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 September 30, 2011

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 x 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 Exchange 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 October 31, 2011, 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	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	37

PART II
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	(Removed and Reserved)	38
Item 5.	Other Information	38
Item 6.	Exhibits	38

	Form 10-Q Signatures	39

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 Dodd-Frank Wall Street Reform and Consumer Protection Act and other laws and regulations intended to address stresses in the U.S. and global financial markets, national security and money laundering.

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

·	The costs, effects and outcomes of existing or future litigation and disputes with third parties, including, but not limited to, claims in connection with intellectual property matters, collection actions and employment matters.

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·	The ability of the Company to comply with, and satisfy the requirements of, any informal or formal enforcement actions 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.

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

·	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.

·	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.

·	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 under Item 1A in Part II of this report.

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PART I

ITEM 1. FINANCIAL STATEMENTS

WEST SUBURBAN BANCORP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

	September 30,			December 31,
	2011			2010
	(Unaudited)			(Audited)
Assets
Cash and due from banks	$	130,433		$	70,490
Federal funds sold	41,159			200
Total cash and cash equivalents	171,592			70,690
Securities
Available for sale (amortized cost of $337,171 in 2011 and $517,589 in 2010)	344,833			518,566
Held to maturity (fair value of $292,379 in 2011 and $222,761 in 2010)	277,637			215,365
Federal Home Loan Bank stock	7,599			7,599
Total securities	630,069			741,530
Loans, less allowance for loan losses of $27,866 in 2011 and $28,072 in 2010	955,301			1,008,272
Bank-owned life insurance	32,432			39,511
Premises and equipment, net	44,773			42,201
Other real estate owned, net of valuation allowance	39,319			20,479
Accrued interest and other assets	30,970			38,941
Total assets	$	1,904,456		$	1,961,624

Liabilities and shareholders’ equity
Deposits
Demand-noninterest-bearing	$	146,562		$	152,064
Prepaid solutions card deposits	21,497			29,161
Interest-bearing	1,546,488			1,597,202
Total deposits	1,714,547			1,778,427
Prepaid solutions cards	14,099			8,778
Accrued interest and other liabilities	9,287			18,571

Common stock in ESOP subject to contingent repurchase obligation	26,081			29,865

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	123,428			116,698
Accumulated other comprehensive income	4,230			285
Amount reclassified on ESOP shares	(26,081		)	(29,865		)
Total shareholders’ equity	140,442			125,983
Total liabilities and shareholders’ equity	$	1,904,456		$	1,961,624

See accompanying notes to condensed consolidated financial statements.

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WEST SUBURBAN BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(Dollars in thousands, except per share data)

(UNAUDITED)

	2011		2010
Interest income
Loans, including fees	$	36,330	$	44,486
Securities
Taxable	14,135		13,119
Exempt from federal income tax	875		819
Federal funds sold	19		55
Total interest income	51,359		58,479

Interest expense
Deposits	9,117		14,797
Total interest expense	9,117		14,797
Net interest income	42,242		43,682
Provision for loan losses	9,568		8,425
Net interest income after provision for loan losses	32,674		35,257

Noninterest income
Net realized gains on securities transactions	7,779		267
Service fees on deposit accounts	3,238		3,924
Debit card fees	1,682		1,554
Bank-owned life insurance	762		804
Other	3,758		3,783
Total noninterest income	17,219		10,332

Noninterest expense
Salaries and employee benefits	17,116		17,288
Other real estate owned expense	5,179		3,047
Occupancy	3,782		3,879
Furniture and equipment	3,664		3,922
FDIC assessments	2,326		3,310
Loan administration	1,537		1,974
Professional fees	1,263		1,727
Advertising and promotion	720		677
VISA cardholder	577		691
Other	3,402		3,084
Total noninterest expense	39,566		39,599

Income before income taxes	10,327		5,990
Income tax expense	3,597		1,297
Net income	$	6,730	$	4,693

Earnings per share	$	15.77	$	10.99
Average shares outstanding	426,850		426,850

Total comprehensive income	$	10,675	$	6,618

See accompanying notes to condensed consolidated financial statements.

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WEST SUBURBAN BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(Dollars in thousands, except per share data)

(UNAUDITED)

	2011		2010
Interest income
Loans, including fees	$	12,138	$	14,830
Securities
Taxable	4,097		4,445
Exempt from federal income tax	324		277
Federal funds sold	17		1
Total interest income	16,576		19,553

Interest expense
Deposits	2,878		4,501
Total interest expense	2,878		4,501
Net interest income	13,698		15,052
Provision for loan losses	4,750		2,875
Net interest income after provision for loan losses	8,948		12,177

Noninterest income
Net realized gains on securities transactions	3,038		267
Service fees on deposit accounts	1,147		1,265
Debit card fees	614		508
Bank-owned life insurance	243		583
Other	1,089		1,342
Total noninterest income	6,131		3,965

Noninterest expense
Salaries and employee benefits	5,860		6,037
Other real estate owned expense	3,643		1,471
Occupancy	1,277		1,323
Furniture and equipment	1,201		1,300
FDIC assessments	228		1,042
Loan administration	694		612
Professional fees	341		535
Advertising and promotion	258		222
VISA cardholder	164		380
Other	958		1,069
Total noninterest expense	14,624		13,991

Income before income taxes	455		2,151
Income tax expense	272		348
Net income	$	183	$	1,803

Earnings per share	$	0.43	$	4.22
Average shares outstanding	426,850		426,850

Total comprehensive income	$	292	$	3,365

See accompanying notes to condensed consolidated financial statements.

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WEST SUBURBAN BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(Dollars in thousands)

(UNAUDITED)

	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			4,693							4,693
Change in unrealized gains on available for sale securities, net of reclassification and tax effects					1,906					1,906
Change in post-retirement obligation, net of tax effects					19					19
Total comprehensive income										6,618
Reclassification due to change in fair value of common stock in ESOP subject to contingent repurchase obligation							2,501			2,501
Balance, September 30, 2010	$	38,865	$	120,237	$	5,509	$	(28,729	)	$	135,882

	Common Stock and Surplus		Retained Earnings		Accumulated Other Comprehensive Income		Amount Reclassified on ESOP Shares			Total Shareholders’ Equity
Balance, January 1, 2011	$	38,865	$	116,698	$	285	$	(29,865	)	$	125,983

Comprehensive income
Net income			6,730							6,730
Change in unrealized gains on available for sale securities, net of reclassification and tax effects					3,919					3,919
Change in post-retirement obligation, net of tax effects					26					26
Total comprehensive income										10,675
Reclassification due to change in fair value of common stock in ESOP subject to contingent repurchase obligation							3,784			3,784
Balance, September 30, 2011	$	38,865	$	123,428	$	4,230	$	(26,081	)	$	140,442

The net change in unrealized gains on available for sale securities for the nine months ended September 30, 2011 consists of an increase in the unrealized gains of $14,464, less $7,779 of gains realized into income, and an increase in the deferred tax liability of $2,766.

See accompanying notes to condensed consolidated financial statements.

