WEST SUBURBAN BANCORP INC - FORM 10-Q

Attached files

file	filename
EX-31.1 - EX-31.1 - WEST SUBURBAN BANCORP INC	a10-12668_1ex31d1.htm
EX-31.2 - EX-31.2 - WEST SUBURBAN BANCORP INC	a10-12668_1ex31d2.htm
EX-10.1 - EX-10.1 - WEST SUBURBAN BANCORP INC	a10-12668_1ex10d1.htm
EX-32.2 - EX-32.2 - WEST SUBURBAN BANCORP INC	a10-12668_1ex32d2.htm
EX-32.1 - EX-32.1 - WEST SUBURBAN BANCORP INC	a10-12668_1ex32d1.htm
EX-10.2 - EX-10.2 - WEST SUBURBAN BANCORP INC	a10-12668_1ex10d2.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period ended June 30, 2010

Commission File Number 0-17609

WEST SUBURBAN BANCORP, INC.

(Exact name of registrant as specified in its charter)

Illinois		36-3452469
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

711 South Meyers Road, Lombard, Illinois		60148
(Address of principal executive offices)		(Zip Code)

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

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 (§232.405 of this chapter) 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions 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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of August 9, 2010, 426,850 shares of West Suburban common stock were outstanding.

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WEST SUBURBAN BANCORP, INC.

Form 10-Q Quarterly Report

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		Page
		Number
PART I
Item 1.	Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	32

PART II
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	(Removed and Reserved)	33
Item 5.	Other Information	33
Item 6.	Exhibits	34

Form 10-Q Signatures		35

Special Note Concerning Forward-Looking Statements

This document (including information incorporated by reference) contains, and future oral and written statements of each 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 of Part I of the Company’s most recently filed Annual Report on Form 10-K and under Item 1A in Part II of this report 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 the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act and other laws and regulations intended to address the current stresses in the U.S. and global financial markets, national security and money laundering.

· 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 securities portfolio.

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· 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.

· 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.

· 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, including the risk factors disclosed in the Company’s most recently filed Annual Report on Form 10-K and in Part II, Item 1A of this report.

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PART I

ITEM 1. FINANCIAL STATEMENTS

WEST SUBURBAN BANCORP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

(UNAUDITED)

	June 30,			December 31,
	2010			2009
Assets
Cash and due from banks	$	90,103		$	68,610
Federal funds sold	200			80,000
Total cash and cash equivalents	90,303			148,610
Securities
Available for sale (amortized cost of $346,341 in 2010 and $199,139 in 2009)	353,394			205,610
Held to maturity (fair value of $266,015 in 2010 and $273,316 in 2009)	255,552			265,908
Federal Home Loan Bank stock	7,599			7,599
Total securities	616,545			479,117
Loans, less allowance for loan losses of $28,721 in 2010 and $25,922 in 2009	1,127,307			1,167,675
Bank-owned life insurance	37,940			37,601
Premises and equipment, net	42,658			43,768
Other real estate	22,000			25,994
Accrued interest and other assets	36,897			35,818
Total assets	$	1,973,650		$	1,938,583

Liabilities and shareholders’ equity
Deposits
Demand-noninterest-bearing	$	131,550		$	125,132
Prepaid solutions cards deposits	27,997			30,577
Interest-bearing	1,624,469			1,601,278
Total deposits	1,784,016			1,756,987
Prepaid solutions cards	8,140			6,315
Accrued interest and other liabilities	20,247			17,288

Common stock in ESOP subject to contingent repurchase obligation	36,963			31,230

Shareholders’ equity
Common stock, no par value; 15,000,000 shares authorized; 426,850 shares issued and outstanding	3,412			3,412
Surplus	35,453			35,453
Retained earnings	118,435			115,544
Accumulated other comprehensive income	3,947			3,584
Amount reclassified on ESOP shares	(36,963		)	(31,230		)
Total shareholders’ equity	124,284			126,763
Total liabilities and shareholders’ equity	$	1,973,650		$	1,938,583

See accompanying notes to condensed consolidated financial statements.

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WEST SUBURBAN BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Dollars in thousands, except per share data)

(UNAUDITED)

	2010		2009
Interest income
Loans, including fees	$	29,656	$	31,895
Securities
Taxable	8,486		9,618
Exempt from federal income tax	730		555
Federal funds sold	54		62
Total interest income	38,926		42,130

Interest expense
Deposits	10,296		12,779
Other	—		43
Total interest expense	10,296		12,822
Net interest income	28,630		29,308
Provision for loan losses	5,550		8,950
Net interest income after provision for loan losses	23,080		20,358

Noninterest income
Service fees on deposit accounts	2,659		2,823
Debit card fees	1,046		1,012
Bank-owned life insurance	221		672
Net gain on sale of loans held for sale	—		381
Net realized gains on securities transactions	—		109
Total other-than-temporary impairment losses	—		(5,110		)
Portion of loss recognized in other comprehensive income - before tax	—		4,219
Net impariment losses recognized in earnings	—		(891		)
Other	1,999		1,716
Total noninterest income	5,925		5,822

Noninterest expense
Salaries and employee benefits	11,251		12,092
Furniture and equipment	2,623		2,898
Occupancy	2,556		2,689
FDIC assessments	2,268		1,793
Professional fees	1,192		1,829
Other real estate owned	1,142		205
Loan administration	1,362		627
Advertising and promotion	455		358
Other	2,316		2,220
Total noninterest expense	25,165		24,711

Income from continuing operations before income taxes	3,840		1,469
Income tax expense	949		79
Net income from continuing operations	2,891		1,390
Discontinued operations, net of tax	—		98
Net income	$	2,891	$	1,488

Comprehensive income from continuing operations	$	3,254	$	1,979
Comprehensive income from discontinued operations	—		98
Total comprehensive income	$	3,254	$	2,077

Earnings from continuing operations per share	$	6.77	$	3.23
Earnings from discontinued operations per share	$	—	$	0.23
Earnings per share	$	6.77	$	3.46
Average shares outstanding	426,850		430,040

See accompanying notes to condensed consolidated financial statements.

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WEST SUBURBAN BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED JUNE 30, 2010 AND 2009

(Dollars in thousands, except per share data)

(UNAUDITED)

	2010			2009
Interest income
Loans, including fees	$	14,612		$	15,891
Securities
Taxable	4,611			4,586
Exempt from federal income tax	275			279
Federal funds sold	9			37
Total interest income	19,507			20,793

Interest expense
Deposits	4,928			6,295
Total interest expense	4,928			6,295
Net interest income	14,579			14,498
Provision for loan losses	3,175			7,650
Net interest income after provision for loan losses	11,404			6,848

Noninterest income
Service fees on deposit accounts	1,330			1,427
Debit card fees	540			532
Bank-owned life insurance	(193		)	893
Net gains on loans held for sale	—			305
Net realized gains on securities transactions	—			109
Total other-than-temporary impairment losses	—			(5,110		)
Portion of loss recognized in other comprehensive income - before tax	—			4,219
Net impariment losses recognized in earnings	—			(891		)
Other	1,117			868
Total noninterest income	2,794			3,243

Noninterest expense
Salaries and employee benefits	5,302			6,562
Furniture and equipment	1,275			1,517
Occupancy	1,226			1,195
FDIC assessments	1,085			1,466
Professional fees	607			985
Other real estate owned	573			158
Loan administration	796			508
Advertising and promotion	287			147
Other	1,236			1,040
Total noninterest expense	12,387			13,578

Income (loss) from continuing operations before income taxes	1,811			(3,487		)
Income tax expense (benefit)	563			(1,190		)
Net income (loss) from continuing operations	1,248			(2,297		)
Discontinued operations, net of tax	—			(109		)
Net income (loss)	$	1,248		$	(2,406	)

Comprehensive income (loss) from continuing operations	$	2,122		$	(1,157	)
Comprehensive income (loss) from discontinued operations	—			(109		)
Total comprehensive income (loss)	$	2,122		$	(1,266	)

Earnings (loss) from continuing operations per share	$	2.92		$	(5.36	)
Earnings (loss) from discontinued operations per share	$	—		$	(0.25	)
Earnings (loss) per share	$	2.92		$	(5.61	)
Average shares outstanding	426,850			428,611

See accompanying notes to condensed consolidated financial statements.

