##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended September 30, 2005
 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
 þ o
 o þ
  Class
    
    Outstanding at November 9, 2005Common, par value $.01
    
    21,792,829




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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
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    37Item 4. Controls and Procedures
    
    
    38PART IIItem 1. Legal Proceedings
    
    
    42Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
    
    
    42Item 3. Defaults upon Senior Securities
    
    
    42Item 4. Submission of Matters to a Vote of Security Holders
    
    
    42Item 5. Other Information
    
    
    42Item 6. Exhibits
    
    
    42Form 10-Q Signature Page
    
    
    44Certification of Principal Executive OfficerCertification of Principal Financial OfficerSection 906 Certification of CEO and CFO
  i




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
 CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands)
 September 30,
    
    
    December 31,2005
    
    
    2004ASSETSCash
    
    $
    56,983
    
    
    $
    49,245Federal funds sold and other short-term investments
    
    
    5,440
    
    
    
    169,779Total cash and cash equivalents
    
    
    62,423
    
    
    
    219,024Securities available-for-sale, at fair value
    
    
    684,575
    
    
    
    437,050Securities held-to-maturity, at amortized cost (fair value: $66,000 at September 30, 2005 and $89,010 at December 31,
2004)
    
    
    66,767
    
    
    
    88,958Federal Reserve and Federal Home Loan Bank stock, at cost
    
    
    14,558
    
    
    
    13,830Loans
    
    
    1,277,432
    
    
    
    1,097,992Allowance for loan losses
    
    
    (17,993
    )
    
    
    (16,217
    )Net loans
    
    
    1,259,439
    
    
    
    1,081,775Cash surrender value of life insurance
    
    
    43,954
    
    
    
    43,229Premises and equipment, net
    
    
    22,383
    
    
    
    23,515Other real estate
    
    
    11,154
    
    
    
    8,064Core deposit and other intangibles, net
    
    
    1,895
    
    
    
    2,217Goodwill
    
    
    891
    
    
    
    891Assets held for sale
    
    
    
    
    
    
    274,023Other assets
    
    
    57,058
    
    
    
    44,237Total assets
    
    $
    2,225,097
    
    
    $
    2,236,813LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesDepositsNon-interest-bearing
    
    $
    154,652
    
    
    $
    162,610Interest-bearing
    
    
    1,378,573
    
    
    
    1,339,036Total deposits
    
    
    1,533,225
    
    
    
    1,501,646Federal funds purchased
    
    
    25,000
    
    
    
    Securities sold under agreements to repurchase
    
    
    211,583
    
    
    
    146,885Advances from the Federal Home Loan Bank
    
    
    150,000
    
    
    
    118,079Junior subordinated debt owed to unconsolidated trusts
    
    
    55,672
    
    
    
    55,672Due to broker
    
    
    6,852
    
    
    
    Liabilities held for sale
    
    
    
    
    
    
    250,456Other liabilities
    
    
    27,579
    
    
    
    26,652Total liabilities
    
    
    2,009,911
    
    
    
    2,099,390Commitments and contingencies (see note 12)Stockholders EquityPreferred stock, $.01 par value, 1,000,000 shares authorized;
none issued
    
    
    
    
    
    
    Common stock, $.01 par value, 32,000,000 shares authorized;
22,118,140 shares issued at September 30, 2005 and 18,668,140 shares issued at December 31, 2004
    
    
    221
    
    
    
    187Additional paid-in capital
    
    
    134,549
    
    
    
    65,781Retained earnings
    
    
    88,088
    
    
    
    95,829Unearned stock-based compensation
    
    
    (3,281
    )
    
    
    (2,642
    )Accumulated other comprehensive loss
    
    
    (3,937
    )
    
    
    (16,457
    )Treasury stock, at cost (325,311 shares at September 30,
2005 and 586,413 shares at December 31, 2004)
    
    
    (454
    )
    
    
    (5,275
    )Total stockholders equity
    
    
    215,186
    
    
    
    137,423Total liabilities and stockholders equity
    
    $
    2,225,097
    
    
    $
    2,236,813
 See accompanying notes to unaudited consolidated financial statements.
 PAGE 1




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
 CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Interest IncomeLoans
    
    $
    20,825
    
    
    $
    14,748
    
    
    $
    56,964
    
    
    $
    43,468SecuritiesTaxable
    
    
    7,192
    
    
    
    7,111
    
    
    
    21,255
    
    
    
    20,675Exempt from federal income taxes
    
    
    340
    
    
    
    127
    
    
    
    579
    
    
    
    498Trading securities
    
    
    198
    
    
    
    1,242
    
    
    
    388
    
    
    
    1,560Dividend income from Federal Reserve and
Federal Home Loan Bank stock
    
    
    183
    
    
    
    276
    
    
    
    570
    
    
    
    850Federal funds sold and other short-term investments
    
    
    142
    
    
    
    125
    
    
    
    387
    
    
    
    1,033Total interest income
    
    
    28,880
    
    
    
    23,629
    
    
    
    80,143
    
    
    
    68,084Interest ExpenseDeposits
    
    
    8,521
    
    
    
    7,048
    
    
    
    24,597
    
    
    
    20,012Federal funds purchased
    
    
    317
    
    
    
    31
    
    
    
    604
    
    
    
    32Securities sold under agreements to repurchase
    
    
    1,404
    
    
    
    1,076
    
    
    
    3,997
    
    
    
    3,167Advances from the Federal Home Loan Bank
    
    
    1,340
    
    
    
    2,214
    
    
    
    4,366
    
    
    
    6,345Junior subordinated debt owed to unconsolidated trusts
    
    
    875
    
    
    
    896
    
    
    
    2,839
    
    
    
    2,609Note payable
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    20Total interest expense
    
    
    12,457
    
    
    
    11,265
    
    
    
    36,412
    
    
    
    32,185Net interest income
    
    
    16,423
    
    
    
