West End Indiana Bancshares (WEIN) 10-K/A 2011 FY Annual report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

AMENDMENT NO. 1

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal ended December 31, 2011.

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from _______________ to _______________.

Commission file number:  001-54578

WEST END INDIANA BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

Maryland	36-4713616
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

34 South 7th Street, Richmond, Indiana	47374
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code:  (765) 962-9587

Securities registered pursuant to Section 12(b) of the Act:     None

(Title of each class to be registered) (Name of each exchange on which each class is to be registered)

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

Common Stock, par value $0.01 per share

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

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

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

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

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

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o                                                                          Accelerated filer o

Non-accelerated filer o                                                                          Smaller reporting company x

(Do not check if a smaller reporting company)

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

There was no outstanding voting common equity of the Registrant as of June 30, 2011.  The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, computed by reference to the last sale price on January 11, 2012, the first date of trading in the common stock, was approximately $13.2 million.

As of March 28, 2012, there were 1,401,008 issued and outstanding shares of the Registrant’s Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE:

None

WEST END INDIANA BANCSHARES, INC.

FORM 10-K/A

EXPLANATORY NOTE

This Amendment No. 1 to the Form 10-K of West End Indiana Bancshares, Inc. is being filed solely to correct a typographical error in the header to the audited financial statements which inadvertently included the words “Dollars in Thousands.”

3

ITEM 8.                  Financial Statements and Supplementary Data

West End Bank, MHC

Accountants’ Report and Consolidated Financial Statements

December 31, 2011 and 2010

4

West End Bank, MHC

As of December 31, 2011 and 2010

and Years Ended December 31, 2011 and 2010

Contents

Report of Independent Registered Public Accounting Firm	6
Consolidated Financial Statements
Balance Sheets	7
Statements of Income	8
Statements of Equity	9
Statements of Cash Flows	10
Notes to Financial Statements	11

5

	201 N. Illinois Street, Suite 700
	P.O. Box 44998
	Indianapolis, IN 46244-0998

Report of Independent Registered Public Accounting Firm

Board of Directors

West End Bank, MHC

Richmond, Indiana

We have audited the accompanying consolidated balance sheets of West End Bank, MHC as of December 31, 2011 and 2010, and the related consolidated statements of income, equity and cash flows for the years then ended.  The Company's management is responsible for these financial statements.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing auditing procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.  Accordingly, we express no such opinion.  Our audits also included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of West End Bank, MHC as of December 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

BKD, LLP

Indianapolis, Indiana

March 29, 2012

   

6

West End Bank, MHC

Consolidated Balance Sheets

December 31, 2011 and 2010

	December 31
	2011		2010
Assets
Cash and due from banks	$	1,941,859	$	1,706,247
Interest-bearing demand deposits		20,792,596		6,587,359
Cash and cash equivalents		22,734,455		8,293,606
Investment securities available for sale		47,878,375		41,215,625
Loans held for sale		532,854		—
Loans, net of allowance for loan losses of  $1,904,180 and $1,699,465 at December 31, 2011 and 2010, respectively		154,058,240		151,810,044
Premises and equipment		3,644,473		3,690,575
Federal Home Loan Bank stock		1,722,100		1,857,800
Interest receivable		1,029,716		886,224
Bank-owned life insurance		4,742,129		4,589,294
Foreclosed real estate held for sale		736,011		786,067
Other assets		3,723,565		2,860,137
Total assets	$	240,801,918	$	215,989,372
Liabilities and Equity
Liabilities
Deposits	$	182,975,128	$	175,370,652
Federal Home Loan Bank advances		27,000,000		22,000,000
Interest payable		116,909		141,517
Stock conversion proceeds in escrow		11,687,439		—
Other liabilities		984,659		1,157,359
Total liabilities		222,764,135		198,669,528
Commitments and Contingencies (Note 10)
Equity
Retained earnings		17,878,263		17,186,097
Accumulated other comprehensive income		159,520		133,747
Total equity		18,037,783		17,319,844
Total liabilities and equity	$	240,801,918	$	215,989,372

See Notes to Consolidated Financial Statements

7

West End Bank, MHC

Consolidated Statements of Income

Years Ended December 31, 2011 and 2010

	Years Ended December 31
	2011			2010
Interest and Dividend Income
Loans receivable, including fees	$	10,116,770		$	10,119,467
Investment securities		976,330			777,570
Other		52,811			37,187
Total interest income		11,145,911			10,934,224
Interest Expense
Deposits		2,678,080			3,395,960
Federal Home Loan Bank advances		560,576			649,371
Total interest expense		3,238,656			4,045,331
Net Interest Income		7,907,255			6,888,893
Provision for loan losses		1,625,000			1,294,000
Net Interest Income After Provision for Loan Losses		6,282,255			5,594,893
Other Income
Service charges on deposit accounts		577,882			551,116
Loan servicing income, net		(4,372	)		69,428
Debit card income		195,746			155,126
Gain on sale of loans		786,241			331,073
Net realized gains on sales of available-for-sale securities		95,129			121,701
Gain on cash surrender value of life insurance		152,835			155,731
Gain (loss) on sale of other assets		(182,981	)		56,313
Other income		120,636			51,523
Total other income		1,741,116			1,492,011
Other Expense
Salaries and employee benefits		3,742,005			3,303,767
Net occupancy		455,954			425,661
Data processing fees		286,417			287,891
Professional fees		218,553			285,754
Advertising		191,254			169,326
ATM charges		259,206			236,042
Postage and courier		168,727			150,919
FDIC insurance premiums		248,473			268,079
Other expenses		1,411,679			1,231,794
Total other expense		6,982,268			6,359,233
Income Before Income Tax		1,041,103			727,671
Income tax expense		348,937			229,286
Net Income	$	692,166		$	498,385

See Notes to Consolidated Financial Statements

8

West End Bank, MHC

Consolidated Statements of Equity

Years Ended December 31, 2011 and 2010

	Retained Earnings		Accumulated Other Comprehensive Income			Total
Balance, January 1, 2010	$	16,687,712	$	179,013		$	16,866,725
Comprehensive income
Net income		498,385					498,385
Change in unrealized gains on securities, net of reclassification adjustment and tax				(45,266	)		(45,266	)
Comprehensive income							453,119
Balance, December 31, 2010		17,186,097		133,747			17,319,844
Comprehensive income
Net income		692,166					692,166
Change in unrealized gains on securities, net of reclassification adjustment and tax				25,773			25,773
Comprehensive income							717,939
Balance, December 31, 2011	$	17,878,263	$	159,520		$	18,037,783

