##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2010
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF HE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 001-13735
 MIDWEST BANC HOLDINGS, INC.
 (Exact name of registrant as specified in its charter)
 Delaware(State or other jurisdiction of 
incorporation or organization)
    
    36-3252484(I.R.S. Employer Identification No.)
 501 W. North Ave. 
Melrose Park, Illinois(Address of principal executive offices)
    
    60160(Zip code)
 
 (708) 865-1053  (Registrants telephone number, including area code)
 N/A  (Former name, former address and former fiscal year, if changed since last report)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
  Class
    
    
    Outstanding at May 12, 2010Common, par value $0.01
    
    
    
    38,176,225




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##### 



MIDWEST BANC HOLDINGS, INC.
 Form 10-Q
 Table of Contents
 Page NumberPART IItem 1. Financial Statements
    
    
    1Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    27Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    53Item 4. Controls and Procedures
    
    
    54PART IIItem 1. Legal Proceedings
    
    
    58Item 1A. Risk Factors
    
    
    58Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
    
    
    60Item 3. Defaults upon Senior Securities
    
    
    60Item 4. (Removed and Reserved)
    
    
    60Item 5. Other Information
    
    
    60Item 6. Exhibits
    
    
    60Signature Page
    
    
    62EX-3.1EX-31.1EX-31.2EX-32.1




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##### Table of Contents



PART I
 
 Item 1. Financial Statements
 MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except for share data)
 March 31,
    
    
    December 31,2010
    
    
    2009ASSETSCash and due from banks
    
    $
    24,040
    
    
    $
    27,644Federal funds sold and other short-term investments
    
    
    356,345
    
    
    
    414,466Total cash and cash equivalents
    
    
    380,385
    
    
    
    442,110Securities available-for-sale (securities pledged to creditors:
$487,446 at March 31, 2010 and $481,241 at December 31, 2009)
    
    
    567,619
    
    
    
    581,474Federal Reserve Bank and Federal Home Loan Bank stock, at cost
    
    
    27,652
    
    
    
    27,652Loans
    
    
    2,184,440
    
    
    
    2,320,319Allowance for loan losses
    
    
    (142,284
    )
    
    
    (128,800
    )Net loans
    
    
    2,042,156
    
    
    
    2,191,519Premises and equipment, net
    
    
    38,962
    
    
    
    39,769Foreclosed properties
    
    
    26,715
    
    
    
    26,917Core deposit intangibles, net
    
    
    11,836
    
    
    
    12,391Goodwill
    
    
    43,862
    
    
    
    64,862Other assets
    
    
    43,276
    
    
    
    48,851Total assets
    
    $
    3,182,463
    
    
    $
    3,435,545LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITYLiabilitiesDepositsNoninterest-bearing
    
    $
    347,483
    
    
    $
    349,796Interest-bearing
    
    
    2,072,709
    
    
    
    2,220,315Total deposits
    
    
    2,420,192
    
    
    
    2,570,111Revolving note payable
    
    
    8,600
    
    
    
    8,600Securities sold under agreements to repurchase
    
    
    297,650
    
    
    
    297,650Advances from the Federal Home Loan Bank
    
    
    340,000
    
    
    
    340,000Junior subordinated debentures
    
    
    60,828
    
    
    
    60,828Subordinated debt
    
    
    15,000
    
    
    
    15,000Term note payable
    
    
    55,000
    
    
    
    55,000Total borrowings
    
    
    777,078
    
    
    
    777,078Other liabilities
    
    
    34,678
    
    
    
    31,880Total liabilities
    
    
    3,231,948
    
    
    
    3,379,069Commitments and contingencies (see note 10)Stockholders (Deficit) EquityPreferred stock, $0.01 par value, 1,000,000 shares authorized;
Series A, $2,500 liquidation preference, 3,101 and 17,250 shares
issued and outstanding at March 31, 2010 and December 31, 2009,
respectively, Series G, $1,000 liquidation preference, 89,388
shares issued and outstanding at March 31, 2010, Series T, $1,000
liquidation preference, 84,784 shares issued and outstanding at
December 31, 2009
    
    
    1
    
    
    
    1Common stock, $0.01 par value, 64,000,000 shares authorized;
39,885,303 shares issued and 38,176,225 outstanding at March 31,
2010 and 29,847,921 shares issued and 28,121,279 outstanding at
December 31, 2009
    
    
    401
    
    
    
    301Additional paid-in capital
    
    
    315,672
    
    
    
    385,616Warrant
    
    
    295
    
    
    
    5,229Accumulated deficit
    
    
    (347,257
    )
    
    
    (311,620
    )Accumulated other comprehensive loss
    
    
    (3,844
    )
    
    
    (8,298
    )Treasury stock, at cost (1,709,078 and 1,726,642 shares at March
31, 2010 and December 31, 2009, respectively)
    
    
    (14,753
    )
    
    
    (14,753
    )Total stockholders (deficit) equity
    
    
    (49,485
    )
    
    
    56,476Total liabilities and stockholders (deficit) equity
    
    $
    3,182,463
    
    
    $
    3,435,545
 See accompanying notes to unaudited consolidated financial statements.
 1




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the three months ended March 31, 2010 and 2009
 (In thousands, except per share data)
 2010
    
    
    2009Interest IncomeLoans
    
    $
    27,928
    
    
    $
    34,549SecuritiesTaxable
    
    
    2,361
    
    
    
    6,940Exempt from federal income taxes
    
    
    
    
    
    
    550Dividend income from Federal Reserve Bank and Federal
Home Loan Bank stock
    
    
    160
    
    
    
    190Federal funds sold and other short-term investments
    
    
    228
    
    
    
    37Total interest income
    
    
    30,677
    
    
    
    42,266Interest ExpenseDeposits
    
    
    8,604
    
    
    
    13,685Federal funds purchased and FRB discount window advances
    
    
    
    
    
    
    29Revolving note payable
    
    
    156
    
    
    
    43Securities sold under agreements to repurchase
    
    
    3,193
    
    
    
    3,205Advances from the Federal Home Loan Bank
    
    
    2,999
    
    
    
    3,029Junior subordinated debentures
    
    
    423
    
    
    
    739Subordinated debt
    
    
    140
    
    
    
    152Term note payable
    
    
    657
    
    
    
    282Total interest expense
    
    
    16,172
    
    
    
    21,164Net interest income
    
    
    14,505
    
    
    
    21,102Provision for credit losses
    
    
    77,050
    
    
    
    13,253Net interest income after provision for credit losses
    
    
    (62,545
    )
    
    
    7,849Noninterest IncomeService charges on deposit accounts
    
    
    1,639
    
    
    
    1,894Insurance and brokerage commissions
    
    
    233
    
    
    
    320Trust fees
    
    
    295
    
    
    
    282Increase in cash surrender value of life insurance
    
    
    
    
    
    
    842Other
    
    
    323
    
    
    
    5Total noninterest income
    
    
    2,490
    
    
    
    3,343Noninterest ExpenseSalaries and employee benefits
    
    
    8,888
    
    
    
    11,083Occupancy and equipment
    
    
    2,901
    
    
    
    3,245Professional services
    
    
    3,333
    
    
    
    2,102Goodwill impairment
    
    
    21,000
    
    
    
    Marketing
    
    
    115
    
    
    
    688Foreclosed properties
    
    
    788
    
    
    
    345Amortization of core deposit intangible
    
    
    555
    
    
    
    573FDIC insurance
    
    
    3,200
    
    
    
    1,175Other
    
    
    3,212
    
    
    
    2,297Total noninterest expense
    
    
    43,992
    
    
    
    21,508Loss before income taxes
    
    
    (104,047
    )
    
    
    (10,316
    )Provision for (benefit from) income taxes
    
    
    3,834
    
    
    
    (4,996
    )Net Loss
    
    
    (107,881
    )
    
    
    (5,320
    )Preferred stock dividends and premium accretion
    
    
    4,320
    
    
    
    2,123Loss available to common stockholders
    
    $
    (112,201
    )
    
    $
    (7,443
    )Basic loss per share
    
    $
    (3.16
    )
    
    $
    (0.27
    )Diluted loss per share
    
    $
    (3.16
    )
    
    $
    (0.27
    )Cash dividends declared per common share
    
    $
    
    
    
    $
    
 See accompanying notes to unaudited consolidated financial statements.
 2




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS (DEFICIT) EQUITY (Unaudited)
For the three months ended March 31, 2010 and 2009
(In thousands, except share and per share data)
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    TotalPreferred
    
    
    Common
    
    
    Paid in
    
    
    
    
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Treasury
    
    
    StockholdersStock
    
    
    Stock
    
    
    Capital
    
    
    Warrant
    
    
    Deficit
    
    
    Loss
    
    
    Stock
    
    
    (Deficit) EquityBalance, December 31, 2008
    
    $
    1
    
    
    $
    296
    
    
    $
    383,491
    
    
    $
    5,229
    
    
    $
    (66,325
    )
    
    $
    (2,122
    )
    
    $
    (14,736
    )
    
    $
    305,834Cash dividends declared ($48.4375
per share) on Series A preferred
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (836
    )
    
    
    
    
    
    
    
    
    
    
    (836
    )Cash dividends declared ($9.72
per share) on Series T preferred
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (824
    )
    
    
    
    
    
    
    
    
    
    
    (824
    )Issuance of 128,970 shares
restricted stock
    
    
    
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accreted discount on Series T
preferred stock
    
    
    
    
    
    
    
    
    
    
    228
    
    
    
    
    
    
    
    (228
    )
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    379
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    379Repurchase of 10,695 shares of
common stock under benefit plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17
    )
    
    
    (17
    )Comprehensive lossNet loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,320
    )
    
    
    
    
    
    
    
    
    
    
    (5,320
    )Prior service cost, net of
income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    15Net increase in fair value of
securities classified as
available- for-sale, net of income
taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,839
    
    
    
    
    
    
    
    1,839Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,466
    )Balance, March 31, 2009
    
    $
    1
    
    
    $
    297
    
    
    $
    384,097
    
    
    $
    5,229
    
    
    $
    (73,533
    )
    
    $
    (268
    )
    
    $
    (14,753
    )
    
    $
    301,070Balance, December 31, 2009
    
    $
    1
    
    
    $
    301
    
    
    $
    385,616
    
    
    $
    5,229
    
    
    $
    (311,620
    )
    
    $
    (8,298
    )
    
    $
    (14,753
    )
    
    $
    56,476Exchange of 14,149 shares of
Series A preferred stock for
10,029,946 shares of common stock,
net of issuance costs
    
    
    
    
    
    
    100
    
    
    
    (2,429
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,329
    )Exchange of 84,784 shares of
Series T preferred stock for 89,388
shares of Series G preferred stock,
net of issuance costs
    
