##### 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 June 30, 2007
 Commission File Number: 001-13735
 MIDWEST BANC HOLDINGS, INC.
 (Exact name of Registrant as specified in its charter.)
 Delaware
    
    36-3252484(State or other jurisdiction of
    
    (I.R.S. Employer Identification Number)incorporation or organization)501 W. North Ave.Melrose Park, Illinois
    
    60160(Address of principal executive offices)
    
    (Zip code)
 (708) 865-1053  (Registrants telephone number, including area code)
 þ o
  o þ o
 o þ
  Class
    
    Outstanding at August 8, 2007Common, par value $0.01
    
    24,405,971




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##### 



MIDWEST BANC HOLDINGS, INC.
 Form 10-Q
  
 Table of Contents
 Page NumberPART IItem 1. Financial Statements
    
    
    1Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    37Item 4. Controls and Procedures
    
    
    38PART IIItem 1. Legal Proceedings
    
    
    42Item 1A. Risk Factors
    
    
    42Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
    
    
    42Item 3. Defaults upon Senior Securities
    
    
    42Item 4. Submission of Matters to a Vote of Security Holders
    
    
    42Item 5. Other Information
    
    
    43Item 6. Exhibits
    
    
    43Form 10-Q Signature Page
    
    
    46Certification of Principal Executive OfficerCertification of Principal Financial OfficerSection 1350 Certifications
  i




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands)
 June 30,
    
    
    December 31,2007
    
    
    2006ASSETSCash
    
    $
    53,832
    
    
    $
    91,630Federal funds sold and other short-term investments
    
    
    8,861
    
    
    
    8,902Total cash and cash equivalents
    
    
    62,693
    
    
    
    100,532Securities available-for-sale
    
    
    639,087
    
    
    
    589,981Securities held-to-maturity (fair value: $40,198 at June 30,
2007 and $44,687 at December 31, 2006)
    
    
    42,110
    
    
    
    45,931Total securities
    
    
    681,197
    
    
    
    635,912Federal Reserve and Federal Home Loan Bank stock, at cost
    
    
    23,683
    
    
    
    23,592Loans held for sale
    
    
    2,349
    
    
    
    2,672Loans
    
    
    1,982,672
    
    
    
    1,946,816Allowance for loan losses
    
    
    (23,724
    )
    
    
    (23,229
    )Net loans
    
    
    1,958,948
    
    
    
    1,923,587Cash surrender value of life insurance
    
    
    66,676
    
    
    
    65,220Premises and equipment, net
    
    
    22,489
    
    
    
    21,960Other real estate
    
    
    2,312
    
    
    
    2,640Core deposit and other intangibles, net
    
    
    9,812
    
    
    
    11,273Goodwill
    
    
    79,625
    
    
    
    79,488Due from broker
    
    
    38,321
    
    
    
    Other assets
    
    
    74,189
    
    
    
    75,170Total assets
    
    $
    3,022,294
    
    
    $
    2,942,046LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesDepositsNoninterest-bearing
    
    $
    256,152
    
    
    $
    276,381Interest-bearing
    
    
    1,801,690
    
    
    
    1,681,429Total deposits
    
    
    2,057,842
    
    
    
    1,957,810Federal funds purchased
    
    
    29,000
    
    
    
    66,000Securities sold under agreements to repurchase
    
    
    282,037
    
    
    
    201,079Advances from the Federal Home Loan Bank
    
    
    269,911
    
    
    
    319,883Junior subordinated debentures
    
    
    65,845
    
    
    
    65,812Other liabilities
    
    
    34,084
    
    
    
    44,220Total liabilities
    
    
    2,738,719
    
    
    
    2,654,804Commitments and contingencies (see note 10)Stockholders EquityPreferred stock, $0.01 par value, 1,000,000 shares authorized;
none issued
    
    
    
    
    
    
    Common stock, $0.01 par value, 64,000,000 shares
authorized; 25,527,853 shares issued and 24,546,924
outstanding at
June 30, 2007 and 25,504,095 shares issued and 24,663,417
outstanding at December 31, 2006
    
    
    255
    
    
    
    255Additional paid-in capital
    
    
    202,690
    
    
    
    200,797Retained earnings
    
    
    100,811
    
    
    
    97,807Accumulated other comprehensive loss
    
    
    (11,861
    )
    
    
    (6,273
    )Treasury stock, at cost ( 980,929 shares at June 30, 2007 and
840,678 shares at December 31, 2006)
    
    
    (8,320
    )
    
    
    (5,344
    )Total stockholders equity
    
    
    283,575
    
    
    
    287,242Total liabilities and stockholders equity
    
    $
    3,022,294
    
    
    $
    2,942,046
 See accompanying notes to unaudited consolidated financial statements.
 PAGE 1




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share data)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Interest IncomeLoans
    
    $
    36,822
    
    
    $
    26,640
    
    
    $
    72,880
    
    
    $
    51,010Loans held for sale
    
    
    48
    
    
    
    23
    
    
    
    78
    
    
    
    40SecuritiesTaxable
    
    
    8,729
    
    
    
    7,469
    
    
    
    16,292
    
    
    
    15,391Exempt from federal income taxes
    
    
    462
    
    
    
    833
    
    
    
    1,162
    
    
    
    1,652Dividends from Federal Reserve and Federal Home Loan Bank stock
    
    
    226
    
    
    
    139
    
    
    
    454
    
    
    
    276Federal funds sold and other short-term investments
    
    
    205
    
    
    
    186
    
    
    
    392
    
    
    
    280Total interest income
    
    
    46,492
    
    
    
    35,290
    
    
    
    91,258
    
    
    
    68,649Interest ExpenseDeposits
    
    
    18,582
    
    
    
    12,323
    
    
    
    36,481
    
    
    
    23,060Federal funds purchased
    
    
    393
    
    
    
    150
    
    
    
    1,092
    
    
    
    398Securities sold under agreements to repurchase
    
    
    2,563
    
    
    
    2,208
    
    
    
    4,722
    
    
    
    4,879Advances from the Federal Home Loan Bank
    
    
    3,670
    
    
    
    1,982
    
    
    
    7,318
    
    
    
    3,521Junior subordinated debentures
    
    
    1,315
    
    
    
    1,074
    
    
    
    2,616
    
    
    
    2,077Total interest expense
    
    
    26,523
    
    
    
    17,737
    
    
    
    52,229
    
    
    
    33,935Net interest income
    
    
    19,969
    
    
    
    17,553
    
    
    
    39,029
    
    
    
    34,714Provision for loan losses
    
    
    1,036
    
    
    
    5,000
    
    
    
    1,681
    
    
    
    5,000Net interest income after provision for loan losses
    
    
    18,933
    
    
    
    12,553
    
    
    
    37,348
    
    
    
    29,714Noninterest IncomeCustomer service fees
    
    
    1,575
    
    
    
    1,415
    
    
    
    3,209
    
    
    
    2,618Net gains (losses) on securities transactions
    
    
    31
    
    
    
    
    
    
    
    17
    
    
    
    (195
    )Gains on sales of loans
    
    
    225
    
    
    
    205
    
    
    
    401
    
    
    
    296Insurance and brokerage commissions
    
    
    541
    
    
    
    486
    
    
    
    1,114
    
    
    
    998Trust
    
    
    503
    
    
    
    86
    
    
    
    896
    
    
    
    163Increase in cash surrender value of life insurance
    
    
    703
    
    
    
    534
    
    
    
    1,456
    
    
    
    1,024Gain on extinguishment of debt
    
    
    
    
    
    
    625
    
    
    
    
    
    
    
    1,250Other
    
    
    318
    
    
    
    250
    
    
    
    523
    
    
    
    460Total noninterest income
    
    
    3,896
    
    
    
    3,601
    
    
    
    7,616
    
    
    
    6,614Noninterest ExpenseSalaries and employee benefits
    
    
    10,363
    
    
    
    7,618
    
    
    
    20,810
    
    
    
    15,100Occupancy and equipment
    
    
    2,190
    
    
    
    1,647
    
    
    
    4,380
    
    
    
    3,103Professional services
    
    
    1,087
    
    
    
    1,267
    
    
    
    2,295
    
    
    
    2,347Marketing
    
    
    478
    
    
    
    587
    
    
    
    1,157
    
    
    
    1,040Other real estate owned
    
    
    7
    
    
    
    220
    
    
    
    32
    
    
    
    189Other
    
    
    2,519
    
    
    
    1,702
    
    
    
    5,051
    
    
    
    3,147Total noninterest expense
    
    
    16,644
    
    
    
    13,041
    
    
    
    33,725
    
    
    
    24,926Income before income taxes
    
    
    6,185
    
    
    
    3,113
    
    
    
    11,239
    
    
    
    11,402Provision for income taxes
    
    
    1,078
    
    
    
    223
    
    
    
    1,720
    
    
    
    2,571Net Income
    
    $
    5,107
    
    
    $
    2,890
    
    
    $
    9,519
    
    
    $
    8,831Basic earnings per share
    
    $
    0.21
    
    
    $
    0.13
    
    
    $
    0.39
    
    
    $
    0.40Diluted earnings per share
    
    $
    0.21
    
    
    $
    0.13
    
    
    $
    0.38
    
    
    $
    0.40Cash dividends declared per common share
    
    $
    0.13
    
    
    $
    0.13
    
    
    $
    0.26
    
    
    $
    0.25
 See accompanying notes to unaudited consolidated financial statements.
 PAGE 2




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MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (Unaudited)
For the Six Months Ended June 30, 2007 and 2006
(In thousands, except share and per share data)
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    TotalCommon
    
    
    Paid in
    
    
    Retained
    
    
    Restricted
    
    
    Comprehensive
    
    
    Treasury
    
    
    StockholdersStock
    
    
    Capital
    
    
    Earnings
    
    
    Stock
    
    
    Loss
    
    
    Stock
    
    
    EquityBalance, December 31, 2005
    
    $
    221
    
    
    $
    134,857
    
    
    $
    92,121
    
    
    $
    (3,013
    )
    
    $
    (7,606
    )
    
    $
    (454
    )
    
    $
    216,126Cash dividends declared ($0.25 per share)
    
    
    
    
    
    
    
    
    
    
    (5,528
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,528
    )Issuance of common stock upon
exercise of 97,163 stock options,
net of tax benefit
    
    
    1
    
    
    
    1,643
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,644Reclassification of restricted stock in
conjunction with the adoption of FAS 123 (R)
    
    
    
    
    
    
    (3,013
    )
    
    
    
    
    
    
    3,013
    
    
    
    
    
    
    
    
    
    
    
    Issuance of 29,316 shares of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeiture of 3,400 shares of restricted stock
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36
    )
    
    
    Stock-based compensation
    
    
    
    
    
    
    813
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    813Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    8,831
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,831Net decrease in fair value of
securities classified as available-
for-sale, net of income taxes and
reclassification adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,774
    )
    
    
    
    
    
    
    (8,774
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57Balance, June 30, 2006
    
    $
    222
    
    
    $
    134,336
    
    
    $
    95,424
    
    
    $
    
    
    
    $
    (16,380
    )
    
    $
    (490
    )
    
    $
    213,112Balance, December 31, 2006
    
    $
    255
    
    
    $
    200,797
    
    
    $
    97,807
    
    
    $
    
    
    
    $
    (6,273
    )
    
    $
    (5,344
    )
    
    $
    287,242Cash dividends declared ($0.26 per share)
    
    
    
    
    
    
    
    
    
    
    (6,515
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,515
    )Issuance of common stock upon
exercise of 26,396 stock options,
net of tax benefit
    
    
    
    
    
    
    320
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    320Purchase of 179,500 shares of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,976
    )
    
    
    (2,976
    )Stock-based compensation
    
    
    
    
    
    
    1,573
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,573Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    9,519
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,519Net decrease in fair value of
securities classified as available-
for-sale, net of income taxes and
reclassification adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,588
    )
    
    
    
    
    
    
    (5,588
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,931Balance, June 30, 2007
    
    $
    255
    
    
    $
    202,690
    
    
    $
    100,811
    
    
    $
    
    
    
    $
    (11,861
    )
    
    $
    (8,320
    )
    
    $
    283,575
 See accompanying notes to unaudited consolidated financial statements.
 PAGE 3




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Six Months Ended June 30, 2007 and 2006
(In thousands)
 2007
    
    
    2006Cash flows from operating activitiesNet income
    
    $
    9,519
    
    
    $
    8,831Adjustments to reconcile net income to net cash provided by operating activitiesDepreciation
    
    
    1,538
    
    
    
    1,206Provision for loan losses
    
    
    1,681
    
    
    
    5,000Amortization of other intangibles, net
    
    
    628
    
    
    
    196Amortization of premiums and discounts on securities, net
    
    
    451
    
    
    
    470Realized (gain) loss on sale of available-for-sale securities, net
    
    
    (17
    )
    
    
    195Net gain on sales of loans held for sale
    
    
    (401
    )
    
    
    (296
    )Originations of loans held for sale
    
    
    (36,729
    )
    
    
    (26,204
    )Proceeds from sales of loans held for sale
    
    
    37,453
    
    
    
    24,773Increase in cash surrender value of life insurance
    
    
    (1,456
    )
    
    
    (1,024
    )Deferred income taxes
    
    
    4,658
    
    
    
    (1,452
    )Loss on sale of other real estate, net
    
    
    12
    
    
    
    Amortization of deferred stock based compensation
    
    
    1,515
    
    
    
    813Change in other assets
    
    
    205
    
    
    
    (314
    )Change in other liabilities
    
    
    (10,035
    )
    
    
    328Net cash provided by operating activities
    
    
    9,022
    
    
    
    12,522Cash flows from investing activitiesSales of securities available-for-sale
    
    
    70,340
    
    
    
    24,687Maturities of securities available-for-sale
    
    
    12,035
    
    
    
    Principal payments on securities
    
    
    42,039
    
    
    
    46,179Purchases of securities available-for-sale
    
    
    (217,333
    )
    
    
    (10,837
    )Maturities of securities held-to-maturity
    
    
    
    
    
    
    2,025Loan originations and principal collections, net
    
    
    (36,411
    )
    
    
    (74,923
    )Proceeds from sale of other real estate
    
    
    225
    
    
    
    6,182Investment in life insurance
    
    
    
    
    
    
    (5,926
    )Additions to property and equipment
    
    
    (2,067
    )
    
    
    (1,924
    )Net cash used in investing activities
    
    
    (131,172
    )
    
    
    (14,537
    )Cash flows from financing activitiesNet increase in deposits
    
    
    99,583
    
    
    
    60,683Proceeds from borrowings
    
    
    
    
    
    
    200,000Repayments on borrowings
    
    
    (50,000
    )
    
    
    (100,000
    )Cash dividends paid
    
    
    (6,526
    )
    
    
    (5,290
    )Change in federal funds purchased and securities sold under agreements to repurchase
    
    
    43,958
    
    
    
    (111,205
    )Repurchase of common stock
    
    
    (2,976
    )
    
    
    Proceeds from issuance of common or treasury stock under stock and incentive option plan
    
    
    272
    
    
    
    1,184Net cash provided by financing activities
    
    
    84,311
    
    
    
    45,372(Decrease) increase in cash and cash equivalents
    
    
    (37,839
    )
    
    
    43,357Cash and cash equivalents at beginning of period
    
    
    100,532
    
    
    
    70,599Cash and cash equivalents at end of period
    
    $
    62,693
    
    
    $
    113,956Supplemental disclosuresCash paid during period for:Interest
    
    $
    49,876
    
    
    $
    32,346Income taxes, net
    
    
    3,934
    
    
    
