UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended March 31, 2009
 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
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ
  Class
    
    
    Outstanding at May 8, 2008Common, par value $0.01
    
    
    27,929,029




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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
    
    
    21Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    44Item 4. Controls and Procedures
    
    
    45PART IIItem 1. Legal Proceedings
    
    
    49Item 1A. Risk Factors
    
    
    49Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
    
    
    51Item 3. Defaults upon Senior Securities
    
    
    51Item 4. Submission of Matters to a Vote of Security Holders
    
    
    51Item 5. Other Information
    
    
    51Item 6. Exhibits
    
    
    51Signature Page
    
    
    52
  i




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##### 



MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except for share data)
 March 31,
    
    
    December 31,2009
    
    
    2008ASSETSCash
    
    $
    56,516
    
    
    $
    61,330Short-term investments
    
    
    1,762
    
    
    
    1,735Total cash and cash equivalents
    
    
    58,278
    
    
    
    63,065Securities available-for-sale (securities pledged to creditors:
$368,168 at March 31, 2009 and $368,714 at December 31, 2008)
    
    
    685,858
    
    
    
    621,949Securities held-to-maturity (fair value: $29,598 at March 31, 2009
and $30,387 at December 31, 2008)
    
    
    29,082
    
    
    
    30,267Total securities
    
    
    714,940
    
    
    
    652,216Federal Reserve Bank and Federal Home Loan Bank stock, at cost
    
    
    31,698
    
    
    
    31,698Loans
    
    
    2,591,048
    
    
    
    2,509,759Allowance for loan losses
    
    
    (53,011
    )
    
    
    (44,432
    )Net loans
    
    
    2,538,037
    
    
    
    2,465,327Cash surrender value of life insurance
    
    
    85,517
    
    
    
    84,675Premises and equipment, net
    
    
    38,528
    
    
    
    38,313Foreclosed properties
    
    
    18,534
    
    
    
    12,018Core deposit and other intangibles, net
    
    
    14,110
    
    
    
    14,683Goodwill
    
    
    78,862
    
    
    
    78,862Other assets
    
    
    134,560
    
    
    
    129,355Total assets
    
    $
    3,713,064
    
    
    $
    3,570,212LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesDepositsNoninterest-bearing
    
    $
    343,422
    
    
    $
    334,495Interest-bearing
    
    
    2,200,583
    
    
    
    2,078,296Total deposits
    
    
    2,544,005
    
    
    
    2,412,791Federal funds purchased
    
    
    55,000
    
    
    
    Revolving note payable
    
    
    8,600
    
    
    
    8,600Securities sold under agreements to repurchase
    
    
    297,650
    
    
    
    297,650Advances from the Federal Home Loan Bank
    
    
    340,000
    
    
    
    380,000Junior subordinated debentures
    
    
    60,807
    
    
    
    60,791Subordinated debt
    
    
    15,000
    
    
    
    15,000Term note payable
    
    
    55,000
    
    
    
    55,000Other liabilities
    
    
    35,932
    
    
    
    34,546Total liabilities
    
    
    3,411,994
    
    
    
    3,264,378Commitments and contingencies (see note 7)Stockholders EquityPreferred stock, $0.01 par value, 1,000,000 shares authorized;
Series A, $2,500 liquidation preference, 17,250 shares issued and
outstanding at March 31, 2009 and December 31, 2008Series T, $1,000 liquidation preference, 84,784 shares issued and
outstanding at March 31, 2009 and December 31, 2008
    
    
    1
    
    
    
    1Common stock, $0.01 par value, 64,000,000 shares authorized; 29,596,012
shares issued and 27,929,029 outstanding at March 31, 2009 and
29,530,878
shares issued and 27,892,578 outstanding at December 31, 2008
    
    
    297
    
    
    
    296Additional paid-in capital
    
    
    384,097
    
    
    
    383,491Warrant
    
    
    5,229
    
    
    
    5,229Accumulated deficit
    
    
    (73,533
    )
    
    
    (66,325
    )Accumulated other comprehensive loss
    
    
    (268
    )
    
    
    (2,122
    )Treasury stock, at cost (1,666,983 shares at March 31, 2009 and
1,638,300 shares at December 31, 2008)
    
    
    (14,753
    )
    
    
    (14,736
    )Total stockholders equity
    
    
    301,070
    
    
    
    305,834Total liabilities and stockholders equity
    
    $
    3,713,064
    
    
    $
    3,570,212
 See accompanying notes to unaudited consolidated financial statements.
 PAGE 1




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##### 



MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
For the three months ended March 31, 2009 and 2008
(In thousands, except per share data)
 2009
    
    
    2008Interest IncomeLoans
    
    $
    34,549
    
    
    $
    40,806SecuritiesTaxable
    
    
    6,940
    
    
    
    9,060Exempt from federal income taxes
    
    
    550
    
    
    
    598Dividend income from Federal Reserve Bank stock
    
    
    190
    
    
    
    183Federal funds sold and other short-term investments
    
    
    37
    
    
    
    148Total interest income
    
    
    42,266
    
    
    
    50,795Interest ExpenseDeposits
    
    
    13,685
    
    
    
    19,089Federal funds purchased
    
    
    29
    
    
    
    815Revolving note payable
    
    
    43
    
    
    
    80Securities sold under agreements to repurchase
    
    
    3,205
    
    
    
    3,178Advances from the Federal Home Loan Bank
    
    
    3,029
    
    
    
    3,482Junior subordinated debentures
    
    
    739
    
    
    
    1,045Subordinated debt
    
    
    152
    
    
    
    3Term note payable
    
    
    282
    
    
    
    887Total interest expense
    
    
    21,164
    
    
    
    28,579Net interest income
    
    
    21,102
    
    
    
    22,216Provision for loan losses
    
    
    13,000
    
    
    
    5,400Net interest income after provision for loan losses
    
    
    8,102
    
    
    
    16,816Noninterest IncomeService charges on deposit accounts
    
    
    1,894
    
    
    
    1,963Net gains (losses) on securities transactions
    
    
    
    
    
    
    12Impairment loss on securities
    
    
    
    
    
    
    (17,586
    )Insurance and brokerage commissions
    
    
    320
    
    
    
    560Trust
    
    
    282
    
    
    
    449Increase in cash surrender value of life insurance
    
    
    842
    
    
    
    858Gain on sale of property
    
    
    
    
    
    
    15,196Other
    
    
    5
    
    
    
    338Total noninterest income
    
    
    3,343
    
    
    
    1,790Noninterest ExpensesSalaries and employee benefits
    
    
    11,083
    
    
    
    13,040Occupancy and equipment
    
    
    3,245
    
    
    
    2,899Professional services
    
    
    2,102
    
    
    
    1,538Loss on early extinguishment of debt
    
    
    
    
    
    
    7,121Marketing
    
    
    688
    
    
    
    576Foreclosed properties
    
    
    345
    
    
    
    5Amortization of intangible assets
    
    
    573
    
    
    
    590Merger related
    
    
    
    
    
    
    114Other
    
    
    3,725
    
    
    
    2,726Total noninterest expenses
    
    
    21,761
    
    
    
    28,609Loss before income taxes
    
    
    (10,316
    )
    
    
    (10,003
    )Benefit for income taxes
    
    
    (4,996
    )
    
    
    (4,587
    )Net Loss
    
    
    (5,320
    )
    
    
    (5,416
    )Preferred stock dividends
    
    
    2,123
    
    
    
    835Loss available to common stockholders
    
    $
    (7,443
    )
    
    $
    (6,251
    )Basic loss per share
    
    $
    (0.27
    )
    
    $
    (0.22
    )Diluted loss per share
    
    $
    (0.27
    )
    
    $
    (0.22
    )Cash dividends declared per common share
    
    $
    
    
    
    $
    0.13
 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 three months ended March 31, 2009 and 2008
(In thousands, except share and per share data)
 Retained
    
    
    AccumulatedAdditional
    
    
    
    
    
    
    Earnings
    
    
    Other
    
    
    
    
    
    
    TotalPreferred
    
    
    Common
    
    
    Paid in
    
    
    
    
    
    
    (Accumulated
    
    
    Comprehensive
    
    
    Treasury
    
    
    StockholdersStock
    
    
    Stock
    
    
    Capital
    
    
    Warrant
    
    
    Deficit)
    
    
    Income (Loss)
    
    
    Stock
    
    
    EquityBalance, December 31, 2007
    
    $
    
    
    
    $
    293
    
    
    $
    300,762
    
    
    $
    
    
    
    $
    102,762
    
    
    $
    (13,917
    )
    
    $
    (14,736
    )
    
    $
    375,164Cash dividends declared ($48.4375
per share) on Series A
preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (835
    )
    
    
    
    
    
    
    
    
    
    
    (835
    )Cash dividends declared ($0.13
per share) on common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,701
    )
    
    
    
    
    
    
    
    
    
    
    (3,701
    )Issuance of 223,324 shares
restricted stock
    
    
    
    
    
    
    2
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    873
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    873Comprehensive incomeNet loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,416
    )
    
    
    
    
    
    
    
    
    
    
    (5,416
    )Net increase in fair value of
securities classified as available-
for-sale, net of income taxes and
reclassification adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,071
    
    
    
    
    
    
    
    15,071Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,655Balance, March 31, 2008
    
    $
    
    
    
    $
    295
    
    
    $
    301,633
    
    
    $
    
    
    
    $
    92,810
    
    
    $
    1,154
    
    
    $
    (14,736
    )
    
    $
    381,156Balance, December 31, 2008
    
    $
    1
    
    
    $
    296
    
    
    $
    383,491
    
    
    $
    5,229
    
    
    $
    (66,325
    )
    
    $
    (2,122
    )
    
    $
    (14,736
    )
    
    $
    305,834Cash dividends declared ($48.4375
per share) on Series A
preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (836
    )
    
    
    
    
    
    
    
    
    
    
    (836
    )Cash dividends declared ($9.72
per share) on Series T
preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (824
    )
    
    
    
    
    
    
    
    
    
    
    (824
    )Issuance of 128,970 shares
restricted stock
    
    
    
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accreted discount on preferred stock
    
    
    
    
    
    
    
    
    
    
    228
    
    
    
    
    
    
    
    (228
    )
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    379
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    379Repurchase of 10,695 shares of
common stock under benefit plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17
    )
    
    
    (17
    )Comprehensive incomeNet loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,320
    )
    
    
    
    
    
    
    
    
    
    
    (5,320
    )Prior service cost, net of
income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    15Net increase in fair value of
securities classified as available-
for-sale, net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,839
    