    
    
    
    
    
    
    
    
    
    (67,834
    )
    
    
    
    
    
    
    67,492
    
    
    
    
    
    
    
    
    
    
    
    (342
    )Amendment of warrant to purchase
4,282,020 shares of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,934
    )
    
    
    4,934
    
    
    
    
    
    
    
    
    
    
    
    Issuance of 25,000 shares of
restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accreted discount on Series T
preferred stock
    
    
    
    
    
    
    
    
    
    
    182
    
    
    
    
    
    
    
    (182
    )
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    137
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    137Comprehensive lossNet loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (107,881
    )
    
    
    
    
    
    
    
    
    
    
    (107,881
    )Prior service cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    
    
    
    
    24Net increase in fair value of
securities classified as
available-for-sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,430
    
    
    
    
    
    
    
    4,430Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (103,427
    )Balance, March 31, 2010
    
    $
    1
    
    
    $
    401
    
    
    $
    315,672
    
    
    $
    295
    
    
    $
    (347,257
    )
    
    $
    (3,844
    )
    
    $
    (14,753
    )
    
    $
    (49,485
    )
 See accompanying notes to unaudited consolidated financial statements.
 3




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the three Months Ended March 31, 2010 and 2009
(In thousands)
 2010
    
    
    2009Cash flows from operating activitiesNet loss
    
    $
    (107,881
    )
    
    $
    (5,320
    )Adjustments to reconcile net income to net cash provided by operating activitiesDepreciation
    
    
    1,074
    
    
    
    1,023Provision for credit losses
    
    
    77,050
    
    
    
    13,253Amortization of core deposit and other intangibles
    
    
    417
    
    
    
    356Goodwill impairment charge
    
    
    21,000
    
    
    
    Amortization of premiums and discounts on securities, net
    
    
    323
    
    
    
    211Increase in cash surrender value of life insurance
    
    
    
    
    
    
    (842
    )Deferred income taxes
    
    
    4,310
    
    
    
    (9,427
    )(Gain) loss on disposition of foreclosed properties, net
    
    
    (170
    )
    
    
    196Impairment loss on foreclosed properties
    
    
    356
    
    
    
    Amortization of deferred stock based compensation
    
    
    137
    
    
    
    379Change in other assets
    
    
    1,263
    
    
    
    3,696Change in other liabilities
    
    
    2,105
    
    
    
    529Net cash (used in) provided by operating activities
    
    
    (16
    )
    
    
    4,054Cash flows from investing activitiesMaturities of securities available-for-sale
    
    
    260,000
    
    
    
    47,000Principal payments on securities available-for-sale
    
    
    16,258
    
    
    
    17,000Principal payments on securities held-to-maturity
    
    
    
    
    
    
    1,154Purchases of securities available-for-sale
    
    
    (258,295
    )
    
    
    (125,084
    )Loan originations and principal collections, net
    
    
    68,269
    
    
    
    (92,505
    )Proceeds from disposition of foreclosed properties
    
    
    4,835
    
    
    
    244Additions to property and equipment
    
    
    (266
    )
    
    
    (1,237
    )Net cash provided by (used in) investing activities
    
    
    90,801
    
    
    
    (153,428
    )Cash flows from financing activitiesNet (decrease) increase in deposits
    
    
    (149,839
    )
    
    
    131,264Capitalized issuance costs of Series A exchange
    
    
    (2,329
    )
    
    
    Capitalized issuance costs of Series T exchange
    
    
    (342
    )
    
    
    Repayment of borrowings
    
    
    
    
    
    
    (40,000
    )Preferred stock cash dividends paid
    
    
    
    
    
    
    (1,660
    )Change in federal funds purchased and securities sold under agreements to repurchase
    
    
    
    
    
    
    55,000Repurchase of common shares under stock and incentive option plan
    
    
    
    
    
    
    (17
    )Net cash (used in) provided by financing activities
    
    
    (152,510
    )
    
    
    144,587Decrease in cash and cash equivalents
    
    
    (61,725
    )
    
    
    (4,787
    )Cash and cash equivalents at beginning of period
    
    
    442,110
    
    
    
    63,065Cash and cash equivalents at end of period
    
    $
    380,385
    
    
    $
    58,278Supplemental disclosuresCash paid during period for:Interest
    
    $
    15,281
    
    
    $
    23,169Income taxes
    
    
    
    
    
    
    582
 See accompanying notes to unaudited consolidated financial statements.
 4




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  REGULATORY ACTIONS
        5




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
   NOTE 2  REGULATORY CAPITAL
  
    
    enter into an material transactions outside the usual course of business;
    
    extend any credit for highly leveraged transactions;
    
    amend its charter or by-laws;
    
    make any material changes in its accounting methods;
    
    engage in any covered transactions as defined in Section 23A(b) of the Federal Reserve
Act;
    
    pay excessive compensation or bonuses; or
    
    pay interest on new or renewed liabilities at a rate that would increase the Banks weighted
average cost of funds to a level significantly exceeding the prevailing rates of interest on
insured deposits in the Banks normal market area.
 6




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  Going Concern
 NOTE 3  FORBEARANCE AGREEMENT
   Going Concern
 7




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 4  BASIS OF PRESENTATION
   Going Concern:
  NOTE 5  NEW ACCOUNTING PRONOUNCEMENTS
  tm
 8




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
   NOTE 6  SECURITIES
  March 31, 2010Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(In thousands)Obligations of U.S. Treasury
    
    $
    293,974
    
    
    $
    
    
    
    $
    (9
    )
    
    $
    293,965Mortgage-backed securities:U.S. government agencies  residential (1)
    
    
    259,892
    
    
    
    1,659
    
    
    
    (1,051
    )
    
    
    260,500Equity securities of U.S.
government-sponsored entities (2)
    
    
    2,749
    
    
    
    138
    
    
    
    (703
    )
    
    
    2,184Corporate and other debt securities
    
    
    14,871
    
    
    
    
    
    
    
    (3,901
    )
    
    
    10,970Total securities available-for-sale
    
    $
    571,486
    
    
    $
    1,797
    
    
    $
    (5,664
    )
    
    $
    567,619
 
 (1)
    
    Includes obligations of Government National Mortgage Association (GNMA).(2)
    
    Includes issues from Federal National Mortgage Association (FNMA) and
of Federal Home Loan Mortgage Corporation (FHLMC). 9




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MIDWEST BANC HOLDINGS, INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2009Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(In thousands)Obligations of U.S. Treasury
    
    $
    310,954
    
    
    $
    6
    
    
    $
    (13
    )
    
    $
    310,947Mortgage-backed securities:U.S. government agencies  residential (1)
    
    
    259,878
    
    
    
    219
    
    
    
    (3,822
    )
    
    
    256,275U.S. government-sponsored entities 
residential (2)
    
    
    1,271
    
    
    
    
    
    
    
    (12
    )
    
    
    1,259Equity securities of U.S.
government-sponsored entities (3)
    
    
    2,749
    
    
    
    105
    
    
    
    (582
    )
    
    
    2,272Corporate and other debt securities
    
    
    14,920
    
    
    
    
    
    
    
    (4,199
    )
    
    
    10,721Total securities available-for-sale
    
    $
    589,772
    
    
    $
    330
    
    
    $
    (8,628
    )
    
    $
    581,474
 
 (1)
    
    Includes obligations of GNMA.(2)
    
    Includes obligations of FHLMC.(3)
    
    Includes issues from FNMA and FHLMC.  March 31, 2010Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(In thousands)Securities available-for-sale:Obligations of U.S. Treasury
    
    $
    293,965
    
    
    $
    (9
    )
    
    $
    
    
    
    $
    
    
    
    $
    293,965
    
    
    $
    (9
    )Mortgage-backed securities:U.S. government agencies  residential (1)
    
    
    70,774
    
    
    
    (1,051
    )
    
    
    
    
    
    
    
    
    
    
    70,774
    
    
    
    (1,051
    )Equity securities of U.S.
government-sponsored entities (2)
    
    
    1,054
    
    
    
    (221
    )
    
    
    497
    
    
    
    (482
    )
    
    
    1,551
    
    
    
    (703
    )Corporate and other debt securities
    
    
    
    
    
    
    
    
    
    
    10,970
    
    
    
    (3,901
    )
    
    
    10,970
    
    
    
    (3,901
    )Total temporarily impaired securities
    
    $
    365,793
    
    
    $
    (1,281
    )
    
    $
    11,467
    
    
    $
    (4,383
    )
    
    $
    377,260
    
    
    $
    (5,664
    )
 
 (1)
    
    Includes obligations of GNMA.(2)
    
    Includes issues from FNMA and FHLMC. 10




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MIDWEST BANC HOLDINGS, INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2009Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(In thousands)Securities available-for-sale:Obligations of U.S. Treasury
    
    $
    150,954
    
    
    $
    (13
    )
    
    $
    
    
    
    $
    
    
    
    $
    150,954
    
    
    $
    (13
    )Mortgage-backed securities:U.S. government agencies  residential (1)
    
    
    204,754
    
    
    
    (3,822
    )
    
    
    
    
    
    
    
    
    
    
    204,754
    
    
    
    (3,822
    )U.S. government-sponsored entities 
residential (2)
    
    
    1,259
    
    
    
    (12
    )
    
    
    
    
    
    
    
    
    
    
    1,259
    
    
    
    (12
    )Equity securities of U.S.
government-sponsored entities (3)
    
    
    219
    
    
    
    (64
    )
    
    
    461
    
    
    
    (518
    )
    
    
    680
    
    
    
    (582
    )Corporate and other debt securities
    
    
    
    
    
    
    
    
    
    
    10,721
    
    
    
    (4,199
    )
    
    
    10,721
    
    
    
    (4,199
    )Total temporarily impaired securities
    
    $
    357,186
    
    
    $
    (3,911
    )
    
    $
    11,182
    
    
    $
    (4,717
    )
    
    $
    368,368
    
    
    $
    (8,628
    )
 
 (1)
    
    Includes obligations of GNMA.(2)
    
    Includes obligations of FHLMC.(3)
    
    Includes issues from FNMA and FHLMC.  NOTE 7  LOANS
  March 31,
    
    
    December 31,2010
    
    
    2009% of Gross
    
    
    
    
    
    
    % of GrossAmount
    
    
    Loans
    
    
    Amount
    
    
    Loans(Dollars in thousands)Commercial
    
    $
    923,843
    
    
    
    42.3
    %
    
    $
    972,090
    
    
    
    41.9
    %Construction
    
    
    245,586
    
    
    
    11.2
    
    
    
    293,215
    
    
    
    12.6Commercial real estate
    
    
    695,511
    
    
    
    31.8
    
    
    