    736
 See accompanying notes to unaudited consolidated financial statements.
 PAGE 4




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  BASIS OF PRESENTATION
   NOTE 2  NEW ACCOUNTING PRONOUNCEMENTS
    PAGE 5




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  NOTE 3  BUSINESS COMBINATIONS
 Royal American Corporation
   PAGE 6




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Three months ended
    
    Six months endedJune 30,
    
    June 30,2006
    
    2006Net interest income
    
    $
    23,203
    
    
    $
    45,595Net income (loss)
    
    
    (1,638
    )
    
    
    5,441Basic earnings per share
    
    
    (0.07
    )
    
    
    0.22Diluted earnings per share
    
    
    (0.07
    )
    
    
    0.22
  Northwest Suburban Bancorp, Inc.
    PAGE 7




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 4  SECURITIES
  June 30, 2007TotalHeld-to-Maturity
    
    
    Available-for-Sale
    
    
    
    
    
    
    
    
    
    
    % ofAmortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    AmortizedCost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Cost(Dollars in thousands)U.S. Treasury and obligations of
U.S. government-sponsored entities
    
    $
    
    
    
    $
    
    
    
    $
    151,978
    
    
    $
    150,252
    
    
    $
    151,978
    
    
    $
    150,252
    
    
    
    21.69
    %Obligations of states and
political subdivisions
    
    
    1,685
    
    
    
    1,673
    
    
    
    46,082
    
    
    
    44,878
    
    
    
    47,767
    
    
    
    46,551
    
    
    
    6.82Mortgage-backed securities
    
    
    40,425
    
    
    
    38,525
    
    
    
    372,964
    
    
    
    360,243
    
    
    
    413,389
    
    
    
    398,768
    
    
    
    58.98Equity securities (1)
    
    
    
    
    
    
    
    
    
    
    76,649
    
    
    
    73,420
    
    
    
    76,649
    
    
    
    73,420
    
    
    
    10.94Other bonds
    
    
    
    
    
    
    
    
    
    
    11,024
    
    
    
    10,294
    
    
    
    11,024
    
    
    
    10,294
    
    
    
    1.57Total
    
    $
    42,110
    
    
    $
    40,198
    
    
    $
    658,697
    
    
    $
    639,087
    
    
    $
    700,807
    
    
    $
    679,285
    
    
    
    100.00
    %
 December 31, 2006TotalHeld-to-Maturity
    
    
    Available-for-Sale
    
    
    
    
    
    
    
    
    
    
    % ofAmortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    AmortizedCost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Cost(Dollars in thousands)U.S. Treasury and obligations of
U.S. government-sponsored entities
    
    $
    
    
    
    $
    
    
    
    $
    6,958
    
    
    $
    6,958
    
    
    $
    6,958
    
    
    $
    6,958
    
    
    
    1.08
    %Obligations of states and
political subdivisions
    
    
    1,686
    
    
    
    1,697
    
    
    
    97,167
    
    
    
    96,987
    
    
    
    98,853
    
    
    
    98,684
    
    
    
    15.29Mortgage-backed securities
    
    
    44,245
    
    
    
    42,990
    
    
    
    444,392
    
    
    
    434,108
    
    
    
    488,637
    
    
    
    477,098
    
    
    
    75.56Equity securities (1)
    
    
    
    
    
    
    
    
    
    
    41,131
    
    
    
    41,521
    
    
    
    41,131
    
    
    
    41,521
    
    
    
    6.36Other bonds
    
    
    
    
    
    
    
    
    
    
    11,034
    
    
    
    10,407
    
    
    
    11,034
    
    
    
    10,407
    
    
    
    1.71Total
    
    $
    45,931
    
    
    $
    44,687
    
    
    $
    600,682
    
    
    $
    589,981
    
    
    $
    646,613
    
    
    $
    634,668
    
    
    
    100.00
    %
 
 (1)
    
    Includes issues from government-sponsored entities (FNMA and FHLMC). PAGE 8




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  June 30, 2007Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(In thousands)Securities available-for-sale:U.S. Treasury and obligations of U.S.
government-sponsored
entities (1)
    
    $
    150,252
    
    
    $
    (1,726
    )
    
    $
    
    
    
    $
    
    
    
    $
    150,252
    
    
    $
    (1,726
    )Obligations of states and political subdivisions
    
    
    34,124
    
    
    
    (832
    )
    
    
    10,247
    
    
    
    (376
    )
    
    
    44,371
    
    
    
    (1,208
    )Mortgage-backed securities:U.S. government-sponsored entities (1)
    
    
    9,339
    
    
    
    (49
    )
    
    
    350,904
    
    
    
    (12,672
    )
    
    
    360,243
    
    
    
    (12,721
    )Equity securities (2)
    
    
    65,049
    
    
    
    (3,253
    )
    
    
    
    
    
    
    
    
    
    
    65,049
    
    
    
    (3,253
    )Corporate and other debt securities
    
    
    
    
    
    
    
    
    
    
    10,294
    
    
    
    (730
    )
    
    
    10,294
    
    
    
    (730
    )Total available-for-sale
    
    
    258,764
    
    
    
    (5,860
    )
    
    
    371,445
    
    
    
    (13,778
    )
    
    
    630,209
    
    
    
    (19,638
    )Securities held-to-maturity:Obligations of states and political subdivisions
    
    
    987
    
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    987
    
    
    
    (18
    )Mortgage-backed securities:U.S. government agencies (3)
    
    
    507
    
    
    
    (1
    )
    
    
    8,373
    
    
    
    (357
    )
    
    
    8,880
    
    
    
    (358
    )U.S. government-sponsored entities (1)
    
    
    
    
    
    
    
    
    
    
    29,644
    
    
    
    (1,541
    )
    
    
    29,644
    
    
    
    (1,541
    )Total held-to-maturity
    
    
    1,494
    
    
    
    (19
    )
    
    
    38,017
    
    
    
    (1,898
    )
    
    
    39,511
    
    
    
    (1,917
    )Total temporarily impaired securities
    
    $
    260,258
    
    
    $
    (5,879
    )
    
    $
    409,462
    
    
    $
    (15,676
    )
    
    $
    669,720
    
    
    $
    (21,555
    )
 
 (1)
    
    Includes obligations of the Federal Home Loan Mortgage Corporation (FHLMC) and Federal
National Mortgage Association (FNMA).(2)
    
    Includes issues from government-sponsored entities (FNMA and FHLMC).(3)
    
    Includes obligations of the Government National Mortgage Association (GNMA).  
    
    The unrealized loss for U.S. government-sponsored entities mortgage-backed securities
relate primarily to debt securities issued by FNMA and FHLMC; each security has a stated
maturity date. FNMA is rated Aa3, AA- and A+ by Moodys, S&P and Fitch, respectively. FHLMC
is rated Aa3 and AA- by Moodys and Fitch, respectively. The mortgage-backed securities are
notes with a weighted average maturity of approximately 22 years and a weighted average
interest rate of 5.02%.
    
    The unrealized losses on corporate and other debt securities relate to securities which
were rated A- or better by either Moodys or S&P. These debt securities have a weighted
average maturity of approximately 7 years and a weighted average interest rate of 4.71%.
 PAGE 9




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 5  LOANS
  June 30,
    
    
    December 31,2007
    
    
    2006% of Gross
    
    
    
    
    
    
    % of GrossAmount
    
    
    Loans
    
    
    Amount
    
    
    Loans(Dollars in thousands)Commercial
    
    $
    426,824
    
    
    
    21.5
    %
    
    $
    376,944
    
    
    
    19.4
    %Construction
    
    
    399,911
    
    
    
    20.2
    
    
    
    424,181
    
    
    
    21.8Commercial real estate
    
    
    767,923
    
    
    
    38.7
    
    
    
    761,742
    
    
    
    39.0ConsumerHome equity
    
    
    142,039
    
    
    
    7.2
    
    
    
    147,366
    
    
    
    7.6Other consumer
    
    
    7,530
    
    
    
    0.4
    
    
    
    9,373
    
    
    
    0.5Total consumer
    
    
    149,569
    
    
    
    7.6
    
    
    
    156,739
    
    
    
    8.1Residential mortgage
    
    
    238,817
    
    
    
    12.0
    
    
    
    227,762
    
    
    
    11.7Total loans, gross
    
    
    1,983,044
    
    
    
    100.0
    %
    
    
    1,947,368
    
    
    
    100.0
    %Net deferred fees
    
    
    (372
    )
    
    
    
    
    
    
    (552
    )Total loans, net
    
    $
    1,982,672
    
    
    
    
    
    
    $
    1,946,816
 NOTE 6  ALLOWANCE FOR LOAN LOSSES
  Six Months EndedJune 30,2007
    
    
    2006(In thousands)Balance, January 1
    
    $
    23,229
    
    
    $
    17,760Provision charged to operations
    
    
    1,681
    
    
    
    5,000Loans charged off
    
    
    (2,024
    )
    
    
    (2,288
    )Recoveries
    
    
    838
    
    
    
    402Net loans charged off
    
    
    (1,186
    )
    
    
    (1,886
    )Balance, June 30
    
    $
    23,724
    
    
    $
    20,874
 PAGE 10




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 7  GOODWILL AND INTANGIBLES
  June 30, 2007
    
    December 31, 2006Gross Carrying
    
    Accumulated
    
    Net Carrying
    
    Gross Carrying
    
    Accumulated
    
    Net CarryingAmount
    
    Amortization
    
    Amount
    
    Amount
    
    Amortization
    
    AmountAmortized intangible assets:Core deposit and other intangibles
    
    $
    12,906
    
    
    $
    (3,094
    )
    
    $
    9,812
    
    
    $
    13,618
    
    
    $
    (2,345
    )
    
    $
    11,273
   Core Depositand OtherGoodwill
    
    
    IntangiblesBalance at beginning of period
    
    $
    79,488
    
    
    $
    11,273Amortization
    
    
    
    
    
    
    (749
    )Purchase price adjustment
    
    
    137
    
    
    
    Core deposit intangible retired (1)
    
    
    
    
    
    
    (712
    )Balance at end of period
    
    $
    79,625
    
    
    $
    9,812
 
 (1)
    
    On January 3, 2003, the Company purchased Big Foot Financial Corp. As a result of
this acquisition, the Company had unrecognized tax benefits related to employee severance
payments and acquisition costs. These unrecognized tax benefits were recognized in the
first quarter of 2007, when the statute of limitations for Internal Revenue Service (IRS)
audit of the final short period return closed. These unrecognized tax benefits, totaling
$429,000, were credited to the core deposit intangible created as a result of the
acquisition. A reversal of $283,000 in tax liability established on the date of
acquisition was also credited to the core deposit intangible in the first quarter of 2007. PAGE 11




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 8  EARNINGS PER SHARE
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(In thousands, except per share data)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006BasicNet income
    
    $
    5,107
    
    
    $
    2,890
    
    
    $
    9,519
    
    
    $
    8,831Weighted average common shares outstanding
    
    
    24,638
    
    
    
    21,942
    
    
    
    24,665
    
    
    
    21,907Basic earnings per share
    
    $
    0.21
    
    
    $
    0.13
    
    
    $
    0.39
    
    
    $
    0.40DilutedNet income
    
    $
    5,107
    
    
    $
    2,890
    
    
    $
    9,519
    
    
    $
    8,831Weighted average common shares outstanding
    
    
    24,638
    
    
    
    21,942
    
    
    
    24,665
    
    
    
    21,907Dilutive effect of stock options
    
    
    109
    
    
    
    211
    
    
    
    131
    
    
    
    219Dilutive effect of restricted stock
    
    
    82
    
    
    
    23
    
    
    
    85
    
    
    
    27Diluted average common shares
    
    
    24,829
    
    
    
    22,176
    
    
    
    24,881
    
    
    
    22,153Diluted earnings per share
    
    $
    0.21
    
    
    $
    0.13
    
    
    $
    0.38
    
    
    $
    0.40
  PAGE 12




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 9  STOCK COMPENSATION AND RESTRICTED STOCK AWARDS
      PAGE 13




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 10  OFF-BALANCE-SHEET RISK
  Amount of Commitment Expiration Per PeriodWithin
    
    
    
    
    
    
    
    
    
    
    After1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    5 Years
    
    
    Total(In thousands)Lines of Credit:Commercial real estate
    
    $
    212,844
    
    
    $
    29,234
    
    
    $
    1,179
    
    
    $
    
    
    
    $
    243,257Consumer real estate
    
    
    38,333
    
    
    
    11,710
    
    
    
    30,037
    
    
    
    35,430
    
    
    
    115,510Consumer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,859
    
    
    
    1,859Commercial
    
    
    225,384
    
    
    
    16,841
    
    
    
    1,629
    
    
    
    2,785
    
    
    
    246,639Letters of credit
    
    
    41,682
    
    
    
    14,155
    
    
    
    14,294
    
    
    
    375
    
    
    
    70,506Commitments to extend credit
    
    
    114,446
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114,446Total commitments
    
    $
    632,689
    
    
    $
    71,940
    
    
    $
    47,139
    
    
    $
    40,449
    
    
    $
    792,217
   NOTE 11  INCOME TAXES
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Income taxes computed at the statutory rate
    
    $
    2,165
    
    
    
    35.0
    %
    
    $
    1,089
    
    
    
    35.0
    %
    
    $
    3,934
    
    
    
    35.0
    %
    
    $
    3,991
    
    
    
    35.0
    %Tax-exempt interest income on securities and loans
    
    
    (158
    )
    
    
    (2.6
    )
    
    
    (277
    )
    
    
    (8.9
    )
    
    
    (384
    )
    
    
    (3.4
    )
    
    
    (556
    )
    
    
    (4.9
    )General business credits
    
    
    (110
    )
    
    
    (1.8
    )
    
    
    (30
    )
    
    
    (1.0
    )
    
    
    (220
    )
    
    
    (2.0
    )
    
    
    (60
    )
    
    
    (0.5
    )State income taxes, net of federal tax benefit
due to state operating loss
    
    
    (276
    )
    
    
    (4.4
    )
    
    
    (198
    )
    
    
    (6.4
    )
    
    
    (517
    )
    
    
    (4.6
    )
    
    
    (36
    )
    
    
    (0.3
    )Life insurance cash surrender value increase, net of premiums
    
    
    (246
    )
    
    
    (4.0
    )
    
    
    (187
    )
    
    
    (6.0
    )
    
    
    (510
    )
    
    
    (4.5
    )
    
    
    (359
    )
    
    
    (3.1
    )Dividends received deduction
    
    
    (302
    )
    
    
    (4.9
    )
    
    
    (225
    )
    
    
    (7.2
    )
    
    
    (612
    )
    
    
    (5.4
    )
    
    
    (445
    )
    
    
    (3.9
    )Nondeductible meals and entertainment
    
    
    10
    
    
    
    0.2
    
    
    
    5
    
    
    
    0.2
    
    
    
    19
    
    
    
    0.1
    
    
    
    9
    
    
    
    0.1Stock based compensation, net
    
    
    (4
    )
    
    
    (0.1
    )
    
    
    33
    
    
    
    1.1
    
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    0.3Other
    
    
    (1
    )
    
    
    
    
    
    
    13
    
    
    
    0.4
    
    
    
    10
    
    
    
    0.1
    
    
    
    (6
    )
    
    
    (0.1
    )Total provision for income taxes
    
    $
    1,078
    
    
    
    17.4
    %
    
    $
    223
    
    
    
    22.6
    %
    
    $
    1,720
    
    
    
    15.3
    %
    
    $
    2,571
    
    
    
    22.6
    %
 PAGE 14




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   PAGE 15




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##### Table of Contents



ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following discussion and analysis is intended as a review of significant factors affecting
the financial condition and results of operations of the Company for the periods indicated. The
discussion should be read in conjunction with the Unaudited Consolidated Financial Statements and
the Notes thereto presented herein. In addition to historical information, the following
Managements Discussion and Analysis of Financial Condition and Results of Operations contains
forward-looking statements that involve risks and uncertainties. The Companys actual results
could differ significantly from those anticipated in these forward-looking statements as a result
of certain factors discussed in this report.
 Critical Accounting Policies and Estimates
  Strategy
  Expand and diversify loan portfolio.
 Expand deposit base.
 Expand footprint in Chicago market.
 PAGE 16




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##### Table of Contents




    
    Expanding the community banking market penetration;
    
    Adding experienced key executives;
    
    Expanding the size of the loan portfolio and diversifying its risk profile by
increasing the percentage of commercial and industrial loans and owner-occupied
commercial real estate loans, while decreasing the percentage of construction loans;
    
    Expanding the deposit base by adding a higher percentage of
noninterest-bearing and interest-bearing demand deposit, money market, and savings
accounts; and
    
    Acquiring approximately $200.0 million in managed trust assets.
     th
 PAGE 17




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##### Table of Contents



Expand noninterest income.
  