    
    
    
    
    
    
    1,839Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,466
    )Balance, March 31, 2009
    
    $
    1
    
    
    $
    297
    
    
    $
    384,097
    
    
    $
    5,229
    
    
    $
    (73,533
    )
    
    $
    (268
    )
    
    $
    (14,753
    )
    
    $
    301,070
 See accompanying notes to unaudited consolidated financial statements.
 PAGE 3




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##### 



MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the three Months Ended March 31, 2009 and 2008
(In thousands)
 2009
    
    
    2008Cash flows from operating activitiesNet loss
    
    $
    (5,320
    )
    
    $
    (5,416
    )Adjustments to reconcile net income to net cash provided by operating activitiesDepreciation
    
    
    1,023
    
    
    
    1,026Provision for loan losses
    
    
    13,000
    
    
    
    5,400Amortization of core deposit and other intangibles
    
    
    356
    
    
    
    117Amortization of premiums and discounts on securities, net
    
    
    211
    
    
    
    195Realized loss on sale of available-for-sale securities, net
    
    
    
    
    
    
    (12
    )Impairment loss on securities
    
    
    
    
    
    
    17,586Gain on sale of property
    
    
    
    
    
    
    (15,196
    )Loss on early extinguishment of debt
    
    
    
    
    
    
    7,121Increase in cash surrender value of life insurance
    
    
    (842
    )
    
    
    (858
    )Deferred income taxes
    
    
    (9,427
    )
    
    
    (4,688
    )Loss on sale of other real estate, net
    
    
    196
    
    
    
    Amortization of deferred stock based compensation
    
    
    379
    
    
    
    873Change in other assets
    
    
    3,696
    
    
    
    (5,667
    )Change in other liabilities
    
    
    782
    
    
    
    169Net cash provided by operating activities
    
    
    4,054
    
    
    
    650Cash flows from investing activitiesSales of securities available-for-sale
    
    
    
    
    
    
    83,936Sales of securities held-to-maturity
    
    
    
    
    
    
    4,443Maturities of securities available-for-sale
    
    
    47,000
    
    
    
    25,585Principal payments on securities available-for-sale
    
    
    17,000
    
    
    
    17,961Principal payments on securities held-to-maturity
    
    
    1,154
    
    
    
    619Purchases of securities available-for-sale
    
    
    (125,084
    )
    
    
    (148,300
    )Loan originations and principal collections, net
    
    
    (92,505
    )
    
    
    (5,168
    )Proceeds from sale of property
    
    
    
    
    
    
    18,259Proceeds from sale of foreclosed properties
    
    
    244
    
    
    
    Additions to property and equipment
    
    
    (1,237
    )
    
    
    (499
    )Net cash used in investing activities
    
    
    (153,428
    )
    
    
    (3,164
    )Cash flows from financing activitiesNet increase in deposits
    
    
    131,264
    
    
    
    (53,272
    )Proceeds from borrowings
    
    
    
    
    
    
    4,000Repayment of borrowings
    
    
    (40,000
    )
    
    
    (140,575
    )Preferred cash dividends paid
    
    
    (1,660
    )
    
    
    (835
    )Common cash dividends paid
    
    
    
    
    
    
    (3,673
    )Change in federal funds purchased and securities sold under agreements to repurchase
    
    
    55,000
    
    
    
    214,865Repurchase
of common shares under stock and incentive option plan
    
    
    (17
    )
    
    
    Net cash provided by financing activities
    
    
    144,587
    
    
    
    20,510Increase (decrease) in cash and cash equivalents
    
    
    (4,787
    )
    
    
    17,996Cash and cash equivalents at beginning of period
    
    
    63,065
    
    
    
    84,499Cash and cash equivalents at end of period
    
    $
    58,278
    
    
    $
    102,495Supplemental disclosuresCash paid during period for:Interest
    
    $
    23,169
    
    
    $
    29,297Income taxes
    
    
    582
    
    
    
    1,000
 See accompanying notes to unaudited consolidated financial statements.
 PAGE 4




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##### 



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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##### 



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
    PAGE 6




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##### 



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




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##### 



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 3  SECURITIES
  March 31, 2009Held-to-Maturity
    
    
    Available-for-Sale
    
    
    Total% 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
    
    $
    
    
    
    $
    
    
    
    $
    316,365
    
    
    $
    317,791
    
    
    $
    316,365
    
    
    $
    317,791
    
    
    
    44.3
    %Obligations of states and political subdivisions
    
    
    1,251
    
    
    
    1,282
    
    
    
    57,283
    
    
    
    58,338
    
    
    
    58,534
    
    
    
    59,620
    
    
    
    8.2Mortgage-backed securities
    
    
    27,831
    
    
    
    28,316
    
    
    
    289,680
    
    
    
    295,134
    
    
    
    317,511
    
    
    
    323,450
    
    
    
    44.4Equity securities
    
    
    
    
    
    
    
    
    
    
    2,749
    
    
    
    1,007
    
    
    
    2,749
    
    
    
    1,007
    
    
    
    0.4Other bonds
    
    
    
    
    
    
    
    
    
    
    19,135
    
    
    
    13,588
    
    
    
    19,135
    
    
    
    13,588
    
    
    
    2.7Total
    
    $
    29,082
    
    
    $
    29,598
    
    
    $
    685,212
    
    
    $
    685,858
    
    
    $
    714,294
    
    
    $
    715,456
    
    
    
    100.0
    %
 December 31, 2008Held-to-Maturity
    
    
    Available-for-Sale
    
    
    Total% 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
    
    $
    
    
    
    $
    
    
    
    $
    263,483
    
    
    $
    265,435
    
    
    $
    263,483
    
    
    $
    265,435
    
    
    
    40.3
    %Obligations of states and political subdivisions
    
    
    1,251
    
    
    
    1,263
    
    
    
    57,309
    
    
    
    56,664
    
    
    
    58,560
    
    
    
    57,927
    
    
    
    9.0Mortgage-backed securities
    
    
    29,016
    
    
    
    29,124
    
    
    
    281,592
    
    
    
    283,679
    
    
    
    310,608
    
    
    
    312,803
    
    
    
    47.4Equity securities
    
    
    
    
    
    
    
    
    
    
    2,749
    
    
    
    930
    
    
    
    2,749
    
    
    
    930
    
    
    
    0.4Other bonds
    
    
    
    
    
    
    
    
    
    
    19,176
    
    
    
    15,241
    
    
    
    19,176
    
    
    
    15,241
    
    
    
    2.9Total
    
    $
    30,267
    
    
    $
    30,387
    
    
    $
    624,309
    
    
    $
    621,949
    
    
    $
    654,576
    
    
    $
    652,336
    
    
    
    100.0
    %
 PAGE 8




---



##### 



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  March 31, 2009Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(In thousands)Securities available-for-sale:Obligations of states and political subdivisions
    
    $
    10,320
    
    
    $
    (105
    )
    
    $
    2,439
    
    
    $
    (157
    )
    
    $
    12,759
    
    
    $
    (262
    )Mortgage-backed securities:U.S. government-sponsored entities (1)
    
    
    29,668
    
    
    
    (212
    )
    
    
    23,179
    
    
    
    (290
    )
    
    
    52,847
    
    
    
    (502
    )Equity securities (2)
    
    
    1,007
    
    
    
    (1,742
    )
    
    
    
    
    
    
    
    
    
    
    1,007
    
    
    
    (1,742
    )Corporate and other debt securities
    
    
    3,613
    
    
    
    (418
    )
    
    
    9,975
    
    
    
    (5,129
    )
    
    
    13,588
    
    
    
    (5,547
    )Total available-for-sale
    
    
    44,608
    
    
    
    (2,477
    )
    
    
    35,593
    
    
    
    (5,576
    )
    
    
    80,201
    
    
    
    (8,053
    )Total held-to-maturity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total temporarily impaired securities
    
    $
    44,608
    
    
    $
    (2,477
    )
    
    $
    35,593
    
    
    $
    (5,576
    )
    
    $
    80,201
    
    
    $
    (8,053
    )
 
 (1)
    
    Includes obligations of the Federal Home Loan Mortgage Corporation (FHLMC) and Federal
National Mortgage Association (FNMA).(2)
    
    Includes issues from government-sponsored entities (FHLMC and FNMA).  §
    
    The unrealized loss for U.S. government-sponsored entities mortgage-backed
securities relate primarily to debt securities issued by FNMA and FHLMC. Each of these
securities has a stated maturity date. FNMA has an issuer rating of Aaa by Moodys and
a long-term issuer default rating of AAA by Fitch. FHLMC has senior secured and
unsecured debt ratings of Aaa by Moodys and a long-term issuer default rating of AAA
by Fitch. These mortgage-backed securities are notes with a weighted average maturity
of approximately 26 years and a weighted average interest rate of 2.11%.§
    
    The unrealized losses on corporate and other debt securities relate to securities
which were rated BBB- or better by either Moodys or S&P as of March 31, 2009. These
debt securities have a weighted average maturity of approximately 19 years and a
weighted average interest rate of 2.96%. With respect to the largest unrealized loss
position, the Company has approximately 157% senior collateral coverage related to this
security.§
    
    The unrealized losses on equity securities relate to the preferred equity securities
issued by FNMA and FHLMC which were rated Ca and C by Moodys and S&P, respectively, as
of March 31, 2009. The dividend on these equity securities has been suspended.
 PAGE 9




---



##### 



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 4  LOANS
  March 31,
    
    
    December 31,2009
    
    
    2008% of Gross
    
    
    
    
    
    
    % of GrossAmount
    
    
    Loans
    
    
    Amount
    
    
    Loans(Dollars in thousands)Commercial
    
    $
    1,106,164
    
    
    
    42.7
    %
    
    $
    1,090,078
    
    
    
    43.3
    %Construction
    
    
    373,112
    
    
    
    14.4
    
    
    
    366,178
    
    
    
    14.6Commercial real estate
    
    
    773,934
    
    
    
    29.9
    
    
    
    729,729
    
    
    
    29.1Home equity
    
    
    213,473
    
    
    
    8.2
    
    
    
    194,673
    
    
    
    7.8Other consumer
    
    
    6,327
    
    
    
    0.2
    
    
    
    6,332
    
    
    
    0.3Residential mortgage
    
    
    118,792
    
    
    
    4.6
    
    
    
    123,161
    
    
    
    4.9Total loans, gross
    
    
    2,591,802
    
    
    
    100.0
    %
    
    
    2,510,151
    
    
    