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WEST SUBURBAN BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(Dollars in thousands)

(UNAUDITED)

	2011			2010
Cash flows from operating activities
Net income	$	6,730		$	4,693
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	2,164			2,300
Provision for loan losses	9,568			8,425
Net premium amortization of securities	1,586			1,648
Net realized gains on securities transactions	(7,779		)	(267		)
Earnings on bank-owned life insurance	(762		)	(804		)
Net (gain) loss on sales of premises and equipment	(10		)	4
Net gain on sales of other real estate owned	(239		)	(229		)
Write down of other real estate owned	3,860			1,669
Decrease in accrued interest and other assets	5,198			1,093
(Decrease) increase in accrued interest and other liabilities	(9,251		)	2,247
Net cash provided by operating activities	11,065			20,779
Cash flows from investing activities
Securities available for sale
Sales	187,893			964
Maturities, calls and redemptions	69,201			94,713
Purchases	(70,200		)	(234,315		)
Securities held to maturity
Maturities, calls and redemptions	47,845			73,213
Purchases	(110,400		)	(38,324		)
Net (increase) decrease in loans	(6,645		)	49,165
Surrender of bank-owned life insurance policies	7,922			—
Investment in bank-owned life insurance	(81		)	(159		)
Purchases of premises and equipment	(4,746		)	(775		)
Sales of premises and equipment	20			—
Sales of other real estate owned	27,587			6,818
Net cash provided by (used in) investing activities	148,396			(48,700		)
Cash flows from financing activities
Net decrease in deposits	(63,880		)	(2,583		)
Net increase in prepaid solutions cards	5,321			1,943
Net cash used in financing activities	(58,559		)	(640		)
Net increase (decrease) in cash and cash equivalents	100,902			(28,561		)
Beginning cash and cash equivalents	70,690			148,610
Ending cash and cash equivalents	$	171,592		$	120,049
Supplemental disclosures
Cash paid for interest	$	10,194		$	15,412
Cash paid for income taxes	2,407			1,650
Other real estate acquired through loan foreclosures	50,048			3,674

See accompanying notes to condensed consolidated financial statements.

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WEST SUBURBAN BANCORP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(UNAUDITED)

Note 1 - Basis of Presentation

The condensed consolidated financial statements include the accounts of West Suburban Bancorp, Inc. (“West Suburban”) and West Suburban Bank (the “Bank” and collectively with West Suburban 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.

The Company’s board of directors has resolved to obtain regulatory approval prior to paying dividends, increasing debt, or redeeming West Suburban common stock in order to preserve capital and maintain the Company’s financial strength given the economic environment and its impact on the Company.

Note 2 - Securities

At September 30, 2011 and December 31, 2010, the amortized cost, unrealized gains and losses and fair value of securities available for sale were as follows:

	September 30, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasuries	$	9,859	$	576	$	—		$	10,435
U.S. government sponsored enterprises	94,171		1,486		—			95,657
Mortgage-backed: residential	203,854		4,783		(37		)	208,600
States and political subdivisions	19,118		892		(2		)	20,008
Corporate	10,169		68		(104		)	10,133
Total	$	337,171	$	7,805	$	(143	)	$	344,833

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

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. Corporate securities consist of investment grade corporate bonds.

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At September 30, 2011 and December 31, 2010, the amortized cost, unrealized gains and losses and fair value of securities held to maturity were as follows:

	September 30, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasuries	$	30,003	$	3,328	$	—		$	33,331
U.S. government sponsored enterprises	31,631		1,214		—			32,845
Mortgage-backed: residential	177,007		9,492		(3		)	186,496
States and political subdivisions	38,996		816		(105		)	39,707
Total	$	277,637	$	14,850	$	(108	)	$	292,379

	December 31, 2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasuries	$	9,956	$	353	$	—		$	10,309
U.S. government sponsored enterprises	21,656		566		—			22,222
Mortgage-backed: residential	136,095		6,515		(49		)	142,561
States and political subdivisions	47,658		292		(281		)	47,669
Total	$	215,365	$	7,726	$	(330	)	$	222,761

At September 30, 2011, 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	$	350	$	351	$	888	$	891
Due after 1 year through 5 years	68,677		69,564		67,753		69,786
Due after 5 years through 10 years	51,712		53,154		24,186		26,988
Due after 10 years	12,578		13,164		7,803		8,218
Mortgage-backed: residential	203,854		208,600		177,007		186,496
Total	$	337,171	$	344,833	$	277,637	$	292,379

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.

Proceeds from sales of securities available for sale totaled $187,893 and $964 during the nine months ended September 30, 2011 and 2010, respectively. These securities were sold in order to reduce the Company’s interest rate risk in the securities portfolio. Management’s analysis of these securities indicated that certain higher yielding securities could be sold at a gain while the reinvested proceeds would continue to be accretive to earnings. All sales of securities for the nine-month period ended September 30, 2011 resulted in gains.

Securities with a carrying value of $84,974 and $94,720 at September 30, 2011 and December 31, 2010, respectively, were pledged to secure public deposits and fiduciary activities or for other purposes required or permitted by law.

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Securities with unrealized losses at September 30, 2011 and December 31, 2010 are presented below by the length of time the securities have been in a continuous unrealized loss position:

	September 30, 2011
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Mortgage-backed: residential	$	5,186	$	(40	)	$	—	$	—		$	5,186	$	(40	)
States and political subdivisions	391		(2		)	1,132		(105		)	1,523		(107		)
Corporate	4,980		(104		)	—		—			4,980		(104		)
Total temporarily impaired	$	10,557	$	(146	)	$	1,132	$	(105	)	$	11,689	$	(251	)

	December 31, 2010
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Treasuries	$	60,937	$	(2,141	)	$	—	$	—		$	60,937	$	(2,141	)
U.S. government sponsored enterprises	80,386		(2,061		)	—		—			80,386		(2,061		)
Mortgage-backed: residential	86,467		(1,507		)	654		(49		)	87,121		(1,556		)
States and political subdivisions	5,863		(292		)	1,227		(20		)	7,090		(312		)
Corporate	10,108		(109		)	—		—			10,108		(109		)
Total temporarily impaired	$	243,761	$	(6,110	)	$	1,881	$	(69	)	$	245,642	$	(6,179	)

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. 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.”

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.

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

The unrealized losses at September 30, 2011 were in state and political subdivision, mortgage-backed: residential and corporate securities. Because the decline in fair value on the debt securities in unrealized losses is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell these securities and management believes it is not more likely than not that the Company will be required to sell

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the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2011.

The Company held one municipal security with a carrying value of $22,000 and $30,000 at September 30, 2011 and December 31, 2010, respectively, that was in excess of 10% of the Company’s shareholders’ equity. The security was issued by a local municipality, is a general obligation bond, and is classified by the Company as held to maturity.

Note 3 - Loans

Major classifications of loans were as follows:

	September 30, 2011			December 31, 2010
Commercial	$	269,870		$	253,746
Commercial real estate	278,488			272,856
Construction and development	85,806			138,959
Residential real estate:
Mortgage	151,528			150,248
Home equity	184,463			206,191
Consumer and other	13,012			14,344
Total	983,167			1,036,344
Allowance for loan losses	(27,866		)	(28,072		)
Loans, net	$	955,301		$	1,008,272

The Company makes commercial, residential real estate and consumer loans primarily to customers throughout the western suburbs of Chicago. From time to time the Company will make loans outside of its market area.