See Notes to Consolidated Financial Statements

9

West End Bank, MHC

Consolidated Statements of Cash Flows

Years Ended December 31, 2011 and 2010

	Years Ended December 31
	2011			2010
Operating Activities
Net income	$	692,166		$	498,385
Items not requiring (providing) cash
Provision for loan losses		1,625,000			1,294,000
Depreciation and amortization		230,113			225,926
Deferred income taxes		124,268			(25,138	)
Investment securities amortization, net		843,744			753,434
Investment securities gains		(95,129	)		(121,701	)
Loans originated for sale		(8,868,090	)		—
Proceeds on loans sold		8,506,560			—
Gain on loans sold		(786,241	)		(331,073	)
Net change in
Interest receivable		(143,492	)		(23,952	)
Interest payable		(24,608	)		(14,231	)
Cash surrender value of life insurance		(152,835	)		(155,731	)
Prepaid FDIC insurance		232,718			247,310
Other adjustments		(1,138,123	)		608,815
Net cash provided by operating activities		1,046,051			2,956,044
Investing Activities
Purchases of securities available for sale		(26,696,069	)		(38,520,958	)
Proceeds from maturities of securities available for sale		13,825,602			12,099,766
Proceeds from sales of securities available for sale		5,501,773			9,198,496
Proceeds from redemption of FHLB stock		148,500			229,700
Purchases of FHLB stock		(12,800	)		—
Proceeds from sale of loans		1,878,159			11,223,231
Net change in loans		(5,508,125	)		(20,327,406	)
Purchase of premises and equipment		(244,681	)		(318,875	)
Proceeds from sale of foreclosed real estate		171,597			323,493
Other investing activities		38,927			(11,783	)
Net cash used in investing activities		(10,897,117	)		(26,104,336	)
Financing Activities
Net change in demand deposits, money market, NOW and savings accounts		8,850,764			23,255,913
Net change in certificates of deposit		(1,246,288	)		6,845,943
Proceeds from stock conversion		11,687,439			—
Repayment of FHLB advances		(10,000,000	)		(15,200,000	)
Proceeds from FHLB advances		15,000,000			10,000,000
Net cash provided by financing activities		24,291,915			24,901,856
Net Change in Cash and Cash Equivalents		14,440,849			1,753,564
Cash and Cash Equivalents, Beginning of Year		8,293,606			6,540,042
Cash and Cash Equivalents, End of Year	$	22,734,455		$	8,293,606
Additional Cash Flows Information
Interest paid	$	3,263,264		$	4,059,562
Income tax paid		423,000			133,599
Real estate acquired in settlement of loans		939,480			767,825
Sale and financing of foreclosed real estate		653,238			296,503

See Notes to Consolidated Financial Statements

10

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

Note 1: Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

West End Bank, MHC (Company) is a federally chartered mutual holding company whose principal activity is the ownership and management of its wholly owned subsidiary.  West End Bancshares, Inc., a federally chartered stock holding company, is a wholly owned subsidiary of West End Bank, MHC.  West End Bank, S.B (Bank) is a state stock savings bank that is a wholly owned subsidiary of West End Bancshares, Inc.  The Bank is primarily engaged in providing a full range of banking and financial services to individual and corporate customers in the areas surrounding Richmond, Indiana.  The Bank is subject to competition from other financial institutions.  The Bank is subject to the regulation of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.

Principles of Consolidation

The consolidated financial statements include the accounts of West End Bank, MHC and its wholly owned subsidiary, West End Bancshares, Inc. and West End Bank, S.B., the wholly owned subsidiary of West End Bancshares, Inc., and West Corp, Inc., the wholly owned subsidiary of West End Bank, S.B.  All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses and fair values of financial instruments.

Cash Equivalents

The Company considers all liquid investments with original maturities of six months or less to be cash equivalents.  At December 31, 2011 and 2010, cash equivalents consisted primarily of interest bearing demand deposits.

The Bank is required to maintain reserve funds in cash and/or deposit with the Federal Reserve Bank.  The reserve required at December 31, 2011 was $604,000.

Pursuant to legislation enacted in 2010, the FDIC will fully insure all noninterest-bearing transaction accounts beginning December 31, 2010 through December 31, 2012, at all FDIC-insured institutions.

11

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

Effective July 21, 2010, the FDIC’s insurance limits were permanently increased to $250,000.  At December 31, 2011, the Company’s interest-bearing cash accounts exceeded federally insured limits by approximately $18,700,000.  This amount included $17,251,000 held at the Federal Home Loan Bank and $1,449,000 held at the Federal Reserve Bank, which are not federally insured.

Investment Securities

All of the Bank’s investment securities are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income.  Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities, with the exception of mortgage-backed securities, which are amortized over an estimated average life.  Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

For debt securities with fair value below carrying value when the Company does not intend to sell a debt security, and it is more likely than not the Company will not have to sell the security before recovery of its cost basis, it recognizes the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income.  For held-to-maturity debt securities, the amount of an other-than-temporary impairment recorded in other comprehensive income for the noncredit portion of a previous other-than-temporary impairment is amortized prospectively over the remaining life of the security on the basis of the timing of future estimated cash flows of the security.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoffs are reported at their outstanding principal balances adjusted for unearned income, charge-offs, the allowance for loan losses, any unamortized deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.

For loans amortized at cost, interest income is accrued based on the unpaid principal balance.  Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized as a level yield adjustment over the respective term of the loan.

For all loan classes, the accrual of interest is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection.  Past due status is based on contractual terms of the loan.  For all loan classes, the entire balance of the loan is considered past due if the minimum payment contractually required to be paid is not received by the contractual due date.  For all loan classes, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

Consistent with regulatory guidance, charge-offs on all loan segments are taken when specific loans, or portions thereof, are considered uncollectible.  The Company’s policy is to promptly charge these loans off in the period the uncollectible loss is reasonably determined.

12

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

For all loan portfolio segments except residential and consumer loans, the Company promptly charges-off loans, or portions thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partial charge-off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.

The Company charges-off residential and consumer loans, or portions thereof, when the Company reasonably determines the amount of the loss.  The Company adheres to timeframes established by applicable regulatory guidance which provides for the charge-down of 1-4 family first and junior lien mortgages to the net realizable value less costs to sell when the loan is 180 days past due, charge-off of unsecured open-end loans when the loan is 180 days past due, and charge down to the net realizable value when other secured loans are 120 days past due.  Loans at these respective delinquency thresholds for which the Company can clearly document that the loan is both well-secured and in the process of collection, such that collection will occur regardless of delinquency status, need not be charged off.

For all for classes, all interest accrued but not collected for loans that are placed on nonaccrual or charged off are reversed against interest income.  The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual.  Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.  Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal.  The Company requires a period of satisfactory performance of not less than six months before returning a nonaccrual loan to accrual status.

When cash payments are received on impaired loans in each loan class, the Company records the payment as interest income unless collection of the remaining recorded principal amount is doubtful, at which time payments are used to reduce the principal balance of the loan.  Troubled debt restructured loans recognize interest income on an accrual basis at the renegotiated rate if the loan is in compliance with the modified terms.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income.  Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

13

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

The allowance consists of allocated and general components.  The allocated component relates to loans that are classified as impaired.  For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.  The general component covers non-impaired loans and is based on historical charge-off experience by segment.  The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the prior three years.  Management believes the three year historical loss experience methodology is appropriate in the current economic environment. Other adjustments (qualitative/environmental considerations) for each segment may be added to the allowance for each loan segment after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when duebased on the loan’s current payment status and the borrower’s financial condition including available sources of cash flows.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed.  Impairment is measured on a loan-by-loan basis for non-homogenous type loans such as commercial, non-owner residential and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.  For impaired loans where the Company utilizes the discounted cash flows to determine the level of impairment, the Company includes the entire change in the present value of cash flows as bad debt expense.

