Ended December 31, 2009, 2008 and 2007

 

32

 

 

 

Condensed Statements of Cash Flows — Years Ended December 31, 2009, 2008 and 2007

 

32

 

Schedules

 

Schedules other than those listed above are omitted for the reason that they are not required or are not applicable or the required information is included in the financial statements incorporated by reference or notes thereto.

 

31



 

Item 15(a)(3).         Exhibits

 

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

 

***

 

Upon written request to the President and Chief Financial Officer of West Suburban Bancorp, Inc., 2800 Finley Road, Downers Grove, Illinois, 60515, copies of the exhibits listed above are available to shareholders of West Suburban by specifically identifying each exhibit desired in the request.

 

32



 

FORM 10-K SIGNATURE PAGE

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

WEST SUBURBAN BANCORP, INC.

(Registrant)

 

By

/s/ Duane G. Debs

 

 

Duane G. Debs

 

President and Chief Financial Officer

 

Date: March 12, 2010

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 12th day of March, 2010.

 

SIGNATURE

 

 

 

TITLE

 

 

 

 

 

/s/ Kevin J. Acker

 

3/12/2010

 

Chairman, Chief Executive Officer

Kevin J. Acker

 

Date

 

and Director

 

 

 

 

 

/s/ Duane G. Debs

 

3/12/2010

 

President, Chief Financial Officer,

Duane G. Debs

 

Date

 

Director and Principal Accounting

 

 

 

 

Officer

 

 

 

 

 

/s/ David S. Bell

 

3/12/2010

 

Director

David S. Bell

 

Date

 

 

 

 

 

 

 

/s/ Peggy P. LoCicero

 

3/12/2010

 

Director

Peggy P. LoCicero

 

Date

 

 

 

 

 

 

 

/s/ Charles P. Howard

 

3/12/2010

 

Director

Charles P. Howard

 

Date

 

 

 

The foregoing includes all of the Board of Directors of West Suburban.

 

33



 

INDEX TO EXHIBITS

 

Exhibit
Number

 

Description

 

 

 

3.1

 

Articles of Incorporation of West Suburban filed March 14, 1986 — Incorporated by reference from Exhibit 3.1 of Form 10-K of West Suburban dated March 21, 2003, under Commission File No. 0-17609.

 

 

 

3.2

 

Articles of Amendment to Articles of Incorporation of West Suburban filed November 2, 1988 — Incorporated by reference from Exhibit 3.2 of Form 10-K of West Suburban dated March 21, 2003, under Commission File No. 0-17609.

 

 

 

3.3

 

Articles of Amendment to Articles of Incorporation of West Suburban filed June 20, 1990 — Incorporated by reference from Exhibit 3.3 of Form 10-K of West Suburban dated March 21, 2003, under Commission File No. 0-17609.

 

 

 

3.4

 

Articles of Amendment to Articles of Incorporation of West Suburban filed June 8, 1998 — Incorporated by reference from Exhibit 3.4 of Form 10-K of West Suburban dated March 21, 2003, under Commission File No. 0-17609.

 

 

 

3.5

 

Articles of Amendment to Articles of Incorporation of West Suburban filed May 27, 2003 — Incorporated by reference from Exhibit 3.5 of Form 10-Q of West Suburban dated August 14, 2003, under Commission File No. 0-17609.

 

 

 

3.6

 

Amended and Restated By-laws of West Suburban — Incorporated by reference from Exhibit 3.5 of Form 10-K of West Suburban dated March 21, 2003, under Commission File No. 0-17609.

 

 

 

4.1

 

Specimen of Common Stock certificate — Incorporated by reference from Exhibit 4.1 of Form 10-K of West Suburban dated March 14, 2006, under Commission File No. 0-17609.

 

 

 

10.1

 

Directors and Senior Management Deferred Compensation Plan of West Suburban — Incorporated by reference from Exhibit 10.1 of Form 10-K of West Suburban dated March 11, 2009, under Commission File No. 0-17609.

 

 

 

10.2

 

Restated Employment Agreement dated December 29, 2008 between West Suburban and Mr. Kevin J. Acker — Incorporated by reference from Exhibit 10.2 of Form 10-K of West Suburban dated March 11, 2009, under Commission File No. 0-17609.

 

 

 

10.3

 

Restated Employment Agreement dated December 29, 2008 between West Suburban and Mr. Keith W. Acker — Incorporated by reference from Exhibit 10.3 of Form 10-K of West Suburban dated March 11, 2009, under Commission File No. 0-17609.

 

 

 

10.4

 

Restated Employment Agreement dated December 29, 2008 between West Suburban and Mr. Duane G. Debs — Incorporated by reference from Exhibit 10.4 of Form 10-K of West Suburban dated March 11, 2009, under Commission File No. 0-17609.

 

 

 

10.5

 

Restated Employment Agreement dated December 29, 2008 between West Suburban and Mr. Michael P. Brosnahan — Incorporated by reference from Exhibit 10.5 of Form 10-K of West Suburban dated March 11, 2009, under Commission File No. 0-17609.

 

 

 

10.6

 

Restated Employment Agreement dated December 31, 2008 between West Suburban and Mr. Daniel P. Grotto — Incorporated by reference from Exhibit 10.6 of Form 10-K of West Suburban dated March 11, 2009, under Commission File No. 0-17609.

 

 

 

10.7

 

Form of Amended and Restated Life Insurance Agreement between West Suburban and Messrs. Kevin J. Acker, Keith W. Acker, Duane G. Debs, Michael P. Brosnahan and Daniel P. Grotto — Incorporated by reference from Exhibit 10.7 of Form 10-K of West Suburban dated March 11, 2009, under Commission File No. 0-17609.

 

 

 

10.8

 

Asset Purchase Agreement dated December 4, 2009 between West Suburban Bank and Prepaid Solutions, Inc. — Incorporated by reference from Exhibit 10.1 of Form 8-K of West Suburban dated December 10, 2009, under Commission File No. 0-17609.

 

 

 

10.9

 

Agreement and General Release dated December 4, 2009 among Mr. Daniel Grotto, West Suburban Bancorp, Inc. and West Suburban Bank — Incorporated by reference from Exhibit 10.2 of Form 8-K of West Suburban dated December 10, 2009, under Commission File No. 0-17609.

 

34



 

Exhibit
Number

 

Description

 

 

 

13

 

Annual Report to Shareholders of West Suburban for fiscal year ended December 31, 2009.

 

 

 

21

 

Subsidiaries of Registrant.

 

 

 

31.1

 

Certification of Kevin J. Acker, Chairman and Chief Executive Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a).

 

 

 

31.2

 

Certification of Duane G. Debs, President and Chief Financial Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a).

 

 

 

32.1

 

Certification of Kevin J. Acker, Chairman and Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2

 

Certification of Duane G. Debs, President and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

35