    
    In June 2007, the Company entered into an arrangement to outsource
janitorial services at three of its largest offices. Annual savings of over
$100,000 are expected; and if the arrangement works as anticipated, it may be
expanded to include additional offices.
    
    In July 2007, the Company entered into a joint marketing arrangement
with Chicago Bancorp (CBI). CBI is the largest privately held mortgage bank in
Chicago. Through this arrangement, approximately fifteen of the Companys employees
will become employees of CBI. They, along with other CBI employees, will provide
residential mortgage services to the Companys customers. CBI will also refer
individual residential land and construction loan opportunities to the Company along
with deposit, home equity loan and commercial real estate opportunities. Management
believes that this arrangement will enable the Company to provide better service and
better pricing to our customers while also providing us with a high quality source
of additional loan volume. Annualized expense savings are anticipated to exceed
$1.0 million.
  PAGE 18




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##### Table of Contents



Selected Consolidated Financial Data
  At or For the Three Months Ended
    
    
    At or For the Six Months EndedJune 30,
    
    
    March 31,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2007
    
    
    2006(Dollars in thousands, except per share data)Statement of Income Data:Total interest income
    
    $
    46,492
    
    
    $
    35,290
    
    
    $
    44,766
    
    
    $
    91,258
    
    
    $
    68,649Total interest expense
    
    
    26,523
    
    
    
    17,737
    
    
    
    25,706
    
    
    
    52,229
    
    
    
    33,935Net interest income
    
    
    19,969
    
    
    
    17,553
    
    
    
    19,060
    
    
    
    39,029
    
    
    
    34,714Provision for loan losses
    
    
    1,036
    
    
    
    5,000
    
    
    
    645
    
    
    
    1,681
    
    
    
    5,000Noninterest income
    
    
    3,896
    
    
    
    3,601
    
    
    
    3,720
    
    
    
    7,616
    
    
    
    6,614Noninterest expenses
    
    
    16,644
    
    
    
    13,041
    
    
    
    17,081
    
    
    
    33,725
    
    
    
    24,926Income before income taxes
    
    
    6,185
    
    
    
    3,113
    
    
    
    5,054
    
    
    
    11,239
    
    
    
    11,402Provision for income taxes
    
    
    1,078
    
    
    
    223
    
    
    
    642
    
    
    
    1,720
    
    
    
    2,571Net income
    
    $
    5,107
    
    
    $
    2,890
    
    
    $
    4,412
    
    
    $
    9,519
    
    
    $
    8,831Per Share Data:Earnings per share (basic)
    
    $
    0.21
    
    
    $
    0.13
    
    
    $
    0.18
    
    
    $
    0.39
    
    
    $
    0.40Earnings per share (diluted)
    
    
    0.21
    
    
    
    0.13
    
    
    
    0.18
    
    
    
    0.38
    
    
    
    0.40Cash dividends declared
    
    
    0.13
    
    
    
    0.13
    
    
    
    0.13
    
    
    
    0.26
    
    
    
    0.25Book value at end of period
    
    
    11.55
    
    
    
    9.71
    
    
    
    11.76
    
    
    
    11.55
    
    
    
    9.71Tangible book value at end of period
    
    
    7.91
    
    
    
    9.60
    
    
    
    8.12
    
    
    
    7.91
    
    
    
    9.60Selected Financial Ratios:Return on average assets (1)
    
    
    0.68
    %
    
    
    0.50
    %
    
    
    0.60
    %
    
    
    0.64
    %
    
    
    0.77
    %Return on average equity (2)
    
    
    7.07
    
    
    
    5.31
    
    
    
    6.20
    
    
    
    6.64
    
    
    
    8.16Dividend payout ratio
    
    
    63.60
    
    
    
    100.24
    
    
    
    74.07
    
    
    
    68.45
    
    
    
    62.60Average equity to average assets
    
    
    9.62
    
    
    
    9.42
    
    
    
    9.74
    
    
    
    9.68
    
    
    
    9.44Tier 1 risk-based capital
    
    
    11.76
    
    
    
    16.22
    
    
    
    12.02
    
    
    
    11.76
    
    
    
    16.22Total risk-based capital
    
    
    12.81
    
    
    
    17.44
    
    
    
    13.10
    
    
    
    12.81
    
    
    
    17.44Net interest margin (tax equivalent) (3)(4)
    
    
    3.05
    
    
    
    3.46
    
    
    
    3.01
    
    
    
    3.03
    
    
    
    3.43Loan to deposit ratio
    
    
    96.35
    
    
    
    89.82
    
    
    
    97.19
    
    
    
    96.35
    
    
    
    89.82Net overhead expense to average assets (5)
    
    
    1.70
    
    
    
    1.63
    
    
    
    1.82
    
    
    
    1.76
    
    
    
    1.58Efficiency ratio (6)
    
    
    65.78
    
    
    
    57.38
    
    
    
    69.83
    
    
    
    67.77
    
    
    
    56.31Loan Quality Ratios:Allowance for loan losses to total loans at the end of period
    
    
    1.20
    
    
    
    1.47
    
    
    
    1.23
    
    
    
    1.20
    
    
    
    1.47Provision for loan losses to total loans
    
    
    0.21
    
    
    
    1.41
    
    
    
    0.13
    
    
    
    0.17
    
    
    
    0.71Net loans charged off to average total loans
    
    
    0.27
    
    
    
    0.53
    
    
    
    (0.03
    )
    
    
    0.12
    
    
    
    0.27Nonaccrual loans to total loans at the end of period (7)
    
    
    2.20
    
    
    
    0.77
    
    
    
    2.14
    
    
    
    2.20
    
    
    
    0.77Nonperforming assets to total assets (8)
    
    
    1.52
    
    
    
    0.68
    
    
    
    1.48
    
    
    
    1.52
    
    
    
    0.68Allowance for loan losses to nonaccrual loans
    
    
    0.54x
    
    
    
    1.91x
    
    
    
    0.58x
    
    
    
    0.54x
    
    
    
    1.91xBalance Sheet Data:Total assets
    
    $
    3,022,294
    
    
    $
    2,361,602
    
    
    $
    2,980,631
    
    
    $
    3,022,294
    
    
    $
    2,361,602Total earning assets
    
    
    2,698,762
    
    
    
    2,170,311
    
    
    
    2,685,977
    
    
    
    2,698,762
    
    
    
    2,170,311Average assets
    
    
    3,013,039
    
    
    
    2,319,713
    
    
    
    2,966,039
    
    
    
    2,989,670
    
    
    
    2,311,586Loans
    
    
    1,982,672
    
    
    
    1,422,830
    
    
    
    1,950,613
    
    
    
    1,982,672
    
    
    
    1,422,830Allowance for loan losses
    
    
    23,724
    
    
    
    20,874
    
    
    
    24,028
    
    
    
    23,724
    
    
    
    20,874Deposits
    
    
    2,057,842
    
    
    
    1,584,067
    
    
    
    2,007,000
    
    
    
    2,057,842
    
    
    
    1,584,067Borrowings
    
    
    646,793
    
    
    
    527,275
    
    
    
    643,795
    
    
    
    646,793
    
    
    
    527,275Stockholders equity
    
    
    283,575
    
    
    
    213,112
    
    
    
    290,499
    
    
    
    283,575
    
    
    
    213,112Tangible stockholders equity (9)
    
    
    194,138
    
    
    
    210,629
    
    
    
    200,711
    
    
    
    194,138
    
    
    
    210,629
 
 (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
    
    
    Six Months EndedJune 30,
    
    
    March 31,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2007
    
    
    2006Net interest income
    
    $
    19,969
    
    
    $
    17,553
    
    
    $
    19,060
    
    
    $
    39,029
    
    
    $
    34,714Tax-equivalent adjustment to net interest income
    
    
    836
    
    
    
    943
    
    
    
    979
    
    
    
    1,815
    
    
    
    1,872Net interest income, fully tax-equivalent basis
    
    $
    20,805
    
    
    $
    18,496
    
    
    $
    20,039
    
    
    $
    40,844
    
    
    $
    36,586
 PAGE 19




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##### Table of Contents



(5)
    
    Noninterest expense less noninterest income, excluding security gains or losses, divided by average assets.(6)
    
    Noninterest income, excluding security gains or losses, plus net interest income on a fully tax-equivalent
basis divided by noninterest expense excluding amortization and other real estate expense.(7)
    
    Includes total nonaccrual, impaired and all other loans 90 days or more past due.(8)
    
    Includes total nonaccrual, all other loans 90 days or more past due, and other real estate owned.(9)
    
    Stockholders equity less goodwill, core deposits and other intangible assets. The following table
reconciles reported stockholders equity to tangible stockholders equity for the periods presented: At June 30,
    
    
    At March 31,2007
    
    
    2006
    
    
    2007Stockholders equity
    
    $
    283,575
    
    
    $
    213,112
    
    
    $
    290,499Core deposit intangible and other intangibles, net
    
    
    9,812
    
    
    
    1,592
    
    
    
    10,163Goodwill
    
    
    79,625
    
    
    
    891
    
    
    
    79,625Tangible stockholders equity
    
    $
    194,138
    
    
    $
    210,629
    
    
    $
    200,711
 Results of Operations  Three Months Ended
June 30, 2007 and 2006
  
    
    Basic and diluted earnings per share for the three months ended June 30, 2007 were
$0.21 compared to $0.13 for the comparable period in 2006 and $0.18 for the first
quarter of 2007.
    
    Net income for the second quarter of 2007 was $5.1 million, a 76.7% increase when
compared to $2.9 million for the second quarter of 2006, and a 15.8% increase when
compared to the first quarter of 2007.
    
    Top line revenue (net interest income plus noninterest income) increased by $2.7
million, or 51.3% on an annualized basis, to $23.9 million for the second quarter of
2007 compared to $21.2 million for the same period in 2006 and by $1.1 million, or
19.1% on an annualized basis, compared to $22.8 million in the prior quarter.
    
    Net interest income increased 13.8% to $20.0 million in the second quarter of 2007
compared to $17.6 million in the second quarter of 2006 as a result of the Royal
American acquisition and internal loan growth. Despite the continuing challenge in the
interest rate environment, the net interest margin increased to 3.05% in the second
quarter of 2007, compared to 3.01% in the first quarter of 2007. The net interest
margin was 3.46% in the second quarter of 2006.
    
    Interest income increased 31.7% to $46.5 million in the second quarter of 2007
compared to $35.3 million for the comparable period in 2006, primarily due to the
increase in loans following the Royal American acquisition. Interest income increased
$1.7 million from $44.8 million when compared to the first quarter of 2007.
    
    The one large problem credit (Large Problem Credit) that was first publicly
discussed on July 20, 2006 continues to adversely affect the net interest margin. The
Large Problem Credit accounted for $28.9 million of nonaccrual loans thereby reducing
the net interest margin by 10 basis points for the three and six months ended June 30,
2007.
    
    The annualized return on average assets for the three months ended June 30, 2007 was
0.68% compared to 0.50% for the similar period in 2006 and 0.60% for the first quarter
of 2007.
 PAGE 20




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##### Table of Contents




    
    The annualized return on average equity for the three months ended June 30, 2007
increased to 7.07% from 5.31% for the similar period in 2006 and 6.20% for the first
quarter of 2007.
    
    The provision for loan losses was $1.0 million in the second quarter of 2007
compared to $5.0 million for the comparable period in 2006, as a result of the
downgrading of the Large Problem Credit at June 30, 2006, and $645,000 in the first
quarter of 2007.
    
    Noninterest income increased 8.2% to $3.9 million in the second quarter of 2007
compared to $3.6 million in the second quarter of 2006. Excluding the second quarter
2006 gain on extinguishment of debt, noninterest income for the second quarter of 2007
increased by 30.9% from the second quarter of 2006. Noninterest income was higher
primarily due to increases in trust business, the deposit base, and bank owned life
insurance assets resulting from the Royal American transaction. Noninterest income
increased 4.7% from $3.7 million in the first quarter of 2007 mainly due to the
increase in trust income and gains on sale of loans.
    
    Noninterest expenses increased 27.6% to $16.6 million in the second quarter of 2007
compared to $13.0 million in the second quarter of 2006, mainly as a result of the
Royal American transaction. Noninterest expenses decreased $437,000 when compared
to the first quarter of 2007 due to a decrease in marketing and professional
services expense.
  
    
    Basic and diluted earnings per share for the six months ended June 30, 2007 were
$0.39 and $0.38, respectively, compared to $0.40 for both basic and diluted for the
same period in 2006.
    
    Net interest income increased 12.4% to $39.0 million in the first half of 2007
compared to $34.7 million in the first half of 2006 as a result of the Royal American
acquisition and internal loan growth. The net interest margin was 3.03% for the six
months ended June 30, 2007 compared to 3.43% for the similar period of 2006.
    
    Interest income increased 32.9% to $91.3 million in the first six months of 2007
compared to $68.6 million for the comparable period in 2006, primarily due to the
increase in loans following the Royal American acquisition.
    
    The annualized return on average assets for the six months ended June 30, 2007 was
0.64% compared to 0.77% for the similar period in 2006.
    
    The annualized return on average equity for the six months ended June 30, 2007 was
6.64% compared to 8.16% for the similar period in 2006.
    
    The provision for loan losses was $1.7 million in the first half of 2007 compared to
$5.0 million for the comparable period in 2006, as a result of the downgrading of the
Large Problem Credit at June 30, 2006.
    
    Noninterest income increased 15.2% to $7.6 million in the first six months of 2007
compared to $6.6 million in the same period of 2006 primarily due to increases in
trust assets and the deposit base resulting from the Royal American transaction.
    