Segments of loans with similar risk characteristics are collectively evaluated for impairment based on the segment’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans.  Accordingly, the Company does not separately identify individual consumer and residential loans for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.

Premises and Equipment

Premises and equipment are carried at cost, net of accumulated depreciation.  Depreciation is computed using the straight-line method for premises and the declining balance method for equipment based principally on the estimated useful lives of the assets.  Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized.  Gains and losses on dispositions are included in current operations.

14

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

Federal Home Loan Bank Stock

Federal Home Loan Bank stock is a required investment for institutions that are members of the Federal Home Loan Bank system.  The required investment in the common stock is based on a predetermined formula.

Foreclosed Assets Held for Sale

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis.  Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell.  Revenue and expenses from operations and changes in the valuation allowance are included in net income or expense from foreclosed assets.

Mortgage-Servicing Rights

Mortgage-servicing assets are recognized separately when rights are acquired through purchase or through sale of financial assets.  Under the servicing assets and liabilities accounting guidance (ASC 860-50), servicing rights resulting from the sale or securitization of loans originated by the Company are initially measured at fair value at the date of transfer.  The Company has elected to initially and subsequently measure the mortgage-servicing rights for consumer mortgage loans using the fair value method.  Under the fair value method, the servicing rights are carried in the balance sheet at fair value and the changes in fair value are reported in earnings in the period in which the changes occur.

Fair value is based on market prices for comparable mortgage-servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income.  The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses.  These variables change from quarter to quarter as market conditions and projected interest rates change, and may have an adverse impact on the value of the mortgage-servicing right and may result in a reduction to noninterest income.

Servicing fee income is recorded for fees earned for servicing loans.  The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned.  The amortization of mortgage-servicing rights is netted against loan servicing fee income.

15

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

Income Tax

The Company accounts for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes).  The income tax accounting guidance results in two components of income tax expense:  current and deferred.  Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues.  The Company determines deferred income taxes using the liability (or balance sheet) method.  Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.  Deferred income tax expense results from changes in deferred tax assets and liabilities between periods.  Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

Uncertain tax positions are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination.  The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any.  A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information.  The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to management’s judgment.

The Company recognizes interest and penalties on income taxes as a component of income tax expense.

The Company files consolidated income tax returns with its subsidiaries.

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income, net of applicable income taxes.  Other comprehensive income and accumulated other comprehensive income consist entirely of unrealized appreciation (depreciation) on available-for-sale securities.

Current Economic Conditions

The current protracted economic decline continues to present financial institutions with difficult circumstances and challenges, which in some cases have resulted in large and unanticipated declines in the fair values of investments and other assets, constraints on liquidity and capital and significant credit quality problems, including severe volatility in the valuation of real estate and other collateral supporting loans.

16

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

At December 31, 2011, the Company held $30,295,000 in loans secured by commercial real estate, including loans secured by multi-family properties.  Due to national, state and local economic conditions, values for commercial and development real estate have declined significantly, and the market for these properties is depressed.

December 31, 2011, the Company held $44,324,000 in indirect consumer loans.

The accompanying consolidated financial statements have been prepared using values and information currently available to the Company.

Given the volatility of current economic conditions, the values of assets and liabilities recorded in the consolidated financial statements could change rapidly, resulting in material future adjustments in asset values, the allowance for loan losses and capital that could negatively impact the Company’s ability to meet regulatory capital requirements and maintain sufficient liquidity.

Reclassifications

Certain reclassifications have been made to the 2010 financial statements to conform to the 2011 financial statement presentation.  These reclassifications had no effect on net income.

Note 2: Securities

The amortized cost and approximate fair values of securities are as follows:

	2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Approximate Fair Value
Available for sale
Municipal bonds	$	2,705	$	38	$	(1	)	$	2,742
Mortgage-backed securities - GSE residential		44,909		419		(192	)		45,136
Total available for sale	$	47,614	$	457	$	(193	)	$	47,878

	December 31, 2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Approximate Fair Value
Available for sale
Federal agencies	$	7,510	$	29	$	—		$	7,539
Mortgage-backed securities - GSE residential		33,484		314		(121	)		33,677
Total available for sale	$	40,994	$	343	$	(121	)	$	41,216

17

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

The amortized cost and fair value of securities available for sale at December 31, 2011, by contractual maturity, are shown below.  Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized Cost		Fair Value
Municipal bonds - five to ten  years	$	762	$	775
Municipal bonds - over  ten years		1,943		1,967
		2,705		2,742
Mortgage-backed securities - GSE residential		44,909		45,136
Totals	$	47,614	$	47,878

Securities were pledged at December 31, 2011 totaled $741,000.  There were no securities pledged as of December 31, 2010.

Activities related to the sales of securities available for sale for the years ended December 31, 2011 and 2010 are summarized as follows:

	2011		2010
Proceeds from sales of available-for sale securities	$	5,502	$	9,198
Gross gains on sales		95		130
Gross losses on sales		—		8

Certain investments in debt securities are reported in the consolidated financial statements at an amount less than their historical cost.  Total fair value of these investments at December 31, 2011 and 2010 was $16,377,000 and $12,484,000 which is approximately 34% and 30% of the Company’s available-for-sale investment portfolio.  These declines primarily resulted from changes in market interest rates.

Based on evaluation of available evidence, including recent changes in market interest rates, credit rating information and information obtained from regulatory filings, management believes the declines in fair value for these securities are temporary.

18

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.

Securities with unrealized losses at December 31, 2011 were as follows:

	Less Than 12 Months					12 Months or Longer				Total
	Fair Value		Unrealized Losses			Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Available-for-sale securities
Municipal bonds	$	850	$	(1	)	$	—	$	—	$	850	$	(1	)
Mortgage-backed securities - GSE residential		15,527		(192	)		—		—		15,527		(192	)
Total securities	$	16,377	$	(193	)	$	—	$	—	$	16,377	$	(193	)

Securities with unrealized losses at December 31, 2010 were as follows:

	Less Than 12 Months					12 Months or Longer				Total
	Fair Value		Unrealized Losses			Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Available-for-sale securities
Mortgage-backed securities - GSE residential	$	12,484	$	(121	)	$	—	$	—	$	12,484	$	(121	)

Note 3: Loans and Allowance

Categories of loans include:

	December 31
	2011		2010
Commercial	$	9,017	$	7,302
Real estate loans
Residential		56,868		58,949
Commercial and multi-family		30,295		27,208
Construction		2,786		1,984
Second mortgages and equity lines of credit		4,562		4,999
Consumer loans
Indirect		44,324		46,268
Other		8,218		6,914
		156,070		153,624
Less
Net deferred loan fees, premiums and discounts		108		115
Allowance for loan losses		1,904		1,699
Total loans	$	154,058	$	151,810

19

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

The risk characteristics of each loan portfolio segment are as follows:

Commercial

Commercial loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower.  The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value.  Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis.  In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial and Multi-Family Real Estate

These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.  Commercial and multi-family real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan.

Commercial and multi-family real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy.  The properties securing the Company’s commercial and multi-family real estate portfolio are diverse in terms of type and geographic location.  Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria.  In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans.

