##### 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 September 30, 2009
 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 Number)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)
 þ o
  Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company o o o
 o þ
  Class
    
    Outstanding at November 9, 2009Common, par value $0.01
    
    28,116,312




---



##### 



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
    
    
    59Item 4. Controls and Procedures
    
    
    60PART IIItem 1. Legal Proceedings
    
    
    65Item 1A. Risk Factors
    
    
    65Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
    
    
    87Item 3. Defaults upon Senior Securities
    
    
    87Item 4. Submission of Matters to a Vote of Security Holders
    
    
    87Item 5. Other Information
    
    
    87Item 6. Exhibits
    
    
    87Signature Page
    
    
    88EX-31.1EX-31.2EX-32.1
  i




---



##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except for share data)
 September 30,
    
    
    December 31,2009
    
    
    2008ASSETSCash
    
    $
    32,278
    
    
    $
    61,330Federal funds sold and other short-term investments
    
    
    295,162
    
    
    
    1,735Total cash and cash equivalents
    
    
    327,440
    
    
    
    63,065Securities available-for-sale (securities pledged to creditors:$480,614 at September 30, 2009 and $482,224 at December 31, 2008)
    
    
    615,543
    
    
    
    621,949Securities held-to-maturity (fair value: $30,387 at December 31, 2008)
    
    
    
    
    
    
    30,267Total securities
    
    
    615,543
    
    
    
    652,216Federal Reserve Bank and Federal Home Loan Bank stock, at cost
    
    
    27,652
    
    
    
    31,698Loans
    
    
    2,454,101
    
    
    
    2,509,759Allowance for loan losses
    
    
    (83,506
    )
    
    
    (44,432
    )Net loans
    
    
    2,370,595
    
    
    
    2,465,327Cash surrender value of life insurance
    
    
    
    
    
    
    84,675Premises and equipment, net
    
    
    40,589
    
    
    
    38,313Foreclosed properties
    
    
    20,980
    
    
    
    12,018Core deposit and other intangibles, net
    
    
    12,964
    
    
    
    14,683Goodwill
    
    
    78,862
    
    
    
    78,862Other assets
    
    
    49,505
    
    
    
    129,355Total assets
    
    $
    3,544,130
    
    
    $
    3,570,212LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesDepositsNoninterest-bearing
    
    $
    330,901
    
    
    $
    334,495Interest-bearing
    
    
    2,224,288
    
    
    
    2,078,296Total deposits
    
    
    2,555,189
    
    
    
    2,412,791Revolving note payable
    
    
    8,600
    
    
    
    8,600Securities sold under agreements to repurchase
    
    
    297,650
    
    
    
    297,650Advances from the Federal Home Loan Bank
    
    
    340,000
    
    
    
    380,000Junior subordinated debentures
    
    
    60,828
    
    
    
    60,791Subordinated debt
    
    
    15,000
    
    
    
    15,000Term note payable
    
    
    55,000
    
    
    
    55,000Total borrowings
    
    
    777,078
    
    
    
    817,041Other liabilities
    
    
    31,624
    
    
    
    34,546Total liabilities
    
    
    3,363,891
    
    
    
    3,264,378Commitments and contingencies (see note 9)Stockholders EquityPreferred stock, $0.01 par value, 1,000,000 shares authorized; Series
A, $2,500 liquidation preference, 17,250 shares issued and outstanding
at September 30, 2009 and December 31, 2008; Series T, $1,000
liquidation preference, 84,784 shares issued and outstanding at
September 30, 2009 and December 31, 2008
    
    
    1
    
    
    
    1Common stock, $0.01 par value, 64,000,000 shares authorized;
29,847,092 shares issued and 28,116,312 outstanding at September 30,
2009 and 29,530,878 shares issued and 27,892,578 outstanding at
December 31, 2008
    
    
    301
    
    
    
    296Additional paid-in capital
    
    
    385,219
    
    
    
    383,491Warrant
    
    
    5,229
    
    
    
    5,229Accumulated deficit
    
    
    (191,726
    )
    
    
    (66,325
    )Accumulated other comprehensive loss
    
    
    (4,032
    )
    
    
    (2,122
    )Treasury stock, at cost (1,730,780 shares at September 30, 2009 and
1,638,300 shares at December 31, 2008)
    
    
    (14,753
    )
    
    
    (14,736
    )Total stockholders equity
    
    
    180,239
    
    
    
    305,834Total liabilities and stockholders equity
    
    $
    3,544,130
    
    
    $
    3,570,212
 See accompanying notes to unaudited consolidated financial statements.
 PAGE 1




---



##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Interest IncomeLoans
    
    $
    33,294
    
    
    $
    37,364
    
    
    $
    103,191
    
    
    $
    115,562SecuritiesTaxable
    
    
    1,488
    
    
    
    7,739
    
    
    
    13,091
    
    
    
    25,776Exempt from federal income taxes
    
    
    29
    
    
    
    574
    
    
    
    985
    
    
    
    1,765Dividends from Federal Reserve and Federal Home Loan Bank stock
    
    
    160
    
    
    
    184
    
    
    
    520
    
    
    
    551Federal funds sold and other short-term investments
    
    
    164
    
    
    
    27
    
    
    
    276
    
    
    
    273Total interest income
    
    
    35,135
    
    
    
    45,888
    
    
    
    118,063
    
    
    
    143,927Interest ExpenseDeposits
    
    
    11,385
    
    
    
    15,301
    
    
    
    37,280
    
    
    
    50,501Federal funds purchased and FRB discount window advances
    
    
    
    
    
    
    563
    
    
    
    49
    
    
    
    2,050Revolving note payable
    
    
    158
    
    
    
    96
    
    
    
    289
    
    
    
    270Securities sold under agreements to repurchase
    
    
    3,264
    
    
    
    3,338
    
    
    
    9,698
    
    
    
    9,998Advances from the Federal Home Loan Bank
    
    
    3,065
    
    
    
    2,779
    
    
    
    9,129
    
    
    
    8,698Junior subordinated debentures
    
    
    497
    
    
    
    864
    
    
    
    1,851
    
    
    
    2,785Subordinated debt
    
    
    145
    
    
    
    229
    
    
    
    441
    
    
    
    464Term note payable
    
    
    679
    
    
    
    565
    
    
    
    1,227
    
    
    
    2,027Total interest expense
    
    
    19,193
    
    
    
    23,735
    
    
    
    59,964
    
    
    
    76,793Net interest income
    
    
    15,942
    
    
    
    22,153
    
    
    
    58,099
    
    
    
    67,134Provision for credit losses
    
    
    37,450
    
    
    
    42,200
    
    
    
    71,453
    
    
    
    52,367Net interest income after provision for credit losses
    
    
    (21,508
    )
    
    
    (20,047
    )
    
    
    (13,354
    )
    
    
    14,767Noninterest IncomeService charges on deposit accounts
    
    
    2,013
    
    
    
    1,918
    
    
    
    5,860
    
    
    
    5,834Net gains (losses) on securities transactions
    
    
    386
    
    
    
    (16,652
    )
    
    
    4,637
    
    
    
    (16,596
    )Impairment loss on securities
    
    
    
    
    
    
    (47,801
    )
    
    
    (740
    )
    
    
    (65,387
    )Losses on sales of loans
    
    
    
    
    
    
    (75
    )
    
    
    
    
    
    
    (75
    )Insurance and brokerage commissions
    
    
    268
    
    
    
    448
    
    
    
    926
    
    
    
    1,691Trust fees
    
    
    337
    
    
    
    451
    
    
    
    915
    
    
    
    1,382Increase in cash surrender value of life insurance
    
    
    
    
    
    
    911
    
    
    
    1,332
    
    
    
    2,634Gain on sale of property
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,196Other
    
    
    653
    
    
    
    288
    
    
    
    1,365
    
    
    
    993Total noninterest income (loss)
    
    
    3,657
    
    
    
    (60,512
    )
    
    
    14,295
    
    
    
    (54,328
    )Noninterest ExpenseSalaries and employee benefits
    
    
    8,948
    
    
    
    12,515
    
    
    
    31,890
    
    
    
    36,570Occupancy and equipment
    
    
    3,175
    
    
    
    3,211
    
    
    
    9,776
    
    
    
    9,203Professional services
    
    
    2,838
    
    
    
    2,016
    
    
    
    6,830
    
    
    
    5,350Loss on early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,121Marketing
    
    
    201
    
    
    
    575
    
    
    
    1,228
    
    
    
    1,864Foreclosed properties
    
    
    3,098
    
    
    
    24
    
    
    
    3,893
    
    
    
    266Amortization of intangible assets
    
    
    573
    
    
    
    590
    
    
    
    1,719
    
    
    
    1,771Merger related
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    271Goodwill impairment
    
    
    
    
    
    
    80,000
    
    
    
    
    
    
    
    80,000FDIC insurance
    
    
    1,550
    
    
    
    1,465
    
    
    
    5,986
    
    
    
    2,099Other
    
    
    2,067
    
    
    
    2,573
    
    
    
    7,056
    
    
    
    7,156Total noninterest expense
    
    
    22,450
    
    
    
    103,046
    
    
    
    68,378
    
    
    
    151,671Loss before income taxes
    
    
    (40,301
    )
    
    
    (183,605
    )
    
    
    (67,437
    )
    
    
    (191,232
    )Provision (benefit) for income taxes
    
    
    966
    
    
    
    (23,891
    )
    
    
    55,617
    
    
    
    (28,530
    )Net loss
    
    
    (41,267
    )
    
    
    (159,714
    )
    
    
    (123,054
    )
    
    
    (162,702
    )Preferred stock dividends and premium accretion
    
    
    1,289
    
    
    
    835
    
    
    
    4,702
    
    
    
    2,506Income allocated to participating securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss available to common stockholders
    
    $
    (42,556
    )
    
    $
    (160,549
    )
    
    $
    (127,756
    )
    
    $
    (165,208
    )Basic earnings per share
    
    $
    (1.52
    )
    
    $
    (5.76
    )
    
    $
    (4.57
    )
    
    $
    (5.93
    )Diluted earnings per share
    
    $
    (1.52
    )
    
    $
    (5.76
    )
    
    $
    (4.57
    )
    
    $
    (5.93
    )Cash dividends declared per common share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0.26
 See accompanying notes to unaudited consolidated financial statements.
 PAGE 2




---



##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (Unaudited)
For the Nine Months Ended September 30, 2009 and 2008
 (In thousands, except share and per share data)
 Retained
    
    
    AccumulatedAdditional
    
    
    
    
    
    
    Earnings
    
    
    Other
    
    
    
    
    
    
    TotalPreferred
    
    
    Common
    
    
    Paid in
    
    
    
    
    
    
    (Accumulated
    
    
    Comprehensive
    
    
    Treasury
    
    
    StockholdersStock
    
    
    Stock
    
    
    Capital
    
    
    Warrant
    
    
    Deficit)
    
    

Loss
    
    
    Stock
    
    
    EquityBalance, December 31, 2007
    
    $
    
    
    
    $
    293
    
    
    $
    300,762
    
    
    $
    
    
    
    $
    102,762
    
    
    $
    (13,917
    )
    
    $
    (14,736
    )
    
    $
    375,164Cash dividends declared
($145.3125 per share) on Series
A preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,506
    )
    
    
    
    
    
    
    
    
    
    
    (2,506
    )Cash dividends declared ($0.26
per share) on common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,404
    )
    
    
    
    
    
    
    
    
    
    
    (7,404
    )Issuance of common stock upon
exercise of 16,500 stock
options, net of tax benefit
    
    
    
    
    
    
    
    
    
    
    178
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    178Issuance of 226,324 shares
restricted stock
    
    
    
    
    
    
    2
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    2,283
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,283Comprehensive
lossNet loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (162,702
    )
    
    
    
    
    
    
    
    
    
    
    (162,702
    )Prior service cost, net of
income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (449
    )
    
    
    
    
    
    
    (449
    )Net increase in fair value
of securities classified as
available- for-sale, net of
income taxes and
reclassification adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,673
    
    
    
    
    
    
    
    2,673Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (160,478
    )Balance, September 30, 2008
    
    $
    
    
    
    $
    295
    
    
    $
    303,221
    
    
    $
    
    
    
    $
    (69,850
    )
    
    $
    (11,693
    )
    
    $
    (14,736
    )
    
    $
    207,237Balance, 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 19,965 shares of
common stock to employee stock
purchase plan
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14Issuance of 166,568 shares of
common stock to directors
deferred compensation plan
    
    
    
    
    
    
    2
    
    
    
    113
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    115Issuance of 334,882 shares of
restricted stock
    
    
    
    
    
    
    3
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accreted discount on Series T
preferred stock
    
    
    
    
    
    
    
    
    
    
    687
    
    
    
    
    
    
    
    (687
    )
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    917
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    917Repurchase of 10,695 shares of
common stock under benefit plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17
    )
    
    
    (17
    )Comprehensive
lossNet loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (123,054
    )
    
    
    
    
    
    
    
    
    
    
    (123,054
    )Prior service cost including
income taxes adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (201
    )
    
    
    
    
    
    
    (201
    )Income taxes adjustment on
decrease in value of
projected benefit obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (151
    )
    
    
    
    
    
    
    (151
    )Net decrease in fair value
of securities classified as
available- for-sale
including income taxes
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,558
    )
    
    
    
    
    
    
    (1,558
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (124,964
    )Balance, September 30, 2009
    
    $
    1
    
    
    $
    301
    
    
    $
    385,219
    
    
    $
    5,229
    
    
    $
    (191,726
    )
    
    $
    (4,032
    )
    
    $
    (14,753
    )
    
    $
    180,239
 See accompanying notes to unaudited consolidated financial statements.
 PAGE 3




---



##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Nine Months Ended September 30, 2009 and 2008
(In thousands)
 2009
    
    
    2008Cash flows from operating activitiesNet loss
    
    $
    (123,054
    )
    
    $
    (162,702
    )Adjustments
to reconcile net loss to net cash provided by operating activitiesDepreciation
    
    
    3,096
    
    
    
    3,107Provision for loan losses
    
    
    69,700
    
    
    