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WEST SUBURBAN BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Dollars in thousands, except per share data)

(UNAUDITED)

	Common Stock and Surplus			Retained Earnings			Accumulated Other Comprehensive Loss			Amount Reclassified on ESOP Shares			Total Shareholders’ Equity
Balance, January 1, 2009	$	41,523		$	120,676		$	(1,300	)	$	(46,670	)	$	114,229

Repurchase and retirement of 3,884 shares of common stock	(2,008		)										(2,008		)
Comprehensive income
Net income				1,488									1,488
Change in unrealized loss on available for sale securities, net of reclassification and tax effects							575						575
Change in post-retirement obligation, net of tax effects							14						14
Total comprehensive income													2,077
Cash dividends declared - $10.00 per share				(4,297		)							(4,297		)
Reclassification due to change in fair value of common stock in ESOP subject to contingent repurchase obligation										10,020			10,020
Balance, June 30, 2009	$	39,515		$	117,867		$	(711	)	$	(36,650	)	$	120,021

	Common Stock and Surplus		Retained Earnings		Accumulated Other Comprehensive Income		Amount Reclassified on ESOP Shares			Total Shareholders’ Equity
Balance, January 1, 2010	$	38,865	$	115,544	$	3,584	$	(31,230	)	$	126,763

Comprehensive income
Net income			2,891							2,891
Change in unrealized gains on available for sale securities, net of reclassification and tax effects					351					351
Change in post-retirement obligation, net of tax effects					12					12
Total comprehensive income										3,254
Reclassification due to change in fair value of common stock in ESOP subject to contingent repurchase obligation							(5,733		)	(5,733		)
Balance, June 30, 2010	$	38,865	$	118,435	$	3,947	$	(36,963	)	$	124,284

See accompanying notes to condensed consolidated financial statements.

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WEST SUBURBAN BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Dollars in thousands)

(UNAUDITED)

	2010			2009
Cash flows from operating activities
Net income	$	2,891		$	1,488
Adjustments to reconcile net income to net cash provided by continuing operating activities
Depreciation	1,566			1,660
Provision for loan losses	5,550			8,950
Deferred income tax provision (benefit)	864			(2,121		)
Net premium amortization and discount (accretion) of securities	1,100			(140		)
Net realized gains on securities transactions	—			(109		)
Impairment of pooled trust preferred securities	—			891
Increase in carrying value of bank-owned life insurance	(221		)	(672		)
Net gain on sales of loans held for sale	—			(381		)
Sales of loans held for sale	—			39,216
Origination of loans held for sale	—			(48,466		)
Net loss on sales of premises and equipment	4			—
Net gain on sales of other real estate	(237		)	(14		)
Write down of other real estate	516			—
Increase in accrued interest and other assets	(2,182		)	(715		)
Increase (decrease) in accrued interest and other liabilities	2,980			(1,451		)
Net cash provided by discontinued operating activities	—			842
Net cash provided by (used in) continuting operating activities	12,831			(1,022		)
Cash flows from investing activities
Securities available for sale
Sales	—			19,522
Maturities, calls and redemptions	49,573			40,047
Purchases	(197,567		)	(32,639		)
Securities held to maturity and FHLB stock
Maturities, calls and redemptions	48,372			27,197
Purchases	(38,324		)	(6,560		)
Net decrease in loans	32,647			8,148
Investment in bank-owned life insurance	(118		)	39
Purchases of premises and equipment	(460		)	(2,731		)
Sales of other real estate	5,885			1,699
Net cash provided by discontinued investing activities	—			371
Net cash (used in) provided by continuing investing activities	(99,992		)	55,093
Cash flows from financing activities
Net increase in deposits	27,029			63,531
Net decrease in federal funds purchased	—			(55,000		)
Repurchase and retirement of common stock	—			(2,008		)
Net increase in prepaid solutions cards	1,825			312
Dividends paid	—			(4,297		)
Net cash provided by financing activities	28,854			2,538
Net (decrease) increase in cash and cash equivalents	(58,307		)	56,609
Beginning cash and cash equivalents	148,610			55,474
Ending cash and cash equivalents	$	90,303		$	112,083
Supplemental disclosures
Cash paid for interest	$	10,448		$	12,751
Cash paid for income taxes	85			2,264
Other real estate acquired through loan foreclosures	2,170			14,284

See accompanying notes to condensed consolidated financial statements.

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WEST SUBURBAN BANCORP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands, except per share data)

Note 1 - Basis of Presentation

The condensed consolidated financial statements include the accounts of West Suburban Bancorp, Inc. (“West Suburban”) and West Suburban Bank (the “Bank” and collectively with West Suburban and its other direct and indirect subsidiaries, the “Company”). Intercompany accounts and transactions have been eliminated. The unaudited interim consolidated financial statements are prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures normally accompanying the annual financial statements have been omitted. The interim financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in the latest Annual Report on Form 10-K filed by the Company. The condensed consolidated financial statements include all adjustments (none of which were other than normal recurring adjustments) necessary for a fair presentation of the results for the interim periods. The results for the interim periods are not necessarily indicative of the results to be expected for the entire fiscal year.

On December 4, 2009, the Company sold its prepaid solutions group. The Company anticipates transferring substantially all of the outstanding balances on prepaid solutions cards, which represent the total of prepaid solutions cards deposits and prepaid solutions cards liabilities to another financial institution during 2010.

Note 2 - Securities

At June 30, 2010 and December 31, 2009, the amortized cost, unrealized gains and losses and fair value of securities available for sale were as follows:

	June 30, 2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasuries	$	19,980	$	549	$	—		$	20,529
U.S. government sponsored enterprises	44,706		749		(1		)	45,454
Mortgage-backed: residential	270,474		5,872		(458		)	275,888
States and political subdivisions	11,181		366		(24		)	11,523
Total debt securities	$	346,341	$	7,536	$	(483	)	$	353,394

	December 31, 2009
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. government sponsored enterprises	$	49,621	$	909	$	(46	)	$	50,484
Mortgage-backed: residential	139,151		5,313		(13		)	144,451
States and political subdivisions	10,367		314		(6		)	10,675
Total debt securities	$	199,139	$	6,536	$	(65	)	$	205,610

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At June 30, 2010 and December 31, 2009, the amortized cost, unrealized gains and losses and fair value of securities held to maturity were as follows:

	June 30, 2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasuries	$	9,952	$	343	$	—		$	10,295
U.S. government sponsored enterprises	34,391		677		—			35,068
Mortgage-backed: residential	162,722		9,279		(19		)	171,982
States and political subdivisions	48,487		516		(333		)	48,670
Total	$	255,552	$	10,815	$	(352	)	$	266,015

	December 31, 2009
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. government sponsored enterprises	$	41,199	$	392	$	(48	)	$	41,543
Mortgage-backed: residential	178,129		7,029		(160		)	184,998
States and political subdivisions	46,580		429		(234		)	46,775
Total	$	265,908	$	7,850	$	(442	)	$	273,316

At June 30, 2010, the amortized cost and fair value of debt securities available for sale and held to maturity by contractual maturity were as follows:

	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in 1 year or less	$	7,134	$	7,180	$	31,881	$	31,846
Due after 1 year through 5 years	56,089		57,331		39,260		40,278
Due after 5 years through 10 years	6,332		6,414		12,663		12,810
Due after 10 years	6,312		6,581		9,026		9,099
Mortgage-backed: residential	270,474		275,888		162,722		171,982
Total	$	346,341	$	353,394	$	255,552	$	266,015

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.

There were no sales of securities during the six months ended June 30, 2010. There were $19,522 in sales for the six months ended June 30, 2009.

Securities with a carrying value of $102,149 and $114,177 at June 30, 2010 and December 31, 2009, respectively, were pledged to secure public deposits, fiduciary activities and for other purposes required or permitted by law.

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Securities with unrealized losses at June 30, 2010 and December 31, 2009 are presented below by the length of time the securities have been in a continuous unrealized loss position:

	June 30, 2010
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. government sponsored enterprises	$	1,404	$	(1	)	$	—	$	—		$	1,404	$	(1	)
Mortgage-backed: residential	37,512		(471		)	605		(6		)	38,117		(477		)
States and political subdivisions	32,394		(156		)	2,626		(201		)	35,020		(357		)
Total temporarily impaired	$	71,310	$	(628	)	$	3,231	$	(207	)	$	74,541	$	(835	)

	December 31, 2009
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. government sponsored enterprises	$	25,637	$	(94	)	$	—	$	—		$	25,637	$	(94	)
Mortgage-backed: residential	21,072		(136		)	751		(37		)	21,823		(173		)
States and political subdivisions	2,964		(97		)	1,001		(143		)	3,965		(240		)
Total temporarily impaired	$	49,673	$	(327	)	$	1,752	$	(180	)	$	51,425	$	(507	)

Mortgage-backed: residential securities consist of residential mortgage-backed securities issued by U.S. government sponsored enterprises and agencies, primarily Fannie Mae, Freddie Mac and Ginnie Mae, institutions which the government has affirmed its commitment to support.