    12,364
    
    
    
    43,731
    
    
    
    35,899Provision for loan losses
    
    
    813
    
    
    
    400
    
    
    
    2,440
    
    
    
    1,600Net interest income after provision for loan losses
    
    
    15,610
    
    
    
    11,964
    
    
    
    41,291
    
    
    
    34,299Noninterest IncomeCustomer service fees
    
    
    1,335
    
    
    
    1,348
    
    
    
    3,866
    
    
    
    3,991Net losses on securities transactions
    
    
    
    
    
    
    (4,991
    )
    
    
    (17,440
    )
    
    
    (3,121
    )Net trading profits
    
    
    269
    
    
    
    937
    
    
    
    400
    
    
    
    24Gains on sales of loans
    
    
    116
    
    
    
    106
    
    
    
    254
    
    
    
    436Insurance and brokerage commissions
    
    
    414
    
    
    
    324
    
    
    
    1,180
    
    
    
    1,032Trust
    
    
    80
    
    
    
    70
    
    
    
    224
    
    
    
    232Increase in cash surrender value of life insurance
    
    
    399
    
    
    
    440
    
    
    
    1,287
    
    
    
    1,119Life insurance benefit
    
    
    789
    
    
    
    
    
    
    
    789
    
    
    
    Other
    
    
    160
    
    
    
    197
    
    
    
    657
    
    
    
    566Total noninterest income
    
    
    3,562
    
    
    
    (1,569
    )
    
    
    (8,783
    )
    
    
    4,279Noninterest ExpensesSalaries and employee benefits
    
    
    6,889
    
    
    
    7,145
    
    
    
    20,246
    
    
    
    18,549Occupancy and equipment
    
    
    1,576
    
    
    
    1,513
    
    
    
    4,591
    
    
    
    4,433Professional services
    
    
    1,029
    
    
    
    1,365
    
    
    
    3,368
    
    
    
    3,228Loss on
early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    13,125
    
    
    
    Other
    
    
    1,783
    
    
    
    1,995
    
    
    
    8,333
    
    
    
    5,558Total noninterest expenses
    
    
    11,277
    
    
    
    12,018
    
    
    
    49,663
    
    
    
    31,768Income (loss) before income taxes and discontinued operations
    
    
    7,895
    
    
    
    (1,623
    )
    
    
    (17,155
    )
    
    
    6,810Provision for income taxes
    
    
    1,982
    
    
    
    (1,395
    )
    
    
    (8,896
    )
    
    
    460Income (loss) from continuing operations
    
    
    5,913
    
    
    
    (228
    )
    
    
    (8,259
    )
    
    
    6,350Discontinued OperationsIncome from discontinued operations before income taxes
    
    
    6,554
    
    
    
    84
    
    
    
    9,236
    
    
    
    1,991Provision for income taxes
    
    
    925
    
    
    
    (113
    )
    
    
    1,703
    
    
    
    363Income from discontinued operations
    
    
    5,629
    
    
    
    197
    
    
    
    7,533
    
    
    
    1,628Net Income (Loss)
    
    $
    11,542
    
    
    $
    (31
    )
    
    $
    (726
    )
    
    $
    7,978Basic earnings per share from continuing operations
    
    $
    0.30
    
    
    $
    (0.01
    )
    
    $
    (0.44
    )
    
    $
    0.36Basic earnings per share from discontinued operations
    
    $
    0.28
    
    
    $
    0.01
    
    
    $
    0.40
    
    
    $
    0.09Basic earnings per share
    
    $
    0.58
    
    
    $
    0.00
    
    
    $
    (0.04
    )
    
    $
    0.45Diluted earnings per share from continuing operations
    
    $
    0.29
    
    
    $
    (0.01
    )
    
    $
    (0.44
    )
    
    $
    0.34Diluted earnings per share from discontinued operations
    
    $
    0.28
    
    
    $
    0.01
    
    
    $
    0.39
    
    
    $
    0.09Diluted earnings per share
    
    $
    0.57
    
    
    $
    0.00
    
    
    $
    (0.04
    )
    
    $
    0.43Cash dividends declared per common share
    
    $
    0.12
    
    
    $
    0.12
    
    
    $
    0.36
    
    
    $
    0.36
 See accompanying notes to unaudited consolidated financial statements.
 PAGE 2




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (Unaudited)
For the nine months ended September 30, 2005 and 2004
(In thousands, except share and per share data)
 AccumulatedAdditional
    
    
    
    
    
    
    Unearned
    
    
    Other
    
    
    
    
    
    
    TotalCommon
    
    
    Paid-in
    
    
    Retained
    
    
    Stock-based
    
    
    Comprehensive
    
    
    Treasury
    
    
    StockholdersStock
    
    
    Capital
    
    
    Earnings
    
    
    Compensation
    
    
    Loss
    
    
    Stock
    
    
    EquityBalance, January 1, 2004
    
    $
    187
    
    
    $
    64,330
    
    
    $
    102,041
    
    
    $
    
    
    
    $
    (15,824
    )
    
    $
    (7,653
    )
    
    $
    143,081Cash dividends declared ($0.36 per
share)
    
    
    
    
    
    
    
    
    
    
    (6,439
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,439
    )Issuance of common stock upon
exercise of 40,984 stock options,
inclusive of tax benefit
    
    
    
    
    
    
    172
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    395
    
    
    
    567Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    7,978
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,978Net decrease in fair value of
securities classified as available-for-sale, net of income taxes and
reclassification adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,502
    )
    
    
    
    
    
    
    (6,502
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,476Balance, September 30, 2004
    
    $
    187
    
    
    $
    64,502
    
    
    $
    103,580
    
    
    $
    
    
    
    $
    (22,326
    )
    
    $
    (7,258
    )
    
    $
    138,685Balance, January 1, 2005
    
    $
    187
    
    
    $
    65,781
    
    
    $
    95,829
    
    
    $
    (2,642
    )
    