    Noninterest expenses increased 35.3% to $33.7 million in the first half of 2007
compared to $24.9 million in the first half of 2006, mainly as a result of the
Royal American transaction.
 PAGE 21




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Net Interest Income
  For the Three Months EndedJune 30, 2007
    
    
    June 30, 2006
    
    
    March 31, 2007Average
    
    
    
    
    
    
    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
    
    $
    16,857
    
    
    
    205
    
    
    
    4.86
    %
    
    $
    11,834
    
    
    $
    186
    
    
    
    6.29
    %
    
    $
    15,987
    
    
    $
    187
    
    
    
    4.68
    %Securities:Taxable(1)
    
    
    678,766
    
    
    
    9,261
    
    
    
    5.46
    
    
    
    601,238
    
    
    
    7,893
    
    
    
    5.25
    
    
    
    603,622
    
    
    
    8,107
    
    
    
    5.37Exempt from federal income taxes(1)
    
    
    47,768
    
    
    
    711
    
    
    
    5.95
    
    
    
    87,396
    
    
    
    1,281
    
    
    
    5.86
    
    
    
    73,379
    
    
    
    1,077
    
    
    
    5.87Total securities
    
    
    726,534
    
    
    
    9,972
    
    
    
    5.49
    
    
    
    688,634
    
    
    
    9,174
    
    
    
    5.32
    
    
    
    677,001
    
    
    
    9,184
    
    
    
    5.44FRB and FHLB stock
    
    
    23,688
    
    
    
    226
    
    
    
    3.82
    
    
    
    14,851
    
    
    
    139
    
    
    
    3.74
    
    
    
    23,592
    
    
    
    228
    
    
    
    3.87Loans held for sale
    
    
    3,011
    
    
    
    48
    
    
    
    6.38
    
    
    
    1,513
    
    
    
    23
    
    
    
    6.08
    
    
    
    2,004
    
    
    
    30
    
    
    
    5.99Loans:Commercial loans(1)(3)(4)
    
    
    413,416
    
    
    
    8,134
    
    
    
    7.87
    
    
    
    208,637
    
    
    
    4,172
    
    
    
    8.00
    
    
    
    392,953
    
    
    
    7,677
    
    
    
    7.81Commercial real estate
loans(1)(3)(4)(6)
    
    
    1,257,438
    
    
    
    23,757
    
    
    
    7.56
    
    
    
    979,351
    
    
    
    18,655
    
    
    
    7.62
    
    
    
    1,263,819
    
    
    
    23,522
    
    
    
    7.44Agricultural loans(1)(3)(4)
    
    
    3,538
    
    
    
    72
    
    
    
    8.14
    
    
    
    2,540
    
    
    
    49
    
    
    
    7.72
    
    
    
    2,849
    
    
    
    56
    
    
    
    7.86Consumer real estate loans(3)(4)(6)
    
    
    277,562
    
    
    
    4,730
    
    
    
    6.82
    
    
    
    226,400
    
    
    
    3,745
    
    
    
    6.62
    
    
    
    276,542
    
    
    
    4,674
    
    
    
    6.76Consumer installment loans(3)(4)
    
    
    9,483
    
    
    
    184
    
    
    
    7.76
    
    
    
    4,557
    
    
    
    90
    
    
    
    7.90
    
    
    
    10,297
    
    
    
    187
    
    
    
    7.26Total loans
    
    
    1,961,437
    
    
    
    36,877
    
    
    
    7.52
    
    
    
    1,421,485
    
    
    
    26,711
    
    
    
    7.52
    
    
    
    1,946,460
    
    
    
    36,116
    
    
    
    7.44Total interest-earning assets
    
    $
    2,731,527
    
    
    $
    47,328
    
    
    
    6.92
    %
    
    $
    2,138,317
    
    
    $
    36,233
    
    
    
    6.76
    %
    
    $
    2,665,044
    
    
    $
    45,745
    
    
    
    6.88
    %Noninterest-Earning Assets:Cash
    
    $
    49,301
    
    
    
    
    
    
    
    
    
    
    $
    49,908
    
    
    
    
    
    
    
    
    
    
    $
    71,088Premises and equipment, net
    
    
    22,279
    
    
    
    
    
    
    
    
    
    
    
    22,503
    
    
    
    
    
    
    
    
    
    
    
    22,004Allowance for loan losses
    
    
    (23,807
    )
    
    
    
    
    
    
    
    
    
    
    (17,630
    )
    
    
    
    
    
    
    
    
    
    
    (24,907
    )Other assets
    
    
    233,739
    
    
    
    
    
    
    
    
    
    
    
    126,615
    
    
    
    
    
    
    
    
    
    
    
    232,810Total noninterest-earning assets
    
    
    281,512
    
    
    
    
    
    
    
    
    
    
    
    181,396
    
    
    
    
    
    
    
    
    
    
    
    300,995Total assets
    
    $
    3,013,039
    
    
    
    
    
    
    
    
    
    
    $
    2,319,713
    
    
    
    
    
    
    
    
    
    
    $
    2,966,039Interest-Bearing Liabilities:Deposits:Interest-bearing demand deposits
    
    $
    171,671
    
    
    $
    792
    
    
    
    1.85
    %
    
    $
    136,094
    
    
    $
    269
    
    
    
    0.79
    %
    
    $
    163,108
    
    
    $
    730
    
    
    
    1.79
    %Money-market demand and savings accounts
    
    
    362,692
    
    
    
    2,380
    
    
    
    2.62
    
    
    
    276,221
    
    
    
    1,158
    
    
    
    1.68
    
    
    
    378,039
    
    
    
    2,446
    
    
    
    2.59Time deposits less than $100,000
    
    
    736,665
    
    
    
    8,917
    
    
    
    4.84
    
    
    
    758,439
    
    
    
    7,685
    
    
    
    4.05
    
    
    
    731,217
    
    
    
    8,639
    
    
    
    4.73Time deposits of $100,000 or more
    
    
    495,549
    
    
    
    6,493
    
    
    
    5.24
    
    
    
    260,695
    
    
    
    3,068
    
    
    
    4.71
    
    
    
    466,924
    
    
    
    6,084
    
    
    
    5.21Public funds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,539
    
    
    
    143
    
    
    
    4.56
    
    
    
    
    
    
    
    
    
    
    
    Total interest-bearing deposits
    
    
    1,766,577
    
    
    
    18,582
    
    
    
    4.21
    
    
    
    1,443,988
    
    
    
    12,323
    
    
    
    3.40
    
    
    
    1,739,288
    
    
    
    17,899
    
    
    
    4.12Borrowings:Federal funds purchased and repurchase
agreements
    
    
    283,571
    
    
    
    2,956
    
    
    
    4.17
    
    
    
    207,660
    
    
    
    2,358
    
    
    
    4.54
    
    
    
    256,322
    
    
    
    2,858
    
    
    
    4.46FHLB advances
    
    
    318,256
    
    
    
    3,670
    
    
    
    4.61
    
    
    
    206,594
    
    
    
    1,982
    
    
    
    3.84
    
    
    
    319,890
    
    
    
    3,648
    
    
    
    4.56Notes payable and other borrowings
    
    
    65,837
    
    
    
    1,315
    
    
    
    7.99
    
    
    
    55,672
    
    
    
    1,074
    
    
    
    7.72
    
    
    
    65,820
    
    
    
    1,301
    
    
    
    7.91Total borrowings
    
    
    667,664
    
    
    
    7,941
    
    
    
    4.76
    
    
    
    469,926
    
    
    
    5,414
    
    
    
    4.60
    
    
    
    642,032
    
    
    
    7,807
    
    
    
    4.88Total noninterest-bearing liabilities
    
    $
    2,434,241
    
    
    $
    26,523
    
    
    
    4.36
    %
    
    $
    1,913,914
    
    
    $
    17,737
    
    
    
    3.72
    %
    
    $
    2,381,320
    
    
    $
    25,706
    
    
    
    4.32
    %Noninterest-Bearing Liabilities:Noninterest-bearing demand deposits
    
    $
    254,679
    
    
    
    
    
    
    
    
    
    
    $
    161,485
    
    
    
    
    
    
    
    
    
    
    $
    256,433Other liabilities
    
    
    34,359
    
    
    
    
    
    
    
    
    
    
    
    25,809
    
    
    
    
    
    
    
    
    
    
    
    39,503Total interest-bearing liabilities
    
    
    289,038
    
    
    
    
    
    
    
    
    
    
    
    187,294
    
    
    
    
    
    
    
    
    
    
    
    295,936Stockholders equity
    
    
    289,760
    
    
    
    
    
    
    
    
    
    
    
    218,505
    
    
    
    
    
    
    
    
    
    
    
    288,783Total liabilities and stockholders equity
    
    $
    3,013,039
    
    
    
    
    
    
    
    
    
    
    $
    2,319,713
    
    
    
    
    
    
    
    
    
    
    $
    2,966,039Net interest income (tax
equivalent)(1)(5)
    
    
    
    
    
    $
    20,805
    
    
    
    2.56
    %
    
    
    
    
    
    $
    18,496
    
    
    
    3.04
    %
    
    
    
    
    
    $
    20,039
    
    
    
    2.56
    %Net interest margin (tax
equivalent)(1)
    
    
    
    
    
    
    
    
    
    
    3.05
    %
    
    
    
    
    
    
    
    
    
    
    3.46
    %
    
    
    
    
    
    
    
    
    
    
    3.01
    %Net interest income(2)(5)
    
    
    
    
    
    $
    19,969
    
    
    
    
    
    
    
    
    
    
    $
    17,553
    
    
    
    
    
    
    
    
    
    
    $
    19,060Net interest margin(2)
    
    
    
    
    
    
    
    
    
    
    2.92
    %
    
    
    
    
    
    
    
    
    
    
    3.28
    %
    
    
    
    
    
    
    
    
    
    
    2.86
    %
 
 (1)
    
    Adjusted for 35% tax rate and adjusted for the dividends-received deduction where
applicable.(2)
    
    Not adjusted for 35% tax rate or for the dividends-received deduction. PAGE 22




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##### Table of Contents



(3)
    
    Nonaccrual loans are included in the average balance; however, these loans are not earning
any interest.(4)
    
    Includes loan fees.(5)
    
    The following table reconciles reported net interest income on a tax equivalent basis for the
periods presented: For the three months ended,June 30,
    
    
    June 30,
    
    
    March 31,2007
    
    
    2006
    
    
    2007Net interest income
    
    $
    19,969
    
    
    $
    17,553
    
    
    $
    19,060Tax equivalent adjustment to net interest income
    
    
    836
    
    
    
    943
    
    
    
    979Net interest income, tax equivalent basis
    
    $
    20,805
    
    
    $
    18,496
    
    
    $
    20,039
 (6)
    
    Includes construction loans. For the Six Months EndedJune 30, 2007
    
    
    June 30, 2006Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)Interest-Earning Assets:Federal funds sold and interest-bearing
deposits due from banks
    
    $
    16,425
    
    
    $
    392
    
    
    
    4.77
    %
    
    $
    10,892
    
    
    $
    280
    
    
    
    5.14
    %Securities:Taxable(1)
    
    
    641,112
    
    
    
    17,368
    
    
    
    5.42
    
    
    
    626,512
    
    
    
    16,230
    
    
    
    5.18Exempt from federal income taxes(1)
    
    
    60,803
    
    
    
    1,788
    
    
    
    5.88
    
    
    
    86,503
    
    
    
    2,542
    
    
    
    5.88Total securities
    
    
    701,915
    
    
    
    19,156
    
    
    
    5.46
    
    
    
    713,015
    
    
    
    18,772
    
    
    
    5.26FRB and FHLB stock
    
    
    23,630
    
    
    
    454
    
    
    
    3.84
    
    
    
    14,757
    
    
    
    276
    
    
    
    3.74Loans held for sale
    
    
    2,510
    
    
    
    78
    
    
    
    6.22
    
    
    
    1,334
    
    
    
    40
    
    
    
    6.00Loans:Commercial loans(1)(3)(4)
    
    
    403,241
    
    
    
    15,811
    
    
    
    7.84
    
    
    
    202,269
    
    
    
    7,876
    
    
    
    7.79Commercial real estate loans(1)(3)(4)
    
    
    1,260,611
    
    
    
    47,279
    
    
    
    7.50
    
    
    
    963,188
    
    
    
    35,815
    
    
    
    7.44Agricultural loans(3)(4)
    
    
    3,195
    
    
    
    128
    
    
    
    8.01
    
    
    
    2,276
    
    
    
    86
    
    
    
    7.56Consumer real estate loans(3)(4)
    
    
    277,055
    
    
    
    9,404
    
    
    
    6.79
    
    
    
    222,643
    
    
    
    7,203
    
    
    
    6.47Consumer installment loans(3)(4)
    
    
    9,888
    
    
    
    371
    
    
    
    7.50
    
    
    
    4,500
    
    
    
    173
    
    
    
    7.69Total loans
    
    
    1,953,990
    
    
    
    72,993
    
    
    
    7.48
    
    
    
    1,394,876
    
    
    
    51,153
    
    
    
    7.34Total interest-earning assets
    
    $
    2,698,470
    
    
    $
    93,073
    
    
    
    6.90
    %
    
    $
    2,134,874
    
    
    $
    70,521
    
    
    
    6.60
    %Noninterest-Earning Assets:Cash
    
    $
    60,134
    
    
    
    
    
    
    
    
    
    
    $
    50,151Premises and equipment, net
    
    
    22,142
    
    
    
    
    
    
    
    
    
    
    
    22,268Allowance for loan losses
    
    
    (24,354
    )
    
    
    
    
    
    
    
    
    
    
    (17,931
    )Other assets
    
    
    233,278
    
    
    
    
    
    
    
    
    
    
    
    122,224Total noninterest-earning assets
    
    
    291,200
    
    
    
    
    
    
    
    
    
    
    
    176,712Total assets
    
    $
    2,989,670
    
    
    
    
    
    
    
    
    
    
    $
    2,311,586Interest-Bearing Liabilities:Deposits:Interest-bearing demand deposits
    
    $
    167,413
    
    
    $
    1,522
    
    
    
    1.82
    %
    
    $
    140,328
    
    
    $
    549
    
    
    
    0.78
    %Money-market demand and savings accounts
    
    
    370,323
    
    
    
    4,826
    
    
    
    2.61
    
    
    
    285,062
    
    
    
    2,373
    
    
    
    1.66Time deposits less than $100,000
    
    
    733,956
    
    
    
    17,556
    
    
    
    4.78
    
    
    
    760,415
    
    
    
    14,760
    
    
    
    3.88Time deposits of $100,000 or more
    
    
    481,316
    
    
    
    12,577
    
    
    
    5.23
    
    
    
    224,170
    
    
    
    5,087
    
    
    
    4.54Public funds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,199
    
    
    
    291
    
    
    
    4.41Total interest-bearing deposits
    
    
    1,753,008
    
    
    
    36,481
    
    
    
    4.16
    
    
    
    1,423,174
    
    
    
    23,060
    
    
    
    3.24Borrowings:Federal funds purchased and repurchase
agreements
    
    
    270,023
    
    
    
    5,814
    
    
    
    4.31
    
    
    
    245,813
    
    
    
    5,277
    
    
    
    4.29FHLB advances
    
    
    319,068
    
    
    
    7,318
    
    
    
    4.59
    
    
    
    188,674
    
    
    
    3,521
    
    
    
    3.73Notes payable and other borrowings
    
    
    65,828
    
    
    
    2,616
    
    
    
    7.95
    
    
    
    55,672
    
    
    
    2,077
    
    
    
    7.46Total borrowings
    
    
    654,919
    
    
    
    15,748
    
    
    
    4.80
    
    
    
    490,159
    
    
    
    10,875
    
    
    
    4.44Total interest-bearing liabilities
    
    $
    2,407,927
    
    
    $
    52,229
    
    
    
    4.34
    %
    
    $
    1,913,333
    
    
    $
    33,935
    
    
    
    3.54
    %Noninterest-Bearing Liabilities:Noninterest-bearing demand deposits
    
    $
    255,551
    
    
    
    
    
    
    
    
    
    
    $
    155,245Other liabilities
    
    
    36,918
    
    
    
    
    
    
    
    
    
    
    
    24,825Total noninterest-bearing liabilities
    
    
    292,469
    
    
    
    
    
    
    
    
    
    
    
    180,070Stockholders equity
    
    
    289,274
    
    
    
    
    
    
    
    
    
    
    
    218,183Total liabilities and stockholders equity
    
    $
    2,989,670
    
    
    
    
    
    
    
    
    
    
    $
    2,311,586Net interest income (tax
equivalent)(1)(5)
    
    
    
    
    
    $
    40,844
    
    
    
    2.56
    %
    
    
    
    
    
    $
    36,586
    
    
    
    3.06
    %Net interest margin (tax
equivalent)(1)
    
    
    
    
    
    
    
    
    
    
    3.03
    %
    
    
    
    
    
    
    
    
    
    
    3.43
    %Net interest income(2)(5)
    
    
    
    
    
    $
    39,029
    
    
    
    
    
    
    
    
    
    
    $
    34,714Net interest margin(2)
    
    
    
    
    
    
    
    
    
    
    2.89
    %
    
    
    
    
    
    
    
    
    
    
    3.25
    %
 PAGE 23




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##### Table of Contents



(1)
    
    Adjusted for 35% tax rate and adjusted for the dividends-received deduction where
applicable.(2)
    
    Not adjusted for 35% tax rate or for the dividends-received deduction.(3)
    
    Nonaccrual loans are included in the average balance; however, these loans are not earning
any interest.(4)
    
    Includes loan fees which are immaterial.(5)
    
    The following table reconciles reported net interest income on a tax equivalent basis for the
periods presented: For the six months ended,June 30,2007
    
    
    2006Net interest income
    
    $
    39,029
    
    
    $
    34,714Tax equivalent adjustment to net interest income
    
    
    1,815
    
    
    
    1,872Net interest income, tax equivalent basis
    
    $
    40,844
    
    
    $
    36,586
 (6)
    
    Includes construction loans.     
    