    51,765Amortization of core deposit and other intangibles
    
    
    1,115
    
    
    
    630Goodwill impairment charge
    
    
    
    
    
    
    80,000Amortization of premiums and discounts on securities, net
    
    
    389
    
    
    
    431Realized (gain) loss on sale of securities, net
    
    
    (4,637
    )
    
    
    16,596Impairment loss on securities
    
    
    740
    
    
    
    65,387Net loss on sales of loans
    
    
    
    
    
    
    75Gain on sale of property
    
    
    
    
    
    
    (15,196
    )Loss on early extinguishment of debt
    
    
    
    
    
    
    7,121Increase in cash surrender value of life insurance
    
    
    (1,332
    )
    
    
    (2,634
    )Deferred income taxes
    
    
    48,706
    
    
    
    (14,259
    )Loss on disposition of foreclosed properties, net
    
    
    178
    
    
    
    222Valuation loss on foreclosed properties
    
    
    2,569
    
    
    
    Amortization of deferred stock based compensation
    
    
    917
    
    
    
    2,283Change in other assets
    
    
    29,517
    
    
    
    (16,774
    )Change in other liabilities
    
    
    (2,471
    )
    
    
    (436
    )Net cash provided by operating activities
    
    
    25,433
    
    
    
    15,616Cash flows from investing activitiesSales of securities available-for-sale
    
    
    573,741
    
    
    
    108,770Sales of securities held-to-maturity
    
    
    27,856
    
    
    
    4,443Redemption of Federal Reserve Bank and Federal Home Loan Bank stock
    
    
    4,046
    
    
    
    1,000Maturities of securities available-for-sale
    
    
    1,007,865
    
    
    
    107,585Principal payments on securities available-for-sale
    
    
    49,537
    
    
    
    42,496Principal payments on securities held-to-maturity
    
    
    2,468
    
    
    
    2,430Purchases of securities available-for-sale
    
    
    (1,621,933
    )
    
    
    (244,043
    )Purchases of Federal Reserve Bank and Federal Home Loan Bank stock
    
    
    
    
    
    
    (4,535
    )Loan originations and principal collections, net
    
    
    11,698
    
    
    
    (68,969
    )Sale of mortgage loans
    
    
    
    
    
    
    5,789Proceeds from sale of property
    
    
    
    
    
    
    18,259Proceeds from disposition of foreclosed properties
    
    
    1,989
    
    
    
    244Liquidation of bank-owned life insurance
    
    
    86,008
    
    
    
    Additions to property and equipment
    
    
    (5,372
    )
    
    
    (2,694
    )Net cash provided by (used in) investing activities
    
    
    137,903
    
    
    
    (29,225
    )Cash flows from financing activitiesNet increase in deposits
    
    
    142,587
    
    
    
    55,185Proceeds from borrowings
    
    
    
    
    
    
    234,600Repayments on borrowings
    
    
    (40,000
    )
    
    
    (167,075
    )Preferred cash dividends paid
    
    
    (1,660
    )
    
    
    (2,506
    )Common cash dividends paid
    
    
    
    
    
    
    (11,076
    )Change in federal funds purchased, FRB discount window advances, and securities sold under
agreements to repurchase
    
    
    
    
    
    
    (66,750
    )Repurchase of common stock under stock and incentive plan
    
    
    (17
    )
    
    
    Proceeds from issuance of common under stock and incentive plan
    
    
    129
    
    
    
    175Net cash provided by financing activities
    
    
    101,039
    
    
    
    42,553Increase (decrease) in cash and cash equivalents
    
    
    264,375
    
    
    
    28,944Cash and cash equivalents at beginning of period
    
    
    63,065
    
    
    
    84,499Cash and cash equivalents at end of period
    
    $
    327,440
    
    
    $
    113,443Supplemental disclosuresCash paid during period for:Interest
    
    $
    61,237
    
    
    $
    78,685Income taxes
    
    
    1,842
    
    
    
    2,700
 See accompanying notes to unaudited consolidated financial statements.
 PAGE 4




---



##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  BASIS OF PRESENTATION
   NOTE 2  FORBEARANCE AGREEMENT
    PAGE 5




---



##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 3  REGULATORY ACTIONS
   NOTE 4  NEW ACCOUNTING PRONOUNCEMENTS
 TM
  PAGE 6




---



##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
     PAGE 7




---



##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
      PAGE 8




---



##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  NOTE 5  SECURITIES
  September 30, 2009Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)Securities available-for-saleObligations of U.S. Treasury
    
    $
    451,785
    
    
    $
    8
    
    
    $
    (1
    )
    
    $
    451,792Obligations of states and political subdivisions
    
    
    212
    
    
    
    5
    
    
    
    
    
    
    
    217Mortgage-backed securities:U.S. government agencies  residential (1)
    
    
    147,043
    
    
    
    513
    
    
    
    (553
    )
    
    
    147,003U.S. government-sponsored entities  residential (2)
    
    
    1,783
    
    
    
    13
    
    
    
    
    
    
    
    1,796Equity securities of U.S. government-sponsored entities (3)
    
    
    2,749
    
    
    
    1,270
    
    
    
    (148
    )
    
    
    3,871Corporate and other debt securities
    
    
    14,979
    
    
    
    
    
    
    
    (4,115
    )
    
    
    10,864Total securities available-for-sale
    
    $
    618,551
    
    
    $
    1,809
    
    
    $
    (4,817
    )
    
    $
    615,543Total securities held-to-maturity
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 
 (1)
    
    Includes obligations of the Government National Mortgage Association (GNMA).(2)
    
    Includes obligations of the Federal Home Loan Mortgage Corporation (FHLMC).(3)
    
    Includes issues from Federal National Mortgage Association (FNMA) and FHLMC. PAGE 9




---



##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 December 31, 2008Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)Securities available-for-saleObligations of U.S. Treasury and U.S.
government-sponsored entities (1)
    
    $
    263,483
    
    
    $
    1,952
    
    
    $
    
    
    
    $
    265,435Obligations of states and political subdivisions
    
    
    57,309
    
    
    
    241
    
    
    
    (886
    )
    
    
    56,664Mortgage-backed securities (1)(2)
    
    
    281,592
    
    
    
    3,363
    
    
    
    (1,276
    )
    
    
    283,679Equity securities (3)
    
    
    2,749
    
    
    
    
    
    
    
    (1,819
    )
    
    
    930Corporate and other debt securities
    
    
    19,176
    
    
    
    
    
    
    
    (3,935
    )
    
    
    15,241Total securities available-for-sale
    
    $
    624,309
    
    
    $
    5,556
    
    
    $
    (7,916
    )
    
    $
    621,949Securities held-to-maturityObligations of states and political subdivisions
    
    $
    1,251
    
    
    $
    12
    
    
    $
    
    
    
    $
    1,263Mortgage-backed securities (1)(2)
    
    
    29,016
    
    
    
    138
    
    
    
    (30
    )
    
    
    29,124Total securities held-to-maturity
    
    $
    30,267
    
    
    $
    150
    
    
    $
    (30
    )
    
    $
    30,387
 
 (1)
    
    Includes obligations of the FHLMC and FNMA.(2)
    
    Includes obligations of GNMA.(3)
    
    Includes issues from FNMA and FHLMC.   PAGE 10




---



##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  September 30, 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
    
    $
    49,997
    
    
    $
    (1
    )
    
    $
    
    
    
    $
    
    
    
    $
    49,997
    
    
    $
    (1
    )Mortgage-backed securities:U.S. government agencies  residential (1)
    
    
    51,656
    
    
    
    (553
    )
    
    
    
    
    
    
    
    
    
    
    51,656
    
    
    
    (553
    )Equity securities of U.S.
government-sponsored entities (2)
    
    
    831
    
    
    
    (148
    )
    
    
    
    
    
    
    
    
    
    
    831
    
    
    
    (148
    )Corporate and other debt securities
    
    
    
    
    
    
    
    
    
    
    10,864
    
    
    
    (4,115
    )
    
    
    10,864
    
    
    
    (4,115
    )Total
securities available-for-sale
    
    
    102,484
    
    
    
    (702
    )
    
    
    10,864
    
    
    
    (4,115
    )
    
    
    113,348
    
    
    
    (4,817
    )Total temporarily impaired securities
    
    $
    102,484
    
    
    $
    (702
    )
    
    $
    10,864
    
    
    $
    (4,115
    )
    
    $
    113,348
    
    
    $
    (4,817
    )
 
 (1)
    
    Includes obligations of GNMA.(2)
    
    Includes issues from FNMA and FHLMC. December 31, 2008Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(In thousands)Securities available-for-saleObligations of states and political subdivisions
    
    $
    34,293
    
    
    $
    (886
    )
    
    $
    
    
    
    $
    
    
    
    $
    34,293
    
    
    $
    (886
    )Mortgage-backed securities
U.S. government-sponsored entities(1)
    
    
    60,117
    
    
    
    (198
    )
    
    
    39,778
    
    
    
    (1,078
    )
    
    
    99,895
    
    
    
    (1,276
    )Equity securities of U.S. government-sponsored entities (2)
    
    
    899
    
    
    
    (1,819
    )
    
    
    
    
    
    
    
    
    
    
    899
    
    
    
    (1,819
    )Corporate and other debt securities
    
    
    3,746
    
    
    
    (287
    )
    
    
    11,495
    
    
    
    (3,648
    )
    
    
    15,241
    
    
    
    (3,935
    )Total securities available-for-sale
    
    
    99,055
    
    
    
    (3,190
    )
    
    
    51,273
    
    
    
    (4,726
    )
    
    
    150,328
    
    
    
    (7,916
    )Securities held-to-maturityObligations of states and political subdivisions
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250
    
    
    
    Mortgage-backed securities
U.S. government-sponsored entities(1)
    
    
    
    
    
    
    
    
    
    
    20,521
    
    
    
    (30
    )
    
    
    20,521
    
    
    
    (30
    )Total securities held-to-maturity
    
    
    250
    
    
    
    
    
    
    
    20,521
    
    
    
    (30
    )
    
    
    20,771
    
    
    
    (30
    )Total temporarily impaired securities
    
    $
    99,305
    
    
    $
    (3,190
    )
    
    $
    71,794
    
    
    $
    (4,756
    )
    
    $
    171,099
    
    
    $
    (7,946
    )
 
 (1)
    
    Includes obligations of GNMA.(2)
    
    Includes issues from FNMA and FHLMC.  PAGE 11




---



##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 6  LOANS
  September 30,
    
    
    December 31,2009
    
    
    2008% of Gross
    
    
    
    
    
    
    % of GrossAmount
    
    
    Loans
    
    
    Amount
    
    
    Loans(Dollars in thousands)Commercial
    
    $
    1,045,533
    
    
    
    42.6
    %
    
    $
    1,090,078
    
    
    
    43.3
    %Construction
    
    
    324,074
    
    
    
    13.2
    
    
    
    366,178
    
    
    
    14.6Commercial real estate
    
    
    744,464
    
    
    
    30.3
    
    
    
    729,729
    
    
    
    29.1Home equity
    
    
    227,966
    
    
    
    9.3
    
    
    
    194,673
    
    
    
    7.8Other consumer
    
    
    5,583
    
    
    
    0.2
    
    
    
    6,332
    
    
    
    0.3Residential mortgage
    
    
    107,124
    
    
    
    4.4
    
    
    
    123,161
    
    
    
    4.9Total loans, gross
    
    
    2,454,744
    
    
    
    100.0
    %
    
    
    2,510,151
    
    
    
    100.0
    %Net deferred fees
    
    
    (643
    )
    
    
    
    
    
    
    (392
    )Total loans, net
    
    $
    2,454,101
    
    
    
    
    
    
    $
    2,509,759
 NOTE 7  ALLOWANCE FOR LOAN LOSSES
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Balance, at beginning of period
    
    $
    63,893
    
    
    $
    22,606
    
    
    $
    44,432
    
    
    $
    26,748Provision charged to operations
    
    
    36,700
    
    
    
    41,950
    
    
    
    69,700
    
    
    
    51,765Loans charged off
    
    
    (17,723
    )
    
    
    (25,224
    )
    
    
    (32,268
    )
    
    
    (40,472
    )Recoveries
    
    
    636
    
    
    
    96
    
    
    
    1,642
    
    
    
    1,387Net loans charged off
    
    
    (17,087
    )
    
    
    (25,128
    )
    
    
    (30,626
    )
    
    
    (39,085
    )Balance, at end of period
    
    $
    83,506
    
    
    $
    39,428
    
    
    $
    83,506
    
    
    $
    39,428
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Provision for loan losses
    
    $
    36,700
    
    
    $
    41,950
    
    
    $
    69,700
    
    
    $
    51,765Provision for unfunded commitment losses
    
    
    750
    
    
    
    250
    
    
    
    1,753
    
    
    
    602Provision for credit losses
    
    $
    37,450
    
    
    $
    42,200
    
    
    $
    71,453
    
    
    $
    52,367
  September 30, 2009(In thousands)Impaired loans for which no allowance for loan losses is allocated
    
    $
    52,519Impaired loans with an allocation of the allowance for loan losses
    
    
    139,141Total impaired loans
    
    $
    191,660Allowance for loan losses allocated to impaired loans
    
    $
    38,779
 Nine Months EndedSeptember 30, 2009Average impaired loans
    
    $
    103,051Interest income recognized on impaired loans on a cash basis
    
    
    443
 PAGE 12




---



##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 8  GOODWILL AND INTANGIBLES
  September 30, 2009
    
    
    December 31, 2008Gross Carrying
    
    
    Accumulated
    
    
    Net Carrying
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountAmortized intangible assets:Core deposit and other intangibles
    
    $
    21,091
    
    
    $
    (8,127
    )
    
    $
    12,964
    
    
    $
    21,091
    
    
    $
    (6,408
    )
    
    $
    14,683
  2009
    
    $
    2,2922010
    
    
    2,2222011
    
    
    1,9182012
    
    
    1,8032013
    
    
    1,696Thereafter
    
    
    4,752
   Core Depositand OtherGoodwill
    
    
    IntangiblesBalance at beginning of period
    
    $
    78,862
    
    
    $
    14,683Amortization
    
    
    
    
    
    
    (1,719
    )Balance at end of period
    
    $
    78,862
    
    
    $
    12,964
  PAGE 13




---



##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 9  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
    
    $
    81,610
    
    
    $
    5,632
    
    
    $
    5,238
    
    
    $
    
    
    
    $
    92,480Home equity
    
    
    31,528
    
    
    
    23,031
    
    
    
    27,983
    
    
    
    31,051
    
    
    
    113,593Consumer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,986
    
    
    
    1,986Commercial
    
    
    207,627
    
    
    
    3,016
    
    
    
    2,655
    
    
    
    4,740
    
    
    
    218,038Letters of credit
    
    
    43,836
    
    
    
    3,220
    
    
    
    2,828
    
    
    
    
    
    
    
    49,884Commitments to extend credit
    
    
    12,922
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,922Total commitments
    
    $
    377,523
    
    
    $
    34,899
    
    
    $
    38,704
    
    
    $
    37,777
    
    
    $
    488,903
     PAGE 14




---



##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 10  FAIR VALUE
  
    
    Level 1:Quoted prices (unadjusted) for identical assets or liabilities in active
markets that the entity has the ability to access as of the measurement date.
    