Other-Than-Temporary Impairment Evaluation

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

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

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

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

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the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the portion of the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

In accordance with FASB guidance, unrealized losses on the Company’s debt securities are not recognized because management does not have the intent to sell the securities and it is not more likely than not that the Company would be required to sell the securities prior to the anticipated recovery. The Company has concluded that as of June 30, 2010, its debt securities were not other-than-temporarily impaired.

As of June 30, 2009, the Company held three pooled trust preferred securities that had total OTTI of $5,110, of which $891 represented the credit component and was charged to expense and $4,219 (before taxes) was recorded in other comprehensive income.

The table below presents a roll-forward of the credit losses recognized in earnings for the six month period ended June 30, 2010:

Beginning Balance, January 1, 2010	$	891
Additions	—
Ending Balance, June 30, 2010	$	891

Note 3 - Loans

Major classifications of loans were as follows:

	June 30, 2010			December 31, 2009
Commercial	$	246,936		$	267,432
Consumer	2,717			3,031
Indirect automobile	1,644			2,395
Real estate
Residential	220,625			219,551
Commercial	285,484			280,442
Home equity	222,854			232,607
Construction	164,844			175,186
Credit card	9,424			9,874
Other	1,500			3,079
Total	1,156,028			1,193,597
Allowance for loan losses	(28,721		)	(25,922		)
Loans, net	$	1,127,307		$	1,167,675

The Company makes commercial, consumer and residential real estate loans primarily to customers throughout the western suburbs of Chicago. Construction loans are primarily made to customers engaged in the development and construction of residential real estate projects within the Company’s market area. From time to time the Company will make loans outside of its market area.

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Changes in the allowance for loan losses were as follows:

	June 30, 2010			December 31, 2009
Balance, beginning of year	$	25,922		$	15,578
Provision for loan losses	5,550			24,925
Loans charged-off	(2,852		)	(14,952		)
Recoveries	101			371
Balance, end of year	$	28,721		$	25,922

Impaired loans are summarized as follows:

	June 30, 2010		December 31, 2009
Period-end loans with no allocated allowance for loan losses	$	27,373	$	30,754
Period-end loans with allocated allowance for loan losses	34,084		14,636
Total	$	61,457	$	45,390

Amount of the allowance for loan losses allocated to impaired loans at year-end	$	5,697	$	1,527

Nonperforming loans were as follows:

	June 30, 2010		December 31, 2009
Loans past due 90 days or more still on accrual	$	464	$	790
Nonaccrual loans	51,135		38,038
Total nonperforming loans	$	51,599	$	38,828

At June 30, 2010, the Company had $15.6 million of loans considered troubled debt restructurings, which are considered impaired loans compared to $8.6 million as of December 31, 2009. Modifications for loans classified as troubled debt restructurings primarily changed the timing of cash flows for a short period of time and the Bank has not allocated any specific reserves to customers whose loan terms have been modified in troubled debt restructurings. The Company has not committed to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

Note 4 - Financial Instruments with Off-Balance Sheet Risk

Unused lines of credit and other commitments to extend credit not reflected in the financial statements are as follows:

	June 30, 2010						December 31, 2009
	Fixed Rate		Variable Rate		Total		Fixed Rate		Variable Rate		Total
Commercial loans and lines of credit	$	1,239	$	136,875	$	138,114	$	1,434	$	169,158	$	170,592
Check credit lines of credit	945		—		945		1,027		—		1,027
Mortgage loans	8,509		—		8,509		8,419		—		8,419
Home equity lines of credit	2,573		144,787		147,360		2,508		152,281		154,789
Letters of credit	—		15,990		15,990		—		14,650		14,650
Credit card lines of credit	—		38,385		38,385		—		38,771		38,771
Total	$	13,266	$	336,037	$	349,303	$	13,388	$	374,860	$	388,248

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Fixed rate commercial loan commitments and lines of credit at June 30, 2010 had interest rates ranging from 3.8% to 7.3% with terms ranging from 1 month to 5 years. Fixed rate mortgage loan commitments at June 30, 2010 had interest rates ranging from 4.4% to 5.3% with terms ranging from 10 to 30 years. Fixed rate home equity lines of credit at June 30, 2010 had interest rates ranging from 6.5% to 7.0% with terms ranging from 1 to 3 years. Fixed rate check credit lines of credit at June 30, 2010 had interest rates of 18.0%.

Note 5 - Common Stock in ESOP Subject to Contingent Repurchase Obligation

At June 30, 2010 and December 31, 2009, the Employee Stock Ownership Plan (the “ESOP”) held 91,267 and 91,317 shares of West Suburban common stock, respectively. Upon termination of their employment, participants who elect to receive their benefit distributions in the form of West Suburban common stock may require the Company to purchase the common stock distributed at fair value during two 60-day periods. The first purchase period begins on the date the benefit is distributed and the second purchase period begins on the first anniversary of the distribution date. This contingent repurchase obligation is reflected in the Company’s financial statements as “Common stock in ESOP subject to contingent repurchase obligation” and reduces shareholders’ equity by an amount that represents the independently appraised fair value of all West Suburban common stock held by the ESOP and allocated to participants, without regard to whether it is likely that the shares would be distributed or that the recipients of the shares would be likely to exercise their right to require the Company to purchase the shares.

Note 6 - New Accounting Pronouncements

Adoption of New Accounting Standards

In June 2009, the FASB amended previous guidance relating to transfers of financial assets and eliminated the concept of a qualifying special purpose entity. This guidance must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. This guidance must be applied to transfers occurring on or after the effective date. Additionally, on and after the effective date, the concept of a qualifying special purpose entity is no longer relevant for accounting purposes. Therefore, formerly qualifying special-purpose entities should be evaluated for consolidation by reporting entities on and after the effective date in accordance with the applicable consolidation guidance. The disclosure provisions were also amended and apply to transfers that occurred both before and after the effective date of this guidance. The adoption did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In June 2009, the FASB amended guidance for consolidation of variable interest entity guidance by replacing the quantitative-based risks and rewards calculation for determining which enterprise, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. Additional disclosures about an enterprise’s involvement in variable interest entities are also required. This guidance was effective as of the beginning of each reporting entity’s first annual reporting period that began after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Early adoption was prohibited. The adoption did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

Note 7 - Retirement Benefits

The Bank maintains the West Suburban Bank 401(k) Profit Sharing Plan (the “401(k) Plan”), which serves as the Company’s principal retirement plan. The 401(k) Plan was established to address the limited availability of West Suburban common stock for acquisition by the ESOP and to offer participants an avenue to diversify their retirement savings.

The ESOP provides incentives to employees by granting participants an interest in West Suburban common stock, which represents the ESOP’s primary investment. An individual account is established for each participant and the benefits payable upon retirement, termination, disability or death are based upon service, the amount of the employer’s contributions and any income, expenses, gains and losses and forfeitures allocated to the participant’s account.

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The Company also maintains a noncontributory postretirement benefit plan covering certain senior executives. The plan provides postretirement medical, dental and long term care coverage for certain executives and their surviving spouses.

The eligible retirement age under the plan is age 62 and the plan is unfunded. Net postretirement benefit costs are summarized in the following table:

	Six Months Ended
	June 30,
	2010		2009
Service cost	$	17	$	20
Interest cost	29		30
Amortization of prior service cost	11		10
Recognized net actuarial gain	10		14
Net periodic benefit cost	$	67	$	74

	Three Months Ended
	June 30,
	2010		2009
Service cost	$	9	$	10
Interest cost	14		15
Amortization of prior service cost	5		5
Recognized net actuarial gain	5		7
Net periodic benefit cost	$	33	$	37

Note 8 - Income Taxes

The Company files income tax returns in the U.S. federal jurisdiction and in Illinois. The Company is no longer subject to examination by the U.S. federal tax authorities or by Illinois tax authorities for years prior to 2006.

Income tax expense increased $.9 million for the first six months of 2010 compared to the first six months of 2009. The effective tax rates for the first six months of 2010 and 2009 were 24.7% and 8.8%, respectively. The increase was due to the increase in taxable income.

Note 9 - Fair Value

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

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

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

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

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

Securities: The fair value of securities is determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair value is calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair value is calculated using discounted cash flows or other market indicators (Level 3). Discounted cash flows are calculated using spread to swap and LIBOR curves that are updated to incorporate loss severities, volatility, credit spread and optionality.

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During times when trading is more liquid, broker quotes are used (if available) to validate the model. Rating agency and industry research reports, as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.