Changes in the allowance for loan losses by portfolio segment for the nine months ended September 30, 2011 were as follows:

	Commercial			Commercial Real Estate			Construction and Development			Residential Real Estate			Consumer and Other			Total
Balance, beginning of year	$	12,638		$	4,179		$	6,243		$	4,308		$	704		$	28,072
Provision for loan losses	4,361			(899		)	4,120			1,979			7			9,568
Loans charged-off	(3,891		)	(85		)	(4,342		)	(1,350		)	(261		)	(9,929		)
Recoveries	31			—			—			30			94			155
Balance, period-end	$	13,139		$	3,195		$	6,021		$	4,967		$	544		$	27,866

Changes in the allowance for loan losses by portfolio segment for the quarter ended September 30, 2011 were as follows:

	Commercial			Commercial Real Estate			Construction and Development			Residential Real Estate			Consumer and Other			Total
Balance, beginning of quarter	$	13,399		$	3,205		$	5,342		$	4,491		$	569		$	27,006
Provision for loan losses	635			(10		)	3,078			1,005			42			4,750
Loans charged-off	(905		)	—			(2,399		)	(551		)	(91		)	(3,946		)
Recoveries	10			—			—			22			24			56
Balance, period-end	$	13,139		$	3,195		$	6,021		$	4,967		$	544		$	27,866

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The balance of the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method were as follows:

	Commercial		Commercial Real Estate		Construction and Development		Residential Real Estate		Consumer and Other		Total
September 30, 2011
Allowance for loan losses attributable to loans:
Individually evaluated for impairment	$	35	$	339	$	55	$	150	$	—	$	579
Collectively evaluated for impairment	13,104		2,856		5,966		4,817		544		27,287
Total ending allowance balance	$	13,139	$	3,195	$	6,021	$	4,967	$	544	$	27,866

Loans:
Individually evaluated for impairment	$	32,895	$	20,059	$	25,729	$	11,757	$	—	$	90,440
Collectively evaluated for impairment	236,975		258,429		60,077		324,234		13,012		892,727
Total ending loan balance	$	269,870	$	278,488	$	85,806	$	335,991	$	13,012	$	983,167

December 31, 2010
Allowance for loan losses attributable to loans:
Individually evaluated for impairment	$	2,137	$	250	$	2,485	$	—	$	—	$	4,872
Collectively evaluated for impairment	10,501		3,929		3,758		4,308		704		23,200
Total ending allowance balance	$	12,638	$	4,179	$	6,243	$	4,308	$	704	$	28,072

Loans:
Individually evaluated for impairment	$	41,184	$	14,372	$	70,513	$	8,937	$	—	$	135,006
Collectively evaluated for impairment	212,562		258,484		68,446		347,502		14,344		901,338
Total ending loan balance	$	253,746	$	272,856	$	138,959	$	356,439	$	14,344	$	1,036,344

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Loans individually evaluated for impairment by class of loans were as follows:

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
September 30, 2011
With no related allowance recorded:
Commercial	$	36,967	$	31,280	$	—
Commercial real estate	18,877		18,877		—
Construction and development	30,208		22,732		—
Residential real estate:
Mortgage	8,613		8,459		—
Home equity	780		780		—
With an allowance recorded:
Commercial	1,615		1,615		35
Commercial real estate	1,454		1,182		339
Construction and development	4,270		2,997		55
Residential real estate:
Mortgage	1,789		1,789		148
Home equity	729		729		2
Total	$	105,302	$	90,440	$	579

December 31, 2010
With no related allowance recorded:
Commercial	$	39,142	$	34,740	$	—
Commercial real estate	13,563		13,563		—
Construction and development	56,737		51,871		—
Residential real estate:
Mortgage	8,224		8,164		—
Home equity	773		773		—
With an allowance recorded:
Commercial	8,799		6,444		2,137
Commercial real estate	1,081		809		250
Construction and development	23,073		18,642		2,485
Total	$	151,392	$	135,006	$	4,872

Average impaired loans by class were as follows:

	Three Months Ended		Nine Months Ended
September 30, 2011
Commercial	$	34,687	$	37,341
Commercial real estate	14,293		12,956
Construction and development	28,668		45,461
Residential real estate:
Mortgage	8,888		8,468
Home equity	1,498		1,071
Total	$	88,034	$	105,297

Interest income recognized during impairment was $467 and $1,180 for the three and nine months ended September 30, 2011, respectively.

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

The recorded investment in nonaccrual and loans past due 90 days or more still on accrual by class of loans was as follows:

	Nonaccrual		Loans Past Due 90 Days or More Still on Accrual
September 30, 2011
Commercial	$	28,269	$	3
Commercial real estate	809		—
Construction and development	24,810		—
Residential real estate:
Mortgage	1,989		288
Home equity	161		—
Consumer and other	206		68
Total	$	56,244	$	359

December 31, 2010
Commercial	$	22,224	$	4
Commercial real estate	6,586		—
Construction and development	47,951		—
Residential real estate:
Mortgage	1,919		108
Home equity	1,664		—
Consumer and other	—		79
Total	$	80,344	$	191

Loans past due 90 days or more still on accrual are considered to be well-collateralized and in the process of collection as of September 30, 2011.

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The aging of the recorded investment in past due loans were as follows:

	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total Past Due		Loans Not Past Due		Total
September 30, 2011
Commercial	$	2,731	$	33	$	28,046	$	30,810	$	239,060	$	269,870
Commercial real estate	2,847		456		809		4,112		274,376		278,488
Construction and development	119		—		24,691		24,810		60,996		85,806
Residential real estate:
Mortgage	2,348		702		2,277		5,327		146,201		151,528
Home equity	1,137		113		161		1,411		183,052		184,463
Consumer and other	274		52		342		668		12,344		13,012
Total	$	9,456	$	1,356	$	56,326	$	67,138	$	916,029	$	983,167

December 31, 2010
Commercial	$	324	$	5,652	$	20,807	$	26,783	$	226,963	$	253,746
Commercial real estate	619		—		6,586		7,205		265,651		272,856
Construction and development	—		—		47,951		47,951		91,008		138,959
Residential real estate:
Mortgage	2,280		1,063		2,026		5,369		144,879		150,248
Home equity	49		237		1,504		1,790		204,401		206,191
Consumer and other	82		97		79		258		14,086		14,344
Total	$	3,354	$	7,049	$	78,953	$	89,356	$	946,988	$	1,036,344

During the three and nine months ended September 30, 2011, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

Modifications involving a reduction of the stated interest rate of the loan were for interest rates ranging from 2.0% to 6.0% and periods ranging from ten months to 30 years. Modifications involving an extension of the maturity date were for periods ranging from two months to 12 months.

At September 30, 2011, the Company had $35,765 of loans considered troubled debt restructurings, which are considered impaired loans, compared to $21,555 as of December 31, 2010. As of September 30, 2011, the Company has specifically allocated allowance for loan losses of $524 on $5,315 of loans considered to be troubled debt restructurings. The remaining $30,450 of troubled debt restructurings did not have impaired cash flows or are considered to be collateral dependent and do not have specific allocations of the allowance due to partial charge-offs and the loans being well-collateralized. Management has not committed to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

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The following table presents loans by class modified as troubled debt restructurings during the nine months ended September 30, 2011:

	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
September 30, 2011
Commercial	7	$	3,653	$	3,652
Commercial real estate	7	11,245		11,244
Residential real estate:
Mortgage	11	2,430		2,473
Home equity	1	690		700
Total	26	$	18,018	$	18,069

The following table presents loans by class modified as troubled debt restructurings during the quarter ended September 30, 2011:

	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
September 30, 2011
Commercial	4	$	3,134	$	3,134
Commercial real estate	4	10,240		10,241
Residential real estate: mortgage	6	1,504		1,535
Total	14	$	14,878	$	14,910

The following table presents loans by class modified as troubled debt restructurings during the twelve month period ended September 30, 2011 for which there was a payment default during the nine months ended September 30, 2011:

	Number of Loans	Recorded Investment
September 30, 2011
Commercial real estate	2	$	2,456
Residential real estate: mortgage	2	467
Total	4	$	2,923

There were no loans modified as troubled debt restructurings during the twelve month period ended September 30, 2011 for which there was a payment default during the quarter ended September 30, 2011.