    Level 2:Significant other observable inputs other than Level 1 prices, such as quoted
prices for similar assets or liabilities, quoted prices in markets that are not active, and
other inputs that are observable or can be corroborated by observable market data.
    
    Level 3:Significant unobservable inputs that reflect a companys own assumptions about
the assumptions that market participants would use in pricing an asset or liability.
  PAGE 15




---



##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  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 September 30, 2009:Obligations of the U.S. Treasury
    
    $
    451,792
    
    
    $
    
    
    
    $
    451,792
    
    
    $
    Obligations of states and political subdivisions
    
    
    217
    
    
    
    
    
    
    
    217
    
    
    
    Mortgage-backed securities:U.S. government agencies  residential (1)
    
    
    147,003
    
    
    
    
    
    
    
    147,003
    
    
    
    U.S. government-sponsored entities  residential (2)
    
    
    1,796
    
    
    
    
    
    
    
    1,796
    
    
    
    Equity securities of U.S. government-sponsored entities
(3)
    
    
    3,871
    
    
    
    3,871
    
    
    
    
    
    
    
    Corporate and other debt securities
    
    
    10,864
    
    
    
    
    
    
    
    3,538
    
    
    
    7,326Available-for-sale securities
    
    $
    615,543
    
    
    $
    3,871
    
    
    $
    604,346
    
    
    $
    7,326Assets at December 31, 2008:Obligations of the U.S. Treasury and of U.S.
government-sponsored entities (4)
    
    $
    265,435
    
    
    $
    
    
    
    $
    265,435
    
    
    $
    Obligations of states and political subdivisions
    
    
    56,664
    
    
    
    
    
    
    
    56,664
    
    
    
    Mortgage-backed
securities (1)(4)
    
    
    283,679
    
    
    
    
    
    
    
    283,679
    
    
    
    Equity securities of U.S. government-sponsored entities
(3)
    
    
    930
    
    
    
    930
    
    
    
    
    
    
    
    Corporate and other debt securities
    
    
    15,241
    
    
    
    
    
    
    
    6,808
    
    
    
    8,433Available-for-sale securities
    
    $
    621,949
    
    
    $
    930
    
    
    $
    612,586
    
    
    $
    8,433
 
 (1)
    
    Includes obligations of GNMA.(2)
    
    Includes obligations of FHLMC.(3)
    
    Includes issues from FNMA and FHLMC.(4)
    
    Includes obligations of FHLMC and FNMA.  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Beginning balance
    
    $
    8,881
    
    
    $
    9,286
    
    
    $
    8,433
    
    
    $
    10,479Paydowns received
    
    
    (72
    )
    
    
    
    
    
    
    (167
    )
    
    
    Total gains or losses (realized/unrealized):Included in earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Included in other comprehensive income
    
    
    (1,483
    )
    
    
    (6,436
    )
    
    
    (940
    )
    
    
    (7,629
    )Ending balance
    
    $
    7,326
    
    
    $
    2,850
    
    
    $
    7,326
    
    
    $
    2,850
 PAGE 16




---



##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   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 September 30, 2009:Impaired loans
    
    $
    100,362
    
    
    $
    
    
    
    $
    
    
    
    $
    100,362Assets at December 31, 2008:Impaired loans
    
    $
    37,098
    
    
    $
    
    
    
    $
    
    
    
    $
    37,098
   PAGE 17




---



##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  September 30, 2009
    
    December 31, 2008Carrying
    
    Estimated
    
    Carrying
    
    EstimatedAmount
    
    Fair Value
    
    Amount
    
    Fair Value(In thousands)Financial assetsCash and cash equivalents
    
    $
    327,440
    
    
    $
    327,440
    
    
    $
    63,065
    
    
    $
    63,065Securities available-for-sale
    
    
    615,543
    
    
    
    615,543
    
    
    
    621,949
    
    
    
    621,949Securities held-to-maturity
    
    
    
    
    
    
    
    
    
    
    30,267
    
    
    
    30,387Federal Reserve Bank and Federal Home Loan Bank stock
    
    
    27,652
    
    
    
    27,652
    
    
    
    31,698
    
    
    
    31,698Loans, net of allowance for loan losses
    
    
    2,370,595
    
    
    
    2,283,820
    
    
    
    2,465,327
    
    
    
    2,485,011Accrued interest receivable
    
    
    9,506
    
    
    
    9,506
    
    
    
    13,302
    
    
    
    13,302Financial liabilitiesDepositsNoninterest-bearing
    
    
    330,901
    
    
    
    330,901
    
    
    
    334,495
    
    
    
    334,495Interest-bearing
    
    
    2,224,288
    
    
    
    2,238,968
    
    
    
    2,078,296
    
    
    
    2,008,100Revolving note payable
    
    
    8,600
    
    
    
    8,357
    
    
    
    8,600
    
    
    
    8,600Securities sold under agreements to repurchase
    
    
    297,650
    
    
    
    334,776
    
    
    
    297,650
    
    
    
    369,376Advances from Federal Home Loan Bank
    
    
    340,000
    
    
    
    371,126
    
    
    
    380,000
    
    
    
    410,992Junior subordinated debentures
    
    
    60,828
    
    
    
    26,510
    
    
    
    60,791
    
    
    
    56,572Subordinated debt
    
    
    15,000
    
    
    
    9,904
    
    
    
    15,000
    
    
    
    15,000Term note payable
    
    
    55,000
    
    
    
    53,007
    
    
    
    55,000
    
    
    
    55,000Accrued interest payable
    
    
    7,128
    
    
    
    7,128
    
    
    
    8,553
    
    
    
    8,553
     PAGE 18




---



##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
    PAGE 19




---



##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 11  STOCK COMPENSATION AND RESTRICTED STOCK AWARDS
    Weighted Average
    
    
    Weighted AverageNumber of
    
    
    Exercise Price
    
    
    Grant- Date FairOptions
    
    
    Per Share
    
    
    Value Per ShareOutstanding at December 31, 2008
    
    
    379,371
    
    
    $
    14.28
    
    
    $
    4.80Granted
    
    
    288,693
    
    
    
    1.15
    
    
    
    0.66Exercised
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    (119,483
    )
    
    
    10.88
    
    
    
    3.38Outstanding at September 30, 2009
    
    
    548,581
    
    
    
    8.11
    
    
    
    2.93
  2009Fair value
    
    $
    0.66Risk-free interest rate
    
    
    2.78
    %Expected option life
    
    7.5 yearsExpected stock price volatility
    
    
    52.54
    %
  PAGE 20




---



##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
    Number of
    
    
    Weighted AverageRestricted
    
    
    Grant-Date Fair ValueShares
    
    
    Per ShareOutstanding at December 31, 2008
    
    
    609,901
    
    
    $
    16.42Granted
    
    
    334,882
    
    
    
    1.22Vested
    
    
    (47,896
    )
    
    
    15.80Forfeited
    
    
    (210,951
    )
    
    
    17.70Outstanding at September 30, 2009
    
    
    685,936
    
    
    
    8.64
 NOTE 12  SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
   PAGE 21




---



##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  September 30,2009(In thousands)Beginning balance
    
    $
    6,403Service cost
    
    
    618Interest cost
    
    
    267Distributions
    
    
    (75
    )Ending balance
    
    $
    7,213
 NOTE 13  INCOME TAXES
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Income taxes computed at the statutory rate
    
    $
    (14,105
    )
    
    
    35.0
    %
    
    $
    (64,262
    )
    
    
    35.0
    %
    
    $
    (23,603
    )
    
    
    35.0
    %
    
    $
    (66,931
    )
    
    
    35.0
    %Tax-exempt interest income on securities and loans
    
    
    (47
    )
    
    
    0.1
    
    
    
    (213
    )
    
    
    0.1
    
    
    
    (449
    )
    
    
    0.7
    
    
    
    (617
    )
    
    
    0.3General business credits
    
    
    (147
    )
    
    
    0.4
    
    
    
    (168
    )
    
    
    0.1
    
    
    
    (441
    )
    
    
    0.7
    
    
    
    (445
    )
    
    
    0.2State income taxes, net of federal tax benefit
due to state operating loss
    
    
    (2,388
    )
    
    
    5.9
    
    
    
    (2,137
    )
    
    
    1.2
    
    
    
    (2,607
    )
    
    
    3.9
    
    
    
    (2,898
    )
    
    
    1.5Life insurance cash surrender value increase, net of premiums
    
    
    
    
    
    
    
    
    
    
    (319
    )
    
    
    0.2
    
    
    
    (466
    )
    
    
    0.7
    
    
    
    (922
    )
    
    
    0.5Liquidation of bank-owned life insurance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,924
    
    
    
    (10.3
    )
    
    
    
    
    
    
    Dividends received deduction
    
    
    
    
    
    
    
    
    
    
    (47
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (649
    )
    
    
    0.3Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    28,000
    
    
    
    (15.3
    )
    
    
    
    
    
    
    
    
    
    
    28,000
    
    
    
    (14.6
    )Valuation allowance
    
    
    17,397
    
    
    
    (43.2
    )
    
    
    14,851
    
    
    
    (8.1
    )
    
    
    75,259
    
    
    
    (111.7
    )
    
    
    14,851
    
    
    
    (7.8
    )Nondeductible costs and other, net
    
    
    256
    
    
    
    (0.6
    )
    
    
    404
    
    
    
    (0.2
    )
    
    
    1,000
    
    
    
    (1.5
    )
    
    
    1,081
    
    
    
    (0.5
    )(Benefit) provision for income taxes
    
    $
    966
    
    
    
    (2.4
    )%
    
    $
    (23,891
    )
    
    
    13.0
    %
    
    $
    55,617
    
    
    
    (82.5
    )%
    
    $
    (28,530
    )
    
    
    14.9
    %
    PAGE 22




---



##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
     PAGE 23




---



##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 14  EARNINGS PER SHARE
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands, except per share data)Net loss
    
    $
    (41,267
    )
    
    $
    (159,714
    )
    
    $
    (123,054
    )
    
    $
    (162,702
    )Less: Series A preferred stock dividends
    
    
    
    
    
    
    835
    
    
    
    835
    
    
    
    2,506Series T preferred stock dividends (1)
    
    
    1,060
    
    
    
    
    
    
    
    3,180
    
    
    
    Series T preferred stock discount accretion
    
    
    229
    
    
    
    
    
    
    
    687
    
    
    
    Income allocated to participating securities (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss available to common stockholders
    
    $
    (42,556
    )
    
    $
    (160,549
    )
    
    $
    (127,756
    )
    
    $
    (165,208
    )BasicWeighted average common shares outstanding
    
    
    27,953
    
    
    
    27,859
    
    
    
    27,936
    
    
    
    27,851Basic earnings per share
    
    $
    (1.52
    )
    
    $
    (5.76
    )
    
    $
    (4.57
    )
    
    $
    (5.93
    )DilutedWeighted average common shares outstanding
    
    
    27,953
    
    
    
    27,859
    
    
    
    27,936
    
    
    
    27,851Dilutive effect of stock options (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dilutive effect of restricted stock (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted average common shares
    
    
    27,953
    
    
    
    27,859
    
    
    
    27,936
    
    
    
    27,851Diluted earnings per share
    
    $
    (1.52
    )
    
    $
    (5.76
    )
    
    $
    (4.57
    )
    
    $
    (5.93
    )
 
 (1)
    
    Includes $824 in dividends declared in first quarter of 2009 and $1,060 and $2,661 in
cumulative dividends not declared for the three and nine months ended September 30, 2009,
respectively.(2)
    
    No adjustment for unvested restricted shares was included in the computation of loss
available to common stockholders for any period there was a loss. See
Note 4  New Accounting
Pronouncements.(3)
    
    No shares of stock options or restricted stock were included in the computation of diluted
earnings per share for any period there was a loss.  PAGE 24




---



##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 15  CREDIT AGREEMENTS
       PAGE 25




---



##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   NOTE 16  SUBSEQUENT EVENTS
  PAGE 26




---



##### 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
    PAGE 27




---



##### Table of Contents




    
    Cost reduction initiatives which will eliminate $14.6 million in expenses on an annualized
basis when compared to either our 2008 expenses excluding the goodwill impairment and loss on
extinguishment of debt or our 2nd quarter 2009 expenses similarly excluding the FDIC special
assessment and severance expenses. This will be accomplished through a reduction in force of
over 100 employees, which was completed by September 30, 2009, salary reductions for employees
led by the Companys top executives salaries of 7% to 10%, suspension of certain benefits,
elimination of discretionary projects and initiatives and an increased focus on expense
control;
 
    
    Retained independent consultants to refine credit loss projections through 2010;
 
    
    Broadened investment banking support to assist with the capital plan;
 
    
    Undertaking an offer to holders of the Companys outstanding Depositary Shares, each
representing 1/100th fractional interest in a share of the Companys Series A noncumulative
redeemable convertible perpetual preferred stock, to exchange their Depositary Shares for
shares of the Companys common stock (the Exchange Offer). On October 26, 2009, the
Company amended its registration statement previously filed with the SEC in connection with
the proposed Exchange Offer;
 
    
    Possible capital raising activities;
 PAGE 28




---



##### Table of Contents




    
    Continued negotiations with the companys primary lender to restructure $55.0 million
senior debt
and $15.0 million subordinated debt;
 
    
    Analyzed the ability to exchange $59.0 million of trust preferred securities into equity.
We have been advised an exchange for equity cannot be facilitated for the collateral in a
trust preferred pooled securitization as a consequence of the tax status of the trust
prohibiting the ownership of an equity security; and
 
    
    Filed an initial application seeking an investment by the U.S. Treasury of up to
approximately $137.9 million (based on June 30, 2009 risk weighted assets) pursuant to its
Capital Assistance Program (CAP) that would be used to redeem the $84.8 million outstanding
preferred stock issued to the U.S. Treasury under its Capital Purchase Program (CPP) in
2008. The Company would seek to convert the CAP preferred stock to common stock following
issuance of the CAP preferred stock to the U.S. Treasury (subject to regulatory approval). A
condition precedent to the redemption of the $84.8 million outstanding preferred stock issued
under the CPP is the payment of the deferred dividends, which were $2.7 million thorugh
September 30, 2009.
 