    $
    (16,457
    )
    
    $
    (5,275
    )
    
    $
    137,423Cash dividends declared ($0.36 per
share)
    
    
    
    
    
    
    
    
    
    
    (7,015
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,015
    )Issuance of
3,450,000 shares of common stock, pursuant to a secondary public
offering
    
    
    34
    
    
    
    67,901
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,935Issuance of common stock upon
exercise of 376,102 stock options,
inclusive of tax benefit
    
    
    
    
    
    
    298
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,146
    
    
    
    4,444Issuance of 63,700 shares of restricted
stock, net of forfeiture
    
    
    
    
    
    
    569
    
    
    
    
    
    
    
    (1,244
    )
    
    
    
    
    
    
    675
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    605
    
    
    
    
    
    
    
    
    
    
    
    605Comprehensive incomeNet loss
    
    
    
    
    
    
    
    
    
    
    (726
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (726
    )Net increase in fair value of
securities classified as available-for-sale, net of income taxes and
reclassification adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,520
    
    
    
    
    
    
    
    12,520Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,794Balance, September 30, 2005
    
    $
    221
    
    
    $
    134,549
    
    
    $
    88,088
    
    
    $
    (3,281
    )
    
    $
    (3,937
    )
    
    $
    (454
    )
    
    $
    215,186
 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 Nine Months Ended September 30, 2005 and 2004
(In thousands)
 2005
    
    
    2004Cash flows from continuing operating activitiesNet income (loss) from continuing operations
    
    $
    (8,259
    )
    
    $
    6,350Adjustments to reconcile net income from continuing operations to net
cash provided by continuing operating activities
    
    
    1,752
    
    
    
    1,665DepreciationProvision for loan losses
    
    
    2,440
    
    
    
    1,600Amortization of other intangibles
    
    
    322
    
    
    
    255Proceeds from sales (purchases) of trading securities, net
    
    
    400
    
    
    
    24Amortization of premiums and discounts on securities, net
    
    
    1,640
    
    
    
    1,821Realized loss on sale of available-for-sale securities, net
    
    
    17,440
    
    
    
    3,121Net gain on sales of trading securities
    
    
    (400
    )
    
    
    (24
    )Net gain on sales of mortgage loans
    
    
    (254
    )
    
    
    (436
    )Net change in real estate loans held for sale
    
    
    (713
    )
    
    
    (952
    )Increase in cash surrender value of life insurance
    
    
    (1,287
    )
    
    
    (1,119
    )Life insurance benefit
    
    
    (789
    )
    
    
    Deferred income taxes
    
    
    (8,886
    )
    
    
    (1,271
    )Gain on sale of other real estate
    
    
    (65
    )
    
    
    (20
    )Amortization of unearned stock based compensation
    
    
    605
    
    
    
    Change in other assets
    
    
    (13,635
    )
    
    
    (3,453
    )Change in other liabilities
    
    
    3,546
    
    
    
    (5,894
    )Net cash provided by (used in) continuing operating activities
    
    
    (6,143
    )
    
    
    13,455Cash flows from continuing investing activitiesSales of securities available-for-sale
    
    
    451,864
    
    
    
    690,467Maturities of securities available-for-sale
    
    
    123,218
    
    
    
    5,404Principal payments on securities
    
    
    52,590
    
    
    
    49,114Purchases of securities available-for-sale
    
    
    (848,511
    )
    
    
    (910,223
    )Purchases of securities held-to-maturity
    
    
    (1,010
    )
    
    
    (66,669
    )Maturities of securities held-to-maturity
    
    
    1,475
    
    
    
    1,075Sale of futures contracts
    
    
    
    
    
    
    (13,168
    )Purchase of mortgage loans
    
    
    
    
    
    
    (31,316
    )Loan originations and principal collections, net
    
    
    (182,935
    )
    
    
    (19,789
    )Disposition of subsidiary, net
    
    
    35,621
    
    
    
    Proceeds from sale of other real estate
    
    
    647
    
    
    
    614Life insurance premium
    
    
    
    
    
    
    (20,000
    )Proceeds from life insurance benefit
    
    
    1,351
    
    
    
    Additions to property and equipment
    
    
    (620
    )
    
    
    (2,250
    )Net cash used in continuing investing activities
    
    
    (366,310
    )
    
    
    (316,741
    )Cash flows from continuing financing activitiesNet increase in deposits
    
    
    31,579
    
    
    
    54,444Issuance of junior subordinated debt
    
    
    20,619
    
    
    
    Payments of junior subordinated debt
    
    
    (20,619
    )
    
    
    Proceeds from borrowings
    
    
    152,000
    
    
    
    Repayments on borrowings
    
    
    (123,500
    )
    
    
    (2,000
    )Cash dividends paid
    
    
    (6,528
    )
    
    
    (6,435
    )Change in federal funds purchased and securities sold under agreements
to repurchase
    
    
    89,698
    
    
    
    134,914Issuance of common stock
    
    
    68,453
    
    
    
    Proceeds from issuance of treasury stock under stock option plan
    
    
    4,150
    
    
    
    326Net cash provided by continuing financing activities
    
    
    215,852
    
    
    
    181,249Decrease in cash and cash equivalents from continuing operations
    
    
    (156,601
    )
    
    
    (122,037
    )Cash and cash equivalents from continuing operations at beginning of period
    
    
    219,024
    
    
    
    175,263Cash and cash equivalents from continuing operations at end of period
    
    $
    62,423
    
    
    $
    53,226Supplemental disclosuresCash paid for:Interest
    
    $
    36,521
    
    
    $
    31,962Income Taxes
    
    
    3,219
    
    
    
    3,731
 See accompanying notes to unaudited consolidated financial statements.
 PAGE 4




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##### Table of Contents



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




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 3  DISCONTINUED OPERATIONS
    PAGE 6




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
 NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  ASSETS HELD FOR SALE:Cash
    