Construction

Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews and financial analysis of the developers and property owners.  Construction loans are generally based on estimates of costs and value associated with the complete project.  These estimates may be inaccurate.  Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project.  Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained.  These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

20

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

Residential, Second Mortgages and Equity Lines of Credit and Consumer

With respect to residential loans that are secured by 1-4 family residences, the Company generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded.  Second mortgages and equity lines of credit loans are typically secured by a subordinate interest in 1-4 family residences, and consumer loans are secured by consumer assets such as automobiles or recreational vehicles.  Some consumer loans are unsecured such as small installment loans.  Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels.  Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

	Years Ended December 31
	2011			2010
Allowance for loan losses
Balances, January 1	$	1,699		$	1,113
Provision for losses		1,625			1,294
Recoveries on loans		76			19
Loans charged off		(1,496	)		(727	)
Balances, December 31	$	1,904		$	1,699

The following presents by portfolio class, the activity in the allowance for loan losses for the year ended December 31, 2011:

				Real Estate
	Commercial			Residential			Commercial and Multi-Family			Construction			Seconds and Equity Line			Consumer			Total
Allowance for loan losses:
Balance, beginning of year	$	107		$	700		$	336		$	7		$	18		$	531		$	1,699
Provision for losses		57			560			521			(3	)		100			390			1,625
Recoveries on loans		—			12			—			—			—			64			76
Loans charged off		(19	)		(630	)		(264	)		—			(89	)		(494	)		(1,496	)
Balance, end of year	$	145		$	642		$	593		$	4		$	29		$	491		$	1,904

21

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on portfolio class and impairment method as of December 31, 2011 and 2010:

	December 31, 2011
			Real Estate
	Commercial		Residential		Commercial and Multi-Family		Construction		Seconds and Equity Line		Consumer		Total
Allowance:
Balance, end of year	$	145	$	642	$	593	$	4	$	29	$	491	$	1,904
Individually evaluated for impairment		40		92		435		—		—		—		567
Collectivity evaluated for impairment		105		550		158		4		29		491		1,337
Loans:
Ending balance		9,017		56,868		30,295		2,786		4,562		52,542		156,070
Individually evaluated for impairment		49		243		2,869		—		—		—		3,161
Collectivity evaluated for impairment		8,968		56,625		27,426		2,786		4,562		52,542		152,909

	December 31, 2010
			Real Estate
	Commercial		Residential		Commercial and Multi-Family		Construction		Seconds and Equity Line		Consumer		Total
Allowance:
Balance, end of year	$	107	$	700	$	336	$	7	$	18	$	531	$	1,699
Individually evaluated for impairment		—		170		209		—		—		—		379
Collectivity evaluated for impairment		107		530		127		7		18		531		1,320
Loans:
Ending balance		7,302		58,949		27,208		1,984		4,999		53,182		153,624
Individually evaluated for impairment		—		908		3,397		—		—		—		4,305
Collectivity evaluated for impairment		7,302		58,041		23,811		1,984		4,999		53,182		149,319

22

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

The following tables present the credit risk profile of the Bank’s loan portfolio based on rating category and payment activity as of December 31, 2011 and 2010:

	December 31, 2011
			Real Estate
	Commercial		Residential		Commercial and Multi-Family		Construction		Seconds and Equity Line		Consumer		Total
Pass	$	8,418	$	56,209	$	23,695	$	2,786	$	4,466	$	52,542	$	148,116
Watch		—		351		1,818		—		—		—		2,169
Special Mention		—		—		1,834		—		96		—		1,930
Substandard		550		308		2,948		—		—		—		3,806
Doubtful		49		—		—		—		—		—		49
Loss		—		—		—		—		—		—		—
Total	$	9,017	$	56,868	$	30,295	$	2,786	$	4,562	$	52,542	$	156,070

	December 31, 2010
			Real Estate
	Commercial		Residential		Commercial and Multi-Family		Construction		Seconds and Equity Line		Consumer		Total
Pass	$	6,570	$	57,330	$	20,696	$	1,984	$	4,902	$	53,031	$	144,513
Watch		34		—		—		—		—		—		34
Special Mention		574		198		5,004		—		85		—		5,861
Substandard		124		1,421		1,508		—		—		151		3,204
Doubtful		—		—		—		—		—		—		—
Loss		—		—		—		—		12		—		12
Total	$	7,302	$	58,949	$	27,208	$	1,984	$	4,999	$	53,182	$	153,624

The Company generally categorizes all classes of loans into risk categories based on relevant information about the ability of borrowers to service their debt such as:  current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.  Generally, smaller dollar consumer loans are excluded from this grading process and are reflected in the Pass category.  The delinquency trends of these consumer loans are monitored on homogeneous basis and the related delinquent amounts are reflected in the aging analysis table below.  The Company uses the following definitions for risk ratings:

The Pass asset quality rating encompasses assets that have generally performed as expected.  With the exception of some smaller consumer and residential loans, these assets generally do not have delinquency.  Loans assigned this rating include loans to borrowers possessing solid credit quality with acceptable risk.  Borrowers in these grades are differentiated from higher grades on the basis of size (capital and/or revenue), leverage, asset quality, stability of the industry or specific market area and quality/coverage of collateral.  These borrowers generally have a history of consistent earnings and reasonable leverage.   

23

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

The Watch asset quality rating encompasses assets that have been brought to the attention of management and may, if not corrected, warrant a more serious quality rating by management. These assets are usually in the first phase of a deficiency situation and may possess similar criteria as Special Mention assets.  This grade includes “pass grade” loans to borrowers which require special monitoring because of deteriorating financial results, declining credit ratings, decreasing cash flow, increasing leverage, marginal collateral coverage or industry stress that has resulted or may result in a changing overall risk profile.

The Special Mention asset quality rating encompasses assets that have potential weaknesses that deserve management’s close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date.  Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.  This grade is intended to include loans to borrowers whose credit quality has clearly deteriorated and where risk of further decline is possible unless active measures are taken to correct the situation.  Weaknesses are considered potential at this state and are not yet fully defined.

The Substandard asset quality rating encompasses assets that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any; assets having a well-defined weakness(es) based upon objective evidence; assets characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected; or the possibility that liquidation will not be timely.  Loans categorized in this grade possess a well-defined credit weakness and the likelihood of repayment from the primary source is uncertain.  Significant financial deterioration has occurred and very close attention is warranted to ensure the full repayment without loss.  Collateral coverage may be marginal and the accrual of interest has been suspended.

The Doubtful asset quality rating encompasses assets that have all of the weaknesses of those classified as Substandard.  In addition, these weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

The Loss asset quality rating encompasses assets that are considered uncollectible and of such little value that their continuance as assets of the bank is not warranted.  A loss classification does not mean that an asset has no recovery or salvage value; instead, it means that it is not practical or desirable to defer writing off or reserving all or a portion of a basically worthless asset, even though partial recovery may be realized in the future.