    
    The Company is in negotiations with the U.S. Treasury related to conversion of the $84.8
million outstanding preferred stock issued to the U.S. Treasury under its Capital Purchase
Program in 2008, to common stock. Subsequent to filing its intitial
application, the Company amended its application
to reduce the amount of the requested investment to $84.8 million.
    PAGE 29




---



##### Table of Contents



Selected Consolidated Financial Data
  At or For the Three Months Ended
    
    
    At or For the Nine Months EndedSeptember 30,
    
    
    June 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2009
    
    
    2008(Dollars in thousands, except per share data)Statement of Income Data:Total interest income
    
    $
    35,135
    
    
    $
    45,888
    
    
    $
    40,662
    
    
    $
    118,063
    
    
    $
    143,927Total interest expense
    
    
    19,193
    
    
    
    23,735
    
    
    
    19,607
    
    
    
    59,964
    
    
    
    76,793Net interest income
    
    
    15,942
    
    
    
    22,153
    
    
    
    21,055
    
    
    
    58,099
    
    
    
    67,134Provision for credit losses
    
    
    37,450
    
    
    
    42,200
    
    
    
    20,750
    
    
    
    71,453
    
    
    
    52,367Noninterest income(loss)
    
    
    3,657
    
    
    
    (60,512
    )
    
    
    7,295
    
    
    
    14,295
    
    
    
    (54,328
    )Noninterest expenses
    
    
    22,450
    
    
    
    103,046
    
    
    
    24,420
    
    
    
    68,378
    
    
    
    151,671Loss before income taxes
    
    
    (40,301
    )
    
    
    (183,605
    )
    
    
    (16,820
    )
    
    
    (67,437
    )
    
    
    (191,232
    )Provision (benefit) for income taxes
    
    
    966
    
    
    
    (23,891
    )
    
    
    59,647
    
    
    
    55,617
    
    
    
    (28,530
    )Net loss
    
    
    (41,267
    )
    
    
    (159,714
    )
    
    
    (76,467
    )
    
    
    (123,054
    )
    
    
    (162,702
    )Preferred stock dividends and premium accretion
    
    
    1,289
    
    
    
    835
    
    
    
    1,290
    
    
    
    4,702
    
    
    
    2,506Income allocated to participating securities (9)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss available to common stockholders
    
    $
    (42,556
    )
    
    $
    (160,549
    )
    
    $
    (77,757
    )
    
    $
    (127,756
    )
    
    $
    (165,208
    )Per Common Share Data:Earnings per share (basic)
    
    $
    (1.52
    )
    
    $
    (5.76
    )
    
    $
    (2.78
    )
    
    $
    (4.57
    )
    
    $
    (5.93
    )Earnings per share (diluted)
    
    
    (1.52
    )
    
    
    (5.76
    )
    
    
    (2.78
    )
    
    
    (4.57
    )
    
    
    (5.93
    )Cash dividends declared on common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.26Book value at end of period
    
    
    2.02
    
    
    
    5.89
    
    
    
    3.45
    
    
    
    2.02
    
    
    
    5.89Tangible book value at end of period (non-GAAP measure) (9)
    
    
    (1.25
    )
    
    
    2.51
    
    
    
    0.15
    
    
    
    (1.25
    )
    
    
    2.51Selected Financial Ratios:Return on average assets (1)
    
    
    (4.49
    )%
    
    
    (17.25
    )%
    
    
    (8.38
    )%
    
    
    (4.50
    )%
    
    
    (5.90
    )%Return on average equity (2)
    
    
    (78.30
    )
    
    
    (181.60
    )
    
    
    (103.60
    )
    
    
    (61.15
    )
    
    
    (58.64
    )Dividend payout ratio
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    N/MAverage equity to average assets
    
    
    5.73
    
    
    
    9.50
    
    
    
    8.09
    
    
    
    7.36
    
    
    
    10.06Tier 1 common capital to risk-weighted assets
    
    
    (1.24
    )
    
    
    2.64
    
    
    
    0.33
    
    
    
    (1.24
    )
    
    
    2.64Tier 1 risk-based capital
    
    
    6.05
    
    
    
    6.26
    
    
    
    7.20
    
    
    
    6.05
    
    
    
    6.26Total risk-based capital
    
    
    7.95
    
    
    
    8.04
    
    
    
    9.03
    
    
    
    7.95
    
    
    
    8.04Net interest margin (tax equivalent) (3)(4)
    
    
    1.83
    
    
    
    2.77
    
    
    
    2.52
    
    
    
    2.30
    
    
    
    2.83Loan to deposit ratio
    
    
    96.04
    
    
    
    99.25
    
    
    
    100.82
    
    
    
    96.04
    
    
    
    99.25Net overhead expense to average assets (5)
    
    
    2.08
    
    
    
    10.73
    
    
    
    2.34
    
    
    
    2.12
    
    
    
    4.52Efficiency ratio (6)
    
    
    97.74
    
    
    
    386.61
    
    
    
    97.21
    
    
    
    91.63
    
    
    
    154.70Loan Quality Ratios:Allowance for loan losses to total loans
    
    
    3.40
    
    
    
    1.58
    
    
    
    2.50
    
    
    
    3.40
    
    
    
    1.58Provision for loan losses to total loans
    
    
    5.93
    
    
    
    6.69
    
    
    
    3.13
    
    
    
    3.80
    
    
    
    2.77Net loans charged off to average total loans
    
    
    2.71
    
    
    
    3.98
    
    
    
    1.41
    
    
    
    1.61
    
    
    
    2.11Nonaccrual loans to total loans
    
    
    7.90
    
    
    
    2.42
    
    
    
    3.71
    
    
    
    7.90
    
    
    
    2.42Nonperforming assets to total assets (7)
    
    
    6.06
    
    
    
    1.91
    
    
    
    3.52
    
    
    
    6.06
    
    
    
    1.91Allowance for loan losses to nonaccrual loans
    
    
    0.43
    x
    
    
    0.65
    x
    
    
    0.67
    x
    
    
    0.43
    x
    
    
    0.65
    xBalance Sheet Data:Total assets
    
    $
    3,544,130
    
    
    $
    3,583,377
    
    
    $
    3,569,199
    
    
    $
    3,544,130
    
    
    $
    3,583,377Total earning assets
    
    
    3,392,458
    
    
    
    3,176,629
    
    
    
    3,344,103
    
    
    
    3,392,458
    
    
    
    3,176,629Average assets
    
    
    3,650,053
    
    
    
    3,682,449
    
    
    
    3,660,670
    
    
    
    3,653,203
    
    
    
    3,685,013Loans
    
    
    2,454,101
    
    
    
    2,494,225
    
    
    
    2,559,257
    
    
    
    2,454,101
    
    
    
    2,494,225Allowance for loan losses
    
    
    83,506
    
    
    
    39,428
    
    
    
    63,893
    
    
    
    83,506
    
    
    
    39,428Deposits
    
    
    2,555,189
    
    
    
    2,513,004
    
    
    
    2,538,490
    
    
    
    2,555,189
    
    
    
    2,513,004Borrowings
    
    
    777,078
    
    
    
    829,024
    
    
    
    777,074
    
    
    
    777,078
    
    
    
    829,024Stockholders equity
    
    
    180,239
    
    
    
    207,237
    
    
    
    219,671
    
    
    
    180,239
    
    
    
    207,237Tangible stockholders equity (non-GAAP measure) (8)
    
    
    88,413
    
    
    
    113,101
    
    
    
    127,272
    
    
    
    88,413
    
    
    
    113,101
 
 (1)
    
    Net income divided by average assets.(2)
    
    Net income divided by average equity.(3)
    
    Net interest income, on a fully tax-equivalent basis, divided by average earning assets.(4)
    
    The following table reconciles reported net interest income on a fully tax-equivalent basis for the periods presented: Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    June 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2009
    
    
    2008Net interest income
    
    $
    15,942
    
    
    $
    22,153
    
    
    $
    21,055
    
    
    $
    58,099
    
    
    $
    67,134Tax-equivalent adjustment to net interest income
    
    
    
    
    
    
    457
    
    
    
    
    
    
    
    
    
    
    
    2,258Net interest income, fully tax-equivalent basis
    
    $
    15,942
    
    
    $
    22,610
    
    
    $
    21,055
    
    
    $
    58,099
    
    
    $
    69,392
  PAGE 30




---



##### Table of Contents



(5)
    
    Noninterest expense less noninterest income, excluding security gains or losses, divided by average assets.(6)
    
    Noninterest expense excluding amortization and foreclosed properties expense divided by noninterest
income, excluding security gains or losses, plus net interest income
on a fully tax-equivalent basis.(7)
    
    Includes total nonaccrual, troubled-debt restructured loans, and foreclosed properties.(8)
    
    Stockholders equity less goodwill, core deposits and other intangible assets. Management believes that
tangible stockholders equity (non-GAAP measure) is a more useful measure since it excludes the balances
of intangible assets reflecting the Companys underlying worth. The following table reconciles reported
stockholders equity to tangible stockholders equity for the periods presented: At September 30,
    
    
    At June 30,2009
    
    
    2008
    
    
    2009Stockholders equity
    
    $
    180,239
    
    
    $
    207,237
    
    
    $
    219,671Core deposit intangible and other intangibles, net
    
    
    12,964
    
    
    
    15,274
    
    
    
    13,537Goodwill
    
    
    78,862
    
    
    
    78,862
    
    
    
    78,862Tangible stockholders equity
    
    $
    88,413
    
    
    $
    113,101
    
    
    $
    127,272
 
 (9)
    
    Prior periods with earnings were re-stated as required by the authoritative guidance for determining whether instruments granted in
share-based payment transactions are participating securities (ASC 260-10-55), which was effective on January 1, 2009, to allocate
earnings available to common stockholders to restricted shares of common stock that are considered participating securities.(10)
    
    The provision for credit losses includes the provision for loan losses and the provision for unfunded commitments losses as follows: Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    June 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2009
    
    
    2008Provision for loan losses
    
    $
    36,700
    
    
    $
    41,950
    
    
    $
    20,000
    
    
    $
    69,700
    
    
    $
    51,765Provision for unfunded commitments losses
    
    
    750
    
    
    
    250
    
    
    
    750
    
    
    
    1,753
    
    
    
    602Provision for credit losses
    
    $
    37,450
    
    
    $
    42,200
    
    
    $
    20,750
    
    
    $
    71,453
    
    
    $
    52,367
 Results of Operations  Three and Nine Months Ended
September 30, 2009 and 2008 and Three Months Ended June 30, 2009
     PAGE 31




---



##### Table of Contents



PAGE 32




---



##### Table of Contents



Net Interest Income
  For the Three Months EndedSeptember 30, 2009
    
    
    September 30, 2008
    
    
    June 30, 2009Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)Interest-Earning Assets:Federal funds sold and interest-bearing
deposits due from banks
    
    $
    303,890
    
    
    
    164
    
    
    
    0.22
    %
    
    $
    6,005
    
    
    
    27
    
    
    
    1.80
    %
    
    $
    59,551
    
    
    
    75
    
    
    
    0.50
    %Securities:Taxable(1)
    
    
    637,198
    
    
    
    1,488
    
    
    
    0.93
    
    
    
    654,531
    
    
    
    7,823
    
    
    
    4.78
    
    
    
    626,489
    
    
    
    4,663
    
    
    
    2.98Exempt from federal income taxes(1)
    
    
    2,390
    
    
    
    29
    
    
    
    4.85
    
    
    
    60,688
    
    
    
    883
    
    
    
    5.82
    
    
    
    43,005
    
    
    
    406
    
    
    
    3.78Total securities
    
    
    639,588
    
    
    
    1,517
    
    
    
    0.95
    
    
    
    715,219
    
    
    
    8,706
    
    
    
    4.87
    
    
    
    669,494
    
    
    
    5,069
    
    
    
    3.03FRB and FHLB stock
    
    
    27,999
    
    
    
    160
    
    
    
    2.29
    
    
    
    29,694
    
    
    
    184
    
    
    
    2.48
    
    
    
    30,301
    
    
    
    170
    
    
    
    2.24Loans:Commercial loans(1)(2)(3)
    
    
    527,661
    
    
    
    7,015
    
    
    
    5.32
    
    
    
    544,013
    
    
    
    8,145
    
    
    
    5.99
    
    
    
    549,168
    
    
    
    6,770
    
    
    
    4.93Commercial real estate
loans(1)(2)(3)(4)
    
    
    1,620,388
    
    
    
    22,416
    
    
    
    5.53
    
    
    
    1,639,444
    
    
    
    24,919
    
    
    
    6.08
    
    
    
    1,675,704
    
    
    
    24,608
    
    
    
    5.87Agricultural loans(2)(3)
    
    
    8,350
    
    
    
    133
    
    
    
    6.37
    
    
    
    6,531
    
    
    
    103
    
    
    
    6.31
    
    
    
    9,991
    
    
    