    725,814
    
    
    
    31.3Home equity
    
    
    209,993
    
    
    
    9.7
    
    
    
    219,183
    
    
    
    9.5Other consumer
    
    
    4,877
    
    
    
    0.2
    
    
    
    5,454
    
    
    
    0.2Residential mortgage
    
    
    105,186
    
    
    
    4.8
    
    
    
    105,147
    
    
    
    4.5Total loans, gross
    
    
    2,184,996
    
    
    
    100.0
    %
    
    
    2,320,903
    
    
    
    100.0
    %Net deferred fees
    
    
    (556
    )
    
    
    
    
    
    
    (584
    )Total loans, net
    
    $
    2,184,440
    
    
    
    
    
    
    $
    2,320,319
  11




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 8  ALLOWANCE FOR LOAN LOSSES
  Three Months EndedMarch 31,2010
    
    
    2009(In thousands)Balance at beginning of period
    
    $
    128,800
    
    
    $
    44,432Provision for loan losses
    
    
    76,300
    
    
    
    13,000Loans charged off
    
    
    (63,810
    )
    
    
    (4,819
    )Recoveries on loans previously charged off
    
    
    994
    
    
    
    398Net loans charged off
    
    
    (62,816
    )
    
    
    (4,421
    )Balance at end of period
    
    $
    142,284
    
    
    $
    53,011
  Three Months EndedMarch 31,2010
    
    
    2009(In thousands)Provision for loan losses
    
    $
    76,300
    
    
    $
    13,000Provision for unfunded commitment losses
    
    
    750
    
    
    
    253Provision for credit losses
    
    $
    77,050
    
    
    $
    13,253
  March 31,
    
    
    December 31,2010
    
    
    2009(In thousands)Impaired loans for which no allowance for loan losses is allocated
    
    $
    57,614
    
    
    $
    61,456Impaired loans with an allocation of the allowance for loan losses
    
    
    207,132
    
    
    
    200,979Total impaired loans
    
    $
    264,746
    
    
    $
    262,435Allowance for loan losses allocated to impaired loans
    
    $
    67,396
    
    
    $
    69,494
  Three Months EndedMarch 31,2010
    
    
    2009(In thousands)Average impaired loans
    
    $
    249,504
    
    
    $
    63,838Interest income recognized on impaired loans
on a cash basis
    
    
    117
    
    
    
    102
   12




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9  GOODWILL AND INTANGIBLES
  March 31, 2010
    
    
    December 31, 2009Gross Carrying
    
    
    Accumulated
    
    
    Net Carrying
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    Amount(In thousands)Amortized core
deposit intangibles
    
    $
    21,091
    
    
    $
    (9,255
    )
    
    $
    11,836
    
    
    $
    21,091
    
    
    $
    (8,700
    )
    
    $
    12,391
  2010
    
    $
    2,2222011
    
    
    1,9182012
    
    
    1,8032013
    
    
    1,6962014
    
    
    1,626Thereafter
    
    
    3,126
   Three Months EndedMarch 31, 2010
    
    
    December 31, 2009Core Deposit
    
    
    
    
    
    
    Core DepositGoodwill
    
    
    Intangibles
    
    
    Goodwill
    
    
    Intangibles(In thousands)Balance before impairment losses
    
    $
    158,862
    
    
    $
    12,391
    
    
    $
    158,862
    
    
    $
    14,683Accumulated impairment losses
    
    
    (94,000
    )
    
    
    
    
    
    
    (80,000
    )
    
    
    Balance at beginning of year
    
    $
    64,862
    
    
    $
    12,391
    
    
    $
    78,862
    
    
    $
    14,683Impairment
    
    $
    (21,000
    )
    
    $
    
    
    
    $
    (14,000
    )
    
    $
    Amortization
    
    
    
    
    
    
    (555
    )
    
    
    
    
    
    
    (2,292
    )Balance before impairment losses
    
    $
    158,862
    
    
    $
    11,836
    
    
    $
    158,862
    
    
    $
    12,391Accumulated impairment losses
    
    
    (115,000
    )
    
    
    
    
    
    
    (94,000
    )
    
    
    Balance at end of period
    
    $
    43,862
    
    
    $
    11,836
    
    
    $
    64,862
    
    
    $
    12,391
  13




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 10  OFF-BALANCE-SHEET RISK
  Amount of Commitment Expiration Per PeriodWithin
    
    
    
    
    
    
    
    
    
    
    After1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    5 Years
    
    
    Total(In thousands)Lines of Credit:Commercial real estate
    
    $
    55,586
    
    
    $
    7,701
    
    
    $
    2,637
    
    
    $
    3,916
    
    
    $
    69,840Home equity
    
    
    24,686
    
    
    
    23,085
    
    
    
    34,098
    
    
    
    21,675
    
    
    
    103,544Consumer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,003
    
    
    
    2,003Commercial
    
    
    139,235
    
    
    
    714
    
    
    
    2,142
    
    
    
    10
    
    
    
    142,101Letters of credit
    
    
    32,447
    
    
    
    4,079
    
    
    
    2,410
    
    
    
    
    
    
    
    38,936Commitments to extend credit
    
    
    8,587
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,587Total commitments
    
    $
    260,541
    
    
    $
    35,579
    
    
    $
    41,287
    
    
    $
    27,604
    
    
    $
    365,011
     14




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 11  FAIR VALUE
   Level 1:
  Level 2:
  Level 3:
   Quoted Prices or
    
    
    Significant
    
    
    SignificantIdentical Assets in
    
    
    Other Observable
    
    
    UnobservableTotal
    
    
    Active Markets
    
    
    Inputs
    
    
    InputsFair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(In thousands)Assets at March 31, 2010:Obligations of U.S. Treasury
    
    $
    293,965
    
    
    $
    
    
    
    $
    293,965
    
    
    $
    Mortgage-backed securities:U.S. government agencies  residential (1)
    
    
    260,500
    
    
    
    
    
    
    
    260,500
    
    
    
    Equity securities of U.S. government-sponsored entities (2)
    
    
    2,184
    
    
    
    2,184
    
    
    
    
    
    
    
    Corporate and other debt securities
    
    
    10,970
    
    
    
    
    
    
    
    4,010
    
    
    
    6,960Available-for-sale securities
    
    $
    567,619
    
    
    $
    2,184
    
    
    $
    558,475
    
    
    $
    6,960Assets at December 31, 2009:Obligations of U.S. Treasury
    
    $
    310,947
    
    
    $
    
    
    
    $
    310,947
    
    
    $
    Mortgage-backed securities:U.S. government agencies  residential (1)
    
    
    256,275
    
    
    
    
    
    
    
    256,275
    
    
    
    U.S. government-sponsored entities  residential (3)
    
    
    1,259
    
    
    
    
    
    
    
    1,259
    
    
    
    Equity securities of U.S. government-sponsored entities (2)
    
    
    2,272
    
    
    
    2,272
    
    
    
    
    
    
    
    Corporate and other debt securities
    
    
    10,721
    
    
    
    
    
    
    
    3,700
    
    
    
    7,021Available-for-sale securities
    
    $
    581,474
    
    
    $
    2,272
    
    
    $
    572,181
    
    
    $
    7,021
 
 (1)
    
    Includes obligations of GNMA.(2)
    
    Includes issues from FNMA and FHLMC.(3)
    
    Includes obligations of FHLMC. 15




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  March 31,2010
    
    
    2009(In thousands)Beginning balance
    
    $
    7,021
    
    
    $
    8,433Paydowns received
    
    
    (51
    )
    
    
    (39
    )Total gains or losses (realized/unrealized):Included in net loss
    
    
    
    
    
    
    Included in other comprehensive loss
    
    
    (10
    )
    
    
    (1,375
    )Ending balance
    
    $
    6,960
    
    
    $
    7,019
     Quoted Prices or
    
    Significant
    
    SignificantIdentical Assets in
    
    Other Observable
    
    UnobservableTotal
    
    Active Markets
    
    Inputs
    
    InputsFair Value
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)(In thousands)Assets at March 31, 2010:Assets:Impaired loans
    
    $
    139,736
    
    
    $
    
    
    
    $
    
    
    
    $
    139,736Goodwill
    
    
    43,862
    
    
    
    
    
    
    
    
    
    
    
    43,862Assets at December 31, 2009:Assets:Impaired loans
    
    $
    131,485
    
    
    $
    
    
    
    $
    
    
    
    $
    131,485Goodwill
    
    
    64,862
    
    
    
    
    
    
    
    
    
    
    
    64,862
 16




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  March 31, 2010
    
    December 31, 2009Carrying
    
    Estimated
    
    Carrying
    
    EstimatedAmount
    
    Fair Value
    
    Amount
    
    Fair Value(In thousands)Financial assetsCash and cash equivalents
    
    $
    380,385
    
    
    $
    380,385
    
    
    $
    442,110
    
    
    $
    442,110Securities available-for-sale
    
    
    567,619
    
    
    
    567,619
    
    
    
    581,474
    
    
    
    581,474Federal Reserve Bank and Federal Home Loan Bank stock
    
    
    27,652
    
    
    
    27,652
    
    
    
    27,652
    
    
    
    27,652Loans, net of allowance for loan losses
    
    
    2,042,156
    
    
    
    2,037,805
    
    
    
    2,191,519
    
    
    
    2,137,263Accrued interest receivable
    
    
    8,399
    
    
    
    8,399
    
    
    
    8,584
    
    
    
    8,584Financial liabilitiesDepositsNoninterest-bearing
    
    
    347,483
    
    
    
    347,483
    
    
    
    349,796
    
    
    
    349,796Interest-bearing
    
    
    2,072,709
    
    
    
    2,084,512
    
    
    
    2,220,315
    
    
    
    2,231,823Revolving note payable
    
    
    8,600
    
    
    
    401
    
    
    
    8,600
    
    
    
    3,947Securities sold under agreements to repurchase
    
    
    297,650
    
    
    
    333,411
    
    
    
    297,650
    
    
    
    329,298Advances from Federal Home Loan Bank
    
    
    340,000
    
    
    
    367,265
    
    
    
    340,000
    
    
    
    366,277Junior subordinated debentures
    
    
    60,828
    
    
    
    2,169
    
    
    
    60,828
    
    
    
    19,064Subordinated debt
    
    
    15,000
    
    
    
    113
    
    
    
    15,000
    
    
    
    6,883Term note payable
    
    
    55,000
    
    
    
    2,566
    
    
    
    55,000
    
    
    
    25,238Accrued interest payable
    
    
    8,610
    
    
    
    5,139
    
    
    
    7,798
    
    
    
    7,798
      17




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
    NOTE 12  STOCK COMPENSATION AND RESTRICTED STOCK AWARDS
    Weighted Average
    