24

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

The following table presents the Bank’s loan portfolio aging analysis as of December 31, 2011 and December 31, 2010:

	December 31, 2011
			Real Estate
	Commercial		Residential		Commercial and Multi-Family		Construction		Seconds and Equity Line		Consumer		Total
30-59 days past due	$	—	$	40	$	—	$	16	$	6	$	840	$	902
60-89 days past due		—		353		—		—		—		407		760
Greater than 90 days and accruing		3		107		—		—		8		347		465
Nonaccrual		49		582		594		—		14		—		1,239
Total past due and nonaccrual		52		1,082		594		16		28		1,594		3,366
Current		8,965		55,786		29,701		2,770		4,534		50,948		152,704
Total	$	9,017	$	56,868	$	30,295	$	2,786	$	4,562	$	52,542	$	156,070

	December 31, 2010
			Real Estate
	Commercial		Residential		Commercial and Multi-Family		Construction		Seconds and Equity Line		Consumer		Total
30-59 days past due	$	9	$	617	$	—	$	—	$	9	$	524	$	1,159
60-89 days past due		—		—		62		—		—		242		304
Greater than 90 days and accruing		35		376		12		—		77		295		795
Nonaccrual		—		1,224		528		—		11		30		1,793
Total past due and nonaccrual		44		2,217		602		—		97		1,091		4,051
Current		7,258		56,732		26,606		1,984		4,902		52,091		149,573
Total	$	7,302	$	58,949	$	27,208	$	1,984	$	4,999	$	53,182	$	153,624

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan.  Impaired loans include nonperforming commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties.  These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.

25

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

The following table presents impaired loans and specific valuation allowance based on class level at December 31, 2011 and December 31, 2010:

	December 31, 2011
			Real Estate
	Commercial		Residential		Commercial and Multi-Family		Construction		Seconds and Equity Line		Consumer		Total
Impaired loans without a specific allowance:
Recorded investment	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Unpaid principal balance		—		—		—		—		—		—		—
Impaired loans with a specific allowance:
Recorded investment		49		243		2,869		—		—		—		3,161
Unpaid principal balance		49		243		2,869		—		—		—		3,161
Specific allowance		40		92		435		—		—		—		567
Total impaired loans:
Recorded investment		49		243		2,869		—		—		—		3,161
Unpaid principal balance		49		243		2,869		—		—		—		3,161
Specific allowance		40		92		435		—		—		—		567

	December 31, 2010
			Real Estate
	Commercial		Residential		Commercial and Multi-Family		Construction		Seconds and Equity Line		Consumer		Total
Impaired loans without a specific allowance:
Recorded investment	$	—	$	38	$	594	$	—	$	—	$	—	$	632
Unpaid principal balance		—		38		594		—		—		—		632
Impaired loans with a specific allowance:
Recorded investment		—		870		2,803		—		—		—		3,673
Unpaid principal balance		—		870		2,803		—		—		—		3,673
Specific allowance		—		170		209		—		—		—		379
Total impaired loans:
Recorded investment		—		908		3,397		—		—		—		4,305
Unpaid principal balance		—		908		3,397		—		—		—		4,305
Specific allowance		—		170		209		—		—		—		379

26

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

The following presents by portfolio segment, information related to the average recorded investment and interest income recognized on impaired loans for year ended December 31, 2011:

			Real Estate
	Commercial		Residential		Commercial and Multi-Family		Construction		Seconds and Equity Line		Consumer		Total
Total impaired loan:
Average recorded investment	$	10	$	577	$	3,093	$	—	$	—	$	—	$	3,680
Interest income recognized		—		—		127		—		—		—		—
Interest income recognized on a cash basis		—		—		—		—		—		—		—

Interest income of $2,000 was recognized on average impaired loans of $1,156,000 for the year ended December 31, 2010.  No interest income was recognized on a cash basis.

Troubled Debt Restructurings

In the course of working with borrowers, the Company may choose to restructure the contractual terms of certain loans.  In restructuring the loan, the Company attempts to work out an alternative payment schedule with the borrower in order to optimize collectability of the loan.  Any loans that are modified, whether through a new agreement replacing the old or via changes to an existing loan agreement, are reviewed by the Company to identify if a troubled debt restructuring (“TDR”) has occurred.  A troubled debt restructuring occurs when, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider.  Terms may be modified to fit the ability of the borrower to repay in line with its current financial status, and the restructuring of the loan may include the transfer of assets from the borrower to satisfy the debt, a modification of loan terms, or a combination of the two.  If such efforts by the Company do not result in a satisfactory arrangement, the loan is referred to legal counsel, at which time foreclosure proceedings are initiated.  At any time prior to a sale of the property at foreclosure, the Company may terminate foreclosure proceedings if the borrower is able to work out a satisfactory payment plan.

As a result of adopting the amendments in Accounting Standards Update No. 2011-02, the Company reassessed all restructurings that occurred on or after the beginning of its current fiscal year (January 1, 2011) for identification as troubled debt restructurings.  As a result of this reassessment, the Company did not identify as troubled debt restructurings any additional receivables for which the allowance for credit losses had previously been measured under a general allowance for credit losses methodology.

Nonaccrual loans, including TDRs that have not met the six month minimum performance criterion, are reported in this report as non-performing loans.  For all loan classes, it is the Company’s policy to have any restructured loans which are on nonaccrual status prior to being restructured remain on nonaccrual status until six months of satisfactory borrower performance, at which time management would consider its return to accrual status.  A loan is generally classified as nonaccrual when the Company believes that receipt of principal and interest is questionable under the terms of the loan agreement.  Most generally, this is at 90 or more days past due.

27

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

The balance of nonaccrual restructured loans, which is included in total nonaccrual loans, was $594,000 at December 31, 2011.  If the restructured loan is on accrual status prior to being restructured, it is reviewed to determine if the restructured loan should remain on accrual status.  Loans that are considered TDR are classified as performing, unless they are on nonaccrual status or greater than 90 days past due, as of the end of the most recent quarter.  At December 31, 2011, there were no accruing TDRs.  All TDRs are considered impaired by the Company.   On at least a quarterly basis, the Company reviews all TDR loans to determine if the loan meets this criterion.

With regard to determination of the amount of the allowance for credit losses, all accruing restructured loans are considered to be impaired.  As a result, the determination of the amount of impaired loans for each portfolio segment within troubled debt restructurings is the same as detailed previously above.

During 2011, there were no new restructurings classified as TDRs.

Note 4: Premises and Equipment

Major classifications of premises and equipment, stated at cost, are as follows:

	December 31
	2011			2010
Land	$	1,038		$	1,011
Buildings and improvements		3,578			3,523
Furniture and equipment		1,685			1,646
Software		367			367
Total cost		6,668			6,547
Accumulated depreciation and amortization		(3,024	)		(2,856	)
Net	$	3,644		$	3,691

Note 5: Loan Servicing

Loans serviced for others are not included in the accompanying consolidated balance sheets.  The risks inherent in mortgage-servicing assets relate primarily to changes in prepayments that result from shifts in mortgage interest rates.  The unpaid principal balances of mortgage and other loans serviced for others were $58,982,000 and $57,738,000 at December 31, 2011 and 2010, respectively.

28

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

The following summarizes the activity in mortgage servicing assets measured using the fair value method for the periods ended December 31, 2011 and 2010:

	2011			2010
Fair value at the beginning of the period	$	497		$	474
Servicing rights recorded on sale of loans		85			95
Change in fair value due to payments		(80	)		(91	)
Other changes in valuation inputs or assumptions		(62	)		19
Fair value at the end of the period	$	440		$	497

The fair value is estimated using a valuation model that calculates the present value of the future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates, servicing costs and other economic factors, which are determined based on current market conditions.  The valuation model uses a discounted cash flow methodology.