    100.0
    %Net deferred fees
    
    
    (754
    )
    
    
    
    
    
    
    (392
    )Total loans, net
    
    $
    2,591,048
    
    
    
    
    
    
    $
    2,509,759
   March 31,
    
    
    December 31,2009
    
    
    2008(In thousands)Commercial
    
    $
    508
    
    
    $
    531Residential mortgage
    
    
    246
    
    
    
    247Total carrying value
    
    $
    754
    
    
    $
    778
  (In thousands)Balance at beginning of period
    
    $
    33Accretion
    
    
    (14
    )Balance at end of period
    
    $
    19
 PAGE 10




---



##### 



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 5  ALLOWANCE FOR LOAN LOSSES
  2009
    
    
    2008Balance at beginning of period
    
    $
    44,432
    
    
    $
    26,748Provision charged to operations
    
    
    13,000
    
    
    
    5,400Loans charged off
    
    
    (4,819
    )
    
    
    (12,250
    )Recoveries
    
    
    398
    
    
    
    446Net loans (charged off) recoveries
    
    
    (4,421
    )
    
    
    (11,804
    )Balance at end of period
    
    $
    53,011
    
    
    $
    20,344
  Impaired loans for which no allowance for loan losses is allocated
    
    $
    16,942Impaired loans with an allocation of the allowance for loan losses
    
    
    60,273Total impaired loans
    
    $
    77,215Allowance for loan losses allocated to impaired loans
    
    $
    11,578
  Average impaired loans
    
    $
    63,838Interest income recognized on impaired loans on a cash basis
    
    
    102
    PAGE 11




---



##### 



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 6  GOODWILL AND INTANGIBLES
  March 31, 2009
    
    December 31, 2008Gross Carrying
    
    Accumulated
    
    Net Carrying
    
    Gross Carrying
    
    Accumulated
    
    Net CarryingAmount
    
    Amortization
    
    Amount
    
    Amount
    
    Amortization
    
    AmountAmortized intangible assets:Core deposit and other intangibles
    
    $
    21,091
    
    
    $
    (6,981
    )
    
    $
    14,110
    
    
    $
    21,091
    
    
    $
    (6,408
    )
    
    $
    14,683
  2009
    
    $
    2,2922010
    
    
    2,2222011
    
    
    1,9182012
    
    
    1,8032013
    
    
    1,696Thereafter
    
    
    4,752
   Core Depositand OtherGoodwill
    
    
    IntangiblesBalance at beginning of period
    
    $
    78,862
    
    
    $
    14,683Amortization
    
    
    
    
    
    
    (573
    )Balance at end of period
    
    $
    78,862
    
    
    $
    14,110
  PAGE 12




---



##### 



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 7  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
    
    $
    97,526
    
    
    $
    9,613
    
    
    $
    6,419
    
    
    $
    180
    
    
    $
    113,738Home equity
    
    
    42,340
    
    
    
    26,803
    
    
    
    31,379
    
    
    
    52,587
    
    
    
    153,109Consumer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,187
    
    
    
    2,187Commercial
    
    
    243,471
    
    
    
    9,724
    
    
    
    1,648
    
    
    
    2,035
    
    
    
    256,878Letters of credit
    
    
    41,512
    
    
    
    12,116
    
    
    
    3,543
    
    
    
    
    
    
    
    57,171Commitments to extend credit
    
    
    37,406
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,406Total commitments
    
    $
    462,255
    
    
    $
    58,256
    
    
    $
    42,989
    
    
    $
    56,989
    
    
    $
    620,489
   NOTE 8  FAIR VALUE
  
    
    Level 1:Quoted prices (unadjusted) for identical assets or liabilities in active
markets that the entity has the ability to access as of the measurement date.
    
    Level 2:Significant other observable inputs other than Level 1 prices, such as
quoted prices for similar assets or liabilities, quoted prices in markets that are not
active, and other inputs that are observable or can be corroborated by observable
market data.
    
    Level 3:Significant unobservable inputs that reflect a companys own assumptions
about the assumptions that market participants would use in pricing an asset or
liability.
 PAGE 13




---



##### 



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Total
    
    Quoted Prices or
    
    Significant
    
    SignificantFair Value
    
    Identical Assets in
    
    Other Observable
    
    Unobservableat March 31,
    
    Active Markets
    
    Inputs
    
    Inputs2009
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)(In thousands)Assets:Available-for-sale securities
    
    $
    685,858
    
    
    $
    1,007
    
    
    $
    677,832
    
    
    $
    7,019
 Total
    
    Quoted Prices or
    
    Significant
    
    SignificantFair Value
    
    Identical Assets in
    
    Other Observable
    
    Unobservableat December 31,
    
    Active Markets
    
    Inputs
    
    Inputs2008
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)(In thousands)Assets:Available-for-sale securities
    
    $
    621,949
    
    
    $
    930
    
    
    $
    612,586
    
    
    $
    8,433
  March 31,2009
    
    
    2008(In thousands)Beginning balance
    
    $
    8,433
    
    
    $
    10,479Paydowns received
    
    
    (39
    )
    
    
    Total gains or losses (realized/unrealized):Included in earnings
    
    
    
    
    
    
    Included in other comprehensive income
    
    
    (1,375
    )
    
    
    (819
    )Ending balance
    
    $
    7,019
    
    
    $
    9,660
  PAGE 14




---



##### 



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Quoted Prices or
    
    Significant
    
    SignificantIdentical Assets in
    
    Other Observable
    
    UnobservableMarch 31,
    
    Active Markets
    
    Inputs
    
    Inputs2009
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)(In thousands)Assets:Impaired loans
    
    $
    48,695
    
    
    $
    
    
    
    $
    
    
    
    $
    48,695
 Quoted Prices or
    
    Significant
    
    SignificantIdentical Assets in
    
    Other Observable
    
    UnobservableDecember 31,
    
    Active Markets
    
    Inputs
    
    Inputs2008
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)(In thousands)Assets:Impaired loans
    
    $
    37,098
    
    
    $
    
    
    
    $
    
    
    
    $
    37,098
  NOTE 9  STOCK COMPENSATION AND RESTRICTED STOCK AWARDS
    Weighted Average
    
    Weighted AverageNumber of
    
    Exercise Price
    
    Grant- Date FairOptions
    
    Per Share
    
    Value Per ShareOutstanding at December 31, 2008
    
    
    379,371
    
    
    $
    14.28
    
    
    $
    4.80Granted
    
    
    288,693
    
    
    
    1.15
    
    
    
    0.66Exercised
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    (18,587
    )
    
    
    10.59
    
    
    
    2.92Outstanding at March 31, 2009
    
    
    649,477
    
    
    
    8.55
    
    
    
    3.01
 PAGE 15




---



##### 



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  2009Fair value
    
    $
    0.66Risk-free interest rate
    
    
    2.78
    %Expected option life
    
    7.5 yearsExpected stock price volatility
    
    
    52.54
    %
     Number of
    
    Weighted AverageRestricted
    
    Grant-Date Fair ValueShares
    
    Per ShareOutstanding at December 31, 2008
    
    
    609,901
    
    
    $
    16.42Granted
    
    
    128,970
    
    
    
    1.15Vested
    
    
    (47,896
    )
    
    
    15.80Forfeited
    
    
    (63,836
    )
    
    
    18.65Outstanding at March 31, 2009
    
    
    627,139
    
    
    
    13.09
 PAGE 16




---



##### 



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 10  SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
    Beginning balance
    
    $
    6,403Service cost
    
    
    206Interest cost
    
    
    89Distributions
    
    
    (20
    )Ending balance
    
    $
    6,678
  PAGE 17




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##### 



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 11  INCOME TAXES
  Three Months Ended March 31,2009
    
    
    2008(In thousands)Income taxes computed at the statutory rate
    
    $
    (3,611
    )
    
    
    35.0
    %
    
    $
    (3,501
    )
    
    
    35.0
    %Tax-exempt interest income on securities and loans
    
    
    (229
    )
    
    
    2.2
    
    
    
    (197
    )
    
    
    2.0General business credits
    
    
    (609
    )
    
    
    5.9
    
    
    
    (130
    )
    
    
    1.3State income taxes, net of federal tax benefit due to state operating loss
    
    
    (523
    )
    
    
    5.1
    
    
    
    (732
    )
    
    
    7.3Life insurance cash surrender value increase, net of premiums
    
    
    (293
    )
    
    
    2.8
    
    
    
    (300
    )
    
    
    3.0Dividends received deduction
    
    
    
    
    
    
    
    
    
    
    (301
    )
    
    
    3.0Nondeductible costs and other, net
    
    
    269
    
    
    
    (2.6
    )
    
    
    574
    
    
    
    (5.7
    )Benefit for income taxes
    
    $
    (4,996
    )
    
    
    48.4
    %
    
    $
    (4,587
    )
    
    
    45.9
    %
   PAGE 18




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##### 



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 12  EARNINGS PER SHARE
 Three Months EndedMarch 31,2009
    
    
    2008(In thousands, except per share data)Net loss
    
    $
    (5,320
    )
    
    $
    (5,416
    )Series A preferred stock dividends
    
    
    836
    
    
    
    835Series T preferred stock dividends
    
    
    1,059
    
    
    
    Series T preferred stock discount accretion
    
    
    228
    
    
    
    Income allocated to participating securities (1)
    
    
    
    
    
    
    Loss available to common stockholders
    
    $
    (7,443
    )
    
    $
    (6,251
    )BasicWeighted average common shares outstanding
    
    
    27,925
    
    
    
    27,838Basic earnings per share
    
    $
    (0.27
    )
    
    $
    (0.22
    )DilutedWeighted average common shares outstanding
    
    
    27,925
    
    
    
    27,838Dilutive effect of stock options (2)
    
    
    
    
    
    
    Dilutive effect of restricted stock (2)
    
    
    
    
    
    
    Diluted average common shares
    
    
    27,925
    
    
    
    27,838Diluted earnings per share
    
    $
    (0.27
    )
    
    $
    (0.22
    )
 
 (1)
    
    No adjustment for unvested restricted shares was included in the computation
of loss available to common stockholders for any period there was a loss. See Note 2 -
New Accounting Pronouncements.(2)
    
    No shares of stock options or restricted stock were included in the
computation of diluted earnings per share for any period there was a loss.  PAGE 19




---



##### 



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Note 13  Credit Agreements
     PAGE 20