    $
    6,492Federal funds sold and other short-term investments
    
    
    17,915Securities available-for-sale
    
    
    94,770Securities held-to-maturity
    
    
    774Federal Reserve and Federal Home Loan Bank stock, at cost
    
    
    2,561Loans
    
    
    132,408Allowance for loan losses
    
    
    (1,744
    )Net loans
    
    
    130,664Cash surrender value of life insurance
    
    
    6,271Premises and equipment, net
    
    
    4,006Other real estate
    
    
    160Goodwill and
other intangibles
    
    
    3,469Other assets
    
    
    6,941Total assets held for sale
    
    $
    274,023LIABILITIES HELD FOR SALE:LiabilitiesDepositsNon-interest-bearing
    
    $
    14,385Interest-bearing
    
    
    166,390Total deposits
    
    
    180,775Federal funds purchased
    
    
    Securities sold under agreements to repurchase
    
    
    51,516Advances from the Federal Home Loan Bank
    
    
    15,549Other liabilities
    
    
    2,616Total liabilities held for sale
    
    $
    250,456
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Interest income
    
    $
    3,640
    
    
    $
    3,448
    
    
    $
    10,386
    
    
    $
    10,090Interest expense
    
    
    1,642
    
    
    
    1,570
    
    
    
    4,427
    
    
    
    4,491Net interest income
    
    
    1,998
    
    
    
    1,878
    
    
    
    5,959
    
    
    
    5,599Provision for loan losses
    
    
    100
    
    
    
    156
    
    
    
    (183
    )
    
    
    468Net interest income after provision for loan losses
    
    
    1,898
    
    
    
    1,722
    
    
    
    6,142
    
    
    
    5,131Noninterest income
    
    
    (2,624
    )
    
    
    (219
    )
    
    
    (1,301
    )
    
    
    1,004Noninterest expense
    
    
    1,461
    
    
    
    1,419
    
    
    
    4,345
    
    
    
    4,144Income before income taxes
    
    
    (2,187
    )
    
    
    84
    
    
    
    496
    
    
    
    1,991Provision for income taxes
    
    
    (935
    )
    
    
    (113
    )
    
    
    (156
    )
    
    
    363Operating income from discontinued operations
    
    
    (1,252
    )
    
    
    197
    
    
    
    652
    
    
    
    1,628Gain on sale of discontinued operations, net of tax
    
    
    6,881
    
    
    
    
    
    
    
    6,881
    
    
    
    Income from discontinued operations
    
    $
    5,629
    
    
    $
    197
    
    
    $
    7,533
    
    
    $
    1,628
 PAGE 7




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
 NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 4
 COMPREHENSIVE INCOME
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Income (loss) from continuing operations
    
    $
    5,913
    
    
    $
    (228
    )
    
    $
    (8,259
    )
    
    $
    6,350Income from discontinued operations
    
    
    5,629
    
    
    
    197
    
    
    
    7,533
    
    
    
    1,628Net income (loss)
    
    
    11,542
    
    
    
    (31
    )
    
    
    (726
    )
    
    
    7,978Net increase (decrease) in fair value of securities
classified as available-for-sale, net of income taxes
and reclassification adjustments
    
    
    (2,261
    )
    
    
    824
    
    
    
    12,520
    
    
    
    (6,502
    )Total comprehensive income
    
    $
    9,281
    
    
    $
    793
    
    
    $
    11,794
    
    
    $
    1,476
 NOTE 5
 SECURITIES
  September 30, 2005Held-to-Maturity
    
    
    Available-for-Sale
    
    
    TotalAmortized
    
    
    Fair
    
    
    Amortized
    
    
    
    
    
    
    Amortized
    
    
    
    
    
    
    % ofCost
    
    
    Value
    
    
    Cost
    
    
    Fair Value
    
    
    Cost
    
    
    Fair Value
    
    
    Portfolio(In thousands)U.S. Treasury and obligations of
U.S. government-sponsored entities
    
    $
    
    
    
    $
    
    
    
    $
    14,930
    
    
    $
    14,934
    
    
    $
    14,930
    
    
    $
    14,934
    
    
    
    1.97
    %Obligations of states and
political subdivisions
    
    
    8,307
    
    
    
    8,391
    
    
    
    54,566
    
    
    
    54,132
    
    
    
    62,873
    
    
    
    62,523
    
    
    
    8.29Mortgage-backed securities
    
    
    58,460
    
    
    
    57,609
    
    
    
    547,288
    
    
    
    541,688
    
    
    
    605,748
    
    
    
    599,297
    
    
    
    79.89Equity securities
    
    
    
    
    
    
    
    
    
    
    63,574
    
    
    
    63,108
    
    
    
    63,574
    
    
    
    63,108
    
    
    
    8.39Other bonds
    
    
    
    
    
    
    
    
    
    
    11,059
    
    
    
    10,713
    
    
    
    11,059
    
    
    
    10,713
    
    
    
    1.46Total
    
    $
    66,767
    
    
    $
    66,000
    
    
    $
    691,417
    
    
    $
    684,575
    
    
    $
    758,184
    
    
    $
    750,575
    
    
    
    100.00
    %
 December 31, 2004Held-to-Maturity
    
    
    Available-for-Sale
    
    
    TotalAmortized
    
    
    Fair
    
    
    Amortized
    
    
    
    
    
    
    Amortized
    
    
    
    
    
    
    % ofCost
    
    
    Value
    
    
    Cost
    
    
    Fair Value
    
    
    Cost
    
    
    Fair Value
    
    
    Portfolio(In thousands)U.S. Treasury and obligations of
U.S. government-sponsored entities
    
    $
    
    
    
    $
    
    
    
    $
    334,870
    
    
    $
    311,144
    
    
    $
    334,870
    
    
    $
    311,144
    
    
    
    60.81
    %Obligations of states and
political subdivisions
    
    
    8,799
    
    
    