    
    Weighted AverageNumber of
    
    
    Exercise Price
    
    
    Grant- Date FairOptions
    
    
    Per Share
    
    
    Value Per ShareOutstanding at December 31, 2009
    
    
    540,626
    
    
    $
    8.02
    
    
    $
    2.89Forfeited
    
    
    (44,238
    )
    
    
    6.99
    
    
    
    2.65Outstanding at March 31, 2010
    
    
    496,388
    
    
    
    8.11
    
    
    
    2.91
  18




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
     Number of
    
    
    Weighted AverageRestricted
    
    
    Grant-Date Fair ValueShares
    
    
    Per ShareOutstanding at December 31, 2009
    
    
    679,648
    
    
    $
    8.65Granted
    
    
    25,000
    
    
    
    0.39Vested
    
    
    (25,000
    )
    
    
    0.39Forfeited
    
    
    (18,564
    )
    
    
    11.77Outstanding at March 31, 2010
    
    
    661,084
    
    
    
    8.56
 NOTE 13  SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
    Beginning balance
    
    $
    6,455Service cost
    
    
    202Interest cost
    
    
    91Distributions
    
    
    (54
    )Ending balance
    
    $
    6,694
  19




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 14  INCOME TAXES
  Three Months Ended March 31,2010
    
    
    2009(In thousands)Income taxes computed at the statutory rate
    
    $
    (36,416
    )
    
    
    35.0
    %
    
    $
    (3,611
    )
    
    
    35.0
    %Tax-exempt interest income on securities and loans
    
    
    (15
    )
    
    
    
    
    
    
    (229
    )
    
    
    2.2General business credits
    
    
    (147
    )
    
    
    0.1
    
    
    
    (609
    )
    
    
    5.9State income taxes, net of federal tax benefit due to state operating loss
    
    
    (3,615
    )
    
    
    3.5
    
    
    
    (523
    )
    
    
    5.1Life insurance cash surrender value increase, net of premiums
    
    
    
    
    
    
    
    
    
    
    (293
    )
    
    
    2.8Goodwill impairment
    
    
    7,350
    
    
    
    (7.1
    )
    
    
    
    
    
    
    Valuation allowance
    
    
    36,885
    
    
    
    (35.4
    )
    
    
    
    
    
    
    Nondeductible costs and other, net
    
    
    (208
    )
    
    
    0.2
    
    
    
    269
    
    
    
    (2.6
    )Provision for (benefit from) income taxes
    
    $
    3,834
    
    
    
    (3.7
    )%
    
    $
    (4,996
    )
    
    
    48.4
    %
       20




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 15  LOSS PER SHARE
  Three Months EndedMarch 31,2010
    
    
    2009(In thousands, except per share data)Net loss
    
    $
    (107,881
    )
    
    $
    (5,320
    )Less:Series A preferred stock dividends (1)
    
    
    3,030
    
    
    
    836Series T preferred stock dividends (2)
    
    
    822
    
    
    
    1,059Series T discount accretion
    
    
    182
    
    
    
    228Series G preferred stock dividends (3)
    
    
    286
    
    
    
    Total preferred stock dividends and premium accretion
    
    
    4,320
    
    
    
    2,123Income allocated to participating securities (4)
    
    
    
    
    
    
    Net loss available to common stockholders
    
    $
    (112,201
    )
    
    $
    (7,443
    )BasicWeighted average common shares outstanding
    
    
    35,484
    
    
    
    27,925Basic loss per share
    
    $
    (3.16
    )
    
    $
    (0.27
    )Diluted (5)Weighted average common shares outstanding
    
    
    35,484
    
    
    
    27,925Diluted loss per share
    
    $
    (3.16
    )
    
    $
    (0.27
    )
 
 (1)
    
    Represents the inducement premium for the exchange of 14,149 shares in the first quarter of
2010.(2)
    
    Includes $542 and $822 in cumulative dividends not declared or paid in first quarter of 2010
and 2009, respectively.(3)
    
    Represents cumulative dividends not declared or paid.(4)
    
    No adjustment for unvested restricted shares was included in the computation of net loss
available to common stockholders for any period there was a loss.(5)
    
    No dilutive shares from stock options, restricted stock, or warrant were included in the
computation of diluted loss per share as a result of the net loss both in 2010 and 2009.  21




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MIDWEST BANC HOLDINGS, INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 16  CREDIT AGREEMENTS
        22




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MIDWEST BANC HOLDINGS, INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 17  PREFERRED STOCK AND WARRANT
 Exchange Transaction with the U.S. Treasury.
 Series A Exchange Offer.
  23




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 18  CAPITAL REQUIREMENTS
     24




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MIDWEST BANC HOLDINGS, INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  March 31,
    
    
    December 31,2010
    
    
    2009(In thousands)Risk-weighted assets
    
    $
    2,152,291
    
    
    $
    2,316,607Average assets for leverage capital purposes
    
    
    3,300,267
    
    
    
    3,467,651Capital components:Stockholders (deficit) equity
    
    $
    (49,485
    )
    
    $
    56,476Guaranteed trust preferred securities
    
    
    
    
    
    
    21,432Core deposit intangibles, net
    
    
    (11,836
    )
    
    
    (12,391
    )Goodwill
    
    
    (43,862
    )
    
    
    (64,862
    )Disallowed deferred tax assets
    
    
    
    
    
    
    (3,438
    )Prior service cost and decrease in projected benefit obligation
    
    
    (23
    )
    
    
    1Unrealized losses on securities
    
    
    3,867
    
    
    
    8,297Unrealized losses on equity securities
    
    
    (565
    )
    
    
    (478
    )Tier 1 capital
    
    $
    (101,904
    )
    
    $
    5,037Includible allowance for loan losses
    
    
    28,358
    
    
    
    30,218Guaranteed trust preferred securities
    
    
    59,000
    
    
    
    37,568Qualifying subordinated debt
    
    
    
    
    
    
    2,519Tier 2 capital
    
    $
    87,358
    
    
    $
    70,305Allowable Tier 2 capital
    
    $
    
    
    
    $
    5,037Total risk-based capital
    
    $
    (101,904
    )
    
    $
    10,074
 25




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  At March 31, 2010To Be AdequatelyCapitalized UnderFor Capital
    
    Prompt CorrectiveActual
    

    Adequacy Purposes
    
    Action ProvisionsAmount

Ratio
    
    Amount
    
    Ratio
    
 Amount

Ratio(Dollars in thousands)Total Capital (to risk-weighted assets) Company
    
    $
    (101,904
    )
    
    
    (4.7
    )%
    
    $
    172,183
    
    
    
    8.0
    %
    
    
    n/a
    
    
    
    n/aBank
    
    
    61,339
    
    
    
    2.9
    
    
    
    171,524
    
    
    
    8.0
    
    
    $
    171,524
    
    
    
    8.0
    %Tier 1 Capital (to risk-weighted assets) Company
    
    
    (101,904
    )
    
    
    (4.7
    )
    
    
    86,092
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aBank
    
    
    33,083
    
    
    
    1.5
    
    
    
    85,762
    
    
    
    4.0
    
    
    
    85,762
    
    
    
    4.0Tier 1 Capital (to average assets for leverage capital purposes)
Company
    
    
    (101,904
    )
    
    
    (3.1
    )
    
    
    132,011
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aBank
    
    
    33,083
    
    
    
    1.0
    
    
    
    131,631
    
    
    
    4.0
    
    
    
    131,631
    
    
    
    4.0
 At December 31, 2009To Be AdequatelyCapitalized UnderFor Capital
    
    Prompt CorrectiveActual
    

    Adequacy Purposes
    
    Action ProvisionsAmount

Ratio
    
    Amount
    
    Ratio
    
 Amount

Ratio(Dollars in thousands)Total Capital (to risk-weighted assets) Company
    
    $
    10,074
    
    
    
    0.4
    %
    
    $
    185,329
    
    
    
    8.0
    %
    
    
    n/a
    
    
    
    n/aBank
    
    
    148,062
    
    
    
    6.4
    
    
    
    184,899
    
    
    
    8.0
    
    
    $
    184,899
    
    
    
    8.0
    %Tier 1 Capital (to risk-weighted assets) Company
    
    
    5,037
    
    
    
    0.2
    
    
    
    92,664
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aBank
    
    
    117,911
    
    
    
    5.1
    
    
    
    92,450
    
    
    
    4.0
    
    
    
    92,450
    
    
    
    4.0Tier 1 Capital (to average assets for leverage capital purposes)
Company
    
    
    5,037
    
    
    
    0.1
    
    
    
    138,706
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aBank
    
    
    117,911
    
    
    
    3.4
    
    
    
    138,482
    
    
    
    4.0
    
    
    
    138,482
    
    
    
    4.0
 NOTE 19  SUBSEQUENT EVENTS
  26




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##### Table of Contents



ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following discussion and analysis is intended as a review of significant factors affecting
the financial condition and results of operations of the Company for the periods indicated. The
discussion should be read in conjunction with the unaudited Consolidated Financial Statements and
the Notes thereto presented herein. In addition to historical information, the following
Managements Discussion and Analysis of Financial Condition and Results of Operations contains
forward-looking statements that involve risks and uncertainties. The Companys actual results could
differ significantly from those anticipated in these forward-looking statements as a result of
certain factors discussed in this report.
 Critical Accounting Policies and Estimates
  Recent Developments
 Regulatory Capital:
     27




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##### Table of Contents



Forbearance Agreement:
 Going Concern
 Capital Plan:
  28




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##### Table of Contents



Going Concern:
   Liquidity  Bank:
 Liquidity  Company:
 Goodwill Impairment; Deferred Tax Asset Valuation Allowance:
 29




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##### Table of Contents



Repurchase Agreements:
 Accounting Pronouncements
  tm
   30




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##### Table of Contents



Selected Consolidated Financial Data
  At or For the Three Months EndedMarch 31,
    
    
    December 31,2010
    
    
    2009
    
    
    2009(Dollars in thousands, except per share data)Statement of Operations Data:Total interest income
    
    $
    30,677
    
    
    $
    42,266
    
    
    $
    32,445Total interest expense
    
    
    16,172
    
    
    
    21,164
    
    
    
    17,673Net interest income
    
    
    14,505
    
    
    
    21,102
    
    
    
    14,772Provision for credit losses (1)
    
    
    77,050
    
    
    
    13,253
    
    
    
    98,750Noninterest income
    
    
    2,490
    
    
    
    3,343
    
    
    
    2,835Noninterest expense
    
    
    43,992
    
    
    
    21,508
    
    
    
    38,537Loss before income taxes
    
    
    (104,047
    )
    
    
    (10,316
    )
    