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

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

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

	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2010 Recurring basis
U.S. Treasuries	$	20,529	$	20,529	$	—	$	—
U.S. government sponsored enterprises	45,454		—		45,454		—
Mortgage-backed: residential	275,888		—		275,888		—
State and political subdivisions	11,523		—		11,523		—
Total securities available for sale	$	353,394	$	20,529	$	332,865	$	—

June 30, 2010 Non-recurring basis
Impaired loans	$	28,387	$	—	$	—	$	28,387
Other real estate	624		—		—		624

December 31, 2009 Recurring basis
U.S. government sponsored enterprises	$	50,484	$	—	$	50,484	$	—
Mortgage-backed: residential	144,451		—		144,451		—
State and political subdivisions	10,675		—		10,675		—
Total securities available for sale	$	205,610	$	—	$	205,610	$	—

December 31, 2009 Non-recurring basis
Impaired loans	$	13,109	$	—	$	—	$	13,109
Other real estate	25,994		—		—		25,994

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $34,084 with a valuation allowance of $5,697 at June 30, 2010, resulting in an additional provision for loan losses of $4,253 during the first six months of 2010. The majority of the additional provision was due to further deterioration in the collateral value of loans that had been classified as impaired at December 31, 2009. At December 31, 2009, impaired loans had a carrying amount of $14,636, with a valuation allowance of $1,527.

At June 30, 2010, other real estate which is measured at fair value less costs to sell, had a net carrying amount of $624, which was made up of the outstanding balance of $846, net of a valuation

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allowance of $222, resulting in expense of $471 for the first six months of 2010. At December 31, 2009, other real estate, had a net carrying amount of $25,994, which was made up of the outstanding balance of $26,390, net of a valuation allowance of $396, resulting in expense of $449 for 2009.

Carrying values and estimated fair values of the Company’s financial instruments as of June 30, 2010 and December 31, 2009 are set forth in the table below:

	2010				2009
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial assets
Cash and cash equivalents	$	90,303	$	90,303	$	148,610	$	148,610
Securities
Available for sale	353,394		353,394		205,610		205,610
Held to maturity	255,552		266,015		265,908		273,316
Federal Home Loan Bank stock	7,599		N/A		7,599		N/A
Loans, less allowance for loan losses	1,127,307		1,132,722		1,167,675		1,166,369
Accrued interest receivable	6,484		6,484		6,048		6,048

Financial liabilities
Deposits	1,784,016		1,798,868		1,756,987		1,774,132
Accrued interest payable	4,842		4,842		4,994		4,994

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

ITEM 2.

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

Executive Overview

At the end of 2007, the United States economy experienced a downturn that continued throughout 2009 and into 2010. During this period, the United States economy experienced rising unemployment, declining home values, extremely low liquidity in the debt markets and declining values and high volatility in the equity markets. As a result of these conditions, consumer confidence and spending decreased substantially and asset values declined. Like many other financial institutions, the Company’s financial results in recent reporting periods, including the first six months of 2010, were impacted by the continuing economic downturn.

The economic downturn has impacted the entire state of Illinois, including the Company’s primary market area, located in the western suburbs of Chicago, Illinois. The unemployment rate in the state of Illinois currently exceeds 11%, and during 2009 and the first part of 2010, job cuts were prevalent in the Company’s market area. Rising unemployment has adversely impacted the ability of certain of the Company’s borrowers to meet their ongoing debt obligations. In addition, real estate demand in the Company’s market area remains weak, resulting in declines in the values of the real estate serving as collateral for certain of the Company’s loans. Although management believes that single family residential property values are beginning to stabilize, many other types of properties, including commercial real estate and raw land, remain at extremely weak levels.

As a result of the continuing economic downturn in the national and local economies and declining real estate values, management has focused its attention primarily on improving the performance of the Bank’s loan portfolio. During the first six months of 2010, the Bank’s nonaccrual loans increased, which adversely impacted its interest income. The deterioration in the Bank’s loan portfolio has forced the Bank to increase its allowance for loan losses

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to absorb additional losses in the loan portfolio. The Bank’s board of directors reviews the level of its allowance for loan losses on a monthly basis, and the Bank consults with its registered public accountant on a quarterly basis. The board responds as promptly as practicable to new developments in the Bank’s loan portfolio, but it often takes time to implement appropriate changes to the Bank’s allowance. Although management has aggressively increased the Bank’s allowance for loan losses in response to increasing levels of nonaccrual loans, management cannot be certain that it has established the allowance at the correct level, and loan losses in excess of the allowance for loan losses would adversely affect the Bank’s financial condition and results of operations. In addition, as a result of increasing levels of foreclosures, the Bank’s other real estate owned portfolio increased dramatically in 2009 and remained at a historically high level in the first six months of 2010, further decreasing the Bank’s interest income. Management has had to focus additional time and effort on selling these properties, and the Bank has incurred significant costs in connection with maintaining the properties, including real estate taxes, management fees and insurance costs. Management continues to aggressively pursue sales of the foreclosed assets in the Bank’s portfolio, but due to weak real estate demand in the Bank’s market area, management is not able to dispose of these properties as promptly as desired.

In response to issues regarding credit quality in the Bank’s loan portfolio, the Bank has limited the amount of credit that has been extended, particularly in areas of higher loan concentration, such as real estate construction loans. The Bank continues to see low levels of quality demand for credit but will continue to evaluate credit requests using the Bank’s traditional, prudent lending standards.

In response to the economic downturn, the Federal Reserve has maintained interest rates at historical low levels and has used various forms of monetary policy in an attempt to drive down long-term interest rates. The presence of these historically low interest rates has created net interest challenges for the banking industry in general and the Bank in particular. This interest rate environment has resulted in low-yielding investment opportunities, adding to the downward pressure on the Bank’s interest income. Because management believes that interest rates will increase over the next few years, management has been focused on investments for the Bank’s securities portfolio that are expected to retain their value in a rising rate environment. Specifically, the Bank has invested in mortgage-backed securities issued by United States government sponsored enterprises with average maturities of less than five years. In addition, movements in general market interest rates are a key element in changes in the Bank’s interest rate margin, and the Bank’s interest rate margin has declined in this environment. Management expects the interest rate environment to remain at historically low levels throughout most, if not all, of 2010, which will likely cause these trends to continue in the short-term.

During the first six months of 2010, management remained focused on resolving the issues raised by the Bank’s regulators in two Cease and Desist Orders. On December 3, 2008, the Bank entered into an Order to Cease and Desist with the FDIC and the DFPR, which is based on FDIC and DFPR findings that the Bank’s Secrecy Act/Anti-Money Laundering Program was inadequate and that the Bank had violated various laws and regulations related to the Bank Secrecy Act. On April 23, 2009, the Bank entered into a second Order to Cease and Desist 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. Both of the orders require the Bank to take certain corrective actions aimed at resolving any outstanding violations of laws or regulations and to implement revised programs intended to address future compliance. Neither of the orders relates to the Bank’s asset quality, capital position or its financial operations. The Bank’s regulators recently completed an examination of the Bank’s compliance with the Bank Secrecy Act and other laws and regulations, and in connection with this examination, the Bank expects that the FDIC and DFPR will evaluate whether the orders should be terminated.

Recent Regulatory Developments

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

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

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

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

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

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

· Prohibits certain trading activities by banks;

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

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

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

Critical Accounting Policies

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

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

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.

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Loans are evaluated on a category-by-category basis to determine the appropriate allocation of the 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.

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

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

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

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

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

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

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

The following table presents the Company’s significant fixed and determinable contractual obligations and significant commitments by payment date as of June 30, 2010 (dollars in thousands). The payment amounts represent those amounts contractually due to the recipient and do not include any carrying value adjustments.

	One Year or Less		Over One Year to Three Years		Over Three Years to Five Years		Over Five Years		Total
Deposits without a stated maturity	$	1,221,844	$	—	$	—	$	—	$	1,221,844
Time deposits	360,602		121,439		51,963		171		534,175
Prepaid solutions cards deposits	27,997		—		—		—		27,997
Operating leases	488		669		457		248		1,862
Prepaid solutions cards liabilities	8,140		—		—		—		8,140
Commitments to extend credit
Fixed rate									13,266
Variable rate									336,037
Deferred compensation									7,153
Postretirement benefit plan									1,039

At June 30, 2010 and December 31, 2009, the ESOP held 91,267 and 91,317 shares of West Suburban common stock, respectively. Upon termination of their employment, participants who elect to receive their benefit distributions in the form of West Suburban common stock may require the Company to purchase the common stock distributed at fair value. A more detailed discussion concerning this obligation is presented in Note 5 to the Company’s Condensed Consolidated Financial Statements included in this report. At June 30, 2010 and December 31, 2009, this contingent repurchase obligation reduced shareholders’ equity by $37.0 million and $31.2 million, respectively.