    Yields on average earning assets increased 16 basis points in the second
quarter of 2007 compared to the second quarter of 2006, and average balances on
earning assets increased by $593.2 million. Yields on average earning assets
increased by 4 basis points compared to the first quarter of 2007. Yields on average
earning assets increased 30 basis points in the first six months of 2007 compared to
the similar period in 2006, and average balances increased by $563.6 million. Loan
growth and an increase in rates contributed to these increases.
    
    Average yields on loans for the second quarter of 2007 increased by 8
basis points to 7.52% compared to the first quarter of 2007 but were flat compared to
the same period in 2006. For the first six months of 2007, average yields earned on
loans increased by 14 basis points to 7.48% compared to the first half of 2006.
Average loans increased by $540.0 million in the quarter ended June 30, 2007 compared
to the same period in 2006. Compared to the first quarter of 2007, average balances
rose $15.0 million, as a result of the growth in commercial loans. Average loans
increased by $559.1 million in the first half of 2007 compared to the same period in
2006.
 PAGE 24




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##### Table of Contents




    
    Yields on average securities increased 17 basis points and balances
increased by $37.9 million in the second quarter of 2007 compared to the similar
period in 2006. Yields on average securities increased slightly by 5 basis points
compared to the first quarter of 2007, while average balances increased by $49.5
million. Yields on average securities increased 20 basis points in the first six
months of 2007 compared to the similar period in 2006, while average balances
decreased by $11.1 million. Yields on average securities increased as a result of
the sale of certain municipal bonds and mortgage-backed securities and the investment
in higher-yielding U.S. government-sponsored entities during 2007.
  
    
    The Companys cost of funds increased by 4 basis points on a
linked-quarter basis as a result of increased rates paid on interest-bearing
deposits. Average interest-bearing liabilities increased by $52.9 million during the
second quarter of 2007 compared to the prior quarter, primarily to fund loan growth.
Yields on average interest-bearing liabilities increased by 64 basis points, and
average balances increased $520.3 million in the second quarter of 2007 compared to
the similar period in 2006. When compared to the first half of 2006, the cost of
funds increased by 80 basis points to 4.34% for the first half of 2007, while average
interest-bearing liabilities increased $494.6 million.
    
    Average interest-bearing deposits increased by $322.6 million while
average rates increased 81 basis points in the second quarter of 2007 compared to the
similar period of 2006. Average rates paid on interest-bearing deposits increased by
9 basis points to 4.21% for the second quarter of 2007 compared to the first quarter
of 2007, while average balances increased by $27.3 million. Most of this increase
was in certificates of deposit, mainly brokered certificates of deposit, which at
times, are less costly than customer certificates of deposits. Yields on average
interest-bearing deposits increased 92 basis points in the first six months of 2007
compared to the similar period in 2006, and average balances increased by $329.8
million.
    
    Average interest-bearing demand deposit, money market, and savings
accounts increased by $122.0 million for the second quarter of 2007 compared to June
30, 2006 but decreased by $6.8 million compared to March 31, 2007. On a year-to-date
basis, average interest-bearing demand deposit, money market, and savings accounts
increased by $112.3 million compared to June 30, 2006. The Company continues to
focus its marketing efforts to increase core deposits to alleviate margin pressure.
    
    The migration of demand deposit, interest-bearing demand deposit, money
market, and savings accounts into certificates of deposit and the reliance on more
expensive wholesale funds contributed to the increase in the cost of funds.
    
    The increase in average rates paid on interest-bearing deposits was
partially offset by the decrease in costs of average borrowings of 12 basis points in
the second quarter of 2007 compared to the first quarter of 2007, while average
balances increased by $25.6 million. Average borrowings increased by $197.7 million
in the second quarter of 2007 while yields increased by 16 basis points to 4.76%
compared to the second quarter of 2006. On a year-to-date basis, average borrowings
increased by $164.8 million compared to June 30, 2006 and average rates paid
increased by 36 basis points.
    
    Active management of the wholesale side of the business (borrowings and
securities portfolio) continues to have a positive impact on our net interest margin.
Yields on average securities were 5.49% for the second quarter of 2007 compared to
5.44% for the first quarter of 2007. Yields on average borrowings were 4.76% for the
second quarter of 2007 compared to 4.88% for the first quarter of 2007. The spread
between yields on average securities and rates on average borrowings
 PAGE 25




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##### Table of Contents



increased to 73 basis points during the second quarter of 2007 compared to 56 basis
points during the first quarter of 2007.
 Noninterest Income
  
    
    Noninterest income was $3.9 million for the three months ended June 30,
2007, an increase of $295,000, or 8.2%, over the comparable period in 2006, and was
$176,000 higher than the first quarter of 2007.
    
    Excluding the $625,000 gain on extinguishment of debt recognized in the
second quarter of 2006, noninterest income for the second quarter of 2007 increased
by $920,000, or 30.9%, from the second quarter of 2006.
    
    The annualized noninterest income to average assets ratio was 0.52% for
the three months ended June 30, 2007 compared to 0.62% for the same period in 2006
and 0.51% for the three months ended March 31, 2007.
    
    Management continues to focus on revenue growth in the wealth management
area including assets under management as well as brokerage and trust lines of
business. Recently, the Company has restructured its broker-dealer operations and
negotiated more favorable clearing broker-dealer charges.
 §
    
    Trust income increased by $417,000 in the second quarter of 2007 compared
to the same period in 2006 and rose by $110,000 compared to the first quarter
of 2007, primarily due to the trust business resulting from the Royal
American acquistion.§
    
    Insurance and brokerage commissions increased by $55,000 in the three
months ended June 30, 2007 compared to the similar period in 2006 but
declined by $32,000 compared to the first quarter of 2007.
 
    
    Customer service fees increased by $160,000 in the second quarter of 2007
compared to the same period in 2006, due to the larger deposit base following the
Royal American acquisition, but declined by $59,000 compared to the first quarter of
2007.
    
    Gains on sales of loans increased during the second quarter of 2007 by
$20,000 to $225,000 compared to the second quarter of 2006 and rose by $49,000 when
compared to the first quarter of 2007. Gains on sales of loans are expected to
decrease as a result of a business arrangement the Company has entered into with CBI
in July 2007 as discussed above. This mortgage bank will also refer individual
residential land and construction loan opportunities to the Company along with
deposit, home equity loan and commercial real estate opportunities.
    
    The increase in the cash surrender value of life insurance increased by
$169,000 to $703,000 during the three months ended June 30, 2007 compared to the
similar period in 2006 but was $50,000 lower compared to the first quarter of 2007.
  PAGE 26




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##### Table of Contents




    
    Noninterest income was $7.6 million for the six months ended June 30,
2007, an increase of $1.0, or
15.2%, over the comparable period in 2006.
    
    Excluding the $1.3 million gains on extinguishment of debt recognized in
the first six months of 2006, the increase from the first six months of 2006 was $2.3
million, or 42.0%.
    
    The annualized noninterest income to average assets ratio was 0.51% for
the six months ended June 30, 2007 compared to 0.59% for the same period in 2006.
    
    Wealth management remains a key revenue focus area of opportunity for the
Company.
 §
    
    Trust revenues increased by $733,000, primarily due to trust business from
the Royal American acquisition, and insurance and brokerage commissions
increased by $116,000 during the first half of 2007 compared to the prior
year.
 
    
    Customer service fees increased by $591,000 in the first half of 2007
compared to the same period in 2006 due the larger deposit base resulting from the
Royal American transaction.
    
    Gains on sales of loans rose during the first six months of 2007 by
$105,000 to $401,000 compared to the same period in 2006. Gains on sales of loans
are expected to decrease as a result of a business arrangement the Company has
entered into with CBI in July 2007 as discussed above. This mortgage bank will also
refer individual residential land and construction loan opportunities to the Company
along with deposit, home equity loan and commercial real estate opportunities.
    
    The cash surrender value of life insurance increased by $432,000 to $1.5
million during the six months ended June 30, 2007 compared to the similar period in
2006.
 Noninterest Expenses
  
    
    Total noninterest expenses increased 27.6%, or $3.6 million, to $16.6
million during the second quarter of 2007 compared to $13.0 million for the similar
period in 2006. In comparison to the first quarter of 2007, total noninterest
expenses decreased $437,000.
    
    The annualized noninterest expenses to average assets ratio was 2.22% for
the three months ended June 30, 2007 compared to 2.25% for the same period in 2006
and 2.34% for the three months ended March 31, 2007.
    
    The efficiency ratio improved to 65.78% for the second quarter of 2007
compared to 69.83% in the previous quarter reflecting both the expansion in top line
revenue on a tax equivalent basis and the decrease in expenses. When compared to the
second quarter of 2006, the efficiency ratio increased from 57.38% to 65.78% for the
second quarter of 2007.
    
    Salaries and benefits expense increased by $2.7 million, or 36.0%, during
the second quarter of 2007 compared to the second quarter of 2006, reflecting
additions to management and the addition of 50 full-time equivalent employees from
Royal American. Salaries and benefits expense decreased by $84,000 compared to the
first quarter of 2007, primarily due to payroll-related taxes and better control of
overtime and temporary employee expenses.
 PAGE 27




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##### Table of Contents




    
    With the addition of the Royal American offices and new Franklin Park
office in mid-2006,
occupancy and equipment expense increased by $543,000 during the second quarter of
2007 to $2.2 million compared to the similar period in 2006 but was flat compared to
the first quarter of 2007.
    
    Professional services expense declined by $180,000, or 14.2%, to $1.1
million in the second quarter of 2007, compared to the second quarter of 2006 and
$121,000 compared to the first quarter of 2007, mainly attributable to a decrease in
consulting fees.
    
    Marketing expenses in the second quarter of 2007 were $109,000 lower than
in the second quarter of 2006, and $201,000 lower than the first quarter of 2007. In
the second quarter of 2007, management reviewed the effectiveness of its marketing
efforts and was more selective in the use of marketing channels.
  
    
    Total noninterest expenses increased 35.3%, or $8.8 million, to $33.7
million during the first half of 2007 compared to $24.9 million for the similar
period in 2006 mainly attributable to Royal American.
    
    The annualized noninterest expenses to average assets ratio was 2.27% for
the six months ended June 30, 2007 compared to 2.17% for the same period in 2006.
    
    The efficiency ratio was 67.77% for the first six months of 2007 compared
to 56.31% for the same period in 2006 as a result of noninterest expenses increasing
to a greater extent than the top line revenue on a tax equivalent basis.
    
    Salaries and benefits expense increased by $5.7 million, or 37.8%, during
the first half of 2007 compared to the first half of 2006, reflecting additions to
management and the addition of 50 full-time equivalent employees from Royal American.
    
    Occupancy and equipment expense increased by $1.3 million during the six
months ended June 30, 2007 to $4.4 million compared to the similar period in 2006
reflecting the six additional offices acquired from Royal American and the
Franklin Park office opened in June 2006.
    
    Professional services expense declined by $52,000 to $2.3 million in the
first half of 2007 compared to the first half of 2006.
    
    Marketing expenses for the six months ended June 30, 2007 were $117,000
million higher than in the same period in 2006.
  
    
    In June 2007, the Company entered into an arrangement to outsource
janitorial services at three of its largest offices. Annual savings of over
$100,000 are expected; and if the arrangement works as anticipated, it may be
expanded to include additional offices.
    
    In July 2007, the Company entered into a joint marketing arrangement
with Chicago Bancorp (CBI). CBI is the largest privately held mortgage bank in
Chicago. Through this arrangement, approximately fifteen of the Companys employees
will become employees of CBI. They, along
 PAGE 28




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##### Table of Contents



with other CBI employees, will provide
residential mortgage services to the Companys customers.
CBI will also refer individual residential land and construction loan opportunities
to the Company along with deposit, home equity loan and commercial real estate
opportunities. Management believes that this arrangement will enable the Company to
provide better service and better pricing to our customers while also providing us
with a high quality source of additional loan volume. Annualized expense savings are
anticipated to exceed $1.0 million.
 Income Taxes
   Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Income taxes computed at the statutory rate
    
    $
    2,165
    
    
    
    35.0
    %
    
    $
    1,089
    
    
    
    35.0
    %
    
    $
    3,934
    
    
    
    35.0
    %
    
    $
    3,991
    
    
    
    35.0
    %Tax-exempt interest income on securities and loans
    
    
    (158
    )
    
    
    (2.6
    )
    
    
    (277
    )
    
    
    (8.9
    )
    
    
    (384
    )
    
    
    (3.4
    )
    
    
    (556
    )
    
    
    (4.9
    )General business credits
    
    
    (110
    )
    
    
    (1.8
    )
    
    
    (30
    )
    
    
    (1.0
    )
    
    
    (220
    )
    
    
    (2.0
    )
    
    
    (60
    )
    
    
    (0.5
    )State income taxes, net of federal tax benefit
due to state operating loss
    
    
    (276
    )
    
    
    (4.4
    )
    
    
    (198
    )
    
    
    (6.4
    )
    
    
    (517
    )
    
    
    (4.6
    )
    
    
    (36
    )
    
    
    (0.3
    )Life insurance cash surrender value increase, net of premiums
    
    
    (246
    )
    
    
    (4.0
    )
    
    
    (187
    )
    
    
    (6.0
    )
    
    
    (510
    )
    
    
    (4.5
    )
    
    
    (359
    )
    
    
    (3.1
    )Dividends received deduction
    
    
    (302
    )
    
    
    (4.9
    )
    
    
    (225
    )
    
    
    (7.2
    )
    
    
    (612
    )
    
    
    (5.4
    )
    
    
    (445
    )
    
    
    (3.9
    )Nondeductible meals and entertainment
    
    
    10
    
    
    
    0.2
    
    
    
    5
    
    
    
    0.2
    
    
    
    19
    
    
    
    0.1
    
    
    
    9
    
    
    
    0.1Stock based compensation, net
    
    
    (4
    )
    
    
    (0.1
    )
    
    
    33
    
    
    
    1.1
    
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    0.3Other
    
    
    (1
    )
    
    
    
    
    
    
    13
    
    
    
    0.4
    
    
    
    10
    
    
    
    0.1
    
    
    
    (6
    )
    
    
    (0.1
    )Total provision for income taxes
    
    $
    1,078
    
    
    
    17.4
    %
    
    $
    223
    
    
    
    22.6
    %
    
    $
    1,720
    
    
    
    15.3
    %
    
    $
    2,571
    
    
    
    22.6
    %
 Financial Condition
  
    
    Total assets increased $80.2 million to $3.0 billion at June 30, 2007 compared to year
end 2006 and up $660.7 million compared to June 30, 2006. The Company consummated the
acquisition of Royal American effective July 1, 2006, which increased total assets by
$578.8 million. Adjusted for the acquisition of Royal American, total assets grew by $81.9
million from a year ago.
    