    
    (119,680
    )Provision for (benefit from) income taxes
    
    
    3,834
    
    
    
    (4,996
    )
    
    
    (21
    )Net loss
    
    $
    (107,881
    )
    
    $
    (5,320
    )
    
    $
    (119,659
    )Preferred stock dividends and premium accretion
    
    
    4,320
    
    
    
    2,123
    
    
    
    1,355Net loss available to common stockholders
    
    $
    (112,201
    )
    
    $
    (7,443
    )
    
    $
    (121,014
    )Per Common Share Data:Loss per share (basic)
    
    $
    (3.16
    )
    
    $
    (0.27
    )
    
    $
    (4.30
    )Loss per share (diluted)
    
    
    (3.16
    )
    
    
    (0.27
    )
    
    
    (4.30
    )Cash dividends declared on common stock
    
    
    
    
    
    
    
    
    
    
    Book value at end of period
    
    
    (1.84
    )
    
    
    6.38
    
    
    
    (2.39
    )Tangible book value at end of period (non-GAAP measure) (2)
    
    
    (3.30
    )
    
    
    3.05
    
    
    
    (5.14
    )Selected Financial Ratios:Return on average assets (3)
    
    
    (13.05
    )%
    
    
    (0.59
    )%
    
    
    (13.39
    )%Return on average equity (4)
    
    NM
    
    

    
    (7.12
    )
    
    
    (301.80
    )Dividend payout ratio
    
    
    
    
    
    
    
    
    
    
    Average equity to average assets
    
    
    0.94
    
    
    
    8.30
    
    
    
    4.44Tier 1 risk-based capital
    
    
    (4.73
    )
    
    
    7.39
    
    
    
    0.22Total risk-based capital
    
    
    (4.73
    )
    
    
    9.16
    
    
    
    0.43Net interest margin (taxable-equivalent basis) (5)(6)
    
    
    1.78
    
    
    
    2.63
    
    
    
    1.74Loan to deposit ratio
    
    
    90.26
    
    
    
    101.85
    
    
    
    90.28Net overhead expense to average assets (7)
    
    
    5.02
    
    
    
    2.02
    
    
    
    4.01Efficiency ratio (8)
    
    
    250.95
    
    
    
    83.02
    
    
    
    198.01Loan Quality Ratios:Allowance for loan losses to total loans
    
    
    6.51
    
    
    
    2.05
    
    
    
    5.55Provision for loan losses to total loans
    
    
    14.17
    
    
    
    2.03
    
    
    
    16.76Net loans charged off to average total loans
    
    
    11.28
    
    
    
    0.70
    
    
    
    8.73Nonaccrual loans to total loans (9)
    
    
    12.73
    
    
    
    3.10
    
    
    
    11.80Nonperforming assets to total assets (10)
    
    
    9.94
    
    
    
    2.96
    
    
    
    9.09Allowance for loan losses to nonaccrual loans
    
    
    0.51
    x
    
    
    0.66
    x
    
    
    0.47
    xBalance Sheet Data:Total assets
    
    $
    3,182,463
    
    
    $
    3,713,064
    
    
    $
    3,435,545Total earning assets
    
    
    3,136,056
    
    
    
    3,339,448
    
    
    
    3,343,911Average assets
    
    
    3,351,831
    
    
    
    3,648,873
    
    
    
    3,544,702Loans
    
    
    2,184,440
    
    
    
    2,591,048
    
    
    
    2,320,319Allowance for loan losses
    
    
    142,284
    
    
    
    53,011
    
    
    
    128,800Deposits
    
    
    2,420,192
    
    
    
    2,544,005
    
    
    
    2,570,111Borrowings
    
    
    777,078
    
    
    
    832,057
    
    
    
    777,078Stockholders (deficit) equity
    
    
    (49,485
    )
    
    
    301,070
    
    
    
    56,476Tangible stockholders (deficit) equity (non-GAAP measure) (2)
    
    
    (105,183
    )
    
    
    208,098
    
    
    
    (20,777
    )
 31




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##### Table of Contents



(1)
    
    The provision for credit losses includes the provision for loan losses and the provision for
unfunded commitments losses as follows: At March 31,
    
    
    At December 31,2010
    
    
    2009
    
    
    2009(In thousands)Provision for loan losses
    
    $
    76,300
    
    
    $
    13,000
    
    
    $
    98,000Provision for unfunded commitments losses
    
    
    750
    
    
    
    253
    
    
    
    750Provision for credit losses
    
    $
    77,050
    
    
    $
    13,253
    
    
    $
    98,750
 
 (2)
    
    Stockholders equity less core deposit intangibles, net, and goodwill. Management believes
that tangible stockholders equity (non-GAAP measure) is a useful measure since it excludes
the balances of core deposit intangible assets and goodwill which are subjective components of
valuation. The following table reconciles reported stockholders equity to tangible
stockholders equity for the periods presented: At March 31,
    
    
    At December 31,2010
    
    
    2009
    
    
    2009(In thousands)Stockholders (deficit) equity
    
    $
    (49,485
    )
    
    $
    301,070
    
    
    $
    56,476Goodwill
    
    
    (43,862
    )
    
    
    (78,862
    )
    
    
    (64,862
    )Core deposit intangibles, net
    
    
    (11,836
    )
    
    
    (14,110
    )
    
    
    (12,391
    )Tangible stockholders (deficit) equity
    
    $
    (105,183
    )
    
    $
    208,098
    
    
    $
    (20,777
    )
 
 (3)
    
    Net income divided by average assets.(4)
    
    Net income divided by average equity. Not meaningful for March 31, 2010.(5)
    
    Net interest income, on a fully taxable-equivalent basis, divided by average earning assets.(6)
    
    The following table reconciles reported net interest income on a fully taxable-equivalent
basis for the periods presented: Three Months EndedMarch 31,
    
    
    December 31,2010
    
    
    2009
    
    
    2009(In thousands)Net interest income
    
    $
    14,505
    
    
    $
    21,102
    
    
    $
    14,772Taxable-equivalent adjustment to net interest income
    
    
    
    
    
    
    357
    
    
    
    Net interest income, fully tax-equivalent basis
    
    $
    14,505
    
    
    $
    21,459
    
    
    $
    14,772
 
 No taxable-equivalent adjustment is included for the three months ended March 31, 2010 or
December 31, 2009 as a result of the Companys tax position as of both of those periods.(7)
    
    Noninterest expense less noninterest income, excluding security gains/losses and impairments,
divided by average assets.(8)
    
    Noninterest expense excluding amortization of core deposit intangible assets and foreclosed
properties expense divided by noninterest income, excluding security gains/losses and
impairments, plus net interest income on a fully taxable-equivalent basis.(9)
    
    Includes total nonaccrual, impaired and all other loans 90 days or more past due.(10)
    
    Includes total nonaccrual and all other loans 90 days or more past due, troubled-debt
restructured loans and foreclosed properties. 32




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##### Table of Contents



Results of Operations  Three Months Ended
March 31, 2010 and 2009
 Going Concern
       33




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##### Table of Contents



Net Interest Income
  For the Three Months EndedMarch 31, 2010
    
    
    March 31, 2009
    
    
    December 31, 2009Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)Interest-Earning Assets:Federal funds sold and other short-term investments
    
    $
    384,770
    
    
    $
    228
    
    
    
    0.24
    %
    
    $
    4,787
    
    
    $
    37
    
    
    
    3.09
    %
    
    $
    368,424
    
    
    $
    196
    
    
    
    0.21
    %Securities:Taxable (1)
    
    
    586,947
    
    
    
    2,361
    
    
    
    1.61
    
    
    
    629,783
    
    
    
    6,940
    
    
    
    4.41
    
    
    
    603,533
    
    
    
    2,099
    
    
    
    1.39Exempt from federal income taxes (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,551
    
    
    
    846
    
    
    
    5.78
    
    
    
    74
    
    
    
    1
    
    
    
    5.41Total securities
    
    
    586,947
    
    
    
    2,361
    
    
    
    1.61
    
    
    
    688,334
    
    
    
    7,786
    
    
    
    4.52
    
    
    
    603,607
    
    
    
    2,100
    
    
    
    1.39FRB and FHLB stock
    
    
    27,652
    
    
    
    160
    
    
    
    2.31
    
    
    
    31,698
    
    
    
    190
    
    
    
    2.40
    
    
    
    27,652
    
    
    
    160
    
    
    
    2.31Loans (collateral-based classification):Commercial loans (1) (2) (3)
    
    
    431,527
    
    
    
    5,654
    
    
    
    5.24
    
    
    
    530,467
    
    
    
    6,588
    
    
    
    4.97
    
    
    
    476,861
    
    
    
    6,385
    
    
    
    5.36Commercial real estate loans (1) (2) (3) (4)
    
    
    1,491,422
    
    
    
    18,692
    
    
    
    5.01
    
    
    
    1,663,760
    
    
    
    24,230
    
    
    
    5.83
    
    
    
    1,572,050
    
    
    
    19,957
    
    
    
    5.08Agricultural loans (1) (2) (3)
    
    
    6,509
    
    
    
    106
    
    
    
    6.51
    
    
    
    7,516
    
    
    
    119
    
    
    
    6.33
    
    
    
    5,808
    
    
    
    95
    
    
    
    6.54Consumer real estate loans (2) (3) (4)
    
    
    323,195
    
    
    
    3,389
    
    
    
    4.19
    
    
    
    335,768
    
    
    
    3,566
    
    
    
    4.25
    
    
    
    336,230
    
    
    
    3,465
    
    
    
    4.12Consumer installment loans (2) (3)
    
    
    5,323
    
    
    
    87
    
    
    
    6.54
    
    
    
    6,259
    
    
    
    107
    
    
    
    6.84
    
    
    
    5,284
    
    
    
    87
    
    
    
    6.59Total loans
    
    
    2,257,976
    
    
    
    27,928
    
    
    
    4.95
    
    
    
    2,543,770
    
    
    
    34,610
    
    
    
    5.44
    
    
    
    2,396,233
    
    
    
    29,989
    
    
    
    5.01Total interest-earning assets
    
    $
    3,257,345
    
    
    $
    30,677
    
    
    
    3.77
    %
    
    $
    3,268,589
    
    
    $
    42,623
    
    
    
    5.22
    %
    
    $
    3,395,916
    
    
    $
    32,445
    
    
    
    3.82
    %Noninterest-Earning Assets:Cash
    
    $
    29,356
    
    
    
    
    
    
    
    
    
    
    $
    69,006
    
    
    
    
    
    
    
    
    
    
    $
    35,439Premises and equipment, net
    
    
    39,307
    
    
    
    
    
    
    
    
    
    
    
    38,166
    
    
    
    
    
    
    
    
    