    9,043
    
    
    
    320
    
    
    
    320
    
    
    
    9,119
    
    
    
    9,363
    
    
    
    1.66Mortgage-backed securities
    
    
    80,159
    
    
    
    79,967
    
    
    
    34,455
    
    
    
    33,844
    
    
    
    114,614
    
    
    
    113,811
    
    
    
    20.82Equity securities
    
    
    
    
    
    
    
    
    
    
    80,924
    
    
    
    81,089
    
    
    
    80,924
    
    
    
    81,089
    
    
    
    14.70Other bonds
    
    
    
    
    
    
    
    
    
    
    11,074
    
    
    
    10,653
    
    
    
    11,074
    
    
    
    10,653
    
    
    
    2.01Total
    
    $
    88,958
    
    
    $
    89,010
    
    
    $
    461,643
    
    
    $
    437,050
    
    
    $
    550,601
    
    
    $
    526,060
    
    
    
    100.00
    %
 PAGE 8




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
 NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  September 30, 2005Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(In thousands)Securities available-for-sale:Obligations of U.S. states and political subdivisions
    
    $
    34,599
    
    
    $
    (471
    )
    
    $
    
    
    
    $
    
    
    
    $
    34,599
    
    
    $
    (471
    )Mortgage-backed securities:U.S. government agencies (1)
    
    
    221
    
    
    
    (1
    )
    
    
    575
    
    
    
    (5
    )
    
    
    796
    
    
    
    (6
    )U.S. government-sponsored entities (2)
    
    
    453,294
    
    
    
    (4,895
    )
    
    
    23,765
    
    
    
    (811
    )
    
    
    477,059
    
    
    
    (5,706
    )Equity securities (3)
    
    
    63,108
    
    
    
    (466
    )
    
    
    
    
    
    
    
    
    
    
    63,108
    
    
    
    (466
    )Corporate and other debt securities
    
    
    6,796
    
    
    
    (138
    )
    
    
    3,917
    
    
    
    (208
    )
    
    
    10,713
    
    
    
    (346
    )Total available-for-sale
    
    $
    558,018
    
    
    $
    (5,971
    )
    
    $
    28,257
    
    
    $
    (1,024
    )
    
    $
    586,275
    
    
    $
    (6,995
    )Securities held-to-maturity:Obligations of U.S. states and political subdivisions
    
    $
    520
    
    
    $
    (1
    )
    
    $
    
    
    
    $
    
    
    
    $
    520
    
    
    $
    (1
    )Mortgage-backed securities:U.S. government agencies (1)
    
    
    12,595
    
    
    
    (17
    )
    
    
    
    
    
    
    
    
    
    
    12,595
    
    
    
    (17
    )U.S. government-sponsored entities (2)
    
    
    10,358
    
    
    
    (68
    )
    
    
    30,263
    
    
    
    (780
    )
    
    
    40,621
    
    
    
    (848
    )Total held-to-maturity
    
    $
    23,473
    
    
    $
    (86
    )
    
    $
    30,263
    
    
    $
    (780
    )
    
    $
    53,736
    
    
    $
    (866
    )Total temporarily impaired securities
    
    $
    581,491
    
    
    $
    (6,057
    )
    
    $
    58,520
    
    
    $
    (1,804
    )
    
    $
    640,011
    
    
    $
    (7,861
    )
 
 (1)
    
    Includes obligations of the Government National Mortgage Association (GNMA).(2)
    
    Includes obligations of the Federal Home Loan Mortgage Corporation (FHLMC) and Federal
National Mortgage Association (FNMA).(3)
    
    Includes issues from government-sponsored entities (FNMA and FHLMC).  
    
    The unrealized loss for U.S. government-sponsored entities mortgage-backed
securities relate primarily to debt securities issued by FNMA and FHLMC; each security
has a stated maturity date. FNMA is rated Aa3, AA- and A+ by Moodys, S&P and Fitch,
respectively. FHLMC is rated Aa3 and AA- by Moodys and Fitch, respectively. The
mortgage-backed securities are notes with a weighted average maturity of approximately
23 1/2 years and a weighted average interest rate of 5.00%.
    
    The unrealized losses on corporate and other debt securities relate to securities
which were rated A- or better by either Moodys or S&P. These debt securities have a
weighted average maturity of approximately 8 1/2 years and a weighted average interest
rate of 4.73%.
  PAGE 9




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
 NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 6
 LOANS
  September 30,
    
    
    December 31,2005
    
    
    2004% of Gross
    
    
    
    
    
    
    % of GrossAmount
    
    
    Loans
    
    
    Amount
    
    
    Loans(Dollars in thousands)Commercial
    
    $
    201,708
    
    
    
    15.8
    %
    
    $
    184,558
    
    
    
    16.8
    %Construction
    
    
    315,857
    
    
    
    24.7
    
    
    
    270,836
    
    
    
    24.7Commercial real estate
    
    
    483,023
    
    
    
    37.8
    
    
    
    411,535
    
    
    
    37.5ConsumerHome equity
    
    
    113,790
    
    
    
    8.9
    
    
    
    100,322
    
    
    
    9.1Other consumer
    
    
    4,472
    
    
    
    0.3
    
    
    
    4,377
    
    
    
    0.4Total consumer
    
    
    118,262
    
    
    
    9.2
    
    
    
    104,699
    
    
    
    9.5Residential mortgage
    
    
    159,300
    
    
    
    12.5
    
    
    
    126,740
    
    
    
    11.5Total loans, gross
    
    
    1,278,150
    
    
    
    100.0
    %
    
    
    1,098,368
    
    
    
    100.0
    %Net deferred fees
    
    
    (718
    )
    
    
    
    
    
    
    (376
    )Total loans
    
    $
    1,277,432
    
    
    
    
    