    164
    
    
    
    6.57Consumer real estate loans(2)(3)(4)
    
    
    343,128
    
    
    
    3,640
    
    
    
    4.24
    
    
    
    314,377
    
    
    
    4,119
    
    
    
    5.24
    
    
    
    343,898
    
    
    
    3,708
    
    
    
    4.31Consumer installment loans(2)(3)
    
    
    5,607
    
    
    
    90
    
    
    
    6.42
    
    
    
    8,288
    
    
    
    142
    
    
    
    6.85
    
    
    
    5,996
    
    
    
    98
    
    
    
    6.54Total loans
    
    
    2,505,134
    
    
    
    33,294
    
    
    
    5.32
    
    
    
    2,512,653
    
    
    
    37,428
    
    
    
    5.96
    
    
    
    2,584,757
    
    
    
    35,348
    
    
    
    5.47Total interest-earning assets
    
    $
    3,476,611
    
    
    $
    35,135
    
    
    
    4.04
    %
    
    $
    3,263,571
    
    
    $
    46,345
    
    
    
    5.68
    %
    
    $
    3,344,103
    
    
    $
    40,662
    
    
    
    4.86
    %Noninterest-Earning Assets:Cash
    
    $
    34,903
    
    
    
    
    
    
    
    
    
    
    $
    57,463
    
    
    
    
    
    
    
    
    
    
    $
    44,037Premises and equipment, net
    
    
    40,705
    
    
    
    
    
    
    
    
    
    
    
    38,412
    
    
    
    
    
    
    
    
    
    
    
    39,331Allowance for loan losses
    
    
    (67,605
    )
    
    
    
    
    
    
    
    
    
    
    (23,059
    )
    
    
    
    
    
    
    
    
    
    
    (58,211
    )Other assets
    
    
    165,439
    
    
    
    
    
    
    
    
    
    
    
    346,062
    
    
    
    
    
    
    
    
    
    
    
    291,410Total noninterest-earning assets
    
    
    173,442
    
    
    
    
    
    
    
    
    
    
    
    418,878
    
    
    
    
    
    
    
    
    
    
    
    316,567Total assets
    
    $
    3,650,053
    
    
    
    
    
    
    
    
    
    
    $
    3,682,449
    
    
    
    
    
    
    
    
    
    
    $
    3,660,670Interest-Bearing Liabilities:Deposits:Interest-bearing demand deposits
    
    $
    179,094
    
    
    $
    205
    
    
    
    0.46
    %
    
    $
    194,416
    
    
    $
    422
    
    
    
    0.87
    %
    
    $
    178,231
    
    
    $
    222
    
    
    
    0.50
    %Money-market demand and savings accounts
    
    
    344,203
    
    
    
    687
    
    
    
    0.80
    
    
    
    393,745
    
    
    
    1,184
    
    
    
    1.20
    
    
    
    358,791
    
    
    
    721
    
    
    
    0.80Time deposits
    
    
    1,765,654
    
    
    
    10,493
    
    
    
    2.38
    
    
    
    1,487,827
    
    
    
    13,695
    
    
    
    3.68
    
    
    
    1,658,904
    
    
    
    11,267
    
    
    
    2.72Total interest-bearing deposits
    
    
    2,288,951
    
    
    
    11,385
    
    
    
    1.99
    
    
    
    2,075,988
    
    
    
    15,301
    
    
    
    2.95
    
    
    
    2,195,926
    
    
    
    12,210
    
    
    
    2.22Borrowings:Federal funds purchased, FRB discount
window advances, and repurchase agreements
    
    
    297,693
    
    
    
    3,264
    
    
    
    4.39
    
    
    
    403,025
    
    
    
    3,901
    
    
    
    3.87
    
    
    
    319,397
    
    
    
    3,249
    
    
    
    4.07FHLB advances
    
    
    340,000
    
    
    
    3,065
    
    
    
    3.61
    
    
    
    348,315
    
    
    
    2,779
    
    
    
    3.19
    
    
    
    342,637
    
    
    
    3,035
    
    
    
    3.54Junior subordinated debentures
    
    
    60,827
    
    
    
    497
    
    
    
    3.27
    
    
    
    60,766
    
    
    
    864
    
    
    
    5.69
    
    
    
    60,816
    
    
    
    615
    
    
    
    4.04Subordinated debt
    
    
    15,000
    
    
    
    145
    
    
    
    3.87
    
    
    
    15,000
    
    
    
    229
    
    
    
    6.11
    
    
    
    15,000
    
    
    
    144
    
    
    
    3.84Revolving note payable
    
    
    8,600
    
    
    
    158
    
    
    
    7.35
    
    
    
    9,404
    
    
    
    96
    
    
    
    4.08
    
    
    
    8,600
    
    
    
    88
    
    
    
    4.09Term note payable
    
    
    55,000
    
    
    
    679
    
    
    
    4.94
    
    
    
    55,000
    
    
    
    565
    
    
    
    4.11
    
    
    
    55,000
    
    
    
    266
    
    
    
    1.93Total borrowings
    
    
    777,120
    
    
    
    7,808
    
    
    
    4.02
    
    
    
    891,510
    
    
    
    8,434
    
    
    
    3.78
    
    
    
    801,450
    
    
    
    7,397
    
    
    
    3.69Total interest-bearing liabilities
    
    $
    3,066,071
    
    
    $
    19,193
    
    
    
    2.50
    %
    
    $
    2,967,498
    
    
    $
    23,735
    
    
    
    3.20
    %
    
    $
    2,997,376
    
    
    $
    19,607
    
    
    
    2.62
    %Noninterest-Bearing Liabilities:Noninterest-bearing demand deposits
    
    $
    341,197
    
    
    
    
    
    
    
    
    
    
    $
    335,025
    
    
    
    
    
    
    
    
    
    
    $
    333,600Other liabilities
    
    
    33,688
    
    
    
    
    
    
    
    
    
    
    
    30,048
    
    
    
    
    
    
    
    
    
    
    
    33,639Total noninterest-bearing liabilities
    
    
    374,885
    
    
    
    
    
    
    
    
    
    
    
    365,073
    
    
    
    
    
    
    
    
    
    
    
    367,239Stockholders equity
    
    
    209,097
    
    
    
    
    
    
    
    
    
    
    
    349,878
    
    
    
    
    
    
    
    
    
    
    
    296,055Total liabilities and stockholders equity
    
    $
    3,650,053
    
    
    
    
    
    
    
    
    
    
    $
    3,682,449
    
    
    
    
    
    
    
    
    
    
    $
    3,660,670
 PAGE 33




---



##### Table of Contents



For the Three Months EndedSeptember 30, 2009
    
    
    September 30, 2008
    
    
    June 30, 2009Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)Net interest income (tax
equivalent)(1)(5)
    
    
    
    
    
    $
    15,942
    
    
    
    1.54
    %
    
    
    
    
    
    $
    22,610
    
    
    
    2.48
    %
    
    
    
    
    
    $
    21,055
    
    
    
    2.24
    %Net interest margin (tax
equivalent)(1)
    
    
    
    
    
    
    
    
    
    
    1.83
    %
    
    
    
    
    
    
    
    
    
    
    2.77
    %
    
    
    
    
    
    
    
    
    
    
    2.52
    %Net interest income(5)(6)
    
    
    
    
    
    $
    15,942
    
    
    
    
    
    
    
    
    
    
    $
    22,153
    
    
    
    
    
    
    
    
    
    
    $
    21,055Net interest margin(5)
    
    
    
    
    
    
    
    
    
    
    1.83
    %
    
    
    
    
    
    
    
    
    
    
    2.72
    %
    
    
    
    
    
    
    
    
    
    
    2.52
    %Average interest-earning assets to
interest-bearing liabilities
    
    
    113.39
    %
    
    
    
    
    
    
    
    
    
    
    109.98
    %
    
    
    
    
    
    
    
    
    
    
    111.57
    %
 
 (1)
    
    Adjusted for 35% tax rate and adjusted for the dividends-received deduction, except for the
quarters ended September 30, and June 30, 2009 as a result of the Companys current tax
position.(2)
    
    Nonaccrual loans are included in the average balance; however, these loans are not earning
any interest.(3)
    
    Includes loan fees of $528, $900, and $574 for the three months ended September 30, 2009,
September 30, 2008, and June 30, 2009, respectively.(4)
    
    Includes construction loans.(5)
    
    The following table reconciles reported net interest income on a tax equivalent basis for the
periods presented: For the three months ended,September 30,
    
    
    September 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009Net interest income
    
    $
    15,942
    
    
    $
    22,153
    
    
    $
    21,055Tax equivalent adjustment to net interest income
    
    
    
    
    
    
    457
    
    
    
    Net interest income, tax equivalent basis
    
    $
    15,942
    
    
    $
    22,610
    
    
    $
    21,055
 (6)
    
    Not adjusted for 35% tax rate or for the dividends-received deduction.
 For the Nine Months EndedSeptember 30, 2009
    
    
    September 30, 2008Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)Interest-Earning Assets:Federal funds sold and interest-bearing
deposits due from banks
    
    $
    123,838
    
    
    $
    276
    
    
    
    0.30
    %
    
    $
    16,840
    
    
    $
    273
    
    
    
    2.16
    %Securities:Taxable(1)
    
    
    631,184
    
    
    
    13,091
    
    
    
    2.77
    
    
    
    686,517
    
    
    
    26,901
    
    
    
    5.22Exempt from federal income taxes(1)
    
    
    34,443
    
    
    
    985
    
    
    
    3.81
    
    
    
    61,388
    
    
    
    2,715
    
    
    
    5.90Total securities
    
    
    665,627
    
    
    
    14,076
    
    
    
    2.82
    
    
    
    747,905
    
    
    
    29,616
    
    
    
    5.28FRB and FHLB stock
    
    
    29,986
    
    
    
    520
    
    
    
    2.31
    
    
    
    29,397
    
    
    
    551
    
    
    
    2.50Loans:Commercial loans(1)(2)(3)
    
    
    535,755
    
    
    
    20,336
    
    
    
    5.06
    
    
    
    510,213
    
    
    
    24,282
    
    
    
    6.35Commercial real estate loans(1)(2)(3)(4)
    
    
    1,653,125
    
    
    
    71,230
    
    
    
    5.75
    
    
    
    1,638,120
    
    
    
    77,716
    
    
    
    6.33Agricultural loans(2)(3)
    
    
    8,622
    
    
    
    416
    
    
    
    6.43
    
    
    
    6,029
    
    
    
    290
    
    
    
    6.41Consumer real estate loans(2)(3)(4)
    
    
    340,959
    
    
    
    10,914
    
    
    
    4.27
    
    
    
    313,247
    
    
    
    12,950
    
    
    
    5.51Consumer installment loans(2)(3)
    
    
    5,951
    
    
    
    295
    
    
    
    6.61
    
    
    
    9,843
    
    
    
    507
    
    
    
    6.87Total loans
    
    
    2,544,412
    
    
    
    103,191
    
    
    
    5.41
    
    
    
    2,477,452
    
    
    
    115,745
    
    
    
    6.23Total interest-earning assets
    
    $
    3,363,863
    
    
    $
    118,063
    
    
    
    4.68
    %
    
    $
    3,271,594
    
    
    $
    146,185
    
    
    
    5.96
    %Noninterest-Earning Assets:Cash
    
    $
    49,191
    
    
    
    
    
    
    
    
    
    
    $
    55,272Premises and equipment, net
    
    
    39,410
    
    
    
    
    
    
    
    
    
    
    
    39,290Allowance for loan losses
    
    
    (57,517
    )
    
    
    
    
    
    
    
    
    
    
    (23,584
    )Other assets
    
    
    258,256
    
    
    
    
    
    
    
    
    
    
    
    342,441Total noninterest-earning assets
    
    
    289,340
    
    
    
    
    
    
    
    
    
    
    
    413,419Total assets
    
    $
    3,653,203
    
    
    
    
    
    
    
    
    
    
    $
    3,685,013Interest-Bearing Liabilities:Deposits:Interest-bearing demand deposits
    
    $
    176,893
    
    
    $
    683
    
    
    
    0.51
    %
    
    $
    208,949
    
    
    $
    1,660
    
    
    
    1.06
    %Money-market demand and savings accounts
    
    
    351,563
    
    
    
    2,161
    
    
    
    0.82
    
    
    
    401,377
    
    
    
    4,209
    
    
    
    1.40Time deposits
    
    
    1,681,472
    
    
    
    34,436
    
    
    
    2.73
    
    
    
    1,468,836
    
    
    
    44,632
    
    
    
    4.05Total interest-bearing deposits
    
    
    2,209,928
    
    
    
    37,280
    
    
    
    2.25
    
    
    
    2,079,162
    
    
    
    50,501
    
    
    
    3.24Borrowings:Federal funds purchased, FRB discount
window advances and repurchase agreements
    
    
    316,893
    
    
    
    9,747
    
    
    
    4.10
    
    
    
    418,992
    
    
    
    12,048
    
    
    
    3.83FHLB advances
    
    
    348,462
    
    
    
    9,129
    
    
    
    3.49
    
    
    
    319,943
    
    
    
    8,698
    
    
    
    3.62Junior subordinated debentures
    
    
    60,814
    
    
    
    1,851
    
    
    
    4.06
    
    
    
    60,749
    
    
    
    2,785
    
    
    
    6.11Subordinated debt
    
    
    15,000
    
    
    
    441
    
    
    
    3.92
    
    
    
    10,073
    
    
    
    464
    
    
    
    6.14Revolving note payable
    
    
    8,600
    
    
    
    289
    
    
    
    4.48
    
    
    
    8,227
    
    
    
    270
    
    
    
    4.38Term note payable
    
    
    55,000
    
    
    
    1,227
    
    
    
    2.97
    
    
    
    59,927
    
    
    
    2,027
    
    
    
    4.51Total borrowings
    
    
    804,769
    
    
    
    22,684
    
    
    
    3.76
    
    
    
    877,911
    
    
    
    26,292
    
    
    
    3.99Total interest-bearing liabilities
    
    $
    3,014,697
    
    
    $
    59,964
    
    
    