Balance Sheet Analysis

Total Assets. Total consolidated assets at June 30, 2010 increased 1.8% from December 31, 2009. This increase was primarily due to an increase in the securities portfolio, offset by decreases in federal funds sold and the loan portfolio.

Cash and Cash Equivalents. Cash and cash equivalents at June 30, 2010 decreased 39.2% from December 31, 2009, primarily due to a decrease in federal funds sold partially offset by an increase in cash and due from banks. As rates on federal funds sold remained at historically low levels, the Company increased its available for sale securities portfolio. This was done in order to earn a higher rate of return compared to the rate paid on federal funds sold while maintaining a high level of liquidity in response to the uncertain economy.

Securities. The Company’s securities portfolio increased 28.7% during the first six months of 2010. This increase was primarily due to investments in U.S. government sponsored enterprise issued mortgage-backed securities and U.S. Treasury securities. The Company manages its securities portfolio to maximize the return on invested funds within acceptable risk guidelines, to meet pledging and liquidity requirements, and to adjust balance sheet interest rate sensitivity in an effort to insulate net interest income against the impact of interest rate changes. The Company will continue to monitor its level of available for sale and held to maturity securities and will classify new securities purchased in the appropriate category at the time of purchase. At June 30, 2010, the Company’s accumulated

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comprehensive income due to unrealized gains and losses on securities available for sale was $4.2 million compared to $3.9 million at December 31, 2009.

Securities available for sale are carried at fair value, securities held to maturity are carried at amortized cost and Federal Home Loan Bank stock is carried at historical cost. The carrying values of the Company’s major categories of securities are summarized in the following table (dollars in thousands):

	June 30, 2010		December 31, 2009		Dollar Change			Percent Change
Securities available for sale
U.S. Treasuries	$	20,529	$	—	$	20,529		N/A
U.S. government sponsored enterprises	45,454		50,484		(5,030		)	(10.0	)%
Mortgage-backed: residential	275,888		144,451		131,437			91.0	%
States and political subdivisions	11,523		10,675		848			7.9	%
Total securities available for sale	353,394		205,610		147,784			71.9	%

Securities held to maturity
U.S. Treasuries	9,952		—		9,952			N/A
U.S. government sponsored enterprises	34,391		41,199		(6,808		)	(16.5	)%
Mortgage-backed: residential	162,722		178,129		(15,407		)	(8.6	)%
States and political subdivisions	48,487		46,580		1,907			4.1	%
Total securities held to maturity	255,552		265,908		(10,356		)	(3.9	)%
Federal Home Loan Bank stock	7,599		7,599		—			0.0	%
Total securities	$	616,545	$	479,117	$	137,428		28.7	%

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

Fair values for states and political subdivisions securities are generally determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. Characteristics utilized by matrix pricing include insurer, credit support, state of issuance and bond rating. These factors are used to incorporate additional spreads and municipal curves. A separate curve structure is used for bank-qualified municipal bonds. This structure is different than the approach used for general market municipals. For the bank-qualified municipal bonds, active quotes are obtained when available.

Loans. Total loans outstanding at June 30, 2010 decreased 3.1% from December 31, 2009, primarily due to decreases in the commercial, construction and home equity loan portfolios. The decrease in the commercial loan portfolio was primarily due to customers paying down their commercial revolving lines of credit. The decrease in the construction loan portfolio was primarily due to the payoff of four accounts. The decrease in the home equity loan portfolio was primarily due to payoffs resulting from refinancing activity, as well as a decrease in home equity loan originations.

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Balances in the Company’s loans are summarized in the following table (dollars in thousands):

	June 30, 2010			December 31, 2009
Commercial	$	246,936		$	267,432
Consumer	2,717			3,031
Indirect automobile	1,644			2,395
Real Estate
Residential	220,625			219,551
Commercial	285,484			280,442
Home equity	222,854			232,607
Construction	164,844			175,186
Credit card	9,424			9,874
Other	1,500			3,079
Total	1,156,028			1,193,597
Allowance for loan losses	(28,721		)	(25,922		)
Loans, net	$	1,127,307		$	1,167,675

The Bank does not originate, and it has no current plans to originate, subprime, alt-A, no documentation or stated income loans. Although there is no industry standard definition of “subprime loans,” the Bank categorizes certain loans as subprime for its purposes using a set of factors that the Bank’s management believes are consistent with industry practice, relating to, among other things, credit ratings, ratios of debt to income or assets, ratios of loan to value and loan amounts.

Although the Bank held approximately $19 million of residential mortgage loans purchased from third party originators as of June 30, 2010, the Bank has not purchased any loans since August 2008. The Bank’s general policy is to originate only residential mortgage loans that conform with the underwriting standards of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation and which would qualify for sale into the secondary mortgage market.

Allowance for Loan Losses and Asset Quality. The level of the allowance for loan losses is determined by evaluating the general allowance, which is allocated to pools of loans, as well as the specific allowance allocated to impaired loans. The Company utilizes a matrix which tracks changes in various categories that management has determined to have direct effects on the performance of the loan portfolio. These categories include charge-off history, trends in the national and local economies, loan concentrations, past due trends, loan volume trends and loan risk migration. The matrix assigns factors to each loan category which is used to determine the amount of the general allowance. The specific allowance allocated to impaired loans is based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the loan’s collateral, if repayment of the loan is collateral dependent. A loan is considered impaired when, based on current information and events, full payment under the loan terms is not expected. Loans for which the terms have been modified and for which the borrower is experiencing financial difficulties are considered troubled debt restructurings and classified as impaired.

At June 30, 2010, the allowance for loan losses was $28.7 million, compared to $25.9 million at December 31, 2009. The increase in the allowance for loan losses was primarily due to the increase in the specific allowance allocated to impaired loans. The majority of the increase in the specific allowance was due to further deterioration in the collateral values in loans classified as impaired at December 31, 2009. Net loan charge-offs were $2.8 million and $3.3 million for the six months ended June 30, 2010 and 2009, respectively. Nonperforming loans (nonaccrual and loans past due 90 days or more still on accrual) increased to $51.6 million at June 30, 2010, from $38.8 million at December 31, 2009. Nonaccrual loans increased to $51.1 million at June 30, 2010 from $38.0 million at December 31, 2009. This increase was primarily due to classifying three large commercial relationships totaling $6.9 million and five large commercial real estate relationships totaling $8.0 million as nonaccrual during the second quarter of 2010. These increases were partially offset by a principal payment on one large commercial account of $2.5 million.

Loans past due 90 days or more still on accrual decreased to $.5 million at June 30, 2010 from $.8 million at December 31, 2009. This was primarily due to one commercial account being classified as nonaccrual in 2010.

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Loans past due 90 days or more still on accrual decreased to $.5 million at June 30, 2010 from $6.0 million at March 31, 2010. This was primarily due to two commercial real estate loan relationships totaling $3.7 million along with one commercial loan relationship totaling $1.5 million becoming 90 days or more past due in the first three months of 2010 and being classified as nonaccrual in the second quarter of 2010.

The Company’s ratio of nonperforming loans to total loans was 4.5% at June 30, 2010 and 3.3% at December 31, 2009. The ratio of nonperforming assets to total assets increased to 3.7% at June 30, 2010 from 3.3% at December 31, 2009.

The ratio of the allowance for loan losses to total loans was 2.5% at June 30, 2010 and 2.2% December 31, 2009. The following table presents an analysis of the Company’s nonperforming loans and other real estate as of the dates indicated (dollars in thousands):

	June 30, 2010			December 31, 2009
Loans past due 90 days or more still on accrual	$	464		$	790
Nonaccrual loans	51,135			38,038
Total nonperforming loans	$	51,599		$	38,828
Nonperforming loans as a percent of total loans	4.5		%	3.3		%
Allowance for loan losses as a percent of nonperforming loans	55.7		%	66.8		%
Other real estate	$	22,000		$	25,994
Nonperforming assets as a percent of total assets	3.7		%	3.3		%

Impaired loans, which consist of loans past due 90 days or more still on accrual, nonaccrual loans and troubled debt restructurings, are summarized as follows (dollars in thousands):

	June 30, 2010		December 31, 2009
Period-end loans with no allocated allowance for loan losses	$	27,373	$	30,754
Period-end loans with allocated allowance for loan losses	34,084		14,636
Total	$	61,457	$	45,390

Impaired loans as of June 30, 2010 increased $16.1 million from December 31, 2009, primarily due to the classification of 37 loan relationships as impaired. The allowance on impaired loans was $5.7 million at June 30, 2010 and $1.5 million at December 31, 2009. Loans considered troubled debt restructurings as of June 30, 2010 increased $7.0 million from December 31, 2009.