    
    
    40,412Allowance for loan losses
    
    
    (125,783
    )
    
    
    
    
    
    
    
    
    
    
    (46,503
    )
    
    
    
    
    
    
    
    
    
    
    (88,657
    )Other assets
    
    
    151,606
    
    
    
    
    
    
    
    
    
    
    
    319,615
    
    
    
    
    
    
    
    
    
    
    
    161,592Total noninterest-earning assets
    
    
    94,486
    
    
    
    
    
    
    
    
    
    
    
    380,284
    
    
    
    
    
    
    
    
    
    
    
    148,786Total assets
    
    $
    3,351,831
    
    
    
    
    
    
    
    
    
    
    $
    3,648,873
    
    
    
    
    
    
    
    
    
    
    $
    3,544,702Interest-Bearing Liabilities:Deposits:Demand deposits
    
    $
    169,099
    
    
    $
    119
    
    
    
    0.28
    %
    
    $
    173,291
    
    
    $
    256
    
    
    
    0.59
    %
    
    $
    177,039
    
    
    $
    179
    
    
    
    0.40
    %Money-market demand and savings accounts
    
    
    329,926
    
    
    
    598
    
    
    
    0.73
    
    
    
    351,778
    
    
    
    753
    
    
    
    0.86
    
    
    
    342,499
    
    
    
    703
    
    
    
    0.82Time deposits
    
    
    1,672,098
    
    
    
    7,887
    
    
    
    1.89
    
    
    
    1,618,236
    
    
    
    12,676
    
    
    
    3.13
    
    
    
    1,717,023
    
    
    
    9,046
    
    
    
    2.11Total interest-bearing deposits
    
    
    2,171,123
    
    
    
    8,604
    
    
    
    1.59
    
    
    
    2,143,305
    
    
    
    13,685
    
    
    
    2.55
    
    
    
    2,236,561
    
    
    
    9,928
    
    
    
    1.78Borrowings:Federal funds purchased and repurchase agreements
    
    
    297,683
    
    
    
    3,193
    
    
    
    4.29
    
    
    
    333,990
    
    
    
    3,234
    
    
    
    3.87
    
    
    
    297,687
    
    
    
    3,264
    
    
    
    4.39FHLB advances
    
    
    340,000
    
    
    
    2,999
    
    
    
    3.53
    
    
    
    363,000
    
    
    
    3,029
    
    
    
    3.34
    
    
    
    340,000
    
    
    
    3,066
    
    
    
    3.61Junior subordinated debentures
    
    
    60,828
    
    
    
    423
    
    
    
    2.78
    
    
    
    60,799
    
    
    
    739
    
    
    
    4.86
    
    
    
    60,828
    
    
    
    439
    
    
    
    2.89Revolving note payable
    
    
    8,600
    
    
    
    156
    
    
    
    7.26
    
    
    
    8,600
    
    
    
    43
    
    
    
    2.00
    
    
    
    8,600
    
    
    
    159
    
    
    
    7.40Term note payable
    
    
    55,000
    
    
    
    657
    
    
    
    4.78
    
    
    
    55,000
    
    
    
    282
    
    
    
    2.05
    
    
    
    55,000
    
    
    
    673
    
    
    
    4.89Subordinated note payable
    
    
    15,000
    
    
    
    140
    
    
    
    3.73
    
    
    
    15,000
    
    
    
    152
    
    
    
    4.05
    
    
    
    15,000
    
    
    
    144
    
    
    
    3.84Total borrowings
    
    
    777,111
    
    
    
    7,568
    
    
    
    3.90
    
    
    
    836,389
    
    
    
    7,479
    
    
    
    3.58
    
    
    
    777,115
    
    
    
    7,745
    
    
    
    3.99Total interest-bearing liabilities
    
    $
    2,948,234
    
    
    $
    16,172
    
    
    
    2.19
    %
    
    $
    2,979,694
    
    
    $
    21,164
    
    
    
    2.84
    %
    
    $
    3,013,676
    
    
    $
    17,673
    
    
    
    2.35
    %Noninterest-Bearing Liabilities:Demand deposits
    
    $
    339,016
    
    
    
    
    
    
    
    
    
    
    $
    330,957
    
    
    
    
    
    
    
    
    
    
    $
    343,055Other liabilities
    
    
    32,915
    
    
    
    
    
    
    
    
    
    
    
    35,203
    
    
    
    
    
    
    
    
    
    
    
    30,670Total noninterest-bearing liabilities
    
    
    371,931
    
    
    
    
    
    
    
    
    
    
    
    366,160
    
    
    
    
    
    
    
    
    
    
    
    373,725Stockholders equity
    
    
    31,666
    
    
    
    
    
    
    
    
    
    
    
    303,019
    
    
    
    
    
    
    
    
    
    
    
    157,301Total liabilities and stockholders equity
    
    $
    3,351,831
    
    
    
    
    
    
    
    
    
    
    $
    3,648,873
    
    
    
    
    
    
    
    
    
    
    $
    3,544,702Net interest income (taxable- equivalent basis) (1) (5)
    
    
    
    
    
    $
    14,505
    
    
    
    1.58
    %
    
    
    
    
    
    $
    21,459
    
    
    
    2.38
    %
    
    
    
    
    
    $
    14,772
    
    
    
    1.47
    %Net interest margin (taxable- equivalent basis) (1)
    
    
    
    
    
    
    
    
    
    
    1.78
    %
    
    
    
    
    
    
    
    
    
    
    2.63
    %
    
    
    
    
    
    
    
    
    
    
    1.74
    %Net interest income (5) (6)
    
    
    
    
    
    $
    14,505
    
    
    
    
    
    
    
    
    
    
    $
    21,102
    
    
    
    
    
    
    
    
    
    
    $
    14,772Net interest margin (6)
    
    
    
    
    
    
    
    
    
    
    1.78
    %
    
    
    
    
    
    
    
    
    
    
    2.58
    %
    
    
    
    
    
    
    
    
    
    
    1.74
    %Average interest-earning assets to Interest-bearing
liabilities
    
    
    110.48
    %
    
    
    
    
    
    
    
    
    
    
    109.70
    %
    
    
    
    
    
    
    
    
    
    
    112.68
    %
 34




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##### Table of Contents



(1)
    
    Adjusted for 35% tax rate and the dividends-received deduction where applicable.(2)
    
    Nonaccrual loans are included in the average balance; however, these loans are not earning
any interest.(3)
    
    Includes loan fees of $461, $476, and $554 for the three months ended March 31, 2010, March
31, 2009, and December 31, 2009, respectively.(4)
    
    Includes construction loans.(5)
    
    The following table reconciles reported net interest income on a taxable-equivalent basis for
the periods presented: For the Three Months Ended,March 31,
    
    
    March 31,
    
    
    December 31,2010
    
    
    2009
    
    
    2009(In thousands)Net interest income
    
    $
    14,505
    
    
    $
    21,102
    
    
    $
    14,772Taxable-equivalent adjustment to net interest income
    
    
    
    
    
    
    357
    
    
    
    Net interest income, fully taxable-equivalent basis
    
    $
    14,505
    
    
    $
    21,459
    
    
    $
    14,772
 
 (6)
    
    Not adjusted for 35% tax rate or for the dividends-received deduction.   Trends in Fully Taxable-Equivalent Interest Income and Average Interest-Earning Assets
   35




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##### Table of Contents



Trends in Interest Expense and Average Interest-Bearing Liabilities.
   Noninterest Income
    36




---



##### Table of Contents



Noninterest Expense
    Income Taxes
   Three Months Ended March 31,2010
    
    
    2009(In thousands)Income taxes computed at the statutory rate
    
    $
    (36,416
    )
    
    
    35.0
    %
    
    $
    (3,611
    )
    
    
    35.0
    %Tax-exempt interest income on securities and loans
    
    
    (15
    )
    
    
    
    
    
    
    (229
    )
    
    
    2.2General business credits
    
    
    (147
    )
    
    
    0.1
    
    
    
    (609
    )
    
    
    5.9State income taxes, net of federal tax benefit due to state operating loss
    
    
    (3,615
    )
    
    
    3.5
    
    
    
    (523
    )
    
    
    5.1Life insurance cash surrender value increase, net of premiums
    
    
    
    
    
    
    
    
    
    
    (293
    )
    
    
    2.8Goodwill impairment
    
    
    7,350
    
    
    
    (7.1
    )
    
    
    
    
    
    
    Valuation allowance
    
    
    36,885
    
    
    
    (35.4
    )
    
    
    
    
    
    
    Nondeductible costs and other, net
    
    
    (208
    )
    
    
    0.2
    
    
    
    269
    
    
    
    (2.6
    )Provision for (benefit from) income taxes
    
    $
    3,834
    
    
    
    (3.7
    )%
    
    $
    (4,996
    )
    
    
    48.4
    %
 37




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##### Table of Contents



Financial Condition
 Balance Sheet.
 Asset Quality.
 Loans
  March 31,
    
    
    December 31,2010
    
    
    2009% of Gross
    
    
    
    
    
    
    % of GrossAmount
    
    
    Loans
    
    
    Amount
    
    
    Loans(Dollars in thousands)Commercial
    
    $
    923,843
    
    
    
    42.3
    %
    
    $
    972,090
    
    
    
    41.9
    %Construction
    
    
    245,586
    
    
    
    11.2
    
    
    
    293,215
    
    
    
    12.6Commercial real estate
    
    
    695,511
    
    
    
    31.8
    
    
    
    725,814
    
    
    
    31.3Home equity
    
    
    209,993
    
    
    
    9.7
    
    
    
    219,183
    
    
    
    9.5Other consumer
    
    
    4,877
    
    
    
    0.2
    
    
    
    5,454
    
    
    
    0.2Residential mortgage
    
    
    105,186
    
    
    
    4.8
    
    
    
    105,147
    
    
    
    4.5Total loans, gross
    
    
    2,184,996
    
    
    
    100.0
    %
    
    
    2,320,903
    
    
    
    100.0
    %Net deferred fees
    
    
    (556
    )
    
    
    
    
    
    
    (584
    )Total loans, net
    
    $
    2,184,440
    
    
    
    
    
    
    $
    2,320,319
  Allowance for Loan Losses
  38




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##### Table of Contents



Three Months EndedMarch 31,2010
    
    
    2009(In thousands)Balance at beginning of period
    
    $
    128,800
    
    
    $
    44,432Provision for loan losses
    
    
    76,300
    
    
    
    13,000Loans charged off
    
    
    (63,810
    )
    
    
    (4,819
    )Recoveries
    
    
    994
    
    
    
    398Net loans charged off
    
    
    (62,816
    )
    