A loan is considered to be in payment default once it is 90 days past due under the modified contractual terms. Additionally, loans less than $100 will not be evaluated for impairment under troubled debt restructuring accounting guidance.

The troubled debt restructurings that subsequently defaulted described above did not increase the allowance for loan losses and did not result in any charge-offs during the three and nine months ended September 30, 2011, as these loans were considered to be collateral dependent and well-collateralized.

The terms of certain other loans were modified during the nine months ended September 30, 2011 that did not meet the definition of a troubled debt restructuring. These loans have a total recorded investment as of September 30,

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2011 of $6,231. The modification of these loans involved either a modification of the terms of a loan to borrowers who were not experiencing financial difficulties or a delay in a payment that was considered to be insignificant.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

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

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

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

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. The risk categories of loans were as follows:

	Classified		Pass		Total
September 30, 2011
Commercial	$	41,310	$	228,560	$	269,870
Commercial real estate	15,473		263,015		278,488
Construction and development	32,898		52,908		85,806
Total	$	89,681	$	544,483	$	634,164

December 31, 2010
Commercial	$	56,323	$	197,423	$	253,746
Commercial real estate	15,970		256,886		272,856
Construction and development	77,350		61,609		138,959
Total	$	149,643	$	515,918	$	665,561

The classified construction and development loans decreased to $32.9 million as of September 30, 2011 from $77.4 million as of December 31, 2010, primarily as a result of transfers of loans to other real estate owned.

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

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Note 4 - Other Real Estate Owned

Activity in other real estate owned was as follows:

	September 30, 2011			December 31, 2010
Balance, beginning of year	$	20,479		$	25,994
Acquired through loan foreclosure	50,048			7,502
Reductions due to sales	(27,348		)	(7,480		)
Write-downs	(3,860		)	(5,537		)
Balance, period-end	$	39,319		$	20,479

Other real estate owned is reported net of a valuation allowance of $3,625 as of September 30, 2011 and December 31, 2010. There were no changes in the valuation allowance during the three and nine months ended September 30, 2011.

Note 5 - 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:

	September 30, 2011						December 31, 2010
	Fixed Rate		Variable Rate		Total		Fixed Rate		Variable Rate		Total
Commercial loans and lines of credit	$	2,296	$	143,184	$	145,480	$	821	$	117,484	$	118,305
Check credit lines of credit	880		—		880		919		—		919
Mortgage loans	3,728		—		3,728		5,141		—		5,141
Home equity lines of credit	1,404		133,307		134,711		654		135,767		136,421
Letters of credit	—		11,115		11,115		—		11,814		11,814
Credit card lines of credit	—		37,169		37,169		—		37,483		37,483
Total	$	8,308	$	324,775	$	333,083	$	7,535	$	302,548	$	310,083

Fixed rate commercial loan commitments and lines of credit at September 30, 2011 had interest rates ranging from 4.0% to 7.2% with terms ranging from three months to five years. Fixed rate mortgage loan commitments at September 30, 2011 had interest rates ranging from 4.0% to 5.1% with terms ranging from 15 to 30 years. Fixed rate home equity lines of credit at September 30, 2011 had interest rates ranging from 3.0% to 7.0% with terms ranging from six months to four years. Fixed rate check credit lines of credit at September 30, 2011 had interest rates of 18.0%.

Note 6 - Common Stock in ESOP Subject to Contingent Repurchase Obligation

At September 30, 2011 and December 31, 2010, the Employee Stock Ownership Plan (the “ESOP”) held 89,933 and 90,775 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 request the Company to purchase, when the Company is legally permitted to purchase its common stock, the common stock distributed at fair market value during two 60-day periods. The first purchase period begins on the date the benefit is distributed and the second purchase period begins on the first anniversary of the distribution date. This contingent repurchase obligation is reflected in the Company’s financial statements as “Common stock in ESOP subject to contingent repurchase obligation” and reduces shareholders’ equity by an amount that represents the independently appraised fair market value of all West Suburban common stock held by the ESOP and allocated to participants, without regard to whether it is likely that the shares would be distributed or that the recipients of the shares would be likely to exercise their right to require the Company to purchase the shares.

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Note 7 - New Accounting Pronouncements

Adopted Accounting Guidance

In April 2011, the FASB issued the ASU, “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” This ASU amended Topic 310 and provides additional guidance to creditors for evaluating whether a modification or restructuring of a receivable is a TDR. The amendments in this update are effective for the first interim or annual period beginning on or after June 15, 2011 and should be applied retrospectively to the beginning of the annual period of adoption. The new guidance requires creditors to evaluate modifications and restructurings of receivables using a more principles-based approach, which may result in more modifications and restructurings being considered troubled debt restructurings. For purposes of measuring impairment of these receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. Adoption of this accounting standard update did not have a material impact on our financial condition, results of operations or financial statement disclosures.

Note 8 - 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.

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 tables:

	Nine Months Ended
	September 30,
	2011		2010
Service cost	$	23	$	26
Interest cost	42		44
Amortization of prior service cost	16		16
Recognized net actuarial gain	17		16
Net periodic benefit cost	$	98	$	102

	Three Months Ended
	September 30,
	2011		2010
Service cost	$	7	$	9
Interest cost	14		15
Amortization of prior service cost	6		5
Recognized net actuarial gain	6		6
Net periodic benefit cost	$	33	$	35

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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)
September 30, 2011 Recurring basis
U.S. Treasuries	$	10,435	$	10,435	$	—	$	—
U.S. government sponsored enterprises	95,657		—		95,657		—
Mortgage-backed: residential	208,600		—		208,600		—
State and political subdivisions	20,008		—		20,008		—
Corporate	10,133		—		10,133		—
Total securities available for sale	$	344,833	$	10,435	$	334,398	$	—

December 31, 2010 Recurring basis
U.S. Treasuries	$	91,156	$	91,156	$	—	$	—
U.S. government sponsored enterprises	98,144		—		98,144		—
Mortgage-backed: residential	307,280		—		307,280		—
State and political subdivisions	11,878		—		11,878		—
Corporate	10,108		—		10,108		—
Total securities available for sale	$	518,566	$	91,156	$	427,410	$	—

September 30, 2011 Non-recurring basis
Impaired loans:
Commercial	$	1,580	$	—	$	—	$	1,580
Commercial real estate	843		—		—		843
Construction and development	2,942		—		—		2,942
Residential real estate:
Mortgage	1,641		—		—		1,641
Home Equity	727		—		—		727
Other real estate owned:
Construction and development	13,766		—		—		13,766
Commercial real estate	873		—		—		873
Residential real estate: mortgage	155		—		—		155

December 31, 2010 Non-recurring basis
Impaired loans:
Commercial	$	4,307	$	—	$	—	$	4,307
Commercial real estate	559		—		—		559
Construction and development	16,157		—		—		16,157
Other real estate owned:
Construction and development	10,919		—		—		10,919
Commercial real estate	984		—		—		984

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $8,312 with a valuation allowance of $579 at September 30, 2011. At December 31, 2010, impaired loans had a carrying value of $25,895 with a valuation allowance of $4,872. Provision for loan losses made for impaired loans during the first nine months ended September 30, 2011 and September 30, 2010 was $2,276 and $3,334, respectively.

Other real estate owned, which are at fair value less costs to sell, had a net carrying amount of $14,794, which consisted of the outstanding balance of $18,419, net of a valuation allowance of $3,625 at September 30, 2011. Write-downs on the other real estate owned totaled $3,860 and $1,669 for the first nine months of 2011 and 2010,

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respectively. At December 31, 2010, other real estate owned had a carrying amount of $11,903, which consisted of the outstanding balance of $15,528, net of a valuation allowance of $3,625.