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

	2010						2009
	2nd Qtr			1st Qtr			4th Qtr			3rd Qtr			2nd Qtr
Provision - quarter	$	3,175		$	2,375		$	10,375		$	5,600		$	7,650
Provision - year to date	5,550			2,375			24,925			14,550			8,950
Net charge-offs - quarter	1,619			1,132			9,599			1,694			2,646
Net charge-offs - year to date	2,751			1,132			14,581			4,982			3,288
Allowance at period end	28,721			27,165			25,922			25,146			21,240
Allowance at period end to total loans	2.5		%	2.3		%	2.2		%	2.1		%	1.7		%

Other Real Estate. At June 30, 2010, the Company had $22.0 million in other real estate, compared to $26.0 million at December 31, 2009. During the first six months of 2010, the Company acquired properties with an aggregate carrying value of $2.2 million, and the Company sold properties with an aggregate carrying value of $5.6

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million. These sales produced $.3 million in gains and $.1 million in losses. On a monthly basis, the Company evaluates the carrying value of all other real estate properties and takes write-downs on these properties as necessary. During the first six months of 2010, the Company recorded aggregate write-downs of $.5 million on eight commercial loan properties. The Company is actively marketing the properties it holds in its other real estate portfolio in a continuing effort to reduce this portfolio.

Deposits. Total deposits at June 30, 2010, increased 1.5% from December 31, 2009, primarily due to increased balances in money market checking and savings deposits. Management believes that due to the current state of the economy, some customers have migrated from non-liquid time deposits to more liquid deposit products such as money market checking and savings. In general, management promotes the Company’s deposit products when it believes appropriate and prices its products in a manner intended to retain the Company’s current customers as well as attract new customers while maintaining an acceptable net interest margin. The Company currently holds $28.0 million of deposits related to balances on cards issued by the Company’s former prepaid solutions group. The Company expects to transfer these balances at carrying value during 2010 in connection with the transfer of the Company’s issuing bank responsibilities under the prepaid card programs originated by the Company’s former prepaid solutions group.

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

	June 30, 2010		December 31, 2009		Dollar Change			Percent Change
Demand-noninterest-bearing	$	131,550	$	125,132	$	6,418		5.1	%
Prepaid solutions cards deposits	27,997		30,577		(2,580		)	(8.4	)%
NOW	324,748		328,405		(3,657		)	(1.1	)%
Money market checking	420,243		403,155		17,088			4.2	%
Savings	345,303		330,197		15,106			4.6	%
Time deposits
Less than $100,000	387,008		392,501		(5,493		)	(1.4	)%
$100,000 and greater	147,167		147,020		147			0.1	%
Total	$	1,784,016	$	1,756,987	$	27,029		1.5	%

As of June 30, 2010, in accordance with applicable regulatory call report instructions, the Bank reported that it had no brokered deposits.

Prepaid Solutions Cards. Outstanding balances on prepaid solutions cards, which represent the total of prepaid solution cards deposits and prepaid solutions cards liabilities, decreased 2.0% at June 30, 2010 from December 31, 2009. On December 4, 2009, the Company sold its prepaid solutions cards division. The Bank remains the card issuing bank under the card programs transferred, although the Bank intends to transfer such responsibilities, and the related assets and liabilities to another financial institution during 2010. Although the outstanding balances on prepaid solutions cards will remain on the Company’s balance sheet for a period of time, the Company will no longer record the income and expense associated with the prepaid solutions cards.

CAPITAL RESOURCES

Shareholders’ equity at June 30, 2010 decreased 2.0% from December 31, 2009. The decrease resulted from a $5.7 million increase in the amount reclassified on ESOP shares, partially offset by an increase in accumulated comprehensive income of $.4 million and net income of $2.9 million.

Banking regulations require the Company and the Bank to maintain minimum capital amounts and ratios. As of June 30, 2010, all capital ratios were in excess of the regulatory capital requirements, which call for a minimum total risk-based capital ratio of 8% for each of the Company and the Bank, a minimum Tier 1 risk-based capital ratio of 4% for each of the Company and the Bank and a minimum leverage ratio (3% for the most highly rated banks and bank holding companies that do not expect significant growth; all other institutions are required to maintain a minimum leverage capital ratio of 4% to 5% depending on their particular circumstances and risk and growth profiles) for each

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of the Company and the Bank. Bank holding companies and their subsidiaries are generally expected to operate at or above the minimum capital requirements.

As of June 30, 2010 and December 31, 2009, the Bank exceeded the minimum capital ratios required for it to qualify as “well-capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well-capitalized,” the Bank must maintain minimum ratios for total capital to risk weighted assets, Tier 1 capital to risk weighted assets and Tier 1 capital to average assets as set forth in the following table. There are no conditions or events since June 30, 2010 that management believes would result in a change of it being considered “well-capitalized” under the regulatory framework for prompt corrective action. On a consolidated basis, the Company also exceeded regulatory capital requirements as of these dates. In accordance with applicable regulations, the appraised fair value of West Suburban common stock owned by the ESOP is included in Tier 1 capital.

The following table sets forth the actual and minimum capital ratios of the Company and the Bank as of the dates indicated (dollars in thousands):

	Actual				Minimum To Be Well- Capitalized				Excess
	Amount		Ratio		Amount		Ratio		Amount
As of June 30, 2010
Total capital (to risk weighted assets)
Company	$	174,170	12.5	%	N/A		N/A		N/A
Bank	162,366		11.7	%	$	139,220	10.0	%	$	23,146
Tier 1 capital (to risk weighted assets)
Company	156,587		11.2	%	N/A		N/A		N/A
Bank	144,824		10.4	%	83,532		6.0	%	61,292
Tier 1 capital (to average assets)
Company	156,587		7.9	%	N/A		N/A		N/A
Bank	144,824		7.3	%	98,809		5.0	%	46,015

As of December 31, 2009
Total capital (to risk weighted assets)
Company	$	171,609	12.0	%	N/A		N/A		N/A
Bank	159,818		11.2	%	$	142,385	10.0	%	$	17,433
Tier 1 capital (to risk weighted assets)
Company	153,696		10.8	%	N/A		N/A		N/A
Bank	141,920		10.0	%	85,431		6.0	%	56,489
Tier 1 capital (to average assets)
Company	153,696		8.1	%	N/A		N/A		N/A
Bank	141,920		7.5	%	95,114		5.0	%	46,806

LIQUIDITY

Effective liquidity management ensures the availability of funding sources at minimum cost to meet fluctuating deposit balances, loan demand needs and to take advantage of earnings enhancement opportunities. A large, stable core deposit base and a strong capital position are the solid foundation for the Company’s liquidity position. Liquidity is enhanced by a securities portfolio structured to provide liquidity as needed. The Company also maintains relationships with correspondent banks to purchase federal funds subject to underwriting and collateral requirements. Additionally, subject to credit underwriting, collateral, capital stock, and other requirements of the Federal Home Loan Bank of Chicago (the “FHLB”), the Company is able to borrow from the FHLB on a “same day” basis. As of June 30, 2010, the Company could have borrowed up to approximately $152 million from the FHLB secured by certain of its real estate loans and securities. Furthermore, the Company has agreements in place to borrow up to $61 million in federal funds. The Company manages its liquidity position through continuous monitoring of profitability trends, asset quality, interest rate sensitivity and maturity schedules of interest-earning assets and interest-bearing liabilities.

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Generally, the Company uses cash and cash equivalents and securities available for sale to meet its liquidity needs. As of June 30, 2010 and December 31, 2009, these liquid assets represented 22.5% and 18.3% of total assets, respectively.

During the first six months of 2010, the Company’s cash and cash equivalents decreased $58.3 million, as the Company increased its available for sale securities portfolio to earn a higher rate of return compared to federal funds sold. Net cash provided by operating activities was $12.8 million. Net cash used in investing activities was $100.0 million. Net cash provided by financing activities for this period was $28.9 million.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

Net Income. The Company’s net income increased 94.3% to $2.9 million for the first six months of 2010 compared to $1.5 million for the first six months of 2009. This increase resulted primarily from a decrease in the provision for loan losses of $3.4 million. This decrease was partially offset by a decrease in net interest income of $.7 million and an increase in total noninterest expense and income tax expense of $.5 million and $.8 million, respectively.