    Total loans increased $35.9 million to $2.0 billion at June 30, 2007 compared to year
end 2006 and increased 39.4%, or $559.8 million, over the second quarter of 2006; $497.8
million of these loans were acquired with Royal American. Adjusted for the acquisition of
Royal American, total loans grew by $62.1 million from a year ago.
    
    The loan to deposit ratio decreased to 96.35% from 99.44% at December 31, 2006, but was
higher than the 89.82% figure recorded at June 30, 2006.
 PAGE 29




---



##### Table of Contents




    
    Deposits increased by $100.0 million, or 5.1%, to $2.1 billion in the second quarter of
2007 compared to year end 2006 and increased by 29.9% when compared to the quarter ended
June 30, 2006. Deposit growth was centered in certificates of deposit. Total deposits
increased by $466.0 million as a result of the Royal American acquisition. Adjusted for
the acquisition of Royal American, total deposits grew by $7.8 million from a year ago.
  Excluding
    
    
    ExcludingRoyal
    
    
    Royal
    
    
    RoyalAmerican
    
    
    American
    
    
    AmericanJune 30,
    
    
    $ Change
    
    
    Acquisition(1)
    
    
    Acquisition
    
    
    Acquisition2007
    
    
    2006
    
    
    (Dollars in thousands)
    
    
    $ Change
    
    
    % ChangeAssets:Cash and cash equivalents(2)
    
    $
    62,693
    
    
    $
    113,956
    
    
    $
    (51,263
    )
    
    $
    (41,044
    )
    
    $
    (10,219
    )
    
    
    (9.0
    )%Securities available-for-sale, at fair value
    
    
    639,087
    
    
    
    623,222
    
    
    
    15,865
    
    
    
    16,487
    
    
    
    (622
    )
    
    
    (0.1
    )Securities held-to-maturity, at amortized cost
    
    
    42,110
    
    
    
    52,363
    
    
    
    (10,253
    )
    
    
    
    
    
    
    (10,253
    )
    
    
    (19.6
    )Federal Reserve and Federal Home Loan Bank stock
    
    
    23,683
    
    
    
    16,105
    
    
    
    7,578
    
    
    
    1,427
    
    
    
    6,151
    
    
    
    38.2Loans held for sale
    
    
    2,349
    
    
    
    3,639
    
    
    
    (1,290
    )
    
    
    
    
    
    
    (1,290
    )
    
    
    (35.4
    )Loans
    
    
    1,982,672
    
    
    
    1,422,830
    
    
    
    559,842
    
    
    
    497,783
    
    
    
    62,059
    
    
    
    4.4Allowance for loan loss
    
    
    (23,724
    )
    
    
    (20,874
    )
    
    
    (2,850
    )
    
    
    (3,244
    )
    
    
    394
    
    
    
    (1.9
    )Net loans
    
    
    1,958,948
    
    
    
    1,401,956
    
    
    
    556,992
    
    
    
    494,539
    
    
    
    62,453
    
    
    
    4.5Cash surrender value of life insurance
    
    
    66,676
    
    
    
    51,383
    
    
    
    15,293
    
    
    
    12,467
    
    
    
    2,826
    
    
    
    5.5Premises and equipment, net
    
    
    22,489
    
    
    
    22,965
    
    
    
    (476
    )
    
    
    1,295
    
    
    
    (1,771
    )
    
    
    (7.7
    )Other real estate
    
    
    2,312
    
    
    
    5,237
    
    
    
    (2,925
    )
    
    
    
    
    
    
    (2,925
    )
    
    
    (55.9
    )Core deposit and other intangibles, net
    
    
    9,812
    
    
    
    1,592
    
    
    
    8,220
    
    
    
    10,488
    
    
    
    (2,268
    )
    
    
    (142.5
    )Goodwill
    
    
    79,625
    
    
    
    891
    
    
    
    78,734
    
    
    
    78,597
    
    
    
    137
    
    
    
    15.4Due from broker
    
    
    38,321
    
    
    
    
    
    
    
    38,321
    
    
    
    
    
    
    
    38,321
    
    
    
    100.0Other assets
    
    
    74,189
    
    
    
    68,293
    
    
    
    5,896
    
    
    
    4,535
    
    
    
    1,361
    
    
    
    2.0Total assets
    
    $
    3,022,294
    
    
    $
    2,361,602
    
    
    $
    660,692
    
    
    $
    578,791
    
    
    $
    81,901
    
    
    
    3.5
    %Liabilities and stockholders equity:Noninterest-bearing
    
    $
    256,152
    
    
    $
    165,837
    
    
    $
    90,315
    
    
    $
    125,506
    
    
    $
    (35,191
    )
    
    
    (21.2
    )%Interest-bearing
    
    
    1,801,690
    
    
    
    1,418,230
    
    
    
    383,460
    
    
    
    340,505
    
    
    
    42,955
    
    
    
    3.0Total deposits
    
    
    2,057,842
    
    
    
    1,584,067
    
    
    
    473,775
    
    
    
    466,011
    
    
    
    7,764
    
    
    
    0.5Federal funds purchased
    
    
    29,000
    
    
    
    
    
    
    
    29,000
    
    
    
    30,000
    
    
    
    (1,000
    )
    
    
    (100.0
    )Securities sold under agreements to repurchase
    
    
    282,037
    
    
    
    221,603
    
    
    
    60,434
    
    
    
    
    
    
    
    60,434
    
    
    
    27.3Advances from the Federal Home Loan Bank
    
    
    269,911
    
    
    
    250,000
    
    
    
    19,911
    
    
    
    4,854
    
    
    
    15,057
    
    
    
    6.0Junior subordinated debentures
    
    
    65,845
    
    
    
    55,672
    
    
    
    10,173
    
    
    
    10,106
    
    
    
    67
    
    
    
    0.1Due to broker
    
    
    
    
    
    
    8,203
    
    
    
    (8,203
    )
    
    
    
    
    
    
    (8,203
    )
    
    
    (100.0
    )Other liabilities
    
    
    34,084
    
    
    
    28,945
    
    
    
    5,139
    
    
    
    4,053
    
    
    
    1,086
    
    
    
    3.8Total liabilities
    
    
    2,738,719
    
    
    
    2,148,490
    
    
    
    590,229
    
    
    
    515,024
    
    
    
    75,205
    
    
    
    3.5Total stockholders equity
    
    
    283,575
    
    
    
    213,112
    
    
    
    70,463
    
    
    
    63,767
    
    
    
    6,696
    
    
    
    3.1Total liabilities and stockholders equity
    
    $
    3,022,294
    
    
    $
    2,361,602
    
    
    $
    660,692
    
    
    $
    578,791
    
    
    $
    81,901
    
    
    
    3.5
    %
 
 (1)
    
    Includes fair value adjustments.(2)
    
    Royal American Acquisition column includes cash and cash
equivalents acquired through Royal American of $24,363 less cash
paid for acquisition of $64,612 and capitalized costs of $795.  
    
    The Companys loan quality statistics are adversely affected by the Large Problem Credit
that was previously disclosed. At June 30, 2007, the remaining total loan exposure is
$28.9 million, all of which is on nonaccrual.
 PAGE 30




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##### Table of Contents




    
    The Company recorded a $5.0 million provision for loan losses relating to the Large
Problem Credit in the second quarter of 2006. The Company recorded an additional $5.5
million provision and charged off $7.5
million of the principal balance in the fourth quarter of 2006 to reflect the deterioration
of the Large Problem Credit. There were no additional charge offs on this credit during the
first half of 2007.
    
    The allowance for loan losses was 1.20% of total loans, versus 1.19% at year end 2006
and 1.47% at June 30, 2006.
    
    The allowance for loan losses was 0.54 times nonaccrual loans at June 30, 2007 and year
end, but was 1.91 times nonaccrual loans at June 30, 2006 as a result of the Large Problem
Credit.
    
    Nonaccrual loans were 2.20% of total loans at June 30, 2007 and year end but were higher
than the 0.77% at June 30, 2006 as a result of the Large Problem Credit.
    
    Nonperforming assets were 1.52% of total assets down from 1.55% at year end but
increased from the 0.68% recorded at June 30, 2006 due to the Large Problem Credit.
 Loans
  June 30,
    
    
    December 31,2007
    
    
    2006% of Gross
    
    
    
    
    
    
    % of GrossAmount
    
    
    Loans
    
    
    Amount
    
    
    Loans(Dollars in thousands)Commercial
    
    $
    426,824
    
    
    
    21.5
    %
    
    $
    376,944
    
    
    
    19.4
    %Construction
    
    
    399,911
    
    
    
    20.2
    
    
    
    424,181
    
    
    
    21.8Commercial real estate
    
    
    767,923
    
    
    
    38.7
    
    
    
    761,742
    
    
    
    39.0ConsumerHome equity
    
    
    142,039
    
    
    
    7.2
    
    
    
    147,366
    
    
    
    7.6Other consumer
    
    
    7,530
    
    
    
    0.4
    
    
    
    9,373
    
    
    
    0.5Total consumer
    
    
    149,569
    
    
    
    7.6
    
    
    
    156,739
    
    
    
    8.1Residential mortgage
    
    
    238,817
    
    
    
    12.0
    
    
    
    227,762
    
    
    
    11.7Total loans, gross
    
    
    1,983,044
    
    
    
    100.0
    %
    
    
    1,947,368
    
    
    
    100.0
    %Net deferred fees
    
    
    (372
    )
    
    
    
    
    
    
    (552
    )Total loans, net
    
    $
    1,982,672
    
    
    
    
    
    
    $
    1,946,816
  
    
    The expertise of the former Royal American lending team has allowed the Company to
continue on its growth path in a changing economic environment. Despite the slow down in
real estate and the Company being predominantly a real estate lender, the loan portfolio
grew as a result of the former Royal American commercial lenders efforts.
    
    Commercial loans grew by $49.9 million to $426.8 million as of June 30, 2007 from $376.9
million as of December 31, 2006. Commercial loans represent 21.5% of total gross loans, up
from 19.4% at year end.
    
    Construction loans decreased by $24.3 million to $399.9 million as of June 30, 2007 from
$424.2 million at December 31, 2006. The slow down in all forms of real estate also
precipitated a change in the loan mix. Construction loans decreased to 20.2% of the
portfolio from 21.8% at year end.
 PAGE 31




---



##### Table of Contents




    
    Consumer loans decreased $7.2 million to $149.6 million as of June 30, 2007 compared to
$156.7 million
December 31, 2006.
    
    Residential mortgage loans increased $11.1 million to $238.8 million as of June 30, 2007
from $227.8 million as of December 31, 2006.
    Allowance for Loan Losses
   Six Months EndedJune 30,2007
    
    
    2006(In thousands)Balance, January 1
    
    $
    23,229
    
    
    $
    17,760Provision charged to operations
    
    
    1,681
    
    
    
    5,000Loans charged off
    
    
    (2,024
    )
    
    
    (2,288
    )Recoveries
    
    
    838
    
    
    
    402Net loans charged off
    
    
    (1,186
    )
    
    
    (1,886
    )Balance, June 30
    
    $
    23,724
    
    
    $
    20,874
 PAGE 32




---



##### Table of Contents



June 30,
    
    December 31,
    
    June 30,2007
    
    2006
    
    2006Net loans charged off to average loans during quarter
    
    
    0.27
    %
    
    
    1.62
    %
    
    
    0.53
    %Provision for loan losses to total loans
    
    
    0.21
    
    
    
    1.12
    
    
    
    1.41Allowance for loan losses to total loans
    
    
    1.20
    
    
    
    1.19
    
    
    
    1.47Allowance to nonaccrual loans
    
    
    0.54
    x
    
    
    0.54
    x
    
    
    1.91
    x
      PAGE 33




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##### Table of Contents



Nonaccrual Loans and Nonperforming Assets
     June 30,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Impaired and other loans 90 days past due
and accruing
    
    $
    608
    
    
    $
    34Nonaccrual and impaired loans not accruing
    
    $
    43,588
    
    
    $
    42,826Other real estate
    
    
    2,312
    
    
    
    2,640Total nonperforming assets
    
    $
    45,900
    
    
    $
    45,466Total nonaccrual loans to total loans
    
    
    2.20
    %
    
    
    2.20
    %Total nonperforming assets to total loans
and other real estate
    
    
    2.31
    
    
    
    2.33Total nonperforming assets to total assets
    
    
    1.52
    
    
    
    1.55
 Securities
  June 30, 2007TotalHeld-to-Maturity
    
    
    Available-for-Sale
    
    
    
    
    
    
    
    
    
    
    % ofAmortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    AmortizedCost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Cost(Dollars in thousands)U.S. Treasury and obligations of
U.S. government-sponsored entities
    
    $
    
    
    
    $
    
    
    
    $
    151,978
    
    
    $
    150,252
    
    
    $
    151,978
    
    
    $
    150,252
    
    
    
    21.69
    %Obligations of states and
political subdivisions
    
    
    1,685
    
    
    
    1,673
    
    
    
    46,082
    
    
    
    44,878
    
    
    
    47,767
    
    
    
    46,551
    
    
    
    6.82Mortgage-backed securities
    
    
    40,425
    
    
    
    38,525
    
    
    
    372,964
    
    
    
    360,243
    
    
    
    413,389
    
    
    
    398,768
    
    
    
    58.98Equity securities
    
    
    
    
    
    
    
    
    
    
    76,649
    
    
    
    73,420
    
    
    
    76,649
    
    
    
    73,420
    
    
    
    10.94Other bonds
    
    
    
    
    
    
    
    
    
    
    11,024
    
    
    
    10,294
    
    
    
    11,024
    
    
    
    10,294
    
    
    
    1.57Total
    
    $
    42,110
    
    
    $
    40,198
    
    
    $
    658,697
    
    
    $
    639,087
    
    
    $
    700,807
    
    
    $
    679,285
    
    
    
    100.00
    %
 PAGE 34




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##### Table of Contents




    
    U.S. Treasury and obligations of U.S. government-sponsored entities increased by $143.3
million to $150.3 million at June 30, 2007 compared to $7.0 million at year end.
    