---



##### 



ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following discussion and analysis is intended as a review of significant factors affecting
the financial condition and results of operations of the Company for the periods indicated. The
discussion should be read in conjunction with the unaudited Consolidated Financial Statements and
the Notes thereto presented herein. In addition to historical information, the following
Managements Discussion and Analysis of Financial Condition and Results of Operations contains
forward-looking statements that involve risks and uncertainties. The Companys actual results
could differ significantly from those anticipated in these forward-looking statements as a result
of certain factors discussed in this report.
 Critical Accounting Policies and Estimates
  Recent Developments
    PAGE 21




---



##### 



PAGE 22




---



##### 




    
    a limitation on incentive compensation paid or accrued to the top five executive
officers based on the amount of TARP funds that the Company received. Under the provision,
incentive compensation paid to such individuals may not exceed one-third of the
individuals annual compensation. It must be paid in restricted stock that does not fully
vest during the period in which any obligation arising from financial assistance provided
under TARP remains outstanding;
    
    an expansion of the prohibitions on certain golden parachute payments to cover any
severance payment for a departure for any reason (subject to certain limited exceptions)
made to the senior executives named in the 2009 proxy statement and the next five highest
paid employees;
    
    a requirement that the chief executive officer and chief financial officer provide a
written certification of compliance with certain executive compensation and corporate
governance provisions in annual securities filings;
    
    a requirement that companies adopt a company-wide policy regarding excessive or luxury
expenditures as they relate to entertainment, renovations to offices or facilities, and
aviation and other transportation services; and
    
    a requirement that companies permit a separate non-binding shareholder vote to approve
the compensation of senior executive officers.
   PAGE 23




---



##### 



Selected Consolidated Financial Data
  At or For the Three Months EndedMarch 31,
    
    
    December 31,2009
    
    
    2008
    
    
    2008(Dollars in thousands, except per share data)Statement of Income Data:Total interest income
    
    $
    42,266
    
    
    $
    50,795
    
    
    $
    43,734Total interest expense
    
    
    21,164
    
    
    
    28,579
    
    
    
    23,902Net interest income
    
    
    21,102
    
    
    
    22,216
    
    
    
    19,832Provision for loan losses
    
    
    13,000
    
    
    
    5,400
    
    
    
    20,000Noninterest income
    
    
    3,343
    
    
    
    1,790
    
    
    
    3,732Noninterest expenses
    
    
    21,761
    
    
    
    28,609
    
    
    
    25,678(Loss) income before income taxes
    
    
    (10,316
    )
    
    
    (10,003
    )
    
    
    (22,114
    )Provision for income taxes
    
    
    (4,996
    )
    
    
    (4,587
    )
    
    
    (26,543
    )Net (loss) income
    
    $
    (5,320
    )
    
    $
    (5,416
    )
    
    $
    4,429Preferred stock dividends
    
    
    2,123
    
    
    
    835
    
    
    
    1,222Net (loss) income available to common stockholders
    
    $
    (7,443
    )
    
    $
    (6,251
    )
    
    $
    3,207Per Share Data:(Loss) earnings per share (basic) (10)
    
    $
    (0.27
    )
    
    $
    (0.22
    )
    
    $
    0.11(Loss) earnings per share (diluted) (10)
    
    
    (0.27
    )
    
    
    (0.22
    )
    
    
    0.11Cash dividends declared on common stock
    
    
    
    
    
    
    0.13
    
    
    
    Book value
    
    
    6.38
    
    
    
    12.14
    
    
    
    6.56Tangible book value (non-GAAP measure) (9)
    
    
    3.05
    
    
    
    5.79
    
    
    
    3.21Selected Financial Ratios:Return on average assets (1)
    
    
    (0.59
    )%
    
    
    (0.59
    )%
    
    
    0.49
    %Return on average equity (2)
    
    
    (7.12
    )
    
    
    (5.69
    )
    
    
    7.17Dividend payout ratio
    
    
    
    
    
    
    N/M
    
    
    
    Average equity to average assets
    
    
    8.30
    
    
    
    10.38
    
    
    
    6.85Tier 1 risk-based capital
    
    
    7.39
    
    
    
    9.33
    
    
    
    8.30Total risk-based capital
    
    
    9.16
    
    
    
    10.61
    
    
    
    10.07Net interest margin (tax equivalent) (3)(4)
    
    
    2.63
    
    
    
    2.82
    
    
    
    2.51Loan to deposit ratio
    
    
    101.85
    
    
    
    102.62
    
    
    
    104.02Net overhead expense to average assets (5)
    
    
    2.05
    
    
    
    1.01
    
    
    
    2.43Efficiency ratio (6)
    
    
    84.04
    
    
    
    65.88
    
    
    
    104.58Loan Quality Ratios:Allowance for loan losses to total loans
    
    
    2.05
    
    
    
    0.82
    
    
    
    1.77Provision for loan losses to total loans
    
    
    2.03
    
    
    
    0.88
    
    
    
    3.17Net loans charged off to average total loans
    
    
    0.70
    
    
    
    1.93
    
    
    
    2.39Nonaccrual loans to total loans (7)
    
    
    3.10
    
    
    
    1.90
    
    
    
    2.43Nonperforming assets to total assets (8)
    
    
    2.96
    
    
    
    1.33
    
    
    
    2.36Allowance for loan losses to nonaccrual loans
    
    
    0.66x
    
    
    
    0.43x
    
    
    
    0.73xBalance Sheet Data:Total assets
    
    $
    3,713,064
    
    
    $
    3,730,446
    
    
    $
    3,570,212Total earning assets
    
    
    3,339,448
    
    
    
    3,298,143
    
    
    
    3,195,408Average assets
    
    
    3,648,873
    
    
    
    3,686,269
    
    
    
    3,590,313Loans
    
    
    2,591,048
    
    
    
    2,467,701
    
    
    
    2,509,759Allowance for loan losses
    
    
    53,011
    
    
    
    20,344
    
    
    
    44,432Deposits
    
    
    2,544,005
    
    
    
    2,404,712
    
    
    
    2,412,791Borrowings
    
    
    832,057
    
    
    
    906,505
    
    
    
    817,041Stockholders equity
    
    
    301,070
    
    
    
    381,156
    
    
    
    305,834Tangible stockholders equity (non-GAAP measure) (9)
    
    
    208,098
    
    
    
    204,295
    
    
    
    212,289
 
 (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 (in thousands): Three Months EndedMarch 31,
    
    
    December 31,2009
    
    
    2008
    
    
    2008Net interest income
    
    $
    21,102
    
    
    $
    22,216
    
    
    $
    19,832Tax-equivalent adjustment to net interest income
    
    
    357
    
    
    
    892
    
    
    
    363Net interest income, fully tax-equivalent basis
    
    $
    21,459
    
    
    $
    23,108
    
    
    $
    20,195
 PAGE 24




---



##### 



(5)
    
    Noninterest expense less noninterest income, excluding security gains or losses, divided by average assets.(6)
    
    Noninterest expense excluding amortization and foreclosed properties expense divided by noninterest
income, excluding security gains or losses, plus net interest income on a fully tax-equivalent basis.(7)
    
    Includes total nonaccrual loans.(8)
    
    Includes total nonaccrual and foreclosed properties.(9)
    
    Stockholders equity less goodwill, core deposit and other intangible assets. Management believes that
tangible stockholders equity (non-GAAP measure) is a more useful measure since it excludes the balances
of intangible assets. The following table reconciles reported stockholders equity to tangible
stockholders equity for the periods presented (in thousands): At March 31,
    
    
    At December 31,2009
    
    
    2008
    
    
    2008Stockholders equity
    
    $
    301,070
    
    
    $
    381,156
    
    
    $
    305,834Core deposit intangible and other intangibles, net
    
    
    (14,110
    )
    
    
    (16,454
    )
    
    
    (14,683
    )Goodwill
    
    
    (78,862
    )
    
    
    (160,407
    )
    
    
    (78,862
    )Tangible stockholders equity
    
    $
    208,098
    
    
    $
    204,295
    
    
    $
    212,289
 
 (10)
    
    Prior periods with earnings were re-stated per FSP EITF 03-6-1. Results of Operations  Three Months Ended
March 31, 2009 and 2008
  
    
    Basic and diluted loss per share for the three months ended March 31, 2009 and 2008
was $0.27 and $0.22 per share, respectively.
    
    Net loss for the first quarter of 2009 was $5.3 million compared to $5.4 million for
the first quarter of 2008. The first quarter of 2009 included a $13.0 million
provision for loan losses. The first quarter of 2008 reflected a $17.6 million
impairment charge on securities, a $7.1 million loss on the early extinguishment of
debt and a $15.2 million gain on the sale of a branch property.
    
    Net interest income decreased 5.0% to $21.1 million in the first quarter of 2009
compared to $22.2 million in the first quarter of 2008, primarily as a result of the
decline in interest income on loans caused by decreases in the prime interest rate in
2008.
    
    The net interest margin continues to be under pressure at 2.63% for the three months
ended March 31, 2009 compared to 2.82% for the similar period of 2008, largely due to
lower yields on earning assets caused by reductions in prime rate.
    
    The annualized return on average assets was was (0.59)% for the three months ended
March 31, 2009 and 2008.
    
    The annualized return on average equity for the three months ended March 31, 2009
was (7.12)% compared to (5.69)% for the similar period in 2008.
    
    The provision for loan losses increased by $7.6 million, to $13.0 million, in the
first quarter of 2009 compared to $5.4 million for the comparable period in 2008,
reflecting managements current updated assessments of impaired loans and concerns
about the continued deterioration of economic conditions.
    
    Noninterest income was $3.3 million for the three months ended March 31, 2009
compared to $1.8 million over the comparable period in 2008. Excluding the impairment
charge on securities and the gain on the sale of real estate, noninterest income was
$4.2 million for the first quarter of 2008.
 PAGE 25




---



##### 




    
    Noninterest expenses were $21.8 million during the first quarter of 2009 compared to
$28.6 million for the similar period in 2008. Excluding the loss on the early
extinguishment of debt and merger related charges, noninterest expense increased by
$273,000 compared to the first quarter of 2008.
 PAGE 26




---



##### 




    
    Basic and diluted loss per share for the three months ended March 31, 2009 were
$0.27 compared to earnings per share of $0.11 for three months ended December 31, 2008.
    
    Net loss for the first quarter of 2009 was $5.3 million compared to net income of
$4.4 million for the fourth quarter of 2008. Income tax benefits of $16.6 million
related to securities losses recognized in the third quarter of 2008 were recorded in
the fourth quarter of 2008 due to subsequent tax law changes. Without this adjustment,
a net loss of $12.2 million would have resulted for the fourth quarter of 2008.
    