    
    $
    1,097,992
  NOTE 7
 ALLOWANCE FOR LOAN LOSSES
  2005
    
    
    2004(In thousands)Balance, January 1
    
    $
    16,217
    
    
    $
    14,459Provision charged to expense
    
    
    2,440
    
    
    
    1,600Loans charged off
    
    
    (1,013
    )
    
    
    (1,331
    )Recoveries
    
    
    349
    
    
    
    219Balance, September 30
    
    $
    17,993
    
    
    $
    14,947
 PAGE 10




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
 NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 8
 GOODWILL AND INTANGIBLES
  September 30, 2005
    
    
    December 31, 2004Gross Carrying
    
    
    Accumulated
    
    
    Gross Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationAmortized intangible assets:Core deposit and other intangibles
    
    $
    3,130
    
    
    $
    (1,235
    )
    
    $
    3,130
    
    
    $
    (913
    )
  Aggregate intangible amortization
expense:For the three months ending September 30, 2005
    
    $
    107For the nine months ending September 30, 2005
    
    $
    322Estimated intangible amortization expense:For the year ending December 31, 2005
    
    $
    429For the year ending December 31, 2006
    
    
    373For the year ending December 31, 2007
    
    
    354For the year ending December 31, 2008
    
    
    354For the year ending December 31, 2009
    
    
    354
  Core Depositand OtherGoodwill
    
    
    IntangiblesBalance at beginning of period
    
    $
    891
    
    
    $
    2,217Amortization
    
    
    
    
    
    
    (322
    )Balance at end of period
    
    $
    891
    
    
    $
    1,895
 PAGE 11




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
 NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 9
 EARNINGS PER SHARE
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(In thousands, except per share data)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004BasicIncome (loss) from continuing operations
    
    $
    5,913
    
    
    $
    (228
    )
    
    $
    (8,259
    )
    
    $
    6,350Income from discontinued operations
    
    
    5,629
    
    
    
    197
    
    
    
    7,533
    
    
    
    1,628Net income (loss)
    
    $
    11,542
    
    
    $
    (31
    )
    
    $
    (726
    )
    
    $
    7,978Weighted average common shares outstanding
    
    
    20,060
    
    
    
    17,899
    
    
    
    18,824
    
    
    
    17,882Basic earnings per share from continuing operations
    
    $
    0.30
    
    
    $
    (0.01
    )
    
    $
    (0.44
    )
    
    $
    0.36Basic earnings per share from discontinued operations
    
    $
    0.28
    
    
    $
    0.01
    
    
    $
    0.40
    
    
    $
    0.09Basic earnings per share
    
    $
    0.58
    
    
    $
    0.00
    
    
    $
    (0.04
    )
    
    $
    0.45DilutedIncome (loss) from continuing operations
    
    $
    5,913
    
    
    $
    (228
    )
    
    $
    (8,259
    )
    
    $
    6,350Income from discontinued operations
    
    
    5,629
    
    
    
    197
    
    
    
    7,533
    
    
    
    1,628Net income (loss)
    
    $
    11,542
    
    
    $
    (31
    )
    
    $
    (726
    )
    
    $
    7,978Weighted average common shares outstanding
    
    
    20,060
    
    
    
    17,899
    
    
    
    18,824
    
    
    
    17,882Dilutive
effect of stock options(1)
    
    
    259
    
    
    
    
    
    
    
    
    
    
    
    472Dilutive
effect of restricted stock(1)
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    Diluted average common shares
    
    
    20,354
    
    
    
    17,899
    
    
    
    18,824
    
    
    
    18,354Diluted
average common shares  continuing operations
    
    
    20,354
    
    
    
    17,899
    
    
    
    18,824
    
    
    
    18,354Diluted
average common shares  discontinued operations
    
    
    20,354
    
    
    
    18,304
    
    
    
    19,104
    
    
    
    18,354Diluted earnings per share from continuing operations
    
    $
    0.29
    
    
    $
    (0.01
    )
    
    $
    (0.44
    )
    
    $
    0.34Diluted earnings per share from discontinued operations
    
    $
    0.28
    
    
    $
    0.01
    
    
    $
    0.39
    
    
    $
    0.09Diluted earnings per share
    
    $
    0.57
    
    
    $
    0.00
    
    
    $
    (0.04
    )
    
    $
    0.43
  PAGE 12




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
 NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE
10  STOCK OPTIONS AND COMPENSATION
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(In thousands, except per share data)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Income (loss) from continuing operations as reported
    
    $
    5,913
    
    
    $
    (228
    )
    
    $
    (8,259
    )
    
    $
    6,350Deduct: stock-based compensation expense
determined under fair value based method
    
    
    94
    
    
    
    132
    
    
    
    282
    
    
    
    264Pro forma income (loss) from continuing operations
    
    $
    5,819
    
    
    $
    (360
    )
    
    $
    (8,541
    )
    
    $
    6,086Basic Earnings Per ShareFrom continuing operations as reported
    
    $
    0.30
    
    
    $
    (0.01
    )
    
    $
    (0.44
    )
    
    $
    0.36Pro forma basic earnings per share
    
    
    0.29
    
    
    
    (0.02
    )
    
    
    (0.45
    )
    
    
    0.34Diluted Earnings Per ShareFrom continuing operations as reported
    
    $
    0.29
    
    
    $
    (0.01
    )
    
    $
    (0.44
    )
    
    $
    0.34Pro forma diluted earnings per share
    
    
    0.29
    
    
    
    (0.02
    )
    
    
    (0.45
    )
    
    
    0.33
   PAGE 13




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
 NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE
11  DERIVATIVE INSTRUMENTS
  NOTE 12  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
    
    $
    109,078
    
    
    $
    90,397
    
    
    $
    631
    
    
    $
    3
    
    
    $
    200,109Consumer real estate
    
    
    18,877
    
    
    
    5,058
    
    
    
    9,268
    
    
    
    36,017
    
    
    
    69,220Consumer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,720
    
    
    
    1,720Commercial
    
    
    84,030
    
    
    