The following summarizes the key economic assumptions used in determining the fair value of the mortgage-servicing rights at December 31, 2011 and 2010:

	December 31
	2011			2010
Weighted-average constant prepayment rate		19.2	%		17.0	%
Weighted-average discount rate		5.9	%		6.5	%
Weighted expected loan servicing (years)		3.01			3.4

Note 6: Deposits

	December 31
	2011		2010
Noninterest-bearing	$	8,847	$	7,282
Checking		25,496		23,570
Money market		34,595		31,376
Savings		14,559		12,419
Certificates and other time deposits of $100,000 or more		32,218		34,381
Other certificates and time deposits		67,260		66,343
Total deposits	$	182,975	$	175,371

29

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

December 31, 2011, the scheduled maturities of time deposits are as follows:

	2011
2012	$	50,748
2013		26,240
2014		18,686
2015		1,662
2016		2,142
	$	99,478

Note 7: Federal Home Loan Bank Advances

Federal Home Loan Bank advances totaled $27,000,000 and $22,000,000 at December 31, 2011 and 2010, respectively.  The Federal Home Loan Bank advances are secured by mortgage loans totaling $52,948,000 at December 31, 2011.  Advances, at interest rates from .49% to 4.40% are subject to restrictions or penalties in the event of prepayment.

Maturities of Federal Home Loan Bank advances were as follows at December 31, 2011:

	2011
2012	$	3,000
2013		10,000
2014		5,000
2015		1,000
2016		8,000
	$	27,000

30

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

Note 8: Income Taxes

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and in Indiana.  With a few exceptions, the Company is no longer subject to U.S. federal or state examinations by tax authorities for years before 2008.

	2011			2010
Income tax expense
Currently payable
Federal	$	168		$	189
State		57			65
Deferred
Federal		111			(6	)
State		13			(19	)
Total income tax expense	$	349		$	229
Reconciliation of federal statutory to actual tax expense
Federal statutory income tax at 34%		354		$	247
Effect of state income taxes		46			31
Cash surrender value of life insurance		(52	)		(53	)
Other		1			4
Actual tax expense	$	349		$	229

A cumulative net deferred tax asset is included in other assets.  The components of the asset are as follows:

	2011			2010
Assets
Allowance for loan losses	$	486		$	495
Tax credits		69			146
Charitable contributions		85			75
Other		11			—
Total assets		651			716
Liabilities
State income tax		(25	)		(29	)
Depreciation		(67	)		(86	)
FHLB stock		(27	)		(29	)
Securities available for sale		(105	)		(88	)
Prepaid pension		(109	)		—
Mortgage-servicing rights		(177	)		(206	)
Other		(4	)		—
Total liabilities		(514	)		(438	)
	$	137		$	278

31

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

As of December 31, 2011, the Bank had approximately $6,000 of alternative minimum tax credits and approximately $63,000 of low-income housing credits available to offset future federal income taxes.  The alternative minimum tax credits have no expiration date and the low-income housing credits begin to expire in 2019.

Retained earnings at December 31, 2011 and 2010 include approximately $3,136,000 for which no deferred income tax liability has been recognized.  This amount represents an allocation of income to bad debt deductions as of December 31, 1987 for tax purposes only.  Reduction of amounts so allocated for purposes other than tax bad debt losses or adjustments arising from carryback of net operating losses would create income for tax purposes only, which income would be subject to the then-current corporate income tax rate.  The unrecorded deferred income tax liability on the above amount was approximately $1,066,000.

The tax expense applicable to realized securities gains for years ended December 31, 2011 and 2010 was $38,000 and $48,000, respectively.

Note 9: Other Comprehensive Income (Loss)

	2011
			Tax
	Before-Tax		(Expense)			Net-of-Tax
	Amount		Benefit			Amount
Unrealized gains on securities:
Unrealized holding gains arising during the year	$	138	$	(55	)	$	83
Less:  reclassification adjustment for gain realized in net income		95		(38	)		57
	$	43	$	(17	)	$	26

	2010
				Tax
	Before-Tax			(Expense)			Net-of-Tax
	Amount			Benefit			Amount
Unrealized gains on securities:
Unrealized holding gains arising during the year	$	47		$	(18	)	$	29
Less:  reclassification adjustment for gain realized in net income		122			(48	)		74
	$	(75	)	$	30		$	(45	)

32

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

Note 10: Commitments and Contingent Liabilities

In the normal course of business, there are outstanding commitments and contingent liabilities, such as commitments to extend credit and standby letters of credit, which are not included in the accompanying consolidated financial statements.  The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments.  The Company uses the same credit policies in making such commitments as it does for instruments that are included in the consolidated balance sheet.

Financial instruments whose contract amount represents credit risk as of December 31, 2011 and 2010 were as follows:

	December 31
	2011		2010
Commitments to extend credit	$	10,983	$	12,189
Standby letters of credit		1,795		1,179

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  The Company evaluates each customer's credit worthiness on a case-by-case basis.  The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation.  Collateral held varies but may include accounts receivable, inventory, property and equipment and income-producing commercial properties.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.

Note 11: Regulatory Capital

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices.  The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

33

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier I capital to average assets (as defined).  Management believes, as of December 31, 2011 and 2010, that the Bank meets all capital adequacy requirements to which it is subject.

As of December 31, 2011, the most recent notification from the Department of Financial Institutions, State of Indiana, categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.  To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the table.  There are no conditions or events since that notification that management believes have changed the Bank’s category.

The Bank’s actual and required capital amounts and ratios are as follows:

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2011
Total capital (to risk-weighted assets)	$	19,616		12.7	%	$	12,313		8.0	%	$	15,391		10.0	%
Tier I capital (to risk-weighted assets)		17,712		11.5	%		6,156		4.0	%		9,235		6.0	%
Tier I capital (to average assets)		17,712		7.7	%		9,144		4.0	%		11,431		5.0	%
As of December 31, 2010
Total capital (to risk-weighted assets)	$	18,672		13.0	%	$	11,466		8.0	%	$	14,332		10.0	%
Tier I capital (to risk-weighted assets)		16,973		11.8	%		5,733		4.0	%		8,599		6.0	%
Tier I capital (to average assets)		16,973		7.9	%		8,631		4.0	%		10,789		5.0	%

The Bank is subject to certain restrictions on the amount of dividends that it may declare without prior regulatory approval.  Generally, the Bank’s payment of dividends is limited to net income for the current year plus the two preceding calendar years, less capital distributions paid over the comparable time period.

Note 12: Employee Benefits

The Company has a retirement savings 401(k) plan covering substantially all employees.  Employees may contribute up to 50% of their compensation in 1% increments with the Company matching 50% of the employee’s contribution on the first 3% of the employee’s compensation.  Employer contributions charged to expense was $ 24,000 and $20,000 for the years ended December 31, 2011 and 2010.