Carrying values and estimated fair values of the Company’s financial instruments as of September 30, 2011 and December 31, 2010 are set forth in the table below:

	September 30, 2011				December 31, 2010
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial assets
Cash and cash equivalents	$	171,592	$	171,592	$	70,690	$	70,690
Securities
Available for sale	344,833		344,833		518,566		518,566
Held to maturity	277,637		292,379		215,365		222,761
Federal Home Loan Bank stock	7,599		N/A		7,599		N/A
Loans, less allowance for loan losses	955,301		988,419		1,008,272		1,018,030
Accrued interest receivable	5,660		5,660		5,217		5,217

Financial liabilities
Deposits	1,714,547		1,724,978		1,778,427		1,791,761
Accrued interest payable	2,354		2,354		3,431		3,431

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

Note 10 - Capital Matters

On January 13, 2011, the Bank agreed with its regulators to maintain minimum capital ratios in excess of the minimum ratios required by applicable federal regulations. The Bank agreed to maintain minimum capital ratios equal to or exceeding 8.00% for Tier 1 capital to average total assets and 12.00% for total capital to risk-weighted assets. As of September 30, 2011, the Bank was in compliance with these heightened regulatory capital requirements. If the Bank is not in compliance with the requirements in the future, the Bank may become subject to additional regulatory actions or restrictions.

At September 30, 2011, the Bank’s Tier 1 capital to average total assets ratio was 8.19%, .19%, or $3.7 million, above the 8.00% level the Bank agreed with its regulators to maintain, and the Bank’s total capital to risk-weighted assets was 13.82%, 1.82%, or $22.8 million, above the 12.00% the Bank agreed with its regulators to maintain.

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 has continued into 2011. During this period, the United States economy has experienced heightened unemployment, depressed home values, historically low levels of liquidity in the debt markets and increased volatility in the equity markets. As a result of these conditions, consumer confidence and spending decreased and asset values declined. Like many other financial institutions, the Company’s financial results have been impacted by these challenging economic conditions.

The economic downturn has impacted the entire State of Illinois, including the Company’s primary market area, located in the western suburbs of Chicago, Illinois. According to the Bureau of Labor and Statistics, the

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unemployment rate in the State of Illinois at September 30, 2011 was 9.9%. High levels of unemployment have adversely impacted the ability of certain of the Company’s borrowers to meet their ongoing debt obligations. In addition, real estate demand in the Company’s market area remains weak, resulting in declines in the values of the real estate serving as collateral for certain of the Company’s loans.

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

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

In response to the economic downturn, the Federal Reserve has maintained interest rates at historically low levels and has used various forms of monetary policy in an attempt to drive down long-term interest rates. The presence of these historically low interest rates has created net interest challenges for the banking industry in general and the Bank in particular. This interest rate environment has resulted in low-yielding investment opportunities, adding to the downward pressure on the Bank’s interest income. Because management believes that interest rates will increase at some point 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. In addition, movements in general market interest rates are a key element in changes in the Bank’s interest rate margin, and management expects the interest rate environment to remain at historically low levels throughout 2011.

Recent Regulatory Developments

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

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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 our financial condition and our results of operations and require management to apply significant judgment with respect to various accounting, reporting and disclosure matters. Management must use estimates, assumptions and judgments to apply these principles where actual measurements are not possible or practical. These estimates, assumptions and judgments are based on information available as of the date of this report and, as this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the financial statements. Changes in such estimates may have a significant impact on the financial statements. Management has reviewed the application of these policies with the Audit Committee of West Suburban’s Board of Directors. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction the Company’s 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 income tax obligations, the determination of the fair value of certain of the Company’s investment securities and the carrying value of other real estate owned.

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

The Company evaluates commercial, commercial real estate and construction and development loans monthly for impairment. A loan is considered impaired when, based on current information and events, full payment under the loan terms is not expected. Loans for which the terms have been modified and for which the borrower is experiencing financial difficulties are considered troubled debt restructurings and classified as impaired. Impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the loan’s collateral, if repayment of the loan is collateral dependent. A valuation allowance is maintained for the amount of impairment. Generally, loans 90 days or more past due and loans classified as nonaccrual status are considered for impairment. Impairment is considered on an entire category basis for smaller-balance loans of similar nature such as residential real estate and consumer loans, and on an individual basis for other loans. In general, consumer and credit card loans are charged-off no later than 120 days after a consumer or credit card loan becomes past due.

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

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been identified: commercial, commercial real estate, construction and development, residential and consumer and other.

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 sometimes aggressively challenge tax positions taken by financial institutions, including positions that may be taken by the Company. During the preparation of the Company’s tax returns, management makes reasonable interpretations of the tax laws which are subject to challenge upon audit by the tax authorities. These interpretations are also subject to reinterpretation based on management’s ongoing assessment of facts and evolving case law.

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

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

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

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

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

Through the normal course of operations, the Company has entered into certain contractual obligations and other commitments. 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.

At September 30, 2011 and December 31, 2010, the ESOP held 89,933 and 90,775 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 request the Company to purchase, when the Company is legally permitted to purchase its common stock, the common stock distributed at fair value. A more detailed discussion concerning this obligation is presented in Note 6 to the Company’s Condensed Consolidated Financial Statements included in this report. At September 30, 2011 and December 31, 2010, this contingent repurchase obligation reduced shareholders’ equity by $26.1 million and $29.9 million, respectively.

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Balance Sheet Analysis

Total Assets. Total consolidated assets at September 30, 2011 decreased 2.9% compared to December 31, 2010, primarily due to decreases in the loan and securities portfolios, which were effectively used to fund the decrease in deposits.

Cash and Cash Equivalents. Cash and cash equivalents at September 30, 2011 increased 142.7% from December 31, 2010, due to an increase in cash and due from banks and federal funds sold.

Securities. The Company’s securities portfolio decreased 15.0% during the first nine months of 2011, primarily due to sales of securities available for sale of $187.9 million during the first nine months of 2011 for a gain of $7.8 million. 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. Over the past nine months, the Company has taken advantage of the current rate environment and realized gains on sales of available for sale securities with unrealized gain positions which has positively impacted net income and helped fund the decrease in deposits. At September 30, 2011, the Company’s accumulated other comprehensive income due to unrealized gains and losses on securities available for sale was $4.5 million compared to $.6 million at December 31, 2010.

Loans. Total loans outstanding at September 30, 2011 decreased 5.1% from December 31, 2010, primarily due to decreases in the construction and development and home equity loan portfolios. These decreases were only partially offset by increases in the commercial and commercial real estate loan portfolios through originations. The decrease in the construction and development portfolio was primarily due to the transfer of loans to other real estate owned during the period. 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. Although the Company experienced growth in the commercial, commercial real estate and mortgage loan portfolios, overall loan demand in the Company’s market area remains low compared to historical periods.

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

	September 30, 2011			December 31, 2010
Commercial	$	269,870		$	253,746
Commercial real estate	278,488			272,856
Construction and development	85,806			138,959
Residential real estate:
Mortgage	151,528			150,248
Home equity	184,463			206,191
Consumer and other	13,012			14,344
Total	983,167			1,036,344
Allowance for loan losses	(27,866		)	(28,072		)
Loans, net	$	955,301		$	1,008,272

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.