    
    
    
    
    83
    
    
    
    1,233
    
    
    
    85,346Letters of credit
    
    
    37,963
    
    
    
    6,790
    
    
    
    160
    
    
    
    
    
    
    
    44,913Commitments to extend credit
    
    
    112,259
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    112,259Total commitments
    
    $
    362,207
    
    
    $
    102,245
    
    
    $
    10,142
    
    
    $
    38,973
    
    
    $
    513,567
   PAGE 14




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##### Table of Contents



ITEM
2  MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following discussion and analysis is intended as a review of significant factors affecting
the financial condition and results of operations of the Company for the periods indicated. The
discussion should be read in conjunction with the unaudited Consolidated Financial Statements and
the Notes thereto presented herein. In addition to historical information, the following
Managements Discussion and Analysis of Financial Condition and Results of Operations contains
forward-looking statements that involve risks and uncertainties. The Companys actual results
could differ significantly from those anticipated in these forward-looking statements as a result
of certain factors discussed in this report.
 Critical Accounting Policies and Estimates
  Strategy
  
    
    Recruitment of seasoned commercial lenders, credit analysts, and key risk
and operations managers.
 ü
    
    During the first nine months of 2005, the Company has added five
commercial lenders and seven credit analysts. The Company has also hired a manager
to its internal audit function as well as an additional staff member. Various
other operational positions have been added and filled in deposit operations, retail
operations, and information technology.
 
    
    Diversification of the loan portfolio mix by reducing, as a long-term goal,
the concentration in commercial real estate lending and expanding commercial,
residential mortgage, home equity, and other consumer lending.
 ü
    
    Loan portfolio has grown; however, the mix has not materially changed
from the year ended December 31, 2004.
 
    
    Modifying the structure and mix of the securities portfolio. The Companys
focus on future investment security purchases is to maintain an adequate level of
liquidity and to shorten the duration of its securities portfolio.
 ü
    
    The Company has changed the mix of its securities portfolio through its
balance sheet repositioning so that the securities portfolio generates increased
cash flow to fund loan demand.
 
    
    Expanding its focus on retail banking activities, including traditional and
non-deposit investment products, and placing greater emphasis on transactional deposit
growth.
 ü
    
    The Company added more retail banking center managers and changed the
leadership on retail banking activities.
 PAGE 15




---



##### Table of Contents




    
    Reducing earnings volatility and the risk in the securities portfolio by
exiting hedge accounting on futures contracts, terminating certain stand-alone
derivatives positions, and instituting a pre-purchase pricing discipline.
 ü
    
    Hedge accounting on futures contracts was exited on December 31, 2004.
These derivatives as well as other positions held at December 31, 2004 were
terminated in January 2005. The Company has changed the mix of its securities
portfolio through its balance sheet repositioning. The average yields on securities
have increased by 32 basis points for the nine months ended September 30, 2005
compared to same period of 2004, while the duration has decreased to 3.4 from 5.0
years.
 
    
    Implementing ongoing risk and credit management processes that provide
strong levels of control, minimize risk, and anticipate potential problems.
 ü
    
    The Company has filled several risk and credit management positions
including internal audit, deposit operations, retail operations, and credit.
 
    
    Developing a growing, well diversified, well priced, and fundamentally
sound loan portfolio.
 ü
    
    The Companys loan portfolio has grown by 16.3% from December 31, 2004.
Yields on average loans have also increased by 42 basis points for the nine months
ended September 30, 2005 compared to the same period of 2004. Nonaccrual loans have
decreased compared to December 31, 2004 as well as net charge-offs.
 
    
    Focusing deposit efforts on transaction account growth, especially demand
deposit growth.
 ü
    
    The Company changed the leadership on retail banking activities and has
added seven branch managers; each of the 17 branches of Midwest Bank and Trust
Company will have a branch manager before the end of the fourth quarter of 2005.
The Company has also implemented an incentive program that encourages cross-selling
of traditional and non-deposit investment products and new deposit accounts.
 
    
    Developing additional sources of fee income.
 ü
    
    The Company has added managers in sales and cash management as well as
seven new financial advisors and five mortgage originators.
     PAGE 16




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##### Table of Contents



Results of Operations  Three and Nine Months Ended
September 30, 2005 and 2004
  
    
    Earnings per share from continuing operations:
 
    
    Basic earnings per share from continuing operations for the three months ended
September 30, 2005 were $0.30 compared to $(0.01) for the comparable period in
2004.
    
    Diluted earnings per share from continuing operations for the three months ended
September 30, 2005 were $0.29 compared to $(0.01) for the comparable period in
2004.
 
    
    Consolidated income from continuing operations for the third quarter of 2005 was
$5.9 million, a $6.1 million increase when compared to a loss of $228,000 for the third
quarter of 2004. This increase is mainly attributed to the increase in net interest
income and noninterest income. Included in the third quarter of 2004 were net losses
on securities transactions of $5.0 million.
    
    Core net income from continuing operations (defined as net income excluding the life
insurance benefit as reconciled below) was $5.1 million for the three months ended
September 30, 2005.
    
    The return on average assets from continuing operations for the three months ended
September 30, 2005 was 0.98% compared to (0.04)% for the similar period in 2004; core
return on average assets was 0.85%.
    
    The return on average equity from continuing operations for the three months ended
September 30, 2005 was 13.49% compared to (0.64)% for the similar period in 2004; core
return on average equity was 11.69%.
    
    Net interest income increased 32.8% to $16.4 million in the third quarter of 2005
compared to $12.4 million in the third quarter of 2004 as a result of loan growth and
increased loan rates. The net interest margin was 3.53% for the three months ended
September 30, 2005 compared to 2.72% for the similar period of 2004.
    
    Interest income on loans increased 41.2% to $20.8 million in the third quarter of
2005 compared to $14.7 million for the comparable period in 2004.
    