34

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

The Company provides pension benefits for substantially all of its employees through its participation in a pension fund known as the Pentegra Group.  The trustees of the Financial Institutions Retirement Fund administer the Pentegra Plan, employer identification number 13-5645888 and plan number 333.  This plan operates as a multi-employer plan for accounting purposes and as a multiple-employer plan under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code.  There are no collective bargaining agreements in place that require contributions to the Pentegra Plan.

The Pentegra Plan is a single plan under Internal Revenue Code 413(c) and, as a result, all of the assets stand behind all of the liabilities. Accordingly, under the Pentegra Plan, contributions made by a participating employer may be used to provide benefits to participants of other participating employers.  If the Company chooses to stop participating in the multi-employer plan, they may be required to pay an amount based on the underfunded status of the plan referred to as a withdrawal liability.  There is no separate actuarial valuation made with respect to each participating employer.

Pension expense related to this plan was $506,000 and $381,000 for the years ended December 31, 2011 and 2010.  Funding status of the plan as of the beginning of the plan years for 2011 and 2010 (July 1st) was 83.20% and 85.42% respectively.  Due to the timing of the contribution payments made, the Company’s contributions for the fiscal years ending December 31, 2011 and 2010 were $1,007,000 and $0, respectively.  Total contributions to the Pentegra Plan were $203,582,000 and $133,930,000 for the plan years ended June 30, 2010 and 2009, respectively.  The Company’s contributions to the Pentegra Plan were not more than 5% of the total contributions to the plan.

The Company executed a nonqualified benefit plan covering certain directors on January 1, 2000.  The plan features deferred compensation benefits for 120 months following retirement for each director.

During 2004, the Board of Directors approved a proposal to include secular trusts as part of the nonqualified benefit plan.  The same costs that would be recognized under a noncontributory plan are now contributed to secular trusts in the name of each director.  In addition, the tax impact of the contributions to the individual participants is also being recognized as a cost of the retirement plan.  Consequently, the plan was funded at the date of conversion.  Retirement plan costs recognized for the years ended December 31, 2011 and 2010 were $296,000 and $109,000, respectively.

The retirement plan also includes change in control provisions for certain individuals.  Under these provisions, the Company may be required to accelerate contributions to the secular grantor trust at the time the change of control occurs.

The Company has also entered into employment or change in control agreements with certain officers that provide for the severance payments and the continuation of certain benefits for a specified period of time under certain conditions.  Under the terms of the agreements, these payments could occur in the event of a change in control of the Company, as defined, along with other specific conditions.  The severance payments under these agreements are generally three times the annual salary of the officer in the event of a change in control.

35

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

Note 13: Related Party Transactions

The Bank has entered into transactions with certain directors, executive officers, significant stockholders and their affiliates or associates (related parties).  Such transactions were made in the ordinary course of business on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other customers, and did not, in the opinion of management, involve more than normal credit risk or present other unfavorable features.  The aggregate amount of loans to such related parties at December 31, 2011 and 2010 was $1,803,000 and $1,610,000, respectively.

Annual activity consisted of the following:

	2011			2010
Balance, beginning of year	$	1,610		$	1,641
New loans		383			58
Repayments		(190	)		(89	)
Balance, end of year	$	1,803		$	1,610

Deposits from related parties held by the Bank at December 31, 2011 and 2010 totaled $2,311,000 and $2,595,000, respectively.

Note 14: Disclosures About Fair Value of Assets and Liabilities

ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Topic 820 also specifies a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  The standard describes three levels of inputs that may be used to measure fair value:

The standard describes three levels of inputs that may be used to measure fair value:

Level 1 Quoted prices in active markets for identical assets or liabilities

Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

36

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

The following is a description of the valuation methodologies and inputs used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Available-for-Sale Securities

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy.  If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.  The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the security’s terms and conditions.  Additionally, matrix pricing is used for certain investment securities and is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively on quoted prices for specific investment securities but rather relying on the investment securities’ relationship to other benchmark quoted investment securities.  Level 2 securities include federal agencies, municipal bonds and mortgage-backed securities.  At December 31, 2011 and 2010, all mortgage-backed securities are residential government sponsored enterprises.  In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.

Mortgage-Servicing Rights

Mortgage-servicing rights do not trade in an active, open market with readily observable prices.  Accordingly, fair value is estimated using discounted cash flow models having significant inputs of actual and expected mortgage loan prepayment rates, discount rates, servicing costs and other economic factors, which are determined based on current market conditions.  Due to the nature of the valuation inputs, mortgage-servicing rights are classified within Level 3 of the hierarchy.

The following tables present the fair value measurements of assets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2011 and 2010:

			2011
			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-sale securities:
Municipal bonds	$	2,742	$	—	$	2,742	$	—
Mortgage-backed securities - GSE residential		45,136		—		45,136		—
Mortgage-servicing rights		440		—		—		440

37

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

			2010
			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-sale securities:
Federal agencies	$	7,539	$	—	$	7,539	$	—
Mortgage-backed securities - GSE residential		33,677		—		33,677		—
Mortgage-servicing rights		497		—		—		497

The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying consolidated balance sheets using significant unobservable (Level 3) inputs:

	Mortgage-Servicing Rights
	2011			2010
Balances, January 1	$	497		$	474
Total unrealized gains (losses) included in net income		(62	)		19
Additions (rights recorded on sale of loans)		85			95
Settlements (payments)		(80	)		(91	)
Balances, December 31	$	440		$	497

The following is a description of the valuation methodologies used for instruments measured at fair value on a nonrecurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Impaired Loans (Collateral Dependent)

Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms, are measured for impairment.  Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral-dependent loans.

If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized.  This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value.

Impaired loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method.

38

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

The following tables present the fair value measurements of assets and liabilities measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall:

			2011
			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	2,594	$	—	$	—	$	2,594

			2010
			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	3,294	$	—	$	—	$	3,294

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying consolidated balance sheets at amounts other than fair value.

Cash and Cash Equivalents, Federal Home Loan Bank Stock, Stock Conversion Related Proceeds in Escrow, Interest Receivable and Interest Payable

The carrying amount approximates fair value.

Loans

The fair value of loans is estimated by discounting the future cash flows using the market rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.  Loans with similar characteristics were aggregated for purposes of the calculations.  The carrying amount of accrued interest approximates its fair value.

39

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

Deposits

Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits.  The carrying amount approximates fair value.  The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.

Federal Home Loan Bank Advances

Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt.  Fair value of long-term debt is based on quoted market prices or dealer quotes for the identical liability when traded as an asset in an active market.  If a quoted market price is not available, an expected present value technique is used to estimate fair value.

The following table presents estimated fair values of the Company’s financial instruments at December 31, 2011 and 2010.