    2.65
    %
    
    $
    2,957,073
    
    
    $
    76,793
    
    
    
    3.46
    %Noninterest-Bearing Liabilities:Noninterest-bearing demand deposits
    
    $
    335,288
    
    
    
    
    
    
    
    
    
    
    $
    324,586Other liabilities
    
    
    34,172
    
    
    
    
    
    
    
    
    
    
    
    32,711
 PAGE 34




---



##### Table of Contents



For the Nine Months EndedSeptember 30, 2009
    
    
    September 30, 2008Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)Total noninterest-bearing liabilities
    
    
    369,460
    
    
    
    
    
    
    
    
    
    
    
    357,297Stockholders equity
    
    
    269,046
    
    
    
    
    
    
    
    
    
    
    
    370,643Total liabilities and stockholders equity
    
    $
    3,653,203
    
    
    
    
    
    
    
    
    
    
    $
    3,685,013Net interest income (tax
equivalent)(1)(5)
    
    
    
    
    
    $
    58,099
    
    
    
    2.03
    %
    
    
    
    
    
    $
    69,392
    
    
    
    2.50
    %Net interest margin (tax
equivalent)(1)
    
    
    
    
    
    
    
    
    
    
    2.30
    %
    
    
    
    
    
    
    
    
    
    
    2.83
    %Net interest income(5)(6)
    
    
    
    
    
    $
    58,099
    
    
    
    
    
    
    
    
    
    
    $
    67,134Net interest margin(6)
    
    
    
    
    
    
    
    
    
    
    2.30
    %
    
    
    
    
    
    
    
    
    
    
    2.74
    %Average interest-earning assets to
interest-bearing liabilities
    
    
    111.58
    %
    
    
    
    
    
    
    
    
    
    
    110.64
    %
 
 (1)
    
    Adjusted for 35% tax rate and adjusted for the dividends-received deduction, except for the
nine months ended September 30, 2009 as a result of the Companys current tax position(2)
    
    Nonaccrual loans are included in the average balance; however, these loans are not earning
any interest.(3)
    
    Includes loan fees of $1,580 and $2,288 for the nine months ended September 30, 2009 and
2008, respectively.(4)
    
    Includes construction loans.(5)
    
    The following table reconciles reported net interest income on a tax equivalent basis for the
periods presented: For the nine months ended,September 30,2009
    
    
    2008Net interest income
    
    $
    58,099
    
    
    $
    67,134Tax equivalent adjustment to net interest income
    
    
    
    
    
    
    2,258Net interest income, tax equivalent basis
    
    $
    58,099
    
    
    $
    69,392
 (6)
    
    Not adjusted for 35% tax rate or for the dividends-received deduction.
   Trends in Interest-earning Assets
   PAGE 35




---



##### Table of Contents



Trends in Interest-bearing Liabilities
     PAGE 36




---



##### Table of Contents



Noninterest Income
       PAGE 37




---



##### Table of Contents



Noninterest Expenses
       PAGE 38




---



##### Table of Contents



Income Taxes
   Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Income taxes computed at the statutory rate
    
    $
    (14,105
    )
    
    
    35.0
    %
    
    $
    (64,262
    )
    
    
    35.0
    %
    
    $
    (23,603
    )
    
    
    35.0
    %
    
    $
    (66,931
    )
    
    
    35.0
    %Tax-exempt interest income on securities and loans
    
    
    (47
    )
    
    
    0.1
    
    
    
    (213
    )
    
    
    0.1
    
    
    
    (449
    )
    
    
    0.7
    
    
    
    (617
    )
    
    
    0.3General business credits
    
    
    (147
    )
    
    
    0.4
    
    
    
    (168
    )
    
    
    0.1
    
    
    
    (441
    )
    
    
    0.7
    
    
    
    (445
    )
    
    
    0.2State income taxes, net of federal tax benefit
due to state operating loss
    
    
    (2,388
    )
    
    
    5.9
    
    
    
    (2,137
    )
    
    
    1.2
    
    
    
    (2,607
    )
    
    
    3.9
    
    
    
    (2,898
    )
    
    
    1.5Life insurance cash surrender value increase, net of premiums
    
    
    
    
    
    
    
    
    
    
    (319
    )
    
    
    0.2
    
    
    
    (466
    )
    
    
    0.7
    
    
    
    (922
    )
    
    
    0.5Liquidation of bank-owned life insurance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,924
    
    
    
    (10.3
    )
    
    
    
    
    
    
    Dividends received deduction
    
    
    
    
    
    
    
    
    
    
    (47
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (649
    )
    
    
    0.3Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    28,000
    
    
    
    (15.3
    )
    
    
    
    
    
    
    
    
    
    
    28,000
    
    
    
    (14.6
    )Valuation allowance
    
    
    17,397
    
    
    
    (43.2
    )
    
    
    14,851
    
    
    
    (8.1
    )
    
    
    75,259
    
    
    
    ( 111.7
    )
    
    
    14,851
    
    
    
    (7.8
    )Nondeductible costs and other, net
    
    
    256
    
    
    
    (0.6
    )
    
    
    404
    
    
    
    (0.2
    )
    
    
    1,000
    
    
    
    (1.5
    )
    
    
    1,081
    
    
    
    (0.5
    )(Benefit) provision for income taxes
    
    $
    966
    
    
    
    (2.4
    )%
    
    $
    (23,891
    )
    
    
    13.0
    %
    
    $
    55,617
    
    
    
    (82.5
    )%
    
    $
    (28,530
    )
    
    
    14.9
    %
  PAGE 39




---



##### Table of Contents



Financial Condition
   
    
    Total assets decreased $26.1 million at September 30, 2009 compared to year end 2008 and
were down $39.2 million compared to September 30, 2008.
    
    Cash and cash equivalents increased $264.4 million at September 30, 2009 compared to year
end 2008 and were up $214.0 million compared to September 30, 2008 improving the liquidity
position.
    
    Total loans decreased $55.7 million to $2.5 billion at September 30, 2009 compared to year
end 2008 and by $40.1 million over the third quarter of 2008, partly due to stricter
underwriting standards and charge-offs.
    
    The $85.8 million investment in bank owned life insurance was liquidated during the second
quarter of 2009 in order to reduce the Companys investment risk and the Banks regulatory
capital requirement.
    
    At June 30, 2009, the Company established a valuation allowance of $60.0 million against
its existing net deferred tax assets. The Company increased the valuation allowance by $16.9
million to $76.9 million against its existing net deferred tax assets during the third
quarter of 2009.
    
    Deposits increased by $142.4 million to $2.6 billion at September 30, 2009 compared to year
end
 PAGE 40




---



##### Table of Contents



2008 and increased by $42.2 million when compared to September 30, 2008, mainly as a
result of successful certificate of deposit promotions.
  
    
    The downturn in the commercial and residential real estate markets continued to have a
material negative impact on the Companys loan portfolio, resulting in a significant
deterioration in credit quality and an increase in loan losses and its allowance for loan losses. The Company believes it is
likely that the credit quality of its loan portfolio will further deteriorate through the end
of 2009.
    
    Nonaccrual loans were 7.90% of total loans at September 30, 2009, up from 2.43% of total
loans at year end and 2.42% at September 30, 2008.
    
    Foreclosed properties increased from $12.0 million at year end to $21.0 million at
September 30, 2009, mainly due to the foreclosure action on three large loan relationships.
    
    Loan delinquencies of 30-89 days were 3.24% of loans at September 30, 2009, up from 1.03%
at December 31, 2008 and 0.99% at September 30, 2008, due to the continued deterioration of
economic conditions.
    
    Nonperforming assets were 6.06% of total assets at September 30, 2009, up from 2.36% at
year end and 1.91% at September 30, 2008, as a result of the increase in nonaccrual loans and
foreclosed properties.
    
    The allowance for loan losses was 3.40% of total loans as of September 30, 2009, versus
1.77% at year end 2008 and 1.58% at September 30, 2008, due to a $69.7 million provision in
the first nine months of 2009 with net charge-offs of $30.6 million during that period.
    
    The allowance for loan losses to nonaccrual loans ratio was 43.07% at September 30, 2009,
72.72% at year end, and 65.20% for the corresponding period of 2008.
 Loans
  PAGE 41




---



##### Table of Contents



September 30,
    
    
    December 31,2009
    
    
    2008% of Gross
    
    
    
    
    
    
    % of GrossAmount
    
    
    Loans
    
    
    Amount
    
    
    Loans(Dollars in thousands)Commercial
    
    $
    1,045,533
    
    
    
    42.6
    %
    
    $
    1,090,078
    
    
    
    43.3
    %Construction
    
    
    324,074
    
    
    
    13.2
    
    
    
    366,178
    
    
    
    14.6Commercial real estate
    
    
    744,464
    
    
    
    30.3
    
    
    
    729,729
    
    
    
    29.1Home equity
    
    
    227,966
    
    
    
    9.3
    
    
    
    194,673
    
    
    
    7.8Other consumer
    
    
    5,583
    
    
    
    0.2
    
    
    
    6,332
    
    
    
    0.3Residential mortgage
    
    
    107,124
    
    
    
    4.4
    
    
    
    123,161
    
    
    
    4.9Total loans, gross
    
    
    2,454,744
    
    
    
    100.0
    %
    
    
    2,510,151
    
    
    
    100.0
    %Net deferred fees
    
    
    (643
    )
    
    
    
    
    
    
    (392
    )Total loans, net
    
    $
    2,454,101
    
    
    
    
    
    
    $
    2,509,759
  
    
    Commercial loans decreased $44.5 million to $1.0 billion as of September 30, 2009 from
December 31, 2008 and comprise 42.6% of the loan portfolio.
    
    Construction loans decreased by $42.1 million to $324.1 million, or 13.2% of the loan
portfolio, as of September 30, 2009 from $366.2 million and 14.6% at December 31, 2008.
    
    Commercial real estate loans increased by $14.7 million to $744.5 million, or 30.3% of the
loan portfolio, as of September 30, 2009 from $729.7 million and 29.1% at year end.
    
    Home equity loans increased by $33.3 million to $228.0 million, or 9.3% of the loan
portfolio, as of September 30, 2009 from $194.7 million at year end.
    
    Residential mortgage loans decreased by $16.0 million to $107.1 million as of September 30,
2009 from $123.2 million at year end.
    
    The Company does not hold any sub-prime loans in its residential mortgage portfolio.
 Allowance for Loan Losses
  PAGE 42




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Balance, at beginning of period
    
    $
    63,893
    
    
    $
    22,606
    
    
    $
    44,432
    
    
    $
    26,748Provision charged to operations
    
    
    36,700
    
    
    
    41,950
    
    
    
    69,700
    
    
    
    51,765Loans charged off
    
    
    (17,723
    )
    
    
    (25,224
    )
    
    
    (32,268
    )
    
    
    (40,472
    )Recoveries
    
    
    636
    
    
    
    96
    
    
    
    1,642
    
    
    
    1,387Net loans charged off
    
    
    (17,087
    )
    
    
    (25,128
    )
    
    
    (30,626
    )
    
    
    (39,085
    )Balance, at end of period
    
    $
    83,506
    
    
    $
    39,428
    
    
    $
    83,506
    
    
    $
    39,428
     September 30,
    
    December 31,
    
    September 30,2009
    
    2008
    
    2008Net loans charged off to average loans during quarter
    
    
    2.71
    %
    
    
    2.39
    %
    
    
    3.98
    %Provision for loan losses to total loans
    
    
    5.93
    
    
    
    3.17
    
    
    
    6.69Allowance for loan losses to total loans
    
    
    3.40
    
    
    
    1.77
    
    
    
    1.58Allowance to nonaccrual loans
    
    
    0.43x
    
    
    
    0.73x
    
    
    
    0.65x
    PAGE 43




---



##### Table of Contents



PAGE 44




---



##### Table of Contents



Nonaccrual Loans and Nonperforming Assets
   September 30,
    
    
    December 31,
    
    
    June 30,2009
    
    
    2008
    
    
    2009(Dollars in thousands)Nonaccrual loans:Commercial and industrial
    
    $
    23,653
    
    
    $
    3,559
    
    
    $
    13,038Commercial real estate  non-owner occupied
    
    
    56,715
    
    
    
    10,310
    
    
    
    26,836Commercial real estate  owner occupied
    
    
    22,423
    
    
    
    14,244
    
    
    
    17,611Construction
    
    
    55,920
    
    
    
    20,726
    
    
    
    24,444Vacant land
    
    
    24,962
    
    
    
    6,550
    
    
    
    5,456Total commercial and commercial real estate
    
    
    183,673
    
    
    
    55,389
    
    
    
    87,385Other consumer
    
    
    8,032
    
    
    
    5,315
    
    
    
    5,584Home equity
    
    
    2,172
    
    
    
    400
    
    
    
    2,054Total consumer
    
    
    10,204
    
    
    
    5,715
    
    
    
    7,638Total nonaccrual loans
    
    
    193,877
    
    
    
    61,104
    
    
    
    95,023Trouble debt restructured loans (commercial real
estate  non-owner occupied)
    
    
    
    
    
    
    11,006
    
    
    
    11,006Total nonperforming loans
    
    
    193,877
    
    
    
    72,110
    
    
    
    106,029Foreclosed properties
    
    
    20,980
    
    
    
    12,018
    
    
    
    19,588Total nonperforming assets
    
    $
    214,857
    
    
    $
    84,128
    
    
    $
    125,617Nonaccrual loans to loans
    
    
    7.90
    %
    
    
    2.43
    %
    
    
    3.71
    %Nonperforming assets to loans and foreclosed properties
    
    
    8.68
    
    
    
    3.34
    
    
    
    4.87Nonperforming assets to assets
    
    
    6.06
    
    
    
    2.36
    
    
    
    3.52
   
    
    a $6.2 million loan relationship secured by business assets and retail and office
buildings to a company that markets to real estate agents and brokers;
    
    a $6.5 million loan to a company that markets to real estate
agents and brokers that has been negatively affected by the real
estate downturn;
    
    a $2.8 million loan relationship with an energy company
currently operating under a forbearance agreement;
    
    a $2.8 million loan relationship with a full-service
tradeshow display company where the recent death of the principal
caused a disruption in its business operations. This borrower is
currently operating under a forbearance agreement;
    
    a $2.8 million ($0.6 million commercial and industrial and $2.2 million commercial real
estate) loan relationship with a full-service tradeshow display company secured by business
assets where the recent death of the principal caused a disruption in its business
operations. This borrower is currently operating under a forbearance agreement; and
 PAGE 45