The Bank held approximately $16.2 million of residential mortgage loans purchased from third party originators as of September 30, 2011. The Bank has not purchased any loans since August 2008. The Bank’s general policy is to originate or purchase only residential mortgage loans that conform to the underwriting standards of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation.

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

At September 30, 2011, the allowance for loan losses was $27.9 million, compared to $28.1 million at December 31, 2010. The decrease in the allowance for loan losses was primarily due to a decrease in the specific allowance allocated to impaired loans and the overall decrease in the loan portfolio. The decrease in the specific allowance was a result of charge-offs of impaired loans during the period.

Impaired loans totaled $90.4 million at September 30, 2011, as compared to $135.0 million at December 31, 2010. The allowance for loan losses allocated to impaired loans totaled $.6 million at September 30, 2011 as compared to $4.9 million at December 31, 2010. The relatively low specific reserves on impaired loans is a result of the majority of the impaired loans being sufficiently collateralized and due to the Company recording previous partial charge-offs on impaired loans. As of September 30, 2011, the impaired loan balance of $90.4 million is net of $14.9 million of partial charge-offs recorded in previous periods.

The general reserve as a percent of non-impaired loans was 3.1% at September 30, 2011, as compared to 2.6% at December 31, 2010. The increase in the general reserve as a percent of loans is consistent with the change in the actual historical loss history, management’s review of internal classified loans and management’s expectation of overall economic conditions nationally and in the areas in which the Company operates. Net loan charge-offs were $9.8 million for the nine months ended September 30, 2011 compared to $5.4 million during the same period in 2010.

Nonperforming loans (nonaccrual and loans past due 90 days or more still on accrual) decreased to $56.6 million at September 30, 2011 from $80.5 million at December 31, 2010. This change was primarily due to decreases in nonaccrual loans as a result of $47.9 million in loans being transferred to other real estate owned, as well as $3.7 million in payments on nonaccrual loans and $1.8 million in charge-offs of nonaccrual loans during the first nine months of 2011. Additionally, $3.2 million of loans were brought current during the first nine months of 2011. These decreases to nonaccrual loans were partially offset by $35.0 million of loans being classified as nonaccrual during the first nine months of 2011.

The Company’s ratio of nonperforming loans to total loans was 5.8% at September 30, 2011 and 7.8% at December 31, 2010. The ratio of nonperforming assets (nonperforming loans and other real estate owned) to total assets decreased to 5.0% at September 30, 2011 from 5.1% at December 31, 2010.

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The ratio of the allowance for loan losses to total loans was 2.8% at September 30, 2011 and 2.7% at December 31, 2010. The following table presents an analysis of the Company’s nonperforming loans and other real estate owned as of the dates indicated (dollars in thousands):

	September 30, 2011			December 31, 2010
Loans past due 90 days or more still on accrual	$	359		$	191
Nonaccrual loans	56,244			80,344
Total nonperforming loans	$	56,603		$	80,535
Nonperforming loans as a percent of total loans	5.8		%	7.8		%
Allowance for loan losses as a percent of nonperforming loans	49.2		%	34.9		%
Other real estate owned	$	39,319		$	20,479
Nonperforming assets as a percent of total assets	5.0		%	5.1		%

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

	2011									2010
	3rd Qtr			2nd Qtr			1st Qtr			4th Qtr			3rd Qtr
Provision - quarter	$	4,750		$	1,818		$	3,000		$	10,300		$	2,875
Provision - year to date	9,568			4,818			3,000			18,725			8,425
Net charge-offs - quarter	3,890			5,024			860			11,222			2,602
Net charge-offs - year to date	9,774			5,884			860			16,575			5,353
Allowance at period end	27,866			27,006			30,212			28,072			28,994
Allowance at period end to total loans	2.8		%	2.8		%	3.0		%	2.7		%	2.6		%

Other Real Estate Owned. At September 30, 2011, the Company had $39.3 million in other real estate owned, compared to $20.5 million at December 31, 2010. During the first nine months of 2011, the Company acquired properties with an aggregate carrying value of $50.0 million and sold properties with an aggregate carrying value of $27.3 million. These sales produced a net gain of $.2 million. On a monthly basis, the Company evaluates the carrying value of all other real estate owned properties and takes write-downs on these properties as necessary. During the first nine months of 2011, the Company recorded aggregate write-downs of $3.9 million due to the continued decline in real estate values. The Company is actively marketing the properties it holds in its other real estate owned portfolio in a continuing effort to reduce the size of this portfolio.

Bank-owned Life Insurance. Bank-owned life insurance at September 30, 2011 decreased 17.9% from December 31, 2010. This decrease was primarily due to the Company surrendering $7.9 million of bank-owned life insurance policies in connection with the termination of certain deferred compensation plans.

Deposits. Total deposits at September 30, 2011 decreased 3.6% from December 31, 2010 due to decreases in each deposit category with the exception of 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 deposits. 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 while maintaining an acceptable net interest margin. As of September 30, 2011, the Company held $21.5 million of deposits related to balances on cards issued by the Bank’s former prepaid solutions group. The Bank is in the process of winding down its issuing bank responsibilities under the prepaid card programs originated by the Bank’s former prepaid solutions group that were transferred, and the Bank expects to reduce the level of, and eventually cease to hold, these deposits. As of September 30, 2011, in accordance with applicable regulatory call report instructions, the Bank reported that it had no brokered deposits.

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

	September 30, 2011		December 31, 2010		Dollar Change			Percent Change
Demand-noninterest-bearing	$	146,562	$	152,064	$	(5,502	)	(3.6	)%
Prepaid solutions card deposits	21,497		29,161		(7,664		)	(26.3	)%
NOW	335,966		349,246		(13,280		)	(3.8	)%
Money market checking	430,074		422,465		7,609			1.8	%
Savings	364,620		346,539		18,081			5.2	%
Time deposits
Less than $100,000	309,877		348,930		(39,053		)	(11.2	)%
$100,000 and greater	105,951		130,022		(24,071		)	(18.5	)%
Total	$	1,714,547	$	1,778,427	$	(63,880	)	(3.6	)%

Prepaid Solutions Cards. Outstanding balances on prepaid solutions cards, which represent the total of prepaid solutions card deposits and prepaid solutions card liabilities, decreased 6.2% at September 30, 2011 from December 31, 2010. On December 4, 2009, the Company sold its prepaid solutions card division. The Bank remains the card issuing bank under a number of the card programs transferred, although the Bank is in the process of winding down such responsibilities. The outstanding balances on prepaid solutions cards will remain on the Company’s balance sheet for a period of time. The Company no longer records the income and expense associated with the prepaid solutions cards.

CAPITAL RESOURCES

Shareholders’ equity at September 30, 2011 increased 11.3% from December 31, 2010. The increase resulted from net income of $6.7 million, a decrease in the amount reclassified on ESOP shares of $3.8 million and an increase in accumulated other comprehensive income of $3.9 million. In accordance with applicable regulations, the appraised fair market value of West Suburban common stock owned by the ESOP is included in Tier 1 capital.

Banking regulations require the Company and the Bank to maintain minimum capital amounts and ratios. Regulatory capital requirements call for a minimum total risk-based capital ratio of 8% for each of the Company and the Bank, a minimum Tier 1 risk-based capital ratio of 4% for each of the Company and the Bank and a minimum leverage ratio (3% for the most highly rated banks and bank holding companies that do not expect significant growth; all other institutions are required to maintain a minimum leverage capital ratio of 4% to 5% depending on their particular circumstances and risk and growth profiles) for each of the Company and the Bank. On a consolidated basis, West Suburban exceeded these minimum regulatory capital requirements as of September 30, 2011. Bank holding companies and their subsidiaries are generally expected to operate at or above the minimum capital requirements.