    Net interest income increased by $1.3 million to $21.1 million in the first quarter
of 2009 compared to $19.8 million in the fourth quarter of 2008, primarily as a result
of lower cost of funds.
    
    The net interest margin increased to 2.63% for the three months ended March 31, 2009
compared to 2.51% for the fourth quarter of 2008, mainly due to average rates paid on
interest-bearing liabilities falling more than the yields on earning assets.
    
    The annualized return on average assets for the three months ended March 31, 2009
was (0.59)% compared to 0.49% for the fourth quarter of 2008. Excluding the income tax
benefit of $16.6 million, the annualized return on average assets would have been
(1.35)% for the fourth quarter of 2008.
    
    The annualized return on average equity for the three months ended March 31, 2009
was (7.12)% compared to 7.17% for the fourth quarter of 2008. Excluding the income tax
benefit of $16.6 million, the annualized return on average equity would have been
(19.72)% for the fourth quarter of 2008.
    
    The provision for loan losses was $13.0 million in the first quarter of 2009
compared to $20.0 million for the fourth quarter of 2008, reflecting managements
current updated assessments of impaired loans and concerns about the continued
deterioration of economic conditions.
    
    Noninterest income was $3.3 million for the three months ended March 31, 2009 and
$3.7 million in the fourth quarter of 2008.
    
    Noninterest expenses were $21.8 million during the first quarter of 2009 compared to
$25.7 million in the fourth quarter of 2008.
 PAGE 27




---



##### 



Net Interest Income
  For the Three Months EndedMarch 31, 2009
    
    
    March 31, 2008
    
    
    December 31, 2008Average
    
    
    
    
    
    
    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
    
    $
    4,787
    
    
    $
    37
    
    
    
    3.09
    %
    
    $
    21,939
    
    
    $
    148
    
    
    
    2.70
    %
    
    $
    18,748
    
    
    $
    54
    
    
    
    1.15
    %Securities:Taxable(1)
    
    
    629,783
    
    
    
    6,940
    
    
    
    4.41
    
    
    
    704,119
    
    
    
    9,566
    
    
    
    5.43
    
    
    
    610,160
    
    
    
    7,381
    
    
    
    4.84Exempt from federal income taxes(1)
    
    
    58,551
    
    
    
    846
    
    
    
    5.78
    
    
    
    61,847
    
    
    
    920
    
    
    
    5.95
    
    
    
    58,670
    
    
    
    848
    
    
    
    5.78Total securities
    
    
    688,334
    
    
    
    7,786
    
    
    
    4.52
    
    
    
    765,966
    
    
    
    10,486
    
    
    
    5.48
    
    
    
    668,830
    
    
    
    8,229
    
    
    
    4.92FRB and FHLB stock
    
    
    31,698
    
    
    
    190
    
    
    
    2.40
    
    
    
    29,230
    
    
    
    183
    
    
    
    2.50
    
    
    
    31,698
    
    
    
    190
    
    
    
    2.40Loans (collateral-based classification):Commercial loans(1)(3)(4)
    
    
    530,467
    
    
    
    6,588
    
    
    
    4.97
    
    
    
    499,461
    
    
    
    8,777
    
    
    
    7.03
    
    
    
    522,576
    
    
    
    7,193
    
    
    
    5.51Commercial real estate
loans(1)(3)(4)(6)
    
    
    1,663,760
    
    
    
    24,230
    
    
    
    5.83
    
    
    
    1,632,063
    
    
    
    27,095
    
    
    
    6.64
    
    
    
    1,643,386
    
    
    
    24,396
    
    
    
    5.94Agricultural loans(1)(3)(4)
    
    
    7,516
    
    
    
    119
    
    
    
    6.33
    
    
    
    5,412
    
    
    
    92
    
    
    
    6.80
    
    
    
    7,054
    
    
    
    113
    
    
    
    6.41Consumer real estate loans(3)(4)(6)
    
    
    335,768
    
    
    
    3,566
    
    
    
    4.25
    
    
    
    311,796
    
    
    
    4,711
    
    
    
    6.04
    
    
    
    319,888
    
    
    
    3,804
    
    
    
    4.76Consumer installment loans(3)(4)
    
    
    6,259
    
    
    
    107
    
    
    
    6.84
    
    
    
    11,098
    
    
    
    195
    
    
    
    7.03
    
    
    
    6,898
    
    
    
    118
    
    
    
    6.84Total loans
    
    
    2,543,770
    
    
    
    34,610
    
    
    
    5.44
    
    
    
    2,459,830
    
    
    
    40,870
    
    
    
    6.65
    
    
    
    2,499,802
    
    
    
    35,624
    
    
    
    5.70Total interest-earning assets
    
    $
    3,268,589
    
    
    $
    42,623
    
    
    
    5.22
    %
    
    $
    3,276,965
    
    
    $
    51,687
    
    
    
    6.31
    %
    
    $
    3,219,078
    
    
    $
    44,097
    
    
    
    5.48
    %Noninterest-Earning Assets:Cash
    
    $
    69,006
    
    
    
    
    
    
    
    
    
    
    $
    55,634
    
    
    
    
    
    
    
    
    
    
    $
    63,352Premises and equipment, net
    
    
    38,166
    
    
    
    
    
    
    
    
    
    
    
    41,325
    
    
    
    
    
    
    
    
    
    
    
    38,208Allowance for loan losses
    
    
    (46,503
    )
    
    
    
    
    
    
    
    
    
    
    (27,287
    )
    
    
    
    
    
    
    
    
    
    
    (41,522
    )Other assets
    
    
    319,615
    
    
    
    
    
    
    
    
    
    
    
    339,632
    
    
    
    
    
    
    
    
    
    
    
    311,197Total noninterest-earning assets
    
    
    380,284
    
    
    
    
    
    
    
    
    
    
    
    409,304
    
    
    
    
    
    
    
    
    
    
    
    371,235Total assets
    
    $
    3,648,873
    
    
    
    
    
    
    
    
    
    
    $
    3,686,269
    
    
    
    
    
    
    
    
    
    
    $
    3,590,313Interest-Bearing Liabilities:Deposits:Demand deposits
    
    $
    173,291
    
    
    $
    256
    
    
    
    0.59
    %
    
    $
    217,515
    
    
    $
    746
    
    
    
    1.37
    %
    
    $
    176,803
    
    
    $
    317
    
    
    
    0.72
    %Money-market demand and savings accounts
    
    
    351,778
    
    
    
    753
    
    
    
    0.86
    
    
    
    411,091
    
    
    
    1,828
    
    
    
    1.78
    
    
    
    334,217
    
    
    
    785
    
    
    
    0.94Time deposits
    
    
    1,618,236
    
    
    
    12,676
    
    
    
    3.13
    
    
    
    1,470,272
    
    
    
    16,515
    
    
    
    4.49
    
    
    
    1,637,302
    
    
    
    14,422
    
    
    
    3.52Total interest-bearing deposits
    
    
    2,143,305
    
    
    
    13,685
    
    
    
    2.55
    
    
    
    2,098,878
    
    
    
    19,089
    
    
    
    3.64
    
    
    
    2,148,322
    
    
    
    15,524
    
    
    
    2.89Borrowings:Federal funds purchased and repurchase
agreements
    
    
    333,990
    
    
    
    3,234
    
    
    
    3.87
    
    
    
    402,774
    
    
    
    3,993
    
    
    
    3.97
    
    
    
    305,242
    
    
    
    3,278
    
    
    
    4.30FHLB advances
    
    
    363,000
    
    
    
    3,029
    
    
    
    3.34
    
    
    
    315,158
    
    
    
    3,482
    
    
    
    4.42
    
    
    
    380,000
    
    
    
    3,126
    
    
    
    3.29Junior subordinated debentures
    
    
    60,799
    
    
    
    739
    
    
    
    4.86
    
    
    
    60,733
    
    
    
    1,045
    
    
    
    6.88
    
    
    
    60,783
    
    
    
    911
    
    
    
    6.00Revolving note payable
    
    
    8,600
    
    
    
    43
    
    
    
    2.00
    
    
    
    6,368
    
    
    
    80
    
    
    
    5.03
    
    
    
    17,470
    
    
    
    204
    
    
    
    4.67Term note payable
    
    
    55,000
    
    
    
    282
    
    
    
    2.05
    
    
    
    69,835
    
    
    
    887
    
    
    
    5.08
    
    
    
    55,000
    
    
    
    616
    
    
    
    4.48Subordinated note payable
    
    
    15,000
    
    
    
    152
    
    
    
    4.05
    
    
    
    165
    
    
    
    3
    
    
    
    7.27
    
    
    
    15,000
    
    
    
    243
    
    
    
    6.48Total borrowings
    
    
    836,389
    
    
    
    7,479
    
    
    
    3.58
    
    
    
    855,033
    
    
    
    9,490
    
    
    
    4.44
    
    
    
    833,495
    
    
    
    8,378
    
    
    
    4.02Total interest-bearing liabilities
    
    $
    2,979,694
    
    
    $
    21,164
    
    
    
    2.84
    %
    
    $
    2,953,911
    
    
    $
    28,579
    
    
    
    3.87
    %
    
    $
    2,981,817
    
    
    $
    23,902
    
    
    
    3.21
    %Noninterest-Bearing Liabilities:Demand deposits
    
    $
    330,957
    
    
    
    
    
    
    
    
    
    
    $
    316,507
    
    
    
    
    
    
    
    
    
    
    $
    330,626Other liabilities
    
    
    35,203
    
    
    
    
    
    
    
    
    
    
    
    33,248
    
    
    
    
    
    
    
    
    
    
    
    32,075Total noninterest-bearing liabilities
    
    
    366,160
    
    
    
    
    
    
    
    
    
    
    
    349,755
    
    
    
    
    
    
    
    
    
    
    
    362,701Stockholders equity
    
    
    303,019
    
    
    
    
    
    
    
    
    
    
    
    382,603
    
    
    
    
    
    
    
    
    
    
    
    245,795Total liabilities and stockholders equity
    
    $
    3,648,873
    
    
    
    
    
    
    
    
    
    
    $
    3,686,269
    
    
    
    
    
    
    
    
    
    
    $
    3,590,313Net interest income (tax
equivalent)(1)(5)
    
    
    
    
    
    $
    21,459
    
    
    
    2.38
    %
    
    
    
    
    
    $
    23,108
    
    
    
    2.44
    %
    
    
    
    
    
    $
    20,195
    
    
    
    2.27
    %Net interest margin (tax
equivalent)(1)
    
    
    
    
    
    
    