---



##### Table of Contents




    
    a $0.8 million loan relationship secured by retail and office properties to a banker.
  
    
    a $12.6 million loan relationship related to a construction project for several
projects in and near Lake County, Illinois;
    
    a $11.0 million loan relationship with collateral located in a western suburb of
Chicago, consisting of improved lots on 25 acres. The property value has declined and
there are currently no units under contract. The guarantors have limited liquidity and net
worth and continue efforts to raise equity to fund the real estate investment;
    
    a $9.5 million loan relationship that consists of several loans for various commercial
properties in Cook County, Illinois. Third party real estate management and marketing firms
have been engaged by the borrower. The management company is focusing on stabilizing
buildings, renewing leases and seeking new tenants. The properties securing the loans have
experienced increased vacancies and resulting decreases in operating income to provide
sufficient cash flow to meet contractual loan payments. The guarantor has limited
liquidity;
    
    a $8.6 million loan relationship secured with 26 acres of property on in McHenry
County. The borrowers plans to sell portions of the property have taken longer than
expected. The guarantor adds only limited financial support;
    
    a $6.5 million loan relationship, of which $2.5 million has been charged off, secured
with a project located in Cook County experiencing slow sales. The properties securing the
loans have not sold with the borrower now renting properties at a level that is not
sufficient to meet contractual loan payments. There are multiple guarantors who have
limited liquidity;
    
    a $5.3 million loan relationship secured with property where the development has
stalled and the guarantor is considering alternative strategies to sell or liquidate the
assets. The guarantor is currently providing contractual payments; however, in the future
their liquidity position will no longer enable them to continue to meet loan repayment
terms;
    
    a $4.9 million loan relationship to a residential homebuilder originated in 2003 for a
commercial property in a western suburb of Chicago which has been stalled due to on-going
litigation with the local municipality. Total credit exposure to this customer is $8.6
million;
    
    a $4.1 million loan relationship secured by three single family residences with a
contractor for the development of those properties in northern suburbs of Chicago which
have been slow to sell; and
    
    a $2.4 million ($1.5 million commercial real estate and $0.9 million vacant land) loan
relationship secured by single and multi-family residences and vacant land impacted by
local economic conditions.
  PAGE 46




---



##### Table of Contents



Securities
   Available-for-Sale(Dollars in thousands)% ofAmortized
    
    
    Fair
    
    
    AmortizedCost
    
    
    Value
    
    
    CostObligations of the U.S. Treasury
    
    $
    451,785
    
    
    $
    451,792
    
    
    
    73.1
    %Obligations of states and political subdivisions
    
    
    212
    
    
    
    217
    
    
    
    0.0Mortgage-backed securities:U.S. government agencies  residential (1)
    
    
    147,043
    
    
    
    147,003
    
    
    
    23.8U.S. government-sponsored entities (2)
    
    
    1,783
    
    
    
    1,796
    
    
    
    0.3Equity securities of U.S. government-sponsored
entities (3)
    
    
    2,749
    
    
    
    3,871
    
    
    
    0.4Corporate and other debt securities
    
    
    14,979
    
    
    
    10,864
    
    
    
    2.4Total
    
    $
    618,551
    
    
    $
    615,543
    
    
    
    100.0
    %
 
 (1)
    
    Includes obligations of GNMA.(2)
    
    Includes obligations of FHLMC.(3)
    
    Includes issues from FNMA and FHLMC.   PAGE 47




---



##### Table of Contents




    
    U.S. Treasury and obligations of U.S. government-sponsored entities increased by $186.4
million to $451.8 million, or 73.1% of the portfolio, at September 30, 2009 compared to
$265.4 million at year end. At September 30, 2009, the Companys holdings in this category
consisted of only U.S. Treasury bills with maturities of less than four months.
 
    
    U.S. government agency and government-sponsored entity mortgage-backed securities decreased
$134.9 million, from $283.7 million at December 31, 2008 to $148.8 million at September 30,
2009.
 
    
    Equity securities increased $2.9 million to $3.9 million at September 30, 2009 from
December 31, 2008 as a result of the increase in fair market value.
 
    
    Corporate and other debt securities decreased by $4.4 million to $10.9 million at September
30, 2009 from $15.2 million at December 31, 2008 as a result of a sale transaction.
 
    
    The securities portfolio does not contain any sub-prime or Alt-A mortgage-backed
securities.
   Cash Surrender Value of Life Insurance
  48




---



##### Table of Contents



Goodwill
        49




---



##### Table of Contents



50




---



##### Table of Contents



Deposits and Borrowed Funds
  September 30,
    
    
    December 31,2009
    
    
    2008(In thousands)Noninterest-bearing demand
    
    $
    330,901
    
    
    $
    334,495Interest-bearing demand
    
    
    176,597
    
    
    
    176,224Money-market
    
    
    206,653
    
    
    
    208,484Savings
    
    
    134,539
    
    
    
    129,101Certificates of deposit less than $100,000
    
    
    878,695
    
    
    
    689,896Certificates of deposit of $100,000 or more
    
    
    403,149
    
    
    
    435,687Brokered certificates of deposit
    
    
    424,655
    
    
    
    438,904Total interest-bearing deposits
    
    
    2,224,288
    
    
    
    2,078,296Total
    
    $
    2,555,189
    
    
    $
    2,412,791Total core deposits (1)
    
    $
    848,690
    
    
    $
    848,304
 
 (1)
    
    Consists of noninterest-bearing and interest-bearing demand, money market, and savings.  
    
    Noninterest-bearing deposits were $330.9 million at September 30, 2009, $3.6 million less
than the $334.5 million level at December 31, 2008.
 
    
    Interest-bearing deposits increased 7.0%, or $146.0 million to $2.2 billion at September
30, 2009 compared to December 31, 2008.
 
    
    Core deposits, which consist of noninterest-bearing demand, interest-bearing demand, money
market, and savings, increased slightly to $848.7 million at September 30, 2009 from
$848.3 million at December 31, 2008.
 
    
    Certificates of deposit under $100,000 increased $188.8 million, or 27.4%, from December
31, 2008 to $878.7 million at September 30, 2009, as a result of successful promotions which
allowed the Company to build liquidity.
 
    
    Certificates of deposit over $100,000 decreased by $32.5 million from December 31, 2008 to
$403.1 million at September 30, 2009.
 
    
    Certificates of deposits through the CDARS and Internet
networks were $139.0 million at
September 30, 2009 compared to $41.6 million at December 31, 2008. These networks allow the
Company to access other deposit funding sources.
 
    
    Brokered certificates of deposit decreased $14.2 million, or 3.2%, to $424.7 million at
September 30, 2009 compared to year end 2008. The brokered certificates of deposit are
comprised of underlying certificates of deposits in denominations of less than $100,000.
  51




---



##### Table of Contents



September 30,
    
    
    December 31,2009
    
    
    2008(In thousands)Revolving note payable
    
    $
    8,600
    
    
    $
    8,600Securities sold under agreements to repurchase
    
    
    297,650
    
    
    
    297,650Federal Home Loan Bank advances
    
    
    340,000
    
    
    
    380,000Junior subordinated debentures
    
    
    60,828
    
    
    
    60,791Subordinated debt
    
    
    15,000
    
    
    
    15,000Term note payable
    
    
    55,000
    
    
    
    55,000Total
    
    $
    777,078
    
    
    $
    817,041
   52




---



##### Table of Contents



Revolving and Term Loan Facilities; Events of Default
       53




---



##### Table of Contents



Capital Resources
   54




---



##### Table of Contents



September 30,
    
    
    December 31,2009
    
    
    2008(In thousands)Risk-weighted assets
    
    $
    2,502,626
    
    
    $
    2,878,087Average assets
    
    
    3,650,053
    
    
    
    3,590,313Capital components:Stockholders equity
    
    $
    180,239
    
    
    $
    305,834Plus: Guaranteed trust preferred securities
    
    
    59,000
    
    
    
    59,000Less: Core deposit and other intangibles, net
    
    
    (12,964
    )
    
    
    (14,683
    )Less: Goodwill
    
    
    (78,862
    )
    
    
    (78,862
    )Less: Disallowed tax assets
    
    
    
    
    
    
    (32,748
    )Less: SERP prior service cost and decrease in projected benefit obligation
    
    
    1,025
    
    
    
    Less: Unrealized (gains) losses on securities, net of tax
    
    
    3,007
    
    
    
    1,449Plus: Unrealized losses on equity securities, net of tax
    
    
    
    
    
    
    (1,117
    )Tier I capital
    
    
    151,445
    
    
    
    238,873Allowance for loan losses
    
    
    83,506
    
    
    
    44,432Reserve for unfunded commitments
    
    
    2,091
    
    
    
    1,068Disallowed allowance
    
    
    (53,644
    )
    
    
    (9,406
    )Qualifying subordinated debt
    
    
    15,000
    
    
    
    15,000Unrealized gains on equity securities, net of tax
    
    
    505
    
    
    
    Total risk-based capital
    
    $
    198,903
    
    
    $
    289,967
  At September 30, 2009Minimum Required
    
    Minimum RequiredActual
    
    for Capital Adequacy
    
    to be Well CapitalizedAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in thousands)Total capital to risk-weighted assets
Company
    
    $
    198,903
    
    
    
    7.95
    %
    
    $
    200,210
    
    
    
    8.00
    %
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    253,635
    
    
    
    10.17
    
    
    
    199,432
    
    
    
    8.00
    
    
    $
    249,291
    
    
    
    10.00
    %Tier I capital to risk-weighted assets
Company
    
    
    151,445
    
    
    
    6.05
    
    
    
    100,105
    
    
    
    4.00
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    221,297
    
    
    
    8.88
    
    
    
    99,716
    
    
    
    4.00
    
    
    
    149,574
    
    
    
    6.00Tier I common capital to risk-weighted assets
Company
    
    
    (30,991
    )
    
    
    (1.24
    )
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    221,297
    
    
    
    8.88
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/aTier I capital to average assets
Company
    
    
    151,445
    
    
    
    4.15
    
    
    
    146,002
    
    
    
    4.00
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    221,297
    
    
    
    6.08
    
    
    
    145,642
    
    
    
    4.00
    
    
    
    182,053
    
    
    
    5.00
 55




---



##### Table of Contents



At December 31, 2008Minimum Required
    
    Minimum RequiredActual
    
    for Capital Adequacy
    
    to be Well CapitalizedAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in thousands)Total capital to risk-weighted assets
Company
    
    $
    289,967
    
    
    
    10.07
    %
    
    $
    230,247
    
    
    
    8.00
    %
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    301,993
    
    
    
    10.54
    
    
    
    229,244
    
    
    
    8.00
    
    
    $
    286,555
    
    
    
    10.00
    %Tier I capital to risk-weighted assets
Company
    
    
    238,873
    
    
    
    8.30
    
    
    
    115,123
    
    
    
    4.00
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    236,054
    
    
    
    8.24
    
    
    
    114,622
    
    
    
    4.00
    
    
    
    171,933
    
    
    
    6.00Tier I common capital to risk-weighted assets
Company
    
    
    57,125
    
    
    
    1.98
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    236,054
    
    
    
    8.24
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/aTier I capital to average assets
Company
    
    
    238,873
    
    
    
    6.65
    
    
    
    143,613
    
    
    
    4.00
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    236,054
    
    
    
    6.60
    
    
    
    143,000
    
    
    
    4.00
    
    
    
    178,750
    
    
    
    5.00
    56




---



##### Table of Contents



Liquidity
       57




---



##### Table of Contents



58




---



##### Table of Contents



ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
 Interest Rate Sensitivity Analysis
  Change in Net Interest Income Over One Year HorizonGuidelineSeptember 30, 2009
    
    December 31, 2008
    
    MaximumDollar
    
    %
    
    Dollar
    
    %
    
    %Change
    
    Change
    
    Change
    
    Change
    
    Change(Dollars in thousands)+200 bp
    
    $
    16,631
    
    
    
    26.04
    %
    
    $
    6,274
    
    
    
    8.23
    %
    
    
    (10.0
    )%+100 bp
    
    
    7,793
    
    
    
    12.20
    
    
    
    2,850
    
    
    
    3.74
    
    
    
    -100 bp
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    -200 bp
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    (10.0
    )
   PAGE 59




---



##### Table of Contents



ITEM 4  CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls Over Financial Reporting
  PAGE 60




---



##### Table of Contents



SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
     
    
    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;
 
    
    Risks and uncertainties related to the contemplated Exchange Offer and to the Capital Plan,
including
 
    
    the Companys ability to successfully execute the Exchange Offer, including securing
the exchange of a significant number of Depositary Shares;
 
    
    the Companys ability to successfully implement and achieve the other goals of the
Capital Plan, the success of which is dependent on a successful Exchange Offer; and
 
 
    
    the effect of the recently enacted Emergency Economic Stabilization Act of 2008, the
American Recovery and Reinvestment Act of 2009, the implementation by the Department of the
U.S. 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;
 PAGE 61




---



##### Table of Contents




    
    The possibility that the Companys wholesale funding sources may prove insufficient to
replace deposits at maturity and support potential growth;
 
    
    Inaccessibility of funding sources on the same terms on which the Company has historically
relied if it is unable to maintain 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;
 
    
    Uncertainties with respect to the future utilization of the Companys deferred tax assets;
 
    
    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;
 
    
    Credit risks and risks from concentrations (by geographic area and by industry) within the
Banks loan portfolio and individual large loans;
 
    
    The sufficiency of the allowance for loan losses to absorb the amount of actual losses
inherent in the existing portfolio of loans;
 
    
    The failure of assumptions underlying the establishment of the allowance for loan losses
and estimation of 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;
 
    
    Volatility of rate sensitive deposits;
 PAGE 62




---



##### Table of Contents




    
    Operational risks, including data processing system failures or fraud;
    