	2011				2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets
Cash and cash equivalents	$	22,734	$	22,734	$	8,294	$	8,294
Available-for-sale securities		47,878		47,878		41,216		41,216
Loans Held for Sale		533		533		—		—
Loans, net		154,058		157,078		151,810		153,891
Federal Home Loan Bank stock		1,722		1,722		1,858		1,858
Interest receivable		1,030		1,030		886		886
Financial liabilities
Deposits		182,975		183,807		175,371		176,531
Federal Home Loan Bank advances		27,000		27,602		22,000		22,222
Interest payable		117		117		142		142
Stock conversion proceeds in escrow		11,687		11,687		—		—

40

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

Note 15: Condensed Financial Information (Parent Company Only)

Presented below is condensed financial information as to financial position, results of operations and cash flows of the Company:

Condensed Balance Sheets

	2011		2010
Assets
Cash and due from banks	$	4	$	9
Investment in subsidiary		18,117		17,310
Other assets		826		4
Total assets	$	18,947	$	17,323
Other Liabilities	$	909	$	3
Equity		18,038		17,320
Total liabilities and equity	$	18,947	$	17,323

Condensed Statements of Income

	2011			2010
Income
Dividends from subsidiaries	$	—		$	—
Expenses
Other expenses		135			16
Loss Before Income Tax and Equity in Undistributed Income of Subsidiary		(135	)		(16	)
Income Tax Benefit		(46	)		(10	)
Loss Before Equity in Undistributed Income of Subsidiary		(89	)		(6	)
Equity in Undistributed Income of Subsidiary		781			504
Net Income	$	692			498

41

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

Condensed Statements of Cash Flows

	2011			2010
Operating Activities
Net income	$	692		$	498
Adjustments to reconcile net income to net cash used in operating activities		(697	)		(510	)
Net cash used in operating activities		(5	)		(12	)
Net Change in Cash and Due From Banks		(5	)		(12	)
Cash and Due From Banks at Beginning of Year		9			21
Cash and Due From Banks at End of Year	$	4			9

Note 16: Recent Accounting Pronouncements

In April 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-02, “A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring (“TDR”),” which provides additional guidance to assist creditors in determining whether a restructuring of a receivable meets the criteria to be considered a troubled debt restructuring.  The amendments in this ASU were effective for the first interim or annual period beginning on or after June 15, 2011, and are to be applied retrospectively to the beginning of the annual period of adoption.  As a result of applying these amendments, an entity may identify receivables that are newly considered impaired. Management has determined the adoption of this guidance did not have a material effect on the Company’s financial position or results of operations.

In May 2011, the FASB issued ASU No. 2011-4, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRSs”)," which results in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs.  Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements.  The application of fair value measurements are not changed as a result of this amendment.  Some of the amendments provide clarification of existing fair value measurement requirements while other amendments change a particular principal or requirement for measuring fair value or disclosing information about fair value measurements. The amendments in this ASU are effective during interim and annual periods beginning after December 15, 2011.  Early application is not permitted.  Management is currently in the process of determining what effect the provisions of this update will have on the Company’s financial position or results of operations.

42

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

In June 2011, the FASB issued ASU No. 2011-5, “Presentation of Comprehensive Income,” which improves comparability, consistency, and transparency of financial reporting and increases the prominence of items reported in other comprehensive income.  The option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity has been eliminated.  The amendments require that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  In the two-statement approach, the first statement will present total net income and its components followed consecutively by a second statement that will present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income.  The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.  Early adoption is permitted, because compliance with the amendments is already permitted.  The FASB decided on October 21, 2011 that the specific requirement to present items that are reclassified from other comprehensive income to net income alongside their respective components of net income and other comprehensive income will be deferred.  Management is currently in the process of determining what effect the provisions of this update will have on the Company’s financial position or results of operations.

In September 2011, the FASB issued ASU No. 2011-9, “Compensation - Retirement Benefits-Multiemployer Plans:  Disclosures about an Employer’s Participation in a Multiemployer Plan,” which improves employer disclosures for multiple-employer pension plans.  Previously, disclosures were limited primarily to the historical contributions made to the plans.  In developing the new guidance, the FASB’s goal was to help users of financial statements assess the potential future cash flow implications relating to an employer’s participation in multiemployer pension plans.  The disclosures also will indicate the financial health of all of the significant plans in which the employer participates and assist a financial statement user to access additional information that is available outside of the financial statements.  The amendments in this ASU are effective for fiscal years ending after December 15, 2011, with early adoption permitted.  Management has determined the adoption of this guidance did not have a material effect on the Company’s financial position or results of operations.

Note 17: Plan of Conversion and Change in Corporate Form

On January 11, 2012, West End Bank, MHC (the “Company”) converted into a stock holding company structure with the establishment of a new stock holding company, West End Indiana Bancshares, Inc. (the “New Company”), as parent of West End Bank, S.B. (the “Bank”).  In connection with the conversion, a total of 1,363,008 shares of the New Company were issued at $10.00 per share for total gross offering proceeds of $13.6 million to depositors of the Bank, the Bank’s employee stock ownership plan and the public. The New Company is incorporated under the laws of the State of Maryland and owns all of the outstanding common stock of the Company.

The conversion costs, approximately $1.1 million, were deducted from the sales proceeds of the offering.  At December 31, 2011, the Company had incurred $900,000 of these conversion costs and were included in other assets on the accompanying December 31, 2011 balance sheet.  The cost of conversion and issuing the capital stock were deferred and deducted from the proceeds of the offering. 

43

West End Bank, MHC

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

(Table Amounts in Thousands)

In accordance with federal regulations, at the time of the completion of our mutual to stock conversion, the Bank substantially restricted retained earnings by establishing a liquidation account.  The liquidation account will be maintained for the benefit of eligible account holders and supplemental eligible account holders who continue to maintain their accounts at the Bank after conversion.  The liquidation account will be reduced annually to the extent that eligible account holders and supplemental eligible account holders have reduced their qualifying deposits.  Subsequent increases will not restore an eligible account holder’s or and supplemental eligible account holder’s interest in the liquidation account.  In the event of a complete liquidation of the Bank, and only in such event, each account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the adjusted qualifying account balances then held.  The Bank may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount.  The conversion will be accounted for as a change in corporate form with the historic basis of the Bank’s assets, liabilities and equity unchanged as a result.  Stock conversion proceeds in escrow of $11.7 million are the funds received, or held, from potential investors as part of the subscription offering as of December 31, 2011.

In connection with the conversion, the Bank established the West End Bank Charitable Foundation which was funded with $125,000 in cash and 38,000 shares ($380,000) of the New Holding Company’s common stock.

44

Signatures

Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		West End Indiana Bancshares, Inc.
Date: June 1, 2012	By:	/s/ John P. McBride
		John P. McBride
		President and Chief Executive Officer
		(Duly Authorized Representative)

EXHIBIT INDEX

	3.1	Articles of Incorporation of West End Indiana Bancshares, Inc.*
	3.2	Bylaws of West End Indiana Bancshares, Inc.*
	4	Form of Common Stock Certificate of West End Indiana Bancshares, Inc.*
	10.1	West End Bank, S.B. Supplemental Executive Retirement Plan for John McBride*
	10.2	Second Amendment to the West End Bank Supplemental Executive Retirement Plan *
	10.3	Form of Director Retirement Plan *
	10.4	Form of Amendment to the Director Retirement Plan *
	10.5	West End Bank, S.B. Employee Stock Ownership Plan *
	10.6	Form of Employment Agreement with John P. McBride *
	10.7	Form of Employment Agreement with Timothy R. Frame and Shelley D. Miller *
	10.8	Description of Cash Bonus Plan *
	21	Subsidiaries
	31.1	Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*	Incorporated by reference to the Registration Statement on Form S-1 (File No. 333-175509), initially filed July 12, 2011.