Net Interest Income. Net interest income (on a fully tax-equivalent basis) decreased 2.3% for the first six months of 2010 compared to the first six months of 2009. Net interest income is the primary source of income for the Company. Net interest income is the difference between interest income earned on interest-earning assets and interest expense incurred on interest-bearing liabilities. Net interest income is affected by changes in volume and yield on interest-earning assets and the volume and rates on interest-bearing liabilities. Interest-earning assets consist of federal funds sold, securities and loans. Interest-bearing liabilities primarily consist of deposits. The net interest margin is the percentage of tax-equivalent net interest income to average earning assets. The Company’s net interest margin (on a fully tax-equivalent basis) decreased to 3.4% for the six-month period ended June 30, 2010 compared to 3.5% for the six-month period ended June 30, 2009.

Total interest income (on a tax-equivalent basis) decreased 7.6% for the first six months of 2010 compared to the first six months of 2009, primarily due to decreasing yields in the Company’s securities portfolio. Securities average balances increased 22.0% for the first six months of 2010 and the average yield on the securities portfolio decreased 120 basis points. Average loan balances decreased 7.3% for the first six months of 2010 and the average yield on the loan portfolio increased 1 basis point. Yields on the Company’s home equity portfolio and residential real estate portfolio decreased by 26 and 21 basis points, respectively, primarily due to a significant increase in nonaccrual loans. Yields on the Company’s commercial loan portfolio increased 39 basis points primarily due to loans that are 45 days or more past due triggering a higher default rate.

Total interest expense decreased 19.7% for the first six months of 2010 compared to the first six months of 2009. Lower interest on deposits, resulting from lower yields on interest-bearing deposits, accounted for most of the decrease. The average yield on interest-bearing deposits decreased 43 basis points to 1.3% at June 30, 2010, from 1.7% at June 30, 2009. Approximately 68% of time deposits are scheduled to mature within one year.

The following table reflects the impact of changes in volume and interest rates on interest-earning assets and interest-bearing liabilities (on a fully tax-equivalent basis) for the first six months ended June 30, 2010 as compared to the same period in 2009 (dollars in thousands):

	Change due to						Total
	Volume			Rate			Change
Interest Income
Federal funds sold	$	1		$	(9	)	$	(8	)
Securities	1,716			(2,679		)	(963		)
Loans	(2,350		)	101			(2,249		)
Total interest income	(633		)	(2,587		)	(3,220		)
Interest Expense
Interest-bearing deposits	801			(3,284		)	(2,483		)
Other interest-bearing liabilities	(42		)	(1		)	(43		)
Total interest expense	759			(3,285		)	(2,526		)
Net interest income	$	(1,392	)	$	698		$	(694	)

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

	2010				2009
	June 30		March 31		December 31		September 30		June 30
Federal funds sold	$	45,061	$	78,227	$	61,280	$	55,339	$	44,024
Securities	545,377		486,596		449,239		443,848		446,955
Loans	1,131,278		1,144,915		1,201,646		1,210,884		1,220,487
Total interest-earning assets	$	1,721,716	$	1,709,738	$	1,712,165	$	1,710,071	$	1,711,466

Demand-noninterest-bearing deposits	$	157,093	$	154,976	$	152,332	$	148,988	$	144,088
Interest-bearing deposits	1,624,952		1,608,878		1,525,659		1,512,697		1,498,593
Total deposits	$	1,782,045	$	1,763,854	$	1,677,991	$	1,661,685	$	1,642,681
Total interest-bearing liabilities	$	1,624,952	$	1,608,878	$	1,534,127	$	1,524,018	$	1,515,663

Provision for Loan Losses. . A provision for loan loss is recorded when the Company’s evaluation of the general and specific reserve categories of the allowance for loan loss are not deemed sufficient to absorb probable incurred credit losses in the loan portfolio. Provision for loan losses decreased $3.4 million for the first six months of 2010 compared to the first six months of 2009. This decrease was primarily due to continued declining balances in the Company’s loan portfolio during the first six months of 2010. Although the percent of the general allowance to total loans increased at June 30, 2010 compared to June 30, 2009, it was not necessary for the Company to make provisions for loan losses during the first six months of 2010 at the same level as the first six months of 2009 due to declining loan balances in the general reserve category. The $5.5 million provision during the first six months of 2010 was primarily the result of an increase in the specific reserves allocated to impaired loans. A more detailed discussion of the allowance for loan losses is presented in the Allowance for Loan Losses and Asset Quality section of this report.

Noninterest Income. Total noninterest income increased 1.8% for the first six months of 2010 compared to the first six months of 2009. Although the Company has not recorded any OTTI on its securities portfolio in 2010, during 2009, the Company recorded OTTI on certain pooled trust preferred securities in the amount of $.9 million, which reduced noninterest income. The Company recorded BOLI income of $.2 million for the first six months of 2010 compared to $.7 million for the first six months of 2009. This was primarily due to a decrease in the market value of the underlying investments with specific account assets. Other income increased $.3 million primarily due to gains on sales of OREO. These components were partially offset by decreases to other items. Service fees on deposit accounts decreased $.2 million primarily due to decreased fees associated with the overdraft honors program. Additionally, the Company experienced a decrease in gains on sale of loans held for sale of $.4 million, as loans are no longer sold in the secondary market.

Noninterest Expense. Total noninterest expense increased 1.8% for the first six months of 2010 compared to the first six months of 2009. Salaries and employee benefits decreased $.8 million primarily due to a decrease in the market value of the underlying investments associated with the insurance policies that are tied to the Company’s deferred compensation plans. Occupancy expense decreased $.1 million primarily due to decreased building maintenance expenses. Advertising and promotion expense increased $.1 million primarily due to advertising on cable television. FDIC assessments increased $.5 million due to several factors, including increased assessments issued by the FDIC in support of the deposit insurance fund as well as the Temporary Liquidity Guarantee Program and the Company’s participation in the FDIC’s Transaction Account Guarantee Program. Professional fees decreased $.6 million primarily due to reduced costs associated with the Company’s compliance with the enforcement action related to the Bank Secrecy Act and other compliance related matters. Other real estate owned expense increased $.9 million due to costs of maintaining other real estate owned properties including real estate taxes and a $.5 million write down in asset value. Loan administration expense increased $.7 million primarily due to real estate tax payments on several commercial loans along with expenses incurred in connection with the collection of lease payments from one large commercial loan customer.

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Income Taxes. Income tax expense increased $.9 million for the first six months of 2010 compared to the first six months of 2009. The effective tax rates for the first six months of 2010 and 2009 were 24.7% and 8.8%, respectively. The increase is due to the increased taxable income.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2010 AND 2009

Net Income (Loss). The Company experienced net income of $1.2 million during the second quarter of 2010 compared to a net loss of $2.4 million during the second quarter of 2009. Net income was positively affected by a decrease in the provision for loan losses of $4.5 million along with a decrease in total noninterest expense of $1.2 million. Net income was negatively affected by a decrease in total noninterest income of $.4 million and an increase in income tax expense of $1.8 million.

Net Interest Income. Net Interest income (on a fully tax-equivalent basis) increased .5% for the second quarter of 2010 compared to the second quarter of 2009. The Company’s net interest margin (on a fully tax-equivalent basis) for the second quarter of 2010 decreased to 3.4% compared to 3.5% for the second quarter of 2009.

Total interest income (on a fully tax-equivalent basis) decreased 6.2% for the second quarter of 2010 compared to the second quarter of 2009, primarily due to decreasing yields in the Company’s securities portfolio. Securities average balances increased 39.8% during this period and the average yield on the securities portfolio decreased 132 basis points. Average loan balances decreased 8.3% during this period and the average yield on the loan portfolio increased 1 basis point. Yields on the Company’s home equity portfolio and real estate portfolio decreased by 22 and 30 basis points, respectively, primarily due to a significant increase in nonaccrual loans. Yields on the Company’s commercial loan portfolio increased 42 basis points primarily due to loans that are 45 days or more past due triggering a higher default rate.

Total interest expense decreased 21.7% for the second quarter of 2010 compared to the second quarter of 2009. Interest paid on deposit accounts accounted for the decrease. The average yield on interest-bearing deposits decreased 46 basis points to 1.2% for the second quarter of 2010 from 1.7% for the second quarter of 2009.