    
    (4,421
    )Balance at end of period
    
    $
    142,284
    
    
    $
    53,011
    March 31,
    
    
    December 31,
    
    
    March 31,2010
    
    
    2009
    
    
    2009Net loans charged off to average loans during quarter
    
    
    11.28
    %
    
    
    8.73
    %
    
    
    0.70
    %Provision for loan losses to total loans
    
    
    14.17
    
    
    
    16.76
    
    
    
    2.03Allowance for loan losses to total loans
    
    
    6.51
    
    
    
    5.55
    
    
    
    2.05Allowance to nonaccrual loans
    
    
    0.51x
    
    
    
    0.47x
    
    
    
    0.66x
    39




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##### Table of Contents



Nonaccrual Loans and Nonperforming Assets
  40




---



##### Table of Contents



March 31,
    
    
    December 31,2010
    
    
    2009(Dollars in thousands)Impaired and other loans 90 days past due and accruing
    
    $
    
    
    
    $
    Nonaccrual loans:Commercial and industrial
    
    $
    28,239
    
    
    $
    20,719Commercial real estate  non-owner occupied
    
    
    104,279
    
    
    
    110,504Commercial real estate  owner occupied
    
    
    22,073
    
    
    
    19,573Construction
    
    
    68,446
    
    
    
    73,124Vacant land
    
    
    37,849
    
    
    
    37,021Total commercial and commercial real estate
    
    
    260,886
    
    
    
    260,941Other consumer
    
    
    17,168
    
    
    
    12,588Home equity
    
    
    
    
    
    
    294Total consumer
    
    
    17,168
    
    
    
    12,882Total nonaccrual loans
    
    
    278,054
    
    
    
    273,823Troubled-debt restructured loans accruing
    
    
    11,485
    
    
    
    11,635Total nonperforming loans
    
    
    289,539
    
    
    
    285,458Foreclosed properties
    
    
    26,715
    
    
    
    26,917Total nonperforming assets
    
    $
    316,254
    
    
    $
    312,375Nonaccrual loans to loans
    
    
    12.73
    %
    
    
    11.80
    %Nonperforming assets to loans and foreclosed properties
    
    
    14.30
    
    
    
    13.31Nonperforming assets to assets
    
    
    9.94
    
    
    
    9.09
      41




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##### Table of Contents



Securities
   % ofAmortized
    
    
    Fair
    
    
    AmortizedCost
    
    
    Value
    
    
    Cost(In thousands)Obligations of U.S. Treasury
    
    $
    293,974
    
    
    $
    293,965
    
    
    
    51.4
    %Mortgage-backed securities:U.S. government agencies  residential (1)
    
    
    259,892
    
    
    
    260,500
    
    
    
    45.5Equity securities of U.S. government-sponsored entities (2)
    
    
    2,749
    
    
    
    2,184
    
    
    
    0.5Corporate and other debt securities
    
    
    14,871
    
    
    
    10,970
    
    
    
    2.6Total securities available-for-sale
    
    $
    571,486
    
    
    $
    567,619
    
    
    
    100.0
    %
 
 (1)
    
    Includes obligations of Government National Mortgage Association (GNMA).(2)
    
    Includes issues from Federal National Mortgage Association (FNMA) and
of Federal Home Loan Mortgage Corporation (FHLMC).    
 42




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##### Table of Contents




 
 
   Cash Surrender Value of Life Insurance
  Goodwill
      43




---



##### Table of Contents



44




---



##### Table of Contents



Deposits and Borrowed Funds
  March 31,
    
    
    December 31,2010
    
    
    2009(In thousands)Noninterest-bearing demand
    
    $
    347,483
    
    
    $
    349,796Interest-bearing demand
    
    
    163,285
    
    
    
    178,172Money-market
    
    
    122,285
    
    
    
    168,228Savings
    
    
    174,635
    
    
    
    172,969Certificates of deposit less than $100,000
    
    
    803,863
    
    
    
    833,187Certificates of deposit of $100,000 or more
    
    
    414,572
    
    
    
    413,256Brokered certificates of deposit
    
    
    394,069
    
    
    
    454,503Total interest-bearing deposits
    
    
    2,072,709
    
    
    
    2,220,315Total
    
    $
    2,420,192
    
    
    $
    2,570,111Total core deposits (1)
    
    $
    807,688
    
    
    $
    869,165
 
 (1)
    
    Consists of noninterest-bearing and interest-bearing demand, money market, and savings.   
    
    Interest-bearing deposits decreased 6.6%, or $147.6 million to $2.1 billion at
March 31, 2010 compared to December 31, 2009.
    
    Core deposits decreased $61.5 million to $807.7 million at March 31, 2010 from
$869.2 million at December 31, 2009.
    
    Certificates of deposit under $100,000 decreased $29.3 million, or 3.5%, from
December 31, 2009 to $803.9 million at March 31, 2010, as a result of maturities that
were not replaced.
    
    Certificates of deposit through the CDARS and Internet networks were $132.9 million
at March 31, 2010 compared to $137.8 million at December 31, 2009. These networks allow
the Company to access other deposit funding sources.
 45




---



##### Table of Contents




    
    Brokered certificates of deposit decreased $60.4 million, or 13.3%, to $394.1
million at March 31, 2010 compared to year end 2009 due to maturities and the Bank not
accepting or renewing brokered deposits. The brokered certificates of deposit are
comprised of underlying certificates of deposits in denominations of less than $100,000.
At March 31, 2010, the brokered deposits had a weighted average maturity of approximately
six months.
    March 31,
    
    
    December 31,2010
    
    
    2009(In thousands)Revolving note payable
    
    $
    8,600
    
    
    $
    8,600Securities sold under agreements to repurchase
    
    
    297,650
    
    
    
    297,650Advances from the Federal Home Loan Bank
    
    
    340,000
    
    
    
    340,000Junior subordinated debentures
    
    
    60,828
    
    
    
    60,828Subordinated debt
    
    
    15,000
    
    
    
    15,000Term note payable
    
    
    55,000
    
    
    
    55,000Total
    
    $
    777,078
    
    
    $
    777,078
   46




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##### Table of Contents



Going Concern
 47




---



##### Table of Contents



Capital Resources
       Regulatory Capital
 48




---



##### Table of Contents



March 31,
    
    
    December 31,2010
    
    
    2009(In thousands)Risk-weighted assets
    
    $
    2,152,291
    
    
    $
    2,316,607Average assets for leverage capital purposes
    
    
    3,300,267
    
    
    
    3,467,651Capital components:Stockholders (deficit) equity
    
    $
    (49,485
    )
    
    $
    56,476Guaranteed trust preferred securities
    
    
    
    
    
    
    21,432Core deposit intangibles, net
    
    
    (11,836
    )
    
    
    (12,391
    )Goodwill
    
    
    (43,862
    )
    
    
    (64,862
    )Disallowed deferred tax assets
    
    
    
    
    
    
    (3,438
    )Prior service cost and decrease in projected benefit obligation
    
    
    (23
    )
    
    
    1Unrealized losses on securities
    
    
    3,867
    
    
    
    8,297Unrealized losses on equity securities
    
    
    (565
    )
    
    
    (478
    )Tier 1 capital
    
    $
    (101,904
    )
    
    $
    5,037Includible allowance for loan losses
    
    
    28,358
    
    
    
    30,218Guaranteed trust preferred securities
    
    
    59,000
    
    
    
    37,568Qualifying subordinated debt
    
    
    
    
    
    
    2,519Tier 2 capital
    
    $
    87,358
    
    
    $
    70,305Allowable Tier 2 capital
    
    $
    
    
    
    $
    5,037Total risk-based capital
    
    $
    (101,904
    )
    
    $
    10,074
 49




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##### Table of Contents



At December 31, 2010To Be AdequatelyCapitalized UnderFor Capital
    
    
    Prompt CorrectiveActual
    
    
    Adequacy Purposes
    
    
    Action ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(Dollars in thousands)Total Capital
(to risk-weighted
assets) Company
    
    $
    (101,904
    )
    
    
    (4.7
    )%
    
    $
    172,183
    
    
    
    8.0
    %
    
    
    n/a
    
    
    
    n/aBank
    
    
    61,339
    
    
    
    2.9
    
    
    
    171,524
    
    
    
    8.0
    
    
    $
    171,524
    
    
    
    8.0
    %Tier 1 Capital (to
risk-weighted
assets) Company
    
    
    (101,904
    )
    
    
    (4.7
    )
    
    
    86,092
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aBank
    
    
    33,083
    
    
    
    1.5
    
    
    
    85,762
    
    
    
    4.0
    
    
    
    85,762
    
    
    
    4.0Tier 1 Capital (to
average assets for
leverage capital
purposes)
Company
    
    
    (101,904
    )
    
    
    (3.1
    )
    
    
    132,011
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aBank
    
    
    33,083
    
    
    
    1.0
    
    
    
    131,631
    
    
    
    4.0
    
    
    
    131,631
    
    
    
    4.0
 At December 31, 2009To Be AdequatelyCapitalized UnderFor Capital
    
    
    Prompt CorrectiveActual
    
    
    Adequacy Purposes
    
    
    Action ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(Dollars in thousands)Total Capital
(to risk-weighted
assets) Company
    
    $
    10,074
    
    
    
    0.4
    %
    
    $
    185,329
    
    
    
    8.0
    %
    
    
    n/a
    
    
    
    n/aBank
    
    
    148,062
    
    
    
    6.4
    
    
    
    184,899
    
    
    
    8.0
    
    
    $
    184,899
    
    
    
    8.0
    %Tier 1 Capital (to
risk-weighted
assets) Company
    
    
    5,037
    
    
    
    0.2
    
    
    
    92,664
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aBank
    
    
    117,911
    
    
    
    5.1
    
    
    
    92,450
    
    
    
    4.0
    
    
    
    92,450
    
    
    
    4.0Tier 1 Capital (to
average assets for
leverage capital
purposes)
Company
    
    
    5,037
    
    
    
    0.1
    
    
    
    138,706
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aBank
    
    
    117,911
    
    
    
    3.4
    
    
    
    138,482
    
    
    
    4.0
    
    
    
    138,482
    
    
    
    4.0
 Liquidity
    50




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##### Table of Contents



Holding Company Liquidity.
   51




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##### Table of Contents



52




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##### Table of Contents



ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
 Interest Rate Sensitivity Analysis
  Change in Net Interest Income Over One Year HorizonCompanyGuidelineMarch 31, 2010
    
    
    December 31, 2009
    
    
    MaximumDollar
    
    
    %
    
    
    Dollar
    
    
    %
    
    
    %Change
    
    
    Change
    
    
    Change
    
    
    Change
    
    
    Change(Dollars in thousands)+200 bp
    
    $
    8,262
    
    
    