    
    
    
    2.63
    %
    
    
    
    
    
    
    
    
    
    
    2.82
    %
    
    
    
    
    
    
    
    
    
    
    2.51
    %Net interest income(2)(5)
    
    
    
    
    
    $
    21,102
    
    
    
    
    
    
    
    
    
    
    $
    22,216
    
    
    
    
    
    
    
    
    
    
    $
    19,832Net interest margin(2)
    
    
    
    
    
    
    
    
    
    
    2.58
    %
    
    
    
    
    
    
    
    
    
    
    2.71
    %
    
    
    
    
    
    
    
    
    
    
    2.46
    %Average interest-earning assets to
Interest-bearing liabilities
    
    
    109.70
    %
    
    
    
    
    
    
    
    
    
    
    110.94
    %
    
    
    
    
    
    
    
    
    
    
    107.96
    %
 PAGE 28




---



##### 



(1)
    
    Adjusted for 35% tax rate and 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 of $476, $615, and $578 for the three months ended March 31, 2009, March
31, 2008, and December 31, 2008, respectively.(5)
    
    The following table reconciles reported net interest income on a tax equivalent basis for the
periods presented (in thousands): For the three months ended,March 31,
    
    
    March 31,
    
    
    December 31,2009
    
    
    2008
    
    
    2008Net interest income
    
    $
    21,102
    
    
    $
    22,216
    
    
    $
    19,832Tax equivalent adjustment to net interest income
    
    
    357
    
    
    
    892
    
    
    
    363Net interest income, tax equivalent basis
    
    $
    21,459
    
    
    $
    23,108
    
    
    $
    20,195
     
    
    Yields on average earning assets decreased by 109 basis points in the first
quarter of 2009 compared to the first quarter of 2008, and average balances of
earning assets decreased by $8.4 million. Yields on average earning assets decreased
by 26 basis points compared to the fourth quarter of 2008, but average balances of
earning assets increased by $49.5 million.
    
    Average yields on loans for the first quarter of 2009 decreased by 121 basis
points to 5.44% compared to the same period in 2008 and decreased by 26 basis points
compared to the prior quarter. This decline in yields was primarily due to the
re-pricing of the variable rate loans resulting from decreases in the prime rate.
Beginning in the fourth quarter of 2008, most new and renewing variable rate loans
have floors in place to help mitigate future decreases in market rates. The rate
floors of most renewing variable rate loans are expected to be set above the
previous rates of those loans. Average loans were $83.9 million higher in the
quarter ended March 31, 2009 than the same period in 2008. Compared to the fourth
quarter of 2008, average loan balances increased $44.0 million.
    
    Yields on average securities decreased 96 basis points, mainly due to the
decrease in dividends on FNMA and FHLMC preferred stock. Average securities
balances decreased by $77.6 million in the first quarter of 2009 compared to the
similar period in 2008, primarily the result of the impairment charges on FNMA and
FHLMC preferred stock. Yields on average securities decreased by 40 basis points
compared to the fourth quarter of 2008, while average balances decreased by $19.5
million.
  
    
    The Companys cost of funds decreased by 103 and 37 basis points compared to the
same
 PAGE 29




---



##### 



period of 2008 and, the last quarter of 2008, respectively, mainly due to the drop in
prime and LIBOR rates. Average interest-bearing liabilities increased by $25.8
million for the first quarter of 2009 compared to the first quarter of 2008 but
decreased slightly by $2.1 million compared to the prior quarter.
    
    Average interest-bearing deposits increased by $44.4 million while average rates
decreased 109 basis points for the first quarter of 2009 compared to the similar
period of 2008. Average rates paid on interest-bearing deposits decreased by 34
basis points and average balances decreased by $5.0 million compared to the fourth
quarter of 2008.
    
    Average interest-bearing demand deposit, money market, and savings accounts
increased by $14.0 million compared to the fourth quarter of 2008 but decreased by
$103.5 million compared to the first quarter of 2008.
    
    The costs of average borrowings decreased by 86 basis points in the first quarter
of 2009 compared to the same period in 2008, while average balances decreased by
$18.6 million. Average borrowings increased slightly by $2.9 million in the first
quarter of 2009 over the last quarter of 2008, while yields decreased by 44 basis
points to 3.58%, largely due to decreases in short-term LIBOR rates.
    
    At the end of the first quarter of 2008, the Company prepaid $130.0 million in
FHLB advances at a weighted average rate of 4.94% and recognized a loss on the early
extinguishment of debt of $7.1 million. The Company replaced these borrowings at a
weighted average rate of approximately 2.57%. Average rates paid on FHLB advances
decreased by 108 basis points in the first quarter of 2009 compared to the same
period in 2008.
 Noninterest Income
  
    
    Noninterest income was $3.3 million for the three months ended March 31, 2009
compared to $3.7 million for the fourth quarter of 2008 and $1.8 million for the
same period in 2008, which includes significant transactions described below.
    
    The Company recognized an impairment charge on securities of $17.6 million and a
gain on the sale of property of $15.2 million in the first quarter of 2008.
Excluding the impairment charge on securities and the gain on the sale of property,
noninterest income was $4.2 million for the first quarter of 2008.
    
    The annualized noninterest income to average assets ratio was 0.37% for the three
months ended March 31, 2009 compared to 0.20% for the same period in 2008 and 0.41%
for the three months ended December 31, 2008. Excluding the impairment charge on
securities and the gain on the sale of property, the annualized noninterest income
to average assets ratio was 0.46% for the first quarter of 2008.
    
    Service charges on deposits decreased slightly by $69,000, or 3.5%, to $1.9
million in the first quarter of 2009 compared to the first quarter of 2008, largely
due to the decrease in core deposits, and remained flat compared to the fourth
quarter of 2008.
 PAGE 30




---



##### 




    
    Trust income decreased by $167,000 in the first quarter of 2009 compared to the
same period in 2008 but increased by $41,000 compared to the fourth quarter of 2008.
Trust assets under management fell from $253.7 million at March 31, 2008 to $146.4
million at March 31, 2009, partially due to market value decreases and loss of
accounts. Trust income is largely based on a percentage of assets under management.
    
    Insurance and brokerage commissions for the three months ended March 31, 2009
were down $240,000, or 42.9%, compared to the similar period in 2008, mostly due to
the difficult economy, but were basically at the same level as the fourth quarter of
2008.
    
    Income from the increase in the cash surrender value of life insurance for the
three months ended March 31, 2009 was approximately at the same level as the three
months ended March 31, 2008 but was $33,000 lower than the fourth quarter of 2008.
 Noninterest Expenses
  
    
    Total noninterest expenses decreased 23.9%, or $6.8 million, to $21.8 million
during the first quarter of 2009 compared to $28.6 million for the similar period in
2008. The Company recognized a loss on the early extinguishment of debt of $7.1
million resulting from the prepayment of $130.0 million in advances from the FHLB in
the first quarter of 2008.
    
    In comparison to the fourth quarter of 2008, total noninterest expenses decreased
$3.9 million, or 15.3%, mainly as a result of lower salaries and benefits and
professional services expenses.
    
    The annualized noninterest expenses to average assets ratio was 2.42% for the
three months ended March 31, 2009 lower that the 3.12% for the same period in 2008
and 2.85% for the three months ended December 31, 2008. Excluding the loss on the
early extinguishment of debt and merger related charges, the annualized noninterest
expenses to average assets ratio was 2.33% for the first quarter of 2008.
    
    Salaries and benefits expense decreased by $2.0 million, or 15.0%, during the
first quarter of 2009 compared to the first quarter of 2008 and by $2.7 million, or
19.8%, compared to the fourth quarter of 2008, which was due in large part to the
difference in first quarter 2009 officer incentive expense including the reversal of
$850,000 accrued in prior periods. This reversal was related to a reduction in
previously planned staff bonuses and a recent decision to forego all 2008 bonuses
for executive officers.
    
    Occupancy and equipment expense increased by $346,000, or 11.9%, to $3.2 million
during the first quarter of 2009 compared to the similar period in 2008, mainly as a
result of increased building rent and furniture and equipment maintenance expenses,
but decreased by $266,000, or 7.6%, compared to the fourth quarter of 2008, mainly
due to decreased building maintenance and furniture and equipment depreciation and
maintenance expenses.
    
    Professional services expense rose by $564,000, or 36.7%, to $2.1 million in the
first quarter of 2009 compared to the first quarter of 2008. Professional services
expense decreased by
 PAGE 31




---



##### 



$1.1 million, or 35.1%, compared to the fourth quarter of 2008 due to expenses
related to legal, printing and consulting fees associated with the TARP and other
capital raising efforts in the fourth quarter of 2008.
    
    Foreclosed properties expense increased $340,000 and $279,000 in the first
quarter of 2009 compared to the first and fourth quarters of 2008, respectively, as
a result of an increase in foreclosed assets as well as sales. Foreclosed
properties increased by $6.5 million and $16.0 million compared to December 31, 2008
and March 31, 2008, respectively, due to the continued deterioration of economic
conditions.
    
    Marketing expenses were $112,000 higher in the first quarter of 2009 compared to
the same period in 2008 but $154,000 lower than in the fourth quarter of 2008.
    
    The Company is focused on identifying corporate-wide cost savings opportunities.
It is looking to in-source certain key functions to reduce professional fees and is
tightening discretionary spending.
 Income Taxes
   Three Months Ended March 31,2009
    
    
    2008(In thousands)Income taxes computed at the statutory rate
    
    $
    (3,611
    )
    
    
    35.0
    %
    
    $
    (3,501
    )
    
    
    35.0
    %Tax-exempt interest income on securities and loans
    
    
    (229
    )
    
    
    2.2
    
    
    
    (197
    )
    
    
    2.0General business credits
    
    
    (609
    )
    
    
    5.9
    
    
    
    (130
    )
    
    
    1.3State income taxes, net of federal tax benefit due to state operating loss
    
    
    (523
    )
    
    
    5.1
    
    
    
    (732
    )
    
    
    7.3Life insurance cash surrender value increase, net of premiums
    
    
    (293
    )
    
    
    2.8
    
    
    
    (300
    )
    
    
    3.0Dividends received deduction
    
    
    
    
    
    
    
    
    
    
    (301
    )
    
    
    3.0Nondeductible costs and other, net
    
    
    269
    
    
    
    (2.6
    )
    
    
    574
    
    
    
    (5.7
    )Benefit for income taxes
    
    $
    (4,996
    )
    
    
    48.4
    %
    
    $
    (4,587
    )
    
    
    45.9
    %
 Financial Condition
  
    
    Total assets increased $142.9 million to $3.7 billion, or 4.0%, at March 31, 2009
compared to year end 2008 but decreased $17.4 million compared to March 31, 2008.
    