    U.S. government agency and government-sponsored entity mortgage-backed securities
decreased 17.0%, or $73.9 million, from $434.1 million at December 31, 2006 to $360.2
million at June 30, 2007.
    
    Equity securities increased $31.9 million to $73.4 million at June 30, 2007 from
December 31, 2006. Equity securities included capital securities of U.S.
government-sponsored entities.
    
    Obligations of state and political subdivisions decreased $52.1 million to $44.9 million
at June 30, 2007 from December 31, 2006.
   Cash Surrender Value of Life Insurance
  Deposits and Borrowed Funds
  June 30,
    
    
    December 31,2007
    
    
    2006(In thousands)Noninterest-bearing demand
    
    $
    256,152
    
    
    $
    276,381Interest-bearing demand
    
    
    172,332
    
    
    
    161,585Money-market demand and savings
    
    
    365,082
    
    
    
    377,955Time deposits less than $100,000
    
    
    750,627
    
    
    
    721,578Time deposits of $100,000 or more
    
    
    513,649
    
    
    
    420,311Total interest-bearing deposits
    
    
    1,801,690
    
    
    
    1,681,429Total
    
    $
    2,057,842
    
    
    $
    1,957,810
 PAGE 35




---



##### Table of Contents




    
    Noninterest-bearing deposits were $256.2 million at June 30, 2007, $20.2
million less than the $276.4 million level at December 31, 2006.
    
    Over the same period, interest-bearing deposits increased 7.2%, or $120.3
million to $1.8 billion at June 30, 2007 compared to December 31, 2006.
    
    Core deposits, which include demand deposit, interest-bearing demand
deposit, money market, and savings accounts, decreased $22.4 million to $793.6
million at June 30, 2007 from $815.9 million at December 31, 2006.
    
    Certificates of deposit under $100,000 increased $29.0 million from
December 31, 2006 to $750.6 million at June 30, 2007.
    
    Certificates of deposit over $100,000 increased $93.3 million from
December 31, 2006 to $513.6 million at June 30, 2007. The majority of the increase
was a result of increased brokered certificates of deposit coupled with the migration
of balances in core deposits to certificates of deposits as a result of the increase
in rates. At times, brokered certificates of deposit are less costly than customer
certificates of deposits.
    June 30,
    
    
    December 31,2007
    
    
    2006(In thousands)Federal funds purchased
    
    $
    29,000
    
    
    $
    66,000Securities sold under agreements to repurchase
    
    
    282,037
    
    
    
    201,079Federal Home Loan Bank advances
    
    
    269,911
    
    
    
    319,883Junior subordinated debentures
    
    
    65,845
    
    
    
    65,812Total
    
    $
    646,793
    
    
    $
    652,774
  PAGE 36




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##### Table of Contents



Capital Resources
     PAGE 37




---



##### Table of Contents



At June 30, 2007Minimum 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
    
    $
    290,495
    
    
    
    12.8
    %
    
    $
    181,458
    
    
    
    8.0
    %
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    281,442
    
    
    
    12.5
    
    
    
    180,747
    
    
    
    8.0
    
    
    $
    225,933
    
    
    
    10.0
    %Tier I capital to risk-weighted assets
Company
    
    
    266,770
    
    
    
    11.8
    
    
    
    90,729
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    257,718
    
    
    
    11.4
    
    
    
    90,373
    
    
    
    4.0
    
    
    
    135,560
    
    
    
    6.0Tier I capital to average assets
Company
    
    
    266,770
    
    
    
    8.9
    
    
    
    120,522
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    257,718
    
    
    
    8.6
    
    
    
    120,064
    
    
    
    4.0
    
    
    
    150,080
    
    
    
    5.0
 At December 31, 2006Minimum 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
    
    $
    290,158
    
    
    
    13.0
    %
    
    $
    178,984
    
    
    
    8.0
    %
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    272,619
    
    
    
    12.2
    
    
    
    178,113
    
    
    
    8.0
    
    
    $
    222,641
    
    
    
    10.0
    %Tier I capital to risk-weighted assets
Company
    
    
    266,753
    
    
    
    11.9
    
    
    
    89,492
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    249,214
    
    
    
    11.2
    
    
    
    89,056
    
    
    
    4.0
    
    
    
    133,584
    
    
    
    6.0Tier I capital to average assets
Company
    
    
    266,753
    
    
    
    9.1
    
    
    
    117,855
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    249,214
    
    
    
    8.5
    
    
    
    117,140
    
    
    
    4.0
    
    
    
    146,425
    
    
    
    5.0
 Liquidity
   PAGE 38




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PAGE 39




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##### Table of Contents



ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
 Interest Rate Sensitivity Analysis
  Change in Net Interest Income Over One Year HorizonGuidelineJune 30, 2007
    
    
    December 31, 2006
    
    
    MaximumDollar
    
    
    %
    
    
    Dollar
    
    
    %
    
    
    %Change
    
    
    Change
    
    
    Change
    
    
    Change
    
    
    Change(Dollars in thousands)+200 bp
    
    $
    (2,330
    )
    
    
    (2.8
    )%
    
    $
    (3,172
    )
    
    
    (4.00
    )%
    
    
    (10.0
    )%+100 bp
    
    
    (1,185
    )
    
    
    (1.4
    )
    
    
    (1,683
    )
    
    
    (2.12
    )
    
    
    (10.0
    )-100 bp
    
    
    (1,091
    )
    
    
    (1.3
    )
    
    
    1,410
    
    
    
    1.78
    
    
    
    (10.0
    )-200 bp
    
    
    (4,736
    )
    
    
    (5.8
    )
    
    
    (1,511
    )
    
    
    (1.90
    )
    
    
    (10.0
    )
    PAGE 40




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##### Table of Contents



ITEM 4  CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls Over Financial Reporting
  PAGE 41




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##### Table of Contents



SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
     
    
    Managements ability to reduce and effectively manage interest rate risk and
the impact of interest rates in general on the volatility of the Companys net
interest income;
    
    Fluctuations in the value of the Companys investment securities;
    
    The ability to attract and retain senior management experienced in banking
and financial services;
    
    The sufficiency of the allowance for loan losses to absorb the amount of
actual losses inherent in the existing portfolio of loans;
    
    The ability to ultimately collect on the Large Problem Credit;
    
    The Companys ability to adapt successfully to technological changes to
compete effectively in the marketplace;
    
    Credit risks and risks from concentrations (by geographic area and by
industry) within the Banks loan portfolio and individual large loans;
 PAGE 42




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##### Table of Contents




    
    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;
    
    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;
    
    Volatility of rate sensitive deposits;
    
    Operational risks, including data processing system failures or fraud;
    
    Asset/liability matching risks and liquidity risks;
    
    The ability to successfully acquire low cost deposits or funding;
    
    The ability to successfully execute strategies to increase noninterest income;
    
    The ability of the Company to fully realize expected cost savings and
revenues in connection with the acquisitions, or the ability to realize them on a
timely basis;
    
    The ability of the Company to consummate the acquisition of Northwest
Suburban Bancorp, Inc. and to successfully integrate the Northwest Suburban Bancorp,
Inc. acquisition once closed;
    
    The risk of borrower, depositor, and other customer attrition after future
acquisitions are completed;
    
    Changes in the economic environment, competition, or other factors that may
influence the anticipated growth rate of loans and deposits, the quality of the loan
portfolio and loan and deposit pricing, and the Companys ability to successfully
pursue acquisition and expansion strategies and integrate any acquired companies;
    
    The impact from liabilities arising from legal or administrative proceedings
on the financial condition of the Company;
    
    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;
    
    Possible administrative or enforcement actions of the Securities and Exchange
Commission (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;
 PAGE 43




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##### Table of Contents




    
    Changes in accounting principles, policies, or guidelines affecting the
business conducted by the Company;
    
    Acts of war or terrorism; and
    
    Other economic, competitive, governmental, regulatory, and technical factors
affecting the Companys operations, products, services, and prices.
   PAGE 44




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##### Table of Contents



PART II
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  TotalNumberof Shares
    
    
    Maximum NumberTotal
    
    
    
    
    
    
    Purchased as Part
    
    
    of Shares thatNumber
    
    
    Average
    
    
    of Publicly
    
    
    May Yet Beof Shares
    
    
    Price Paid
    
    
    Announced Plans
    
    
    Purchased UnderPeriod
    
    Purchased
    
    
    per Share
    
    
    or Programs
    
    
    the Plans or Programs1/1/07 - 1/31/07
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    1,035,6112/1/07 - 2/28/07
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,035,6113/1/07 - 3/31/07
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,035,6114/1/07 - 4/30/07
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,035,6115/1/07 - 5/31/07
    
    
    129,500
    
    
    
    16.89
    
    
    
    129,500
    
    
    
    906,1116/1/07 - 6/30/07
    
    
    50,000
    
    
    
    15.92
    
    
    
    50,000
    
    
    
    856,111Total
    
    
    179,500
    
    
    $
    16.62
    
    
    
    179,500
    
    
    
    856,111
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  PAGE 45




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##### Table of Contents



Item 6. Exhibits
  2.1
    
    Stock Purchase Agreement between Western Illinois Bancshares, Inc.
and Midwest Banc Holdings, Inc. (incorporated by reference to
Registrants Report on Form 8-K filed June 1, 2005, File No.
001-13735).2.2
    
    Amendment to Stock Purchase Agreement between Western Illinois
Bancshares, Inc. and Midwest Banc Holdings, Inc. (incorporated by
reference to Registrants Form 10-Q for the quarter ended June 30,
2005, File No. 001-13735).2.3
    
    Second Amendment to Stock Purchase Agreement between Western
Illinois Bancshares, Inc. and Midwest Banc Holdings, Inc.
(incorporated by reference to Registrants Report on Form 8-K filed
August 29, 2005, File No. 001-13735).2.4
    
    Third Amendment to Stock Purchase Agreement between Western
Illinois Bancshares, Inc. and Midwest Banc Holdings, Inc.
(incorporated by reference to Registrants Report on Form 8-K filed
October 5, 2005, File No. 001-13735).2.5
    
    Fourth Amendment to Stock Purchase Agreement between Western
Illinois Bancshares, Inc. and Midwest Banc Holdings, Inc.
(incorporated by reference to Registrants Report on Form 8-K filed
November 3, 2005, File No. 001-13735).2.6
    
    Agreement and Plan of Merger, dated as of February 8, 2006, by and
between Midwest Banc Holdings, Inc. and Royal American Corporation
(incorporated by reference to Registrants Report on Form 8-K filed
February 8, 2006, File No. 001-13735).2.7
    
    Form of Stockholder Voting Agreement, dated as of February 8, 2006,
by and among Midwest Banc Holdings, Inc. and certain stockholders
of Royal American Corporation (incorporated by reference to
Registrants Report on Form 8-K filed February 8, 2006, File No.
001-13735).2.8
    
    Agreement and Plan of Merger, dated as of March 22, 2007, by and
between Midwest Banc Holdings, Inc. and Northwest Suburban
Bancorp., Inc. (incorporated by reference to Registrants Report on
Form 8-K filed March 23, 2007, File No. 001-13735).2.9
    
    Form of Stockholder Voting Agreement, dated as of March 22, 2006,
by and among Midwest Banc Holdings, Inc. and certain stockholders
of Northwest Suburban Bancorp., Inc. (incorporated by reference to
Registrants Report on Form 8-K filed March 23, 2006, File No.
001-13735).3.1
    
    Amended and Restated Certificate of Incorporation, as amended
(incorporated by reference to Registrants Form 10-Q for the
quarter ended June 30, 2006, File No. 001-1375).3.2
    
    Amended and Restated By-laws, filed September 27, 2005
(incorporated by reference to Registrants Report on Form 8-K filed
September 27, 2005, File No. 001-13735).4.1
    
    Specimen Common Stock Certificate (incorporated by reference to
Registrants Registration Statement on Form S-1, Registration No.
333-42827).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
    
    Midwest Banc Holdings, Inc. Stock and Incentive Plan (incorporated
by reference to Registrants Form 10-K for the year ended December
31, 2006, File No. 001-13735).*10.4
    
    Form of Transitional Employment Agreements (incorporated by
reference to Registrants Registration Statement on Form S-1,
Registration No. 333-42827).10.5
    
    Lease dated as of December 24, 1958, between Western National Bank
of Cicero and Midwest Bank and Trust Company, as amended
(incorporated by reference to Registrants Registration Statement
on Form S-1, Registration No. 333-42827).
 PAGE 46




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##### Table of Contents



10.6
    
    Britannica Centre Lease, dated as of May 1, 1994, between Chicago
Title and Trust Company, as Trustee under Trust Agreement dated
November 2, 1977 and known as Trust No. 1070932 and Midwest Bank
and Trust Company (incorporated by reference to Registrants
Registration Statement on Form S-1, Registration No. 333-42827).10.7
    
    Lease dated as of March 20, 1996 between Grove Lodge No. 824
Ancient Free and Accepted Masons and Midwest Bank of Hinsdale
(incorporated by reference to Registrants Registration Statement
on Form S-1, Registration No. 333-42827).10.8
    
    Office Lease, undated, between Grove Lodge No. 824 Ancient Free and
Accepted Masons and Midwest Bank of Hinsdale (incorporated by
reference to Registrants Registration Statement on Form S-1,
Registration No. 333-42827).*10.15
    
    Form of 2001 Supplemental Executive Retirement Agreement
(incorporated by reference to Registrants Form 10-Q for the
quarter ended September 30, 2001, File No. 001-13735).*10.16
    
    Form of Transitional Employment Agreement (Executive Officer Group)
(incorporated by reference to Registrants Form 10-Q for the
quarter ended September 30, 2001, File No. 001-13735).*10.17
    
    Form of Restricted Stock Award Agreement for Officers, Restricted
Stock Grant Notice for Officers, Incentive and Nonqualified Stock
Options Award Agreements, and Stock Option Grant Notice for
Officers (incorporated by reference to Registrants Report on Form
8-K filed August 29, 2005, File No. 001-13735).*10.18
    
    Form of 2005 Supplemental Executive Retirement Agreement
(incorporated by reference to Registrants Report on Form 8-K filed
October 28, 2005, File No. 001-13735).*10.19
    
    Form of Restricted Stock Award Agreement for Non-employee Directors
and Restricted Stock Grant Notice for Non-employee Directors
(incorporated by reference to Registrants Report on Form 8-K filed
October 28, 2005, File No. 001-13735).10.21
    
    Lease dated as of April 29, 1976, between Sanfilippo, Joseph C. and
Grace Ann and Fairfield Savings and Loan Association, as amended
(incorporated by reference to Registrants Form 10-K for the year
ended December 31, 2003, File No. 001-13735).10.22
    
    Lease dated as of August 28, 2002 between Glen Oak Plaza and
Midwest Bank and Trust Company (incorporated by reference to
Registrants Form 10-K for the year ended December 31, 2003, File
No. 001-13735).10.24
    
    Loan Agreement as of April 4, 2007, between the Company and M&I
Marshall & Ilsley Bank (incorporated by reference to Registrants
Report on Form 8-K filed April 6, 2007, File No. 001-13735).*10.25
    
    Employment Agreement as of September 28, 2004 between the Company
and the Chief Executive Officer (incorporated by reference to
Registrants Form 10-Q for the quarter ended September 30, 2004,
File No. 001-13735).*10.27
    
    Midwest Banc Holdings, Inc. Severance Policy as of June 28, 2005
(incorporated by reference to Registrants Form 8-K dated June 28,
2005, File No. 001-13735).10.29
    