The following table reflects the impact of changes in volume and interest rates on interest-earning assets and interest-bearing liabilities (on a fully tax-equivalent basis) for the second quarter ended June 30, 2010, as compared to the same period in 2009 (dollars in thousands):

	Change due to						Total
	Volume			Rate			Change
Interest Income
Federal funds sold	$	50		$	(78	)	$	(28	)
Securities	1,432			(1,414		)	18
Loans	(1,333		)	49			(1,284		)
Total interest income	149			(1,443		)	(1,294		)
Interest Expense
Interest-bearing deposits	353			(1,719		)	(1,366		)
Other interest-bearing liabilities	(176		)	175			(1		)
Total interest expense	177			(1,544		)	(1,367		)
Net interest income	$	(28	)	$	101		$	73

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

	June 30, 2010		June 30, 2009
Federal funds sold	$	12,260	$	56,191
Securities	603,511		431,769
Loans	1,118,962		1,220,511
Total interest-earning assets	$	1,734,733	$	1,708,471

Demand-noninterest-bearing deposits	$	159,531	$	158,822
Interest-bearing deposits	1,640,847		1,523,244
Total deposits	$	1,800,378	$	1,682,066
Total interest-bearing liabilities	$	1,640,847	$	1,523,804

Provision for Loan Losses. Provision for loan losses decreased $4.5 million for the second quarter of 2010 compared to the second quarter of 2009. This decrease was primarily due to continued declining balances in the Company’s loan portfolio during the second quarter of 2010. Although the percent of the general allowance to total loans increased for the second quarter of 2010 compared to the second quarter of 2009, it was not necessary for the Company to make provisions for loan losses during the second quarter of 2010 at the same level as the second quarter of 2009 due to declining loan balances in the general reserve category. The $3.2 million provision during the second quarter of 2010 was primarily the result of an increase in the specific reserves allocated to impaired loans. A more detailed discussion of the allowance for loan losses is presented in the Allowance for Loan Losses and Asset Quality section of this report.

Noninterest Income. Total noninterest income decreased 13.8% for the second quarter of 2010 compared to the second quarter of 2009. Although the Company has not recorded any OTTI on its securities portfolio in 2010, during the second quarter of 2009, the Company recorded OTTI on certain pooled trust preferred securities in the amount of $.9 million, which reduced noninterest income. The Company recorded BOLI expense of $.2 million for the second quarter of 2010 compared to BOLI income of $.9 million for the second quarter of 2009. This was primarily due to a decrease in the market value of the underlying investments with the specific account assets. Additionally, other income increased $.2 million primarily due to gains on sales of OREO. These components were offset by decreases to other items. Service fees on deposit accounts decreased $.1 million primarily due to decreased fees associated with the overdraft honors program. Additionally, the Company experienced a decrease in gains on sale of loans held for sale of $.3 million, as loans are no longer being sold on the secondary market.

Noninterest Expense. Total noninterest expense decreased 8.8% for the second quarter of 2010 compared to the second quarter of 2009. Salaries and employee benefits decreased $1.3 million primarily due to a decrease in the market value of the underlying investments associated with the insurance policies that are tied to the Company’s deferred compensation plans. Advertising and promotion expense increased $.1 million primarily due to advertising on cable television. FDIC assessments decreased $.4 million during this period primarily due to a special assessment being recorded during the second quarter of 2009. Professional fees decreased $.4 million primarily due to reduced costs associated with the Company’s compliance with the enforcement action related to the Bank Secrecy Act and other compliance related matters. Other real estate owned expense increased $.4 million due to costs of maintaining other real estate owned properties including real estate taxes. Loan administration expense increased $.3 million primarily due to real estate tax payments on several commercial loans. Other expense increased $.2 million due to a credit existing on state examination fees during the 2009 period.

Income Taxes. Income tax expense increased $1.8 million for the second quarter of 2010 compared to the second quarter of 2009. The effective tax rates for the second quarter of 2010 and 2009 were 31.1% and (34.4%), respectively. The increase is due to the Company recording pretax income for the second quarter of 2010 compared to a pretax loss for the second quarter of 2009.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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

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

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

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

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

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

June 30, 2010	Amount		Dollar Change			Percent Change
+200 basis points	$	59,474	$	1,092		1.9	%
+100 basis points	58,980		598			1.0	%
Base	58,382		—			—
-100 basis points	51,000		(7,382		)	(12.6	)%
-200 basis points	47,733		(10,649		)	(18.2	)%

December 31, 2009	Amount		Dollar Change			Percent Change
+200 basis points	$	58,194	$	2,388		4.3	%
+100 basis points	56,317		511			0.9	%
Base	55,806		—			—
-100 basis points	49,048		(6,758		)	(12.1	)%
-200 basis points	44,371		(11,435		)	(20.5	)%

In a falling rate environment, the Company is projected to have a decrease in net interest income. However, it is not possible for many of the Company’s deposit rates to fall 100 or 200 basis points due to their current rates already being below 100 basis points at June 30, 2010. The target federal funds rate is currently set by the Federal Reserve

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at a rate between 0 and 25 basis points. As a result, a 200 basis point decline in overall rates would only have between a 0 and 25 basis point decline in both federal funds and the prime rate. Further, other rates that are currently below 1% or 2% (e.g. U.S. Treasuries and LIBOR) would not fall below 0% with an overall 100 or 200 basis point decrease in rates. Many of the Company’s variable rate loans are set to an index tied to prime, federal funds or LIBOR, and as a result, a further decrease in rates would not have a substantial impact on loan yields. Accordingly, management believes that the analyses resulting from 100 and 200 basis point downward changes are not meaningful in light of current interest rate levels.

ITEM 4. 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 Securities Exchange Act of 1934, as amended) as of June 30, 2010. 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 Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified. That evaluation did not identify any changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II

ITEM 1. LEGAL PROCEEDINGS

There are no material pending legal proceedings to which the Company is a party other than ordinary course, routine litigation incidental to the Company’s business.

ITEM 1A. RISK FACTORS

Except as set forth below, there have been no material changes in the risk factors applicable to the Company from those disclosed in the Company’s 2009 Annual Report on Form 10-K.

Recently enacted regulatory reforms could have a significant impact on the Company’s business, financial condition and results of operations.

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”), which is perhaps the most significant financial reform since the Great Depression and contains numerous and wide-ranging reforms to the United States financial system. The Act contains many provisions which will affect institutions such as the Company in substantial and unpredictable ways. Consequently, compliance with the Act’s provisions may curtail the Company’s revenue opportunities, increase its operating costs, require it to hold higher levels of regulatory capital and/or liquidity and otherwise adversely affect the Company’s business or financial results in the future. The Company’s management is actively reviewing the provisions of the Act and assessing its probable impact on the Company’s business, financial condition, and result of operations. However, because many aspects of the Act are subject to future rulemaking, it is difficult to precisely anticipate its overall impact, financially and otherwise, on the Company and the Bank at this time.

Members of the Acker family may have a controlling influence on the Company.

As of August 6, 2010, members of the Acker family, which consists of Ralph L. and Arlis Acker, Keith W. Acker, Kevin J. Acker, Craig R. Acker and Alana S. Acker and their related interests, beneficially owned, in the aggregate, 92,682 shares, or 21.7%, of the Company’s outstanding common stock. As of the same date, Kevin Acker, Chairman and Chief Executive Officer of the Company, Keith Acker, Chief Operations Officer of the Company and President of the Bank, and Craig Acker, a director of the Bank, together beneficially owned 72,976 shares, or 17.1% of the Company’s outstanding common stock. As a result, the members of the Acker family may have the ability to influence significantly the election of the Company’s directors and the outcome of certain corporate actions requiring shareholder approval. In addition, because of their positions as executive officers and/or directors of the Company and/or the Bank, each of Kevin Acker, Keith Acker and Craig Acker have the ability to influence the operations of the Company and the Bank.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. (REMOVED AND RESERVED)

ITEM 5. OTHER INFORMATION

None

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ITEM 6. EXHIBITS

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

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	WEST SUBURBAN BANCORP, INC.
	(Registrant)

Date: August 9, 2010
	/s/ Kevin J. Acker
	KEVIN J. ACKER
	CHAIRMAN AND CHIEF EXECUTIVE OFFICER


	/s/ Duane G. Debs
	DUANE G. DEBS
	PRESIDENT AND CHIEF FINANCIAL OFFICER

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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, Commission File No. 0-17609.

10.1		Stipulation and Consent to the Issuance of an Order to Cease and Desist, dated December 2, 2008, and the related Order to Cease and Desist issued by the FDIC and the Illinois Department of Financial and Professional Regulation, dated December 3, 2008.

10.2		Stipulation and Consent to the Issuance of an Order to Cease and Desist, dated April 20, 2009, and the related Order to Cease and Desist issued by the FDIC, dated April 23, 2009.

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 Rule15d-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.

WEST SUBURBAN BANCORP INC - FORM 10-Q - August 9, 2010

Attached files

WEST SUBURBAN BANCORP INC Reports