    Liquidity risks;
    
    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 ability of the Bank to pay dividends to the Company;
    
    The Companys ability to pay cash dividends on its common and preferred stock and interest
on its junior subordinated debentures;
    
    The Companys ability to restructure payments or comply with the terms of the forbearance
agreement;
    
    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 expected enforcement action;
    
    Possible administrative or enforcement actions of the SEC in connection with the SEC
inquiry of the restatement of the Companys September 30, 2002 financial statements;
    
    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 industry conditions, nationally or in the communities in
which the Company conducts business;
    
    Changes in legislation or regulatory and accounting principles, policies, or guidelines
affecting the business conducted by the Company;
    
    The impact of possible future goodwill and other material impairment charges;
    
    The effects of increased deposit insurance premiums;
    
    The Banks ability to comply with the terms of an
agreement with its regulators (which
the Company anticipates entering into shortly) pursuant to which the
Bank will agree to
take certain corrective actions to improve its financial condition;
    
    The ability of the Banks repurchase agreement counterparties to
terminate the repurchase agreements if the Bank does not maintain its well-capitalized status
and the substantial costs the Bank would incur to unwind these repurchase agreements prior to
their maturies;
    
    The Companys ability absent successful completion of
all or a significant portion of the Capital Plan to repay the funds
due at the
 PAGE 63




---



##### Table of Contents



expiration of the forbearance period;
 
    
    The delisting of the Companys common stock from Nasdaq;
    
    Acts of war or terrorism; and
    
    Other economic, competitive, governmental, regulatory, and technical factors affecting the
Companys operations, products, services, and prices.
   PAGE 64




---



##### Table of Contents



PART II
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Risks Related to Our Contemplated Exchange Offer and to Our Capital Plan
 The Exchange Offer and other aspects of our Capital Plan will result in a substantial amount of our
common stock entering the market, which could adversely affect the market price of our Common
Stock.
  The market price of our Common Stock may be subject to continued significant fluctuations and
volatility.
  
    
    changes or perceived changes in the condition, operations, results or prospects of our
businesses and market assessments of these changes or perceived changes;
 PAGE 65




---



##### Table of Contents




    
    announcements relating to significant corporate transactions, including the Exchange Offer
and other possible transactions contemplated by our Capital Plan;
    
    changes in governmental regulations or proposals, or new governmental regulations or
proposals, affecting us, including those relating to the current financial crisis and global
economic downturn;
    
    the continued decline, failure to stabilize or lack of improvement in general market and
economic conditions, including real estate and credit markets;
    
    market assessments concerning the continued listing of our Common Stock on NASDAQ;
    
    the departure of key personnel;
    
    operating and stock price performance of companies that investors deem comparable to us; and
    
    market assessments of the Exchange Offer, including as to whether and when the Exchange
Offer will take place.
 Future dividend payments and Common Stock repurchases are restricted by the terms of the U.S.
Treasurys current equity investment in the Company as well as the terms of the Companys
outstanding Series A Preferred Stock and trust preferred securities .
 pari passu
  PAGE 66




---



##### Table of Contents



We may fail to realize all of the anticipated benefits of the Exchange Offer.
   
    
    the market price of our Common Stock may decline to the extent that the current market price
of our Common Stock reflects a market assumption that the Exchange Offer has been or will be
completed;
    
    the market price of our Depositary Shares may decline to the extent that the current market
price of our Depositary Shares reflects a market assumption that the Exchange Offer has been or
will be completed; and
    
    we may not be able to increase our TCE or Tier 1 Common and thus fail to increase a key
measure of financial strength as viewed by our regulators and the market.
 We contemplate issuing a significant amount of Common Stock to accomplish the goals of our Capital
Plan. The issuance of even a portion of the additional Common Stock contemplated under our Capital
Plan will be dilutive, potentially significantly, to holders of our Common Stock.
  
    
    seeking an investment by the U.S. Treasury pursuant to the CAP that would be used to
exchange our existing Fixed Rate Cumulative Perpetual Preferred Stock, Series T, with an aggregate
liquidation preference of $84,784,000 (the Series T Preferred Stock), which is currently held by
the U.S. Treasury, for another class of mandatory convertible preferred stock to be issued to the
U.S. Treasury under the CAP, and to thereafter convert this new class of preferred stock into
shares of Common Stock, subject to regulatory approval;
    
    negotiating with our primary lender to restructure $55.0 million of senior debt and $15.0
million of subordinated debt; and
    
    engaging in one or more private and/or public offerings of common and/or convertible
preferred stock.
   PAGE 67




---



##### Table of Contents



Exchanging our Series T Preferred Stock for mandatory convertible preferred shares under the CAP is
likely to impose additional restrictions on operations and could adversely affect liquidity.
      PAGE 68




---



##### Table of Contents



Issuing a significant amount of convertible preferred equity to the U.S. Treasury or issuing a
significant amount of common equity to a private investor may result in a change in control of us
under regulatory standards and contractual terms.
  Risks Related to Our Business, Operations and Industry
 Our results of operations, financial condition and business may be materially, adversely affected
if we fail to successfully implement our Capital Plan.
  Our
regulators have recently completed a safety and soundness examination
of the Bank and we anticipate
that the Bank will enter into an agreement with our regulators shortly pursuant
to which we will agree to take certain corrective actions to improve our financial condition.
  PAGE 69




---



##### Table of Contents



Changes in economic conditions, in particular a continued economic slowdown in Chicago, Illinois,
could hurt our business materially.
  
    
    loan delinquencies may continue to increase or remain at elevated levels;
    
    problem assets and foreclosures may continue to increase or remain at elevated levels;
    
    unemployment may continue to increase;
    
    demand for our products and services may decline;
    
    low cost or noninterest bearing deposits may decrease; and
    
    collateral for loans made by us, especially residential and commercial real estate, may
decline or continue to decline in value, in turn reducing customers borrowing power, and reducing
the value of assets and collateral associated with our existing loans.
 A large percentage of our loans are collateralized by real estate, including our construction
loans, and adverse changes in the real estate market may result in losses and adversely affect our
profitability.
   PAGE 70




---



##### Table of Contents



The Companys allowance for loan losses may not be sufficient to cover actual loan losses, which
could adversely affect its results of operations or its financial condition.
  
    
    current economic conditions and their estimated effects on specific borrowers;
    
    an evaluation of the existing relationships among loans, potential loan losses and the
present level of the allowance;
    
    managements internal review of the loan portfolio; and
    
    results of examinations of its loan portfolio by regulatory agencies.
   PAGE 71




---



##### Table of Contents



While the Company attempts to manage the risk from changes in market interest rates, interest rate
risk management techniques are not exact. In addition, the Company may not be able to economically
hedge its interest rate risk. A rapid or substantial increase or decrease in interest rates could
adversely affect its net interest income and results of operations.
     PAGE 72




---



##### Table of Contents



We may not be able to access sufficient and cost-effective sources of liquidity necessary to fund
our operations and meet our payment obligations under our existing funding commitments, including
the repayment of our brokered deposits.
    PAGE 73




---



##### Table of Contents



The Companys cost of funds for banking operations may increase as a result of general economic
conditions, interest rates and competitive pressures.
   The Company is party to loan agreements that require it to observe certain covenants that limit its
flexibility in operating its business; and it has recently breached covenants under its loan
agreements, which , as a result, have given its lenders the right to take certain courses of
actions that have been and, with respect to unexercised rights, would be significantly detrimental
to holders of the Companys securities.
   
    
    The Company advised its lender that its ratio of non-performing loans to total loans was
3.5% at March 31, 2009. In addition, the Company posted a net loss for the first quarter of 2009.
Subsequently, the lender notified the Company that it was not in compliance with both the
non-performing loans to total loans covenant and the profitability covenant in the loan agreements
for the period ending March 31, 2009 (collectively, the Financial Covenant Defaults).
 PAGE 74




---



##### Table of Contents




    
    The Company did not make a required $5.0 million principal payment due on July 1, 2009. As
previously reported, the Company has sought covenant waivers on two occasions since December 31,
2007. The lender waived a covenant violation in the first quarter of 2008 resulting from the
Companys net loss recognized in that period. On March 4, 2009, the lender waived a covenant
violation for the third quarter of 2008 resulting from the Companys net loss recognized in that
period, contingent upon the Company making accelerated principal payments under the term loan
agreement in the amounts and on or prior to the dates shown below:
 
   
    
    Finally, the revolving line of credit matured on July 3, 2009 and the Company did not pay to
the lender all of the aggregate outstanding principal on the revolving line of credit on such date.
The failure to make such payments constitutes an additional event of default under the loan
agreements (the Payment Default; the Financial Covenant Defaults, the Contingent Wavier Default,
and the Payment Default are hereinafter collectively referred to as the Existing Events of
Default).
    PAGE 75




---



##### Table of Contents



Our common stock could be delisted from Nasdaq.
   PAGE 76




---



##### Table of Contents



Markets have experienced, and may continue to experience, periods of high volatility accompanied by
reduced liquidity.
  Concern of the Companys customers over deposit insurance may cause a decrease in deposits.
  The Companys deposit insurance premium could be substantially higher in the future, which could
have a material adverse effect on our future earnings.
    PAGE 77




---



##### Table of Contents



Defaults by another financial institution could adversely affect financial markets generally.
    The widespread effect of falling housing prices on financial markets has adversely affected and
could continue to adversely affect the Companys profitability, liquidity, and financial condition.
  The value of securities in the Companys investment securities portfolio may be negatively affected
by continued disruptions in securities markets.
  If the Company is required to write down goodwill or other intangible assets or if it is required
to mark-to-market certain of its assets or further reduce its deferred tax assets by a valuation
allowance, its financial condition and results of operations would be negatively affected.
 PAGE 78




---



##### Table of Contents




    
    significant adverse change in business climate;
    
    significant unanticipated loss of clients/assets under management;
    
    unanticipated loss of key personnel;
    
    sustained periods of poor investment performance;
    
    significant loss of deposits or loans;
    
    significant reductions in profitability; or
    
    significant changes in loan credit quality.
   PAGE 79




---



##### Table of Contents



If the Companys investment in the common stock of the Federal Home Loan Bank of Chicago is other
than temporarily impaired, its financial condition and results of operations could be materially
impaired.
    PAGE 80




---



##### Table of Contents



As a bank holding company that conducts substantially all of the Companys operations through its
subsidiaries, its ability to pay dividends, repurchase its shares, or to repay its indebtedness
depends upon liquid assets held by the bank holding company as well as the results of operations of
the Companys subsidiaries the Company and its subsidiaries are subject to other restrictions.
     
    
    the terms of junior subordinated debentures of the Company, pursuant to which it can not
declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its Common Stock or preferred stock if, at that time,
there is a default under the junior subordinated debentures or a related guarantee or it has
delayed interest payments on the securities issued under the junior indenture; and
    
    the Companys outstanding Series A and Series T Preferred Stock, which have preference over
the Companys Common Stock with respect to the payment of dividends as well as distributions of
assets upon liquidation, and no dividends on the Common Stock may be declared and paid unless and
until dividends have been paid on its preferred stock.
 The Company expects to seek or may be compelled to seek additional capital in the future, but
capital may not be available when it is needed.
  PAGE 81




---



##### Table of Contents



The Companys effective tax rates may be adversely affected by changes in federal and state tax
laws.
   An interruption in or breach in security of the Companys information systems may result in a loss
of customer business.
   PAGE 82




---



##### Table of Contents



The Company continually encounters technological change.
  The Companys business may be adversely affected by the highly regulated environment in which it
operates.
  There can be no assurance that the recently enacted Emergency Economic Stabilization Act of 2008,
the American Recovery and Reinvestment Act of 2009 and other recently enacted government programs
will help stabilize the U.S. financial system.
  PAGE 83




---



##### Table of Contents



The limitations on incentive compensation contained in the ARRA may adversely affect the Companys
ability to retain its highest performing employees.
 PAGE 84




---



##### Table of Contents



The Company is subject to claims and litigation pertaining to fiduciary responsibility.
  The Company is exposed to risk of environmental liabilities with respect to properties to which we
take title.
  Severe weather, natural disasters, acts of war or terrorism and other external events could
significantly impact our business.
  Non-Compliance with USA PATRIOT Act, Bank Secrecy Act, or Other Laws and Regulations Could Result
in Fines or Sanctions, and Curtail Expansion Opportunities
  PAGE 85




---



##### Table of Contents



Provisions in the Companys amended and restated certificate of incorporation and its amended and
restated bylaws may delay or prevent an acquisition of the Company by a third party.
  PAGE 86




---



##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
  3.1
    
    Amended and Restated By-laws of the Company, as amended to date
(incorporated by reference to Registrants Report on Form 8-K filed
July 29, 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.10.1
    
    Amended and Restated Midwest Banc Holdings, Inc. Severance Policy
(incorporated by reference to Registrants Report on Form 8-K filed
July 29, 2009, File No. 001-13735).10.2
    
    Forbearance agreement dated October 22, 2009 between the Company and
M&I Marshall & Ilsley Bank (incorporated by reference to Registrants
Report on Form 8-K filed October 28, 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 Accounting Officer.
 PAGE 87




---



##### Table of Contents



SIGNATURES
   MIDWEST BANC HOLDINGS, INC.
(Registrant)By:
    /s/ Roberto R. HerenciaRoberto R. Herencia,President and Chief Executive Officer By:
    /s/ JoAnn Sannasardo LilekJoAnn Sannasardo Lilek,Executive Vice President and
Chief Financial Officer PAGE 88




---



##### Table of Contents



3.1
    
    Amended and Restated By-laws of the Company, as amended to date
(incorporated by reference to Registrants Report on Form 8-K filed
July 29, 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.10.1
    
    Amended and Restated Midwest Banc Holdings, Inc. Severance Policy
(incorporated by reference to Registrants Report on Form 8-K filed
July 29, 2009, File No. 001-13735).10.2
    
    Forbearance agreement dated October 22, 2009 between the Company and
M&I Marshall & Ilsley Bank (incorporated by reference to Registrants
Report on Form 8-K filed October 28, 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 Accounting Officer.