    Midwest Banc Holdings, Inc. Directors Deferred Compensation Plan
(incorporated by reference to Registrants Report on Form 8-K filed
December 16, 2005, File No. 001-13735).*10.30
    
    Amendment to Employment Agreement as of September 28, 2004 between
the Company and the Chief Executive Officer (incorporated by
reference to Registrants Report on Form 8-K filed March 24, 2006,
File No. 001-13735).*10.31
    
    Amended and Restated Employment Agreement dated February 8, 2006 by
and between Royal American Bank and Jay Fritz, assumed by the
Company as of July 1, 2006 (incorporated by reference to
Registrants Report on Form 8-K filed July 7, 2006, File No.
001-13735).
 PAGE 47




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##### Table of Contents



10.32
    
    Lease dated April 1, 1993, by and between Royal American Bank and
LaSalle National Trust, N.A., as amended, assumed by the Company as
of July 1, 2006 (incorporated by reference to Registrants Form
10-Q for the quarter ended September 30, 2006, File No. 001-13735).10.33
    
    Lease dated April 19, 1993 by and between Royal American Bank and
Hamilton Forsythe 1000 Tower Lane LLC, successor-in-interest to
Bensenville Office Venture, as amended, assumed by the Company as
of July 1, 2006 (incorporated by reference to Registrants Form
10-Q for the quarter ended September 30, 2006, File No. 001-13735).10.34
    
    Sublease dated January 31, 2006 by and between Royal American Bank
and JPMorgan Chase Bank, National Association, assumed by the
Company as of July 1, 2006 (incorporated by reference to
Registrants Form 10-Q for the quarter ended September 30, 2006,
File No. 001-13735).10.35
    
    Lease dated January 20, 2006 by and between Royal American Bank and
MEG Associates Limited Partnership, assumed by the Company as of
July 1, 2006 (incorporated by reference to Registrants Form 10-Q
for the quarter ended September 30, 2006, File No. 001-13735).10.36
    
    Lease dated October 28, 1996 by and between Royal American Bank and
Tiffany Pointe, Inc./Marquette Bank, as amended, assumed by the
Company as of July 1, 2006 (incorporated by reference to
Registrants Form 10-Q for the quarter ended September 30, 2006,
File No. 001-13735).10.37
    
    Lease dated September 24, 1999, by and between Royal American Bank
and Moats Office Properties, Inc., as amended, assumed by the
Company as of July 1, 2006 (incorporated by reference to
Registrants Form 10-Q for the quarter ended September 30, 2006,
File No. 001-13735).10.38
    
    Lease dated July 14, 2006 by and between Midwest Bank and Trust
Company and William C. Moran (incorporated by reference to
Registrants Form 10-Q for the quarter ended September 30, 2006,
File No. 001-13735).*10.39
    
    First Amendment to the Form of 2001 Supplemental Executive
Retirement Agreement (incorporated by reference to Registrants
Report on Form 8-K filed October 28, 2005, File No. 001-13735).*10.40
    
    Second Amendment to the Form of 2001 Supplemental Executive
Retirement Agreement (incorporated by reference to Registrants
Form 10-Q for the quarter ended September 30, 2006, File No.
001-13735).*10.41
    
    Form of 2006 Supplemental Executive Retirement Agreement
(incorporated by reference to Registrants Form 10-Q for the
quarter ended September 30, 2006, File No. 001-13735).*10.42
    
    First Amendment to the Form of 2005 Supplemental Executive
Retirement Agreement (incorporated by reference to Registrants
Form 10-Q for the quarter ended September 30, 2006, File No.
001-13735).10.43
    
    Lease dated November 9, 2005 by and between Midwest Bank and Trust
Company and Crossings Commercial, LLC (incorporated by reference to
Registrants Form 10-Q for the quarter ended September 30, 2006,
File No. 001-13735).10.44
    
    Lease dated August 17, 2005 by and between Royal American Bank and
L.F.A.J.J. Partners, LLC, assumed by the Company as of July 1, 2006
(incorporated by reference to Registrants Form 10-Q for the
quarter ended March 31, 2007, File No. 001-13735).31.1
    
    Rule 13a-14(a) Certification of Principal Executive Officer.31.2
    
    Rule 13a-14(a) Certification of Principal Financial Officer.32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, from the
Companys Chief Executive Officer and Chief Financial Officer.
 
 *
    
    Indicates management contracts or compensatory plans or arrangements required to be filed as an exhibit. PAGE 48




---



##### Table of Contents



SIGNATURES
   MIDWEST BANC HOLDINGS, INC.
(Registrant)By:
    /s/ James J. GiancolaJames J. Giancola,President and Chief Executive OfficerBy:
    /s/ Daniel R. KadolphDaniel R. Kadolph,Executive Vice President and
Chief Financial Officer PAGE 49




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##### Table of Contents



2.1
    
    Stock Purchase Agreement between Western Illinois Bancshares, Inc.
and Midwest Banc Holdings, Inc. (incorporated by reference to
Registrants Report on Form 8-K filed June 1, 2005, File No.
001-13735).2.2
    
    Amendment to Stock Purchase Agreement between Western Illinois
Bancshares, Inc. and Midwest Banc Holdings, Inc. (incorporated by
reference to Registrants Form 10-Q for the quarter ended June 30,
2005, File No. 001-13735).2.3
    
    Second Amendment to Stock Purchase Agreement between Western
Illinois Bancshares, Inc. and Midwest Banc Holdings, Inc.
(incorporated by reference to Registrants Report on Form 8-K filed
August 29, 2005, File No. 001-13735).2.4
    
    Third Amendment to Stock Purchase Agreement between Western
Illinois Bancshares, Inc. and Midwest Banc Holdings, Inc.
(incorporated by reference to Registrants Report on Form 8-K filed
October 5, 2005, File No. 001-13735).2.5
    
    Fourth Amendment to Stock Purchase Agreement between Western
Illinois Bancshares, Inc. and Midwest Banc Holdings, Inc.
(incorporated by reference to Registrants Report on Form 8-K filed
November 3, 2005, File No. 001-13735).2.6
    
    Agreement and Plan of Merger, dated as of February 8, 2006, by and
between Midwest Banc Holdings, Inc. and Royal American Corporation
(incorporated by reference to Registrants Report on Form 8-K filed
February 8, 2006, File No. 001-13735).2.7
    
    Form of Stockholder Voting Agreement, dated as of February 8, 2006,
by and among Midwest Banc Holdings, Inc. and certain stockholders
of Royal American Corporation (incorporated by reference to
Registrants Report on Form 8-K filed February 8, 2006, File No.
001-13735).2.8
    
    Agreement and Plan of Merger, dated as of March 22, 2007, by and
between Midwest Banc Holdings, Inc. and Northwest Suburban
Bancorp., Inc. (incorporated by reference to Registrants Report on
Form 8-K filed March 22, 2007, File No. 001-13735).2.9
    
    Form of Stockholder Voting Agreement, dated as of March 22, 2006,
by and among Midwest Banc Holdings, Inc. and certain stockholders
of Northwest Suburban Bancorp., Inc. (incorporated by reference to
Registrants Report on Form 8-K filed March 23, 2006, File No.
001-13735).3.1
    
    Amended and Restated Certificate of Incorporation, as amended
(incorporated by reference to Registrants Form 10-Q for the
quarter ended June 30, 2006, File No. 001-1375).3.2
    
    Amended and Restated By-laws, filed September 27, 2005
(incorporated by reference to Registrants Report on Form 8-K filed
September 27, 2005, File No. 001-13735).




---



##### Table of Contents



4.1
    
    Specimen Common Stock Certificate (incorporated by reference to
Registrants Registration Statement on Form S-1, Registration No.
333-42827).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
    
    Midwest Banc Holdings, Inc. Stock and Incentive Plan (incorporated
by reference to Registrants Form 10-K for the year ended December
31, 2006, File No. 001-13735).*10.4
    
    Form of Transitional Employment Agreements (incorporated by
reference to Registrants Registration Statement on Form S-1,
Registration No. 333-42827).10.5
    
    Lease dated as of December 24, 1958, between Western National Bank
of Cicero and Midwest Bank and Trust Company, as amended
(incorporated by reference to Registrants Registration Statement
on Form S-1, Registration No. 333-42827).10.6
    
    Britannica Centre Lease, dated as of May 1, 1994, between Chicago
Title and Trust Company, as Trustee under Trust Agreement dated
November 2, 1977 and known as Trust No. 1070932 and Midwest Bank
and Trust Company (incorporated by reference to Registrants
Registration Statement on Form S-1, Registration No. 333-42827).10.7
    
    Lease dated as of March 20, 1996 between Grove Lodge No. 824
Ancient Free and Accepted Masons and Midwest Bank of Hinsdale
(incorporated by reference to Registrants Registration Statement
on Form S-1, Registration No. 333-42827).10.8
    
    Office Lease, undated, between Grove Lodge No. 824 Ancient Free and
Accepted Masons and Midwest Bank of Hinsdale (incorporated by
reference to Registrants Registration Statement on Form S-1,
Registration No. 333-42827).*10.15
    
    Form of 2001 Supplemental Executive Retirement Agreement
(incorporated by reference to Registrants Form 10-Q for the
quarter ended September 30, 2001, File No. 001-13735).*10.16
    
    Form of Transitional Employment Agreement (Executive Officer Group)
(incorporated by reference to Registrants Form 10-Q for the
quarter ended September 30, 2001, File No. 001-13735).*10.17
    
    Form of Restricted Stock Award Agreement for Officers, Restricted
Stock Grant Notice for Officers, Incentive and Nonqualified Stock
Options Award Agreements, and Stock Option Grant Notice for
Officers (incorporated by reference to Registrants Report on Form
8-K filed August 29, 2005, File No. 001-13735).*10.18
    
    Form of 2005 Supplemental Executive Retirement Agreement
(incorporated by reference to Registrants Report on Form 8-K filed
October 28, 2005, File No. 001-13735).*10.19
    
    Form of Restricted Stock Award Agreement for Non-employee Directors
and Restricted Stock Grant Notice for Non-employee Directors
(incorporated by reference to Registrants Report on Form 8-K filed
October 28, 2005, File No. 001-13735).10.21
    
    Lease dated as of April 29, 1976, between Sanfilippo, Joseph C. and
Grace Ann and Fairfield Savings and Loan Association, as amended
(incorporated by reference to Registrants Form 10-K for the year
ended December 31, 2003, File No. 001-13735).10.22
    
    Lease dated as of August 28, 2002 between Glen Oak Plaza and
Midwest Bank and Trust Company (incorporated by reference to
Registrants Form 10-K for the year ended December 31, 2003, File
No. 001-13735).10.24
    
    Loan Agreement as of April 4, 2007, between the Company and M&I
Marshall & Ilsley Bank (incorporated by reference to Registrants
Report on Form 8-K filed April 6, 2007, File No. 001-13735).




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##### Table of Contents



*10.25
    
    Employment Agreement as of September 28, 2004 between the Company
and the Chief Executive Officer (incorporated by reference to
Registrants Form 10-Q for the quarter ended September 30, 2004,
File No. 001-13735).*10.27
    
    Midwest Banc Holdings, Inc. Severance Policy as of June 28, 2005
(incorporated by reference to Registrants Form 8-K dated June 28,
2005, File No. 001-13735).10.29
    
    Midwest Banc Holdings, Inc. Directors Deferred Compensation Plan
(incorporated by reference to Registrants Report on Form 8-K filed
December 16, 2005, File No. 001-13735).*10.30
    
    Amendment to Employment Agreement as of September 28, 2004 between
the Company and the Chief Executive Officer (incorporated by
reference to Registrants Report on Form 8-K filed March 24, 2006,
File No. 001-13735).*10.31
    
    Amended and Restated Employment Agreement dated February 8, 2006 by
and between Royal American Bank and Jay Fritz, assumed by the
Company as of July 1, 2006 (incorporated by reference to
Registrants Report on Form 8-K filed July 7, 2006, File No.
001-13735).10.32
    
    Lease dated April 1, 1993, by and between Royal American Bank and
LaSalle National Trust, N.A., as amended, assumed by the Company as
of July 1, 2006 (incorporated by reference to Registrants Form
10-Q for the quarter ended September 30, 2006, File No. 001-13735).10.33
    
    Lease dated April 19, 1993 by and between Royal American Bank and
Hamilton Forsythe 1000 Tower Lane LLC, successor-in-interest to
Bensenville Office Venture, as amended, assumed by the Company as
of July 1, 2006 (incorporated by reference to Registrants Form
10-Q for the quarter ended September 30, 2006, File No. 001-13735).10.34
    
    Sublease dated January 31, 2006 by and between Royal American Bank
and JPMorgan Chase Bank, National Association, assumed by the
Company as of July 1, 2006 (incorporated by reference to
Registrants Form 10-Q for the quarter ended September 30, 2006,
File No. 001-13735).10.35
    
    Lease dated January 20, 2006 by and between Royal American Bank and
MEG Associates Limited Partnership, assumed by the Company as of
July 1, 2006 (incorporated by reference to Registrants Form 10-Q
for the quarter ended September 30, 2006, File No. 001-13735).10.36
    
    Lease dated October 28, 1996 by and between Royal American Bank and
Tiffany Pointe, Inc./Marquette Bank, as amended, assumed by the
Company as of July 1, 2006 (incorporated by reference to
Registrants Form 10-Q for the quarter ended September 30, 2006,
File No. 001-13735).10.37
    
    Lease dated September 24, 1999, by and between Royal American Bank
and Moats Office Properties, Inc., as amended, assumed by the
Company as of July 1, 2006 (incorporated by reference to
Registrants Form 10-Q for the quarter ended September 30, 2006,
File No. 001-13735).10.38
    
    Lease dated July 14, 2006 by and between Midwest Bank and Trust
Company and William C. Moran (incorporated by reference to
Registrants Form 10-Q for the quarter ended September 30, 2006,
File No. 001-13735).*10.39
    
    First Amendment to the Form of 2001 Supplemental Executive
Retirement Agreement (incorporated by reference to Registrants
Report on Form 8-K filed October 28, 2005, File No. 001-13735).*10.40
    
    Second Amendment to the Form of 2001 Supplemental Executive
Retirement Agreement (incorporated by reference to Registrants
Form 10-Q for the quarter ended September 30, 2006, File No.
001-13735).*10.41
    
    Form of 2006 Supplemental Executive Retirement Agreement
(incorporated by reference to Registrants Form 10-Q for the
quarter ended September 30, 2006, File No. 001-13735).*10.42
    
    First Amendment to the Form of 2005 Supplemental Executive
Retirement Agreement (incorporated by reference to Registrants
Form 10-Q for the quarter ended September 30, 2006, File No.
001-13735).




---



##### Table of Contents



10.43
    
    Lease dated November 9, 2005 by and between Midwest Bank and Trust
Company and Crossings Commercial, LLC (incorporated by reference to
Registrants Form 10-Q for the quarter ended September 30, 2006,
File No. 001-13735).10.44
    
    Lease dated August 17, 2005 by and between Royal American Bank and
L.F.A.J.J. Partners, LLC, assumed by the Company as of July 1, 2006
(incorporated by reference to Registrants Form 10-Q for the
quarter ended March 31, 2007, File No. 001-13735).31.1
    
    Rule 13a-14(a) Certification of Principal Executive Officer.31.2
    
    Rule 13a-14(a) Certification of Principal Financial Officer.32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, from the
Companys Chief Executive Officer and Chief Financial Officer.
 
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    Indicates management contracts or compensatory plans or arrangements required to be filed as an exhibit.