    14.41
    %
    
    $
    11,109
    
    
    
    18.12
    %
    
    
    (10.0
    )%+100 bp
    
    
    3,864
    
    
    
    6.74
    
    
    
    5,084
    
    
    
    8.29
    
    
    
    -100 bp
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    -200 bp
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    (10.0
    )
    53




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ITEM 4  CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls Over Financial Reporting
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SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
     
    
    The Company and Banks ability to timely comply with the terms of the PCA and the Written
Agreement with their regulators pursuant to which the Company and Bank agreed to take
certain corrective actions to improve their capital positions and financial condition;
    
    Possible administrative or enforcement actions of banking regulators in connection with
any material failure of the Company or the Bank to comply with banking laws, rules or
regulations, or terms of the PCA and the Written Agreement;
    
    The potential call by the Banks repurchase agreement counterparty to terminate the
repurchase agreements since the Bank has not maintained its well-capitalized status and the
substantial costs the Bank would incur to unwind these repurchase agreements prior to their
maturities;
    
    Uncertainties regarding the Companys ability to raise a sufficient amount of new equity
capital in a timely manner in order to increase its regulatory capital ratios as required by
the PCA, facilitate a possible restructuring or equity conversion of its senior and
subordinated debt, permit a conversion of the U.S. Treasurys preferred equity investment
into common stock and otherwise successfully implement and achieve the goals of the Capital
Plan;
    
    The exercise by the lender of all its rights in full as a result of certain existing
events of default, including taking possession of all of the Banks capital stock held by
the Company and pledged to the lender as collateral following the expiration of the
Forbearance Agreement on March 31, 2010;
    
    The Companys inability to meet, on an unconsolidated basis, its short-term obligations
and access sufficient sources of liquidity;
    
    Managements ability to effectively manage interest rate risk and the impact of interest
rates in general on the volatility of the Companys net interest income;
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
    
    The effect of the Emergency Economic Stabilization Act of 2008, the American Recovery and
Reinvestment Act of 2009, the implementation by the U.S. Department of the Treasury (the
U.S. Treasury) and federal banking regulators of a number of programs to address capital
and liquidity issues in the banking system and additional programs that will apply to us in
the future, all of which may have significant effects on us and the financial services
industry;
    
    The effect on the Companys profitability if interest rates fluctuate as well as the
effect of the Banks customers changing use of deposit products;
    
    The possibility that the Companys wholesale funding sources may prove insufficient to
replace deposits at maturity;
    
    Inaccessibility of funding sources on the same terms on which the Company has
historically relied, due to its current capital ratings;
    
    The decline in commercial and residential real estate sales volume and the likely
potential for continuing illiquidity in the real estate market, including within the Chicago
metropolitan area;
    
    The risks associated with the high concentration of commercial real estate loans in the
Companys portfolio;
    
    The uncertainties in estimating the fair value of developed real estate and undeveloped
land in light of declining demand for such assets and continuing illiquidity in the real
estate market;
    
    Negative developments and disruptions in the credit and lending markets, including the
impact of the ongoing credit crisis on the Companys business and on the businesses of its
customers as well as other banks and lending institutions with which the Company has
commercial relationships;
    
    A continuation of the recent unprecedented volatility in the capital markets;
    
    The risks associated with implementing the Companys business strategy, including its
ability to preserve and access sufficient capital to execute on its strategy;
    
    Rising unemployment and its impact on the Companys customers savings rates and their
ability to service debt obligations;
    
    Fluctuations in the value of the Companys investment securities;
    
    The ability to attract and retain senior management experienced in banking and financial
services;
    
    The risks associated with management changes and employee turnover;
    
    Credit risks and risks from concentrations (by geographic area and by industry) within
the Banks loan portfolio and individual large loans;
    
    The risk that the allowance for loan losses may prove insufficient to absorb actual
losses in the loan portfolio;
    
    Possible volatility in loan losses between periods;
    
    The imprecision of assumptions underlying the establishment of the allowance for loan
losses and change in estimated values of collateral or cash flow projections and various
financial assets and liabilities;
    
    The Companys ability to adapt successfully to technological changes to compete
effectively in the marketplace;
    
    The effects of competition from other commercial banks, thrifts, mortgage banking firms,
consumer finance companies, credit unions, securities brokerage firms, insurance companies,
money market and other mutual funds, and other financial institutions operating in the
Companys market or elsewhere or providing similar services;
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
    
    Volatility of rate sensitive deposits;
    
    Operational risks, including data processing system failures or fraud;
    
    Liquidity risks;
    
    The possibility that the Bank would experience deposit erosion caused by the expiration
of the FDICs Transaction Account Guarantee Program;
    
    The ability to successfully acquire low cost deposits or funding;
    
    Changes in the economic environment, competition, or other factors that may influence
loan demand, deposit flows, and the quality of the loan portfolio and loan and deposit
pricing;
    
    The impact from liabilities arising from legal or administrative proceedings on the
financial condition of the Company;
    
    The inability of the Bank to pay dividends to the Company;
    
    The Companys inability to pay cash dividends on its common and preferred stock and
interest on its junior subordinated debentures;
    
    Governmental monetary and fiscal policies, as well as legislative and regulatory changes,
that may result in the imposition of costs and constraints on the Company through higher
FDIC insurance premiums, significant fluctuations in market interest rates, increases in
capital requirements, and operational limitations;
    
    Changes in general economic or capital market conditions, interest rates, debt credit
ratings, deposit flows, loan demand, including loan syndication opportunities;
    
    Changes in legislation or regulatory and accounting requirements, principles, policies,
or guidelines affecting the business conducted by the Company, including the results of
regulatory examinations;
    
    The impact of possible future goodwill and other material impairment charges;
    
    The effects of increased deposit insurance premiums;
    
    The delisting of the Companys common stock from Nasdaq;
    
    Acts of war or terrorism; and
    
    Other economic, competitive, governmental, regulatory, and technological factors
affecting the Companys operations, products, services, and prices.
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PART II
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  The Bank was critically undercapitalized under regulatory guidelines at March 31, 2010, and
continued losses and deterioration in credit quality are likely to cause the Banks capital levels
to further decline in the near term.
  Due to the Banks significantly undercapitalized status, the Bank is subject to a Prompt Corrective
Action Directive (PCA) issued by the Board of Governors of the Federal Reserve System pursuant to
which the Bank must either become adequately capitalized or be sold within 45 days of the PCA. Any
failure to comply with the terms of the PCA will have a material adverse effect on the business of
the Company.
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The Company does not have the ability to pay amounts that are presently due to the Companys
primary lender.
  If the Company fails to promptly raise additional capital, the Company may be forced to seek
bankruptcy protection and the Company believes it is likely that the
Bank would be placed under FDIC receivership.
  As a result of the above-described events and circumstances, the Company has determined that there
is substantial doubt as to the Companys ability to continue as a going concern.
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Going Concern
 Concern of the Companys customers over deposit insurance may cause a decrease in deposits.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Removed and Reserved
 
 Item 5. Other Information
  
 Item 6. Exhibits
  3.1
    
    Amended and Restated Certificate of Incorporation, as amended.3.3
    
    Certificate of Designation for the Series G Preferred Stock (incorporated by reference to
Registrants Form 10-K for the year ended December 31, 2009, File No. 001-13735).4.1.3
    
    Form of Certificate for the Series G Preferred Stock (incorporated by reference to
Registrants Form 10-K for the year ended December 31, 2009, File No. 001-13735).4.1.4
    
    Warrant for Purchase of Shares of Common Stock, Dated March 8, 2010(incorporated by
reference to Registrants Form 10-K for the year ended December 31, 2009, File No. 001-13735).4.2
    
    Certain instruments defining the rights of the holders of long-term debt of the Company and
certain of its subsidiaries, none of which authorize a total amount of indebtedness in excess
of 10% of the total assets of the Company and its subsidiaries on a consolidated basis, have
not been filed as Exhibits. The Company hereby agrees to furnish a copy of any of these
agreements to the SEC upon request.10.75
    
    Exchange Agreement dated February 25, 2010 by and between the
Company and the United States Department of the Treasury
(incorporated by reference to Registrants Report on Form 8-K
filed March 3, 2010, File No. 001-13735).
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10.77
    
    Prompt Corrective Action Directive effective March 30, 2010 to the Bank by the Board of
Governors of the Federal Reserve System (incorporated by reference to Registrants Form 10-K
for the year ended December 31, 2009, File No. 001-13735).31.1
    
    Rule 13a-14(a) Certification of Principal Executive Officer.31.2
    
    Rule 13a-14(a) Certification of Principal Financial Officer.32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, from the Companys Chief Executive Officer and Chief Financial Officer.
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SIGNATURES
   MIDWEST BANC HOLDINGS, INC.
(Registrant)By:
    /s/ Roberto R. HerenciaRoberto R. HerenciaPresident and Chief Executive Officer
(Principal Executive Officer)By:
    /s/ JoAnn Sannasardo LilekJoAnn Sannasardo LilekExecutive Vice President and
Chief Financial Officer
(Principal Financial Officer) 62




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Exhibit Index
 3.1
    
    Amended and Restated Certificate of Incorporation, as amended.3.3
    
    Certificate of Designation for the Series G Preferred Stock (incorporated by reference to
Registrants Form 10-K for the year ended December 31, 2009, File No. 001-13735).4.1.3
    
    Form of Certificate for the Series G Preferred Stock (incorporated by reference to
Registrants Form 10-K for the year ended December 31, 2009, File No. 001-13735).4.1.4
    
    Warrant for Purchase of Shares of Common Stock, Dated March 8, 2010(incorporated by
reference to Registrants Form 10-K for the year ended December 31, 2009, File No. 001-13735).4.2
    
    Certain instruments defining the rights of the holders of long-term debt of the Company and
certain of its subsidiaries, none of which authorize a total amount of indebtedness in excess
of 10% of the total assets of the Company and its subsidiaries on a consolidated basis, have
not been filed as Exhibits. The Company hereby agrees to furnish a copy of any of these
agreements to the SEC upon request.10.75
    
    Exchange Agreement dated February 25, 2010 by and between the
Company and the United States Department of the Treasury
(incorporated by reference to Registrants Report on Form 8-K
filed March 3, 2010, File No. 001-13735).10.77
    
    Prompt Corrective Action Directive effective March 30, 2010 to the Bank by the Board of
Governors of the Federal Reserve System (incorporated by reference to Registrants Form 10-K
for the year ended December 31, 2009, File No. 001-13735).31.1
    
    Rule 13a-14(a) Certification of Principal Executive Officer.31.2
    
    Rule 13a-14(a) Certification of Principal Financial Officer.32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, from the Companys Chief Executive Officer and Chief Financial Officer.
 63