On January 13, 2011, the Bank agreed with its regulators to maintain minimum capital ratios in excess of the minimum ratios required by applicable federal regulations. The Bank agreed to maintain minimum capital ratios equal to or exceeding 8.00% for Tier 1 capital to average total assets and 12.00% for total capital to risk-weighted assets. As of September 30, 2011 the Bank was in compliance with these heightened regulatory capital requirements. If the Bank is not in compliance with the requirements in the future, the Bank may become subject to additional regulatory actions or restrictions.

As of September 30, 2011 and December 31, 2010, the Bank exceeded the minimum capital ratios required for it to qualify as “well-capitalized” under the regulatory framework for prompt corrective action. There were no conditions or events since September 30, 2011 that management believes would result in a change of the Bank being considered “well-capitalized.”

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

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

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

· West Suburban has the ability to inject capital into the Bank as West Suburban had $5.1 million in cash on hand at September 30, 2011.

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

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 September 30, 2011
Total capital (to risk weighted assets)
Company	$	177,417	14.10	%	N/A		N/A		N/A
Bank (1)	173,818		13.82	%	$	125,816	10.00	%	$	48,002
Tier 1 capital (to risk weighted assets)
Company	161,537		12.84	%	N/A		N/A		N/A
Bank	157,941		12.55	%	75,489		6.00	%	82,452
Tier 1 capital (to average assets)
Company	161,537		8.40	%	N/A		N/A		N/A
Bank (1)	157,941		8.19	%	96,417		5.00	%	61,524

As of December 31, 2010
Total capital (to risk weighted assets)
Company	$	171,452	12.99	%	N/A		N/A		N/A
Bank (1)	160,089		12.22	%	$	130,993	10.00	%	$	29,096
Tier 1 capital (to risk weighted assets)
Company	154,808		11.73	%	N/A		N/A		N/A
Bank	143,570		10.96	%	78,596		6.00	%	64,974
Tier 1 capital (to average assets)
Company	154,808		7.93	%	N/A		N/A		N/A
Bank (1)	143,570		7.39	%	97,124		5.00	%	46,446

(1)	The Bank has agreed to maintain, as of March 31, 2011, minimum Tier 1 capital to average assets of 8.00% and total capital to risk-weighted assets of 12.00%.

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 of 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 September 30, 2011, the Company could have borrowed up to approximately $152 million from

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the FHLB secured by certain of its real estate loans and securities. The Company manages its liquidity position through continuous monitoring of profitability trends, asset quality, interest rate sensitivity and maturity schedules of interest-earning assets and interest-bearing liabilities.

Generally, the Company uses cash and cash equivalents to meet its liquidity needs. If the Company’s cash and cash equivalents are not sufficient to meet its liquidity needs, the Company would access the federal funds available for a short period of time. If longer term liquidity is needed, the Company would meet those needs using securities available for sale. As of September 30, 2011 and December 31, 2010, cash and cash equivalents together with securities available for sale collectively represented 27.1% and 30.0% of total assets, respectively.

During the first nine months of 2011, the Company’s cash and cash equivalents increased $100.9 million; net cash provided by operating activities was $11.1 million; net cash provided by investing activities was $148.4 million; and net cash used in financing activities was $58.6 million.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

Net Income. The Company’s net income increased $2.0 million to $6.7 million for the first nine months of 2011 compared to $4.7 million for the first nine months of 2010. The increase was primarily due to an increase in total noninterest income of $6.9 million and was partially offset by an increase in the provision for loan losses of $1.1 million, an increase of income tax expense of $2.3 million and a decrease in net interest income of $1.4 million.

Net Interest Income. Net interest income (on a fully tax-equivalent basis, assuming a tax rate of 35.0%) decreased 2.8% for the first nine months of 2011 compared to the first nine months of 2010. 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 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) was 3.5% for the nine-month periods ended September 30, 2011 and 2010.

Total interest income (on a tax-equivalent basis, assuming a tax rate of 35.0%) decreased 11.7% for the first nine months of 2011 compared to the first nine months of 2010, primarily due to the decrease in total loans and decreasing yields in the Company’s securities portfolio. Average loan balances decreased 17.4% for the first nine months of 2011, and the average yield on the loan portfolio decreased 3 basis points. Average securities balances increased 27.5% for the first nine months of 2011, and the average yield on the securities portfolio decreased 53 basis points. Management decided to sell securities as market rates declined during the first nine months of 2011. A large portion of these securities were sold in order to reduce the Company’s interest rate risk in the securities portfolio. Management’s analysis of these securities indicated that certain higher yielding securities could be sold at a gain and over time the proceeds could be reinvested at lower yields and continue to be accretive to earnings.

Total interest expense decreased 38.4% for the first nine months of 2011 compared to the first nine months of 2010. 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 45 basis points to .8% for the nine months ended September 30, 2011, from 1.2% for the nine months ended September 30, 2010. Approximately 56% of time deposits are scheduled to mature within one year.

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The following table reflects the impact of changes in volume and interest rates on interest-earning assets and interest-bearing liabilities (on a fully tax-equivalent basis) for the first nine months ended September 30, 2011 as compared to the same period in 2010 (dollars in thousands):

	Change due to						Total
	Volume			Rate			Change
Interest Income
Federal funds sold	$	(45	)	$	9		$	(36	)
Securities	3,335			(2,234		)	1,101
Loans	(7,736		)	(253		)	(7,989		)
Total interest income	(4,446		)	(2,478		)	(6,924		)
Interest Expense
Interest-bearing deposits	(205		)	(5,476		)	(5,681		)
Other interest-bearing liabilities	(41		)	42			1
Total interest expense	(246		)	(5,434		)	(5,680		)
Net interest income	$	(4,200	)	$	2,956		$	(1,244	)

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):

	2011						2010
	September 30		June 30		March 31		December 31		September 30
Federal funds sold	$	8,857	$	311	$	205	$	22,517	$	29,962
Securities	719,565		742,770		728,045		582,753		564,574
Loans	925,061		934,552		958,013		1,094,309		1,119,951
Total interest-earning assets	$	1,653,483	$	1,677,633	$	1,686,263	$	1,699,579	$	1,714,487

Demand-noninterest-bearing deposits	$	174,538	$	172,973	$	172,582	$	163,906	$	159,714
Interest-bearing deposits	1,585,176		1,595,997		1,593,572		1,612,782		1,620,743
Total deposits	$	1,759,714	$	1,768,970	$	1,766,154	$	1,776,688	$	1,780,457
Total interest-bearing liabilities	$	1,592,538	$	1,604,634	$	1,602,019	$	1,620,067	$	1,620,743

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 increased $1.1 million for the first nine months of 2011 compared to the first nine months of 2010. 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 66.7% for the first nine months of 2011 compared to the first nine months of 2010. In the first nine months of 2011, the Company recorded $7.8 million in gains on sales of investment securities, which accounted for most of this increase. Service fees on deposit accounts decreased $.7 million primarily due to decreased fees associated with the overdraft honor program.

Noninterest Expense. Total noninterest expense remained flat for the first nine months of 2011 compared to the first nine months of 2010. Other real estate owned expense increased $2.1 million primarily due to increased write-downs during the 2011 period. FDIC assessment expense decreased $1.0 million primarily due to changes in the assessment calculation. Furniture and equipment expense decreased $.3 million primarily due to reduced depreciation expense. Professional fees expense decreased $.5 million primarily due to reduced costs associated with regulatory compliance issues and lending. Loan administration expense decreased $.4 million due to reduced expenses incurred in the 2011 period for real estate tax payments on collateral securing nonaccrual commercial,

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commercial real estate and construction and development loans. VISA cardholder expense decreased $.1 million primarily due to reduced cardholder service expense.