    Total loans increased $81.3 million to $2.6 billion at March 31, 2009 compared to year
end 2008 and increased $123.3 million over the first quarter of 2008. Loan growth in the
first quarter 2009 was facilitated in large part by the new capital raised in December 2008
under the TARP program.
 PAGE 32




---



##### 




    
    Deposits increased by $131.2 million to $2.5 billion at March 31, 2009 compared to year
end 2008 and increased by $139.3 million when compared to March 31, 2008. A successful
retail certificate of deposit campaign produced over $100.0 million of new deposits.
  
    
    Nonaccrual loans were 3.10% of total loans at March 31, 2009, up from 2.43% of total
loans at year end and 1.90% at March 31, 2008.
    
    Foreclosed properties increased from $12.0 million at year end to $18.5 million at March
31, 2009, mainly due to downturns of two loan relationships.
    
    Loan delinquencies of 30-89 days were 1.48% of loans at March 31, 2009, up from 1.03% at
December 31, 2008 and 0.82% at March 31, 2008, caused by the continued deterioration of
economic conditions.
    
    Nonperforming assets were 2.96% of total assets at March 31, 2009, up from 2.36% at year
end and 1.33% at March 31, 2008, as a result of the increase in nonaccrual loans and
foreclosed properties.
    
    The allowance for loan losses was 2.05% of total loans as of March 31, 2009, versus
1.77% at year end 2008 and 0.82% at March 31, 2008, due to a $13.0 million provision in the
first quarter of 2009.
    
    The allowance for loan losses was 0.66 times nonaccrual loans at March 31, 2009, 0.73 at
year end, and 0.43 for the corresponding period of 2008.
 Loans
  March 31,
    
    
    December 31,2009
    
    
    2008% of Gross
    
    
    
    
    
    
    % of GrossAmount
    
    
    Loans
    
    
    Amount
    
    
    Loans(Dollars in thousands)Commercial
    
    $
    1,106,164
    
    
    
    42.7
    %
    
    $
    1,090,078
    
    
    
    43.3
    %Construction
    
    
    373,112
    
    
    
    14.4
    
    
    
    366,178
    
    
    
    14.6Commercial real estate
    
    
    773,934
    
    
    
    29.9
    
    
    
    729,729
    
    
    
    29.1Home equity
    
    
    213,473
    
    
    
    8.2
    
    
    
    194,673
    
    
    
    7.8Other consumer
    
    
    6,327
    
    
    
    0.2
    
    
    
    6,332
    
    
    
    0.3Residential mortgage
    
    
    118,792
    
    
    
    4.6
    
    
    
    123,161
    
    
    
    4.9Total loans, gross
    
    
    2,591,802
    
    
    
    100.0
    %
    
    
    2,510,151
    
    
    
    100.0
    %Net deferred fees
    
    
    (754
    )
    
    
    
    
    
    
    (392
    )Total loans, net
    
    $
    2,591,048
    
    
    
    
    
    
    $
    2,509,759
  
    
    Commercial loans increased $16.1 million to $1.1 billion, or 42.7% of the loan
portfolio, as of March 31, 2009 from December 31, 2008.
    
    Construction loans increased by $6.9 million to $373.1 million, or 14.4% of the loan
portfolio, as of March 31, 2009 from $366.2 million and 14.6% at December 31, 2008.
 PAGE 33




---



##### 




    
    Commercial real estate loans increased by $44.2 million to $773.9 million, or 29.9% of
the loan portfolio, as of March 31, 2009 from $729.7 million and 29.1% at year end.
    
    Home equity loans increased by $18.8 million to $213.5 million, or 8.2% of the loan
portfolio, as of March 31, 2009 from $194.7 million at year end.
    
    Residential mortgage loans decreased by $4.4 million to $118.8 million as of March 31,
2009 from $123.2 million at year end.
    
    The Company does not hold any sub-prime loans in its portfolio.
 Allowance for Loan Losses
   2009
    
    
    2008Balance at beginning of period
    
    $
    44,432
    
    
    $
    26,748Provision charged to operations
    
    
    13,000
    
    
    
    5,400Loans charged off
    
    
    (4,819
    )
    
    
    (12,250
    )Recoveries
    
    
    398
    
    
    
    446Net loans (charged off) recoveries
    
    
    (4,421
    )
    
    
    (11,804
    )Balance at end of period
    
    $
    53,011
    
    
    $
    20,344
   PAGE 34




---



##### 



March 31,
    
    December 31,
    
    March 31,2009
    
    2008
    
    2008Net loans charged off to average loans during quarter
    
    
    0.70
    %
    
    
    2.39
    %
    
    
    1.93
    %Provision for loan losses to total loans
    
    
    2.03
    
    
    
    3.17
    
    
    
    0.88Allowance for loan losses to total loans
    
    
    2.05
    
    
    
    1.77
    
    
    
    0.82Allowance to nonaccrual loans
    
    
    0.66
    x
    
    
    0.73
    x
    
    
    0.43
    x
      PAGE 35




---



##### 



Nonaccrual Loans and Nonperforming Assets
  
    
    a $6.5 million loan to a company that markets to real estate agents and brokers that has
been negatively affected by the real estate downturn;
    
    a $2.8 million loan relationship with an energy company currently operating under a
forebearance agreement; and
    
    a $2.8 million loan relationship with a full-service tradeshow display company where the
recent death of the principal caused a disruption in its business operations. This
borrower is currently operating under a forebearance agreement.
   March 31,
    
    
    December 31,
    
    
    March 31,2009
    
    
    2008
    
    
    2008(Dollars in thousands)Impaired and other loans 90 days past due
and accruing
    
    $
    
    
    
    $
    
    
    
    $
    Nonaccrual loans
    
    $
    80,332
    
    
    $
    61,104
    
    
    $
    46,916Troubled-debt restructuring
    
    
    11,006
    
    
    
    11,006
    
    
    
    Total nonperforming loans
    
    
    91,338
    
    
    
    72,110
    
    
    
    46,916Foreclosed properties
    
    
    18,534
    
    
    
    12,018
    
    
    
    2,527Total nonperforming assets
    
    $
    109,872
    
    
    $
    84,128
    
    
    $
    49,443Nonaccrual loans to loans
    
    
    3.10
    %
    
    
    2.43
    %
    
    
    1.90
    %Nonperforming assets to loans
and foreclosed properties
    
    
    4.21
    
    
    
    3.34
    
    
    
    2.00Nonperforming assets to assets
    
    
    2.96
    
    
    
    2.36
    
    
    
    1.33
  PAGE 36




---



##### 



Securities
   March 31, 2009Held-to-Maturity
    
    
    Available-for-Sale
    
    
    Total% 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
    
    $
    
    
    
    $
    
    
    
    $
    316,365
    
    
    $
    317,791
    
    
    $
    316,365
    
    
    $
    317,791
    
    
    
    44.3
    %Obligations of states and political subdivisions
    
    
    1,251
    
    
    
    1,282
    
    
    
    57,283
    
    
    
    58,338
    
    
    
    58,534
    
    
    
    59,620
    
    
    
    8.2Mortgage-backed securities
    
    
    27,831
    
    
    
    28,316
    
    
    
    289,680
    
    
    
    295,134
    
    
    
    317,511
    
    
    
    323,450
    
    
    
    44.4Equity securities
    
    
    
    
    
    
    
    
    
    
    2,749
    
    
    
    1,007
    
    
    
    2,749
    
    
    
    1,007
    
    
    
    0.4Other bonds
    
    
    
    
    
    
    
    
    
    
    19,135
    
    
    
    13,588
    
    
    
    19,135
    
    
    
    13,588
    
    
    
    2.7Total
    
    $
    29,082
    
    
    $
    29,598
    
    
    $
    685,212
    
    
    $
    685,858
    
    
    $
    714,294
    
    
    $
    715,456
    
    
    
    100.0
    %
   
    
    U.S. Treasury and obligations of U.S. government-sponsored entities increased by $52.4
million to $317.8 million, or 44.3% of the portfolio, at March 31, 2009 compared to $265.4
million at year end. At March 31, 2009, obligations of U.S. government-sponsored entities
included $272.9 million of callable debentures with maturities ranging from approximately
five to nine years and next call dates ranging from fifteen days to five months.
    
    U.S. government agency and government-sponsored entity mortgage-backed securities
increased $11.5 million, from $283.7 million at December 31, 2008 to $295.1 million at
March 31, 2009.
    
    Equity securities increased $77,000 to $1.0 million at March 31, 2009 from December 31,
2008 as a result of the slight increase in fair market value. Equity securities included
capital securities of U.S. government-sponsored entities.
    
    Other bonds decreased by $1.7 million, or 10.9%, to $13.6 million at March 31, 2009 from
$15.2 million at December 31, 2008 as a result of the decline in fair market value.
    
    The securities portfolio does not contain any sub-prime or Alt-A mortgage-backed
securities.
 PAGE 37




---



##### 



Cash Surrender Value of Life Insurance
  Deposits and Borrowed Funds
  March 31,
    
    
    December 31,2009
    
    
    2008(In thousands)Noninterest-bearing demand
    
    $
    343,422
    
    
    $
    334,495Interest-bearing demand
    
    
    176,049
    
    
    
    176,224Money-market
    
    
    227,114
    
    
    
    208,484Savings
    
    
    133,755
    
    
    
    129,101Certificates of deposit less than $100,000
    
    
    799,908
    
    
    
    689,896Certificates of deposit of $100,000 or more
    
    
    452,996
    
    
    
    435,687Brokered certificates of deposit
    
    
    410,761
    
    
    
    438,904Total interest-bearing deposits
    
    
    2,200,583
    
    
    
    2,078,296Total
    
    $
    2,544,005
    
    
    $
    2,412,791Total core deposits (1)
    
    $
    880,340
    
    
    $
    848,304
 
 (1)
    
    Consists of noninterest-bearing and interest-bearing demand, money market, and savings.  
    
    Noninterest-bearing deposits were $343.4 million at March 31, 2009, $8.9 million
more than the $334.5 million level at December 31, 2008.
    
    Interest-bearing deposits increased 5.9%, or $122.3 million to $2.2 billion at
March 31, 2009 compared to December 31, 2008.
    
    Core deposits, which consist of demand deposit, interest-bearing demand deposit,
money market, and savings accounts, increased $32.0 million to $880.3 million at
March 31, 2009 from $848.3 million at December 31, 2008 due to strong sales efforts.
    