Income Taxes. Income tax expense increased $2.3 million for the first nine months of 2011 compared to the first nine months of 2010. The effective tax rates for the first nine months of 2011 and 2010 were 34.8% and 21.7%, respectively. The increase was due to the higher pre-tax income and its impact on the ratio of pre-tax income to pre-tax income subject to income taxes. Furthermore, the Company surrendered a portion of the bank-owned life insurance tied to the deferred compensation plan in the third quarter of 2011, which resulted in the Company incurring additional tax expense on the life to date earnings of the surrendered bank-owned life insurance. Additionally, a higher blended tax rate in 2011 as compared to 2010 due to an increase in the State of Illinois income tax rate also had the effect of increasing the effective tax rate.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

Net Income. The Company’s net income decreased $1.6 million to $.2 million for the third quarter of 2011 compared to $1.8 million for the third quarter of 2010. The decrease was primarily due to a decrease in net interest income of $1.4 million, an increase in total noninterest expense of $.6 million and an increase in the provision for loan losses of $1.9 million. These changes were partially offset by an increase to total noninterest income of $2.2 million.

Net Interest Income. Net interest income (on a fully tax-equivalent basis) decreased 8.3% for the third quarter of 2011 compared to the third quarter of 2010. The Company’s net interest margin (on a fully tax-equivalent basis) was 3.4% and 3.6% for the third quarter of 2011 and 2010, respectively.

Total interest income (on a tax-equivalent basis) decreased 14.6% for the third quarter of 2011 compared to the third quarter of 2010, primarily due to the decrease in total loans and decreasing yields in the Company’s securities portfolio. Average securities balances increased 11.9% for the third quarter of 2011, and the average yield on the securities portfolio decreased 50 basis points. Average loan balances decreased 16.5% for the third quarter of 2011 and the average yield on the loan portfolio decreased 8 basis points.

Total interest expense decreased 36.1% for the third quarter of 2011 compared to the third quarter of 2010. 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 38 basis points to .7% for the third quarter of 2011, from 1.1% for the third quarter of 2010.

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 third quarter of 2011 as compared to the same period in 2010 (dollars in thousands):

	Change due to						Total
	Volume			Rate			Change
Interest Income
Federal funds sold	$	99		$	(83	)	$	16
Securities	488			(763		)	(275		)
Loans	(2,418		)	(218		)	(2,636		)
Total interest income	(1,831		)	(1,064		)	(2,895		)
Interest Expense
Interest-bearing deposits	(89		)	(1,534		)	(1,623		)
Total interest expense	(89		)	(1,534		)	(1,623		)
Net interest income	$	(1,742	)	$	470		$	(1,272	)

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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):

	September 30, 2011		September 30, 2010
Federal funds sold	$	25,670	$	256
Securities	673,911		602,342
Loans	918,256		1,099,235
Total interest-earning assets	$	1,617,837	$	1,701,833

Demand-noninterest-bearing deposits	$	177,610	$	165,217
Interest-bearing deposits	1,563,896		1,612,464
Total deposits	$	1,741,506	$	1,777,681
Total interest-bearing liabilities	$	1,568,864	$	1,612,464

Provision for Loan Losses. Provision for loan losses increased $1.9 million for the third quarter of 2011 compared to the third quarter of 2010. The provision for loan losses of $4.8 million for the third quarter of 2011 was a result of the impact of net charge-offs on the general portion of the allowance for loan losses. 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 54.6% for the third quarter of 2011 compared to the third quarter of 2010. In the third quarter of 2011, the Company recorded $3.0 million in gains on sales of investment securities compared to $.3 million in the third quarter of 2010. This increase accounted for most of the increase to total noninterest income. Service fees on deposit accounts decreased $.1 million primarily due to decreased fees associated with the overdraft honor program. Bank-owned life insurance income decreased $.3 million for the third quarter of 2011 compared to the third quarter of 2010. This fluctuation was due to a reduction in the outstanding bank-owned life insurance balance.

Noninterest Expense. Total noninterest expense increased 4.5% for the third quarter of 2011 compared to the third quarter of 2010. Other real estate owned expense increased $2.1 million primarily due to increased write-downs during the 2011 period. FDIC assessment expense decreased $.8 million primarily due to changes in the assessment calculation. Professional fees expense decreased $.2 million primarily due to reduced costs associated with regulatory compliance issues and lending. Loan administration expense increased $.1 million due to higher expenses incurred in the 2011 period for real estate tax payments on collateral securing nonaccrual commercial, commercial real estate and construction and development loans. VISA cardholder expense decreased $.2 million primarily due to reduced cardholder service expense and reduced quarterly accrual expense.

Income Taxes. Income tax expense remained flat for the third quarter of 2011 compared to the third quarter of 2010. Decreases in net income were offset to some extent by an increase in the effective tax rate. The effective tax rates for the third quarter of 2011 and 2010 were 59.8% and 16.2%, respectively. The increase was due to the higher pre-tax income and its impact on the ratio of pre-tax income to pre-tax income subject to income taxes. Furthermore, the Company surrendered a portion of the bank-owned life insurance tied to the deferred compensation plan in the third quarter of 2011, which resulted in the Company incurring additional tax expense on the life to date earnings of the surrendered bank-owned life insurance. Additionally, a higher blended tax rate in 2011 as compared to 2010 due to an increase in the State of Illinois income tax rate also had the effect of increasing the effective tax rate.

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

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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):

September 30, 2011	Amount		Dollar Change			Percent Change
+200 basis points	$	49,935	$	(2,111	)	(4.1	)%
+100 basis points	50,215		(1,831		)	(3.5	)%
Base	52,046		—			—
-100 basis points	47,427		(4,619		)	(8.9	)%
-200 basis points	45,052		(6,994		)	(13.4	)%

December 31, 2010	Amount		Dollar Change			Percent Change
+200 basis points	$	56,061	$	(3,246	)	(5.5	)%
+100 basis points	56,799		(2,508		)	(4.2	)%
Base	59,307		—			—
-100 basis points	53,338		(5,969		)	(10.1	)%
-200 basis points	49,072		(10,235		)	(17.3	)%

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 September 30, 2011. The target federal funds rate is currently set by the Federal Reserve at a rate between 0 and 25 basis points. As a result, a 200 basis point decline in overall rates would only have between a 0 and 25 basis point decline in both federal funds and the prime rate. Further, other rates that are currently below 1% or 2% (e.g. U.S. Treasuries and LIBOR) would not fall below 0% with an overall 100 or 200 basis point decrease in rates. Many of the Company’s variable rate loans are set to an index tied to prime, federal funds or LIBOR, and as a result, a further decrease in rates would not have a substantial impact on loan yields. Accordingly, management believes that the analyses resulting from 100 and 200 basis point downward changes are not meaningful in light of current interest rate levels.

	WEST SUBURBAN BANCORP, INC.
	(Registrant)


Date: November 2, 2011
	/s/ Kevin J. Acker
	KEVIN J. ACKER
	CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER


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

Exhibit
Number		Description

31.1		Certification of Kevin J. Acker, Chairman of the Board 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 of the Board 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.

101*		Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Balance Sheets at September 30, 2011 and December 31, 2010; (ii) Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and September 30, 2010; (iii) Condensed Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended September 30, 2011 and September 30, 2010; (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and September 30, 2010; and (v) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.