    Certificates of deposit under $100,000 increased $110.0 million, or 15.9%, from
 PAGE 38




---



##### 



December 31, 2008 to $799.9 million at March 31, 2009, as a result of successful
promotions during the first quarter of 2009 producing over $100.0 million of new
deposits at rates of 2.25% to 3.50%.
    
    Certificates of deposit over $100,000 increased by $17.3 million from December
31, 2008 to $453.0 million at March 31, 2009.
    
    Certificates of deposits through the CDARS and Internet networks were $76.9
million at March 31, 2009 compared to $41.6 million at December 31, 2008. These
networks allow the Company to access other deposit funding sources.
    
    Brokered certificates of deposit decreased $28.1 million, or 6.4%, to $410.8
million at March 31, 2009 compared to year end 2008. The brokered certificates of
deposit are comprised of underlying certificates of deposits in denominations of
less than $100,000.
      PAGE 39




---



##### 



March 31,
    
    
    December 31,2009
    
    
    2008(In thousands)Federal funds purchased
    
    $
    55,000
    
    
    $
    Revolving note payable
    
    
    8,600
    
    
    
    8,600Securities sold under agreements to repurchase
    
    
    297,650
    
    
    
    297,650Federal Home Loan Bank advances
    
    
    340,000
    
    
    
    380,000Junior subordinated debentures
    
    
    60,807
    
    
    
    60,791Subordinated debt
    
    
    15,000
    
    
    
    15,000Term note payable
    
    
    55,000
    
    
    
    55,000Total
    
    $
    832,057
    
    
    $
    817,041
       PAGE 40




---



##### 



Capital Resources
     PAGE 41




---



##### 



March 31,
    
    
    December 31,2009
    
    
    2008(In thousands)Risk-weighted assets
    
    $
    2,952,556
    
    
    $
    2,878,087Average assets
    
    
    3,648,873
    
    
    
    3,590,313Capital components:Stockholders equity
    
    $
    301,070
    
    
    $
    305,834Plus: Guaranteed trust preferred securities
    
    
    59,000
    
    
    
    59,000Less: Core deposit and other intangibles, net
    
    
    (14,110
    )
    
    
    (14,683
    )Less: Goodwill
    
    
    (78,862
    )
    
    
    (78,862
    )Plus: Qualifying minority interest in consolidated subsidiary
    
    
    94
    
    
    
    Less: Disallowed tax assets
    
    
    (47,554
    )
    
    
    (32,748
    )Less: Unrealized (gains) losses on securities, net of tax
    
    
    (390
    )
    
    
    1,449Plus: Unrealized losses on equity securities, net of tax
    
    
    (1,055
    )
    
    
    (1,117
    )Tier I capital
    
    
    218,193
    
    
    
    238,873Allowance for loan losses
    
    
    53,011
    
    
    
    44,432Reserve for unfunded commitments
    
    
    1,300
    
    
    
    1,068Disallowed allowance
    
    
    (17,190
    )
    
    
    (9,406
    )Qualifying subordinated debt
    
    
    15,000
    
    
    
    15,000Total risk-based capital
    
    $
    270,314
    
    
    $
    289,967
  At March 31, 2009Minimum Required
    
    Minimum RequiredActual
    
    
    for Capital Adequacy
    
    to be Well CapitalizedAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in thousands)Total capital to risk-weighted assets
Company
    
    $
    270,314
    
    
    
    9.2
    %
    
    $
    236,204
    
    
    
    8.0
    %
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    309,248
    
    
    
    10.5
    
    
    
    235,316
    
    
    
    8.0
    
    
    $
    294,146
    
    
    
    10.0
    %Tier I capital to risk-weighted assets
Company
    
    
    218,192
    
    
    
    7.4
    
    
    
    118,102
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    221,263
    
    
    
    7.5
    
    
    
    117,658
    
    
    
    4.0
    
    
    
    176,487
    
    
    
    6.0Tier I capital to average assets
Company
    
    
    218,192
    
    
    
    6.0
    
    
    
    145,955
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    221,263
    
    
    
    6.1
    
    
    
    145,216
    
    
    
    4.0
    
    
    
    181,520
    
    
    
    5.0
 At December 31, 2008Minimum Required
    
    
    Minimum RequiredActual
    
    
    for Capital Adequacy
    
    
    to be Well CapitalizedAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(Dollars in thousands)Total capital to risk-weighted assets
Company
    
    $
    289,967
    
    
    
    10.1
    %
    
    $
    230,247
    
    
    
    8.0
    %
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    301,993
    
    
    
    10.5
    
    
    
    229,244
    
    
    
    8.0
    
    
    $
    286,555
    
    
    
    10.0
    %Tier I capital to risk-weighted assets
Company
    
    
    238,873
    
    
    
    8.3
    
    
    
    115,123
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    236,054
    
    
    
    8.2
    
    
    
    114,622
    
    
    
    4.0
    
    
    
    171,933
    
    
    
    6.0Tier I capital to average assets
Company
    
    
    238,873
    
    
    
    6.7
    
    
    
    143,613
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    236,054
    
    
    
    6.6
    
    
    
    143,000
    
    
    
    4.0
    
    
    
    178,750
    
    
    
    5.0
 PAGE 42




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Liquidity
        PAGE 43




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ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
 Interest Rate Sensitivity Analysis
  Change in Net Interest Income Over One Year HorizonGuidelineMarch 31, 2009
    
    December 31, 2008
    
    MaximumDollar
    
    %
    
    Dollar
    
    %
    
    %Change
    
    Change
    
    Change
    
    Change
    
    Change(Dollars in thousands)+200 bp
    
    $
    6,989
    
    
    
    8.10
    %
    
    $
    6,274
    
    
    
    8.23
    %
    
    
    (10.0
    )%+100 bp
    
    
    3,202
    
    
    
    3.71
    
    
    
    2,850
    
    
    
    3.74
    
    
    
    -100 bp
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    -200 bp
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    (10.0
    )
   PAGE 44




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ITEM 4  CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls Over Financial Reporting
  PAGE 45




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SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
     
    
    Managements ability to effectively manage interest rate risk and the impact of interest
rates in general on the volatility of the Companys net interest income;
    
    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 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;
    
    The effects of competition from other commercial banks, thrifts, mortgage banking firms,
 PAGE 46




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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;
    
    Liquidity risks;
    
    The ability to successfully acquire low cost deposits or funding;
    
    The ability to successfully execute strategies to increase noninterest income;
    
    Changes in the economic environment, competition, or other factors that may influence the
anticipated growth rate of loans and deposits and the quality of the loan portfolio and loan
and deposit pricing;
    
    The impact from changes in federal and state tax laws relating to certain tax structures
of the Company including an 80/20 company which holds a portion of the Companys securities
portfolio and a real estate investment trust which holds certain real estate loans
previously held by the Bank;
    
    The impact from liabilities arising from legal or administrative proceedings on the
financial condition of the Company;
    
    The ability of the Bank to pay dividends to the Company;
    
    The Companys ability to pay cash dividends on its common and preferred stock;
    
    The Companys ability to negotiate waivers for its March 31, 2009 loan covenant
violations;
    
    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 SEC in connection with the SEC
inquiry of the restatement of the Companys September 30, 2002 financial statements;
    
    Governmental monetary and fiscal policies, as well as legislative and regulatory changes,
that may result in the imposition of costs and constraints on the Company through higher
FDIC insurance premiums, significant fluctuations in market interest rates, increases in
capital requirements, and operational limitations;
    
    Changes in general economic or industry conditions, nationally or in the communities in
which the Company conducts business;
    
    Changes in accounting principles, policies, or guidelines affecting the business
conducted by the Company;
 PAGE 47




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##### 




    
    The impact of possible future non-cash goodwill impairment charges;
    
    The effects of increased deposit insurance premiums;
    
    Acts of war or terrorism; and
    
    Other economic, competitive, governmental, regulatory, and technical factors affecting
the Companys operations, products, services, and prices.
   PAGE 48




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PART II
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 The Company is party to loan agreements that require it to observe certain covenants that limit its
flexibility in operating its business.
      PAGE 49




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PAGE 50




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##### 



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
  3.2
    
    Amended and Restated By-laws (incorporated by reference to
Registrants Report on Form 8-K filed March 2, 2009, File No.
001-13735).4.2
    
    Certain instruments defining the rights of the holders of
long-term debt of the Company and certain of its subsidiaries,
none of which authorize a total amount of indebtedness in excess
of 10% of the total assets of the Company and its subsidiaries on
a consolidated basis, have not been filed as Exhibits. The Company
hereby agrees to furnish a copy of any of these agreements to the
SEC upon request.10.68
    
    Short-term Revolving Line of Credit Loan Agreement dated April 3,
2009 between the Company and M&I Marshall & Ilsley (incorporated
by reference to Registrants Report on Form 8-K filed April 30,
2009, File No. 001-13735).31.1
    
    Rule 13a-14(a) Certification of Principal Executive Officer.31.2
    
    Rule 13a-14(a) Certification of Principal Financial Officer.32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, from
the Companys Chief Executive Officer and Chief Accounting
Officer.
 PAGE 51




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##### 



SIGNATURES
   MIDWEST BANC HOLDINGS, INC.
(Registrant)By:
    /s/ J. J. FritzJ. J. Fritz,President and Chief Executive OfficerBy:
    /s/ JoAnn Sannasardo LilekJoAnn Sannasardo Lilek,Executive Vice President and
Chief Financial Officer PAGE 52




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##### 



3.2
    
    Amended and Restated By-laws (incorporated by reference to
Registrants Report on Form 8-K filed March 2, 2009, File No.
001-13735).4.2
    
    Certain instruments defining the rights of the holders of
long-term debt of the Company and certain of its subsidiaries,
none of which authorize a total amount of indebtedness in excess
of 10% of the total assets of the Company and its subsidiaries on
a consolidated basis, have not been filed as Exhibits. The Company
hereby agrees to furnish a copy of any of these agreements to the
SEC upon request.10.68
    
    Short-term Revolving Line of Credit Loan Agreement dated April 3,
2009 between the Company and M&I Marshall & Ilsley (incorporated
by reference to Registrants Report on Form 8-K filed April 30,
2009, File No. 001-13735).31.1
    
    Rule 13a-14(a) Certification of Principal Executive Officer.31.2
    
    Rule 13a-14(a) Certification of Principal Financial Officer.32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, from
the Companys Chief Executive Officer and Chief Accounting
Officer.