    The provision for loan losses increased by 103.3% to $813,000 for the third quarter
of 2005 compared to $400,000 for the comparable period in 2004.
    
    Excluding net losses on securities, noninterest income increased 4.1% to $3.6
million in the third quarter of 2005 compared to $3.4 million in the third quarter of
2004 reflecting the decrease in trading activity and the life insurance benefit.
    
    Noninterest expenses decreased to $11.3 million in the third quarter of 2005
compared to $12.0 million in the third quarter of 2004.
 PAGE 17




---



##### Table of Contents




    
    Earnings per share from continuing operations:
 
    
    Basic earnings per share from continuing operations for the nine months ended
September 30, 2005 were $(0.44) compared to $0.36 for the comparable period in
2004.
    
    Diluted earnings per share from continuing operations for the nine months ended
September 30, 2005 were $(0.44) compared to $0.34 for the comparable period in
2004.
 
    
    Consolidated results of operations from continuing operations for the nine months ended
September 30, 2005 reflected a loss of $8.3 million compared to
income of the $6.4 million for the similar
period in 2004.
    
    Core income from continuing operations (defined as net income excluding the balance
sheet repositioning, employee severance charges, write down of other real estate owned,
and life insurance benefit as reconciled below) was $11.6 million for the nine months
ended September 30, 2005.
    
    The provision for loan losses increased by 52.5% to $2.4 million for the first three
quarters of 2005 compared to $1.6 million for similar period in 2004.
    
    The return on average assets from continuing operations for the nine months ended
September 30, 2005 was a negative 0.48% compared to 0.37% for the similar period 2004; core
return on average assets was 0.67%.
    
    The return on average equity from continuing operations for the nine months ended
September 30, 2005 was a negative 7.24% compared to 5.96% for the nine months ended September
30, 2004; core return on average equity was 10.15%.
    
    Net interest income increased 21.8% to $43.7 million in the first three quarters of
2005 compared to $35.9 million in the similar period of 2004 as a result of loan growth
and increased loan rates. The net interest margin for the first three quarters of 2005
was 3.21% compared to 2.71% for similar period in 2004.
    
    Interest income on loans increased 31.0% to $57.0 million in the first three
quarters of 2005 compared to $43.5 million for the comparable period in 2004.
    
    Excluding net gains or losses on securities, noninterest income increased 17.0% to
$8.7 million in the nine months ended September 30, 2005 compared to $7.4 million in
the similar period of 2004.
    
    Noninterest expenses increased 56.3% to $49.7 million in the first nine months of
2005 compared to $31.8 million in comparable period of 2004.
 PAGE 18




---



##### Table of Contents



QTD
    
    
    YTDIncome (loss) from continuing operations
    
    $
    5,913
    
    
    $
    (8,259
    )Life insurance benefit
    
    
    (789
    )
    
    
    (789
    )Loss on U.S. Agency debt securities, net of tax
    
    
    
    
    
    
    10,595Charge from prepayment of FHLB advances, net of tax
    
    
    
    
    
    
    5,886Charge from unwinding of swaps, net of tax
    
    
    
    
    
    
    2,206Write down on other real estate owned, net of tax
    
    
    
    
    
    
    1,502Charge from redemption of trust preferred securities, net of tax
    
    
    
    
    
    
    318Employment severance charges, net of tax
    
    
    
    
    
    
    123Core income from continuing operations
    
    $
    5,124
    
    
    $
    11,582
 PAGE 19




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##### Table of Contents



Net Interest Income
   For the Three Months EndedSeptember 30, 2005
    
    
    September 30, 2004
    
    
    June 30, 2005Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)Interest-EarningAssets:Federal funds sold and
other short term investments
    
    $
    15,252
    
    
    $
    142
    
    
    
    3.72
    %
    
    $
    39,831
    
    
    $
    125
    
    
    
    1.26
    %
    
    $
    2,883
    
    
    $
    24
    
    
    
    3.33
    %Securities:Taxable(1)
    
    
    643,561
    
    
    
    7,803
    
    
    
    4.85
    
    
    
    842,631
    
    
    
    8,761
    
    
    
    4.16
    
    
    
    683,823
    
    
    
    7,887
    
    
    
    4.61Exempt from federal income
taxes(1)
    
    
    34,432
    
    
    
    524
    
    
    
    6.09
    
    
    
    11,657
    
    
    
    196
    
    
    
    6.73
    
    
    
    14,140
    
    
    
    223
    
    
    
    6.31Total securities
    
    
    677,993
    
    
    
    8,327
    
    
    
    4.92
    
    
    
    854,288
    
    
    
    8,957
    
    
    
    4.20
    
    
    
    697,963
    
    
    
    8,110
    
    
    
    4.64FRB and FHLB stock
    
    
    14,093
    
    
    
    183
    
    
    
    5.19
    
    
    
    13,830
    
    
    
    276
    
    
    
    7.98
    
    
    
    13,834
    
    
    
    192
    
    
    
    5.55Loans:Commercial loans(1) (3)(4)
    
    
    179,926
    
    
    
    3,106
    
    
    
    6.91
    
    
    
    153,039
    
    
    
    2,145
    
    
    
    5.61
    
    
    
    178,329
    
    
    
    2,890
    
    
    
    6.48Commercial real estate
loans(1) (3)(4)(6)
    
    
    854,888
    
    
    
    14,876
    
    
    
    6.96
    
    
    
    706,180
    
    
    
    10,950
    
    
    
    6.20
    
    
    
    832,993
    
    
    
    13,536
    
    
    
    6.50Agricultural loans(3)(4)
    
    
    1,565
    
    
    
    29
    
    
    
    7.41
    
    
    
    1,621
    
    
    
    24
    
    
    
    5.92
    
    
    
    1,465
    
    
    
    26
    
    
    
    7.10Consumer real estate
loans(3)(4)(6)
    
    
    190,306
    
    
    
    2,823
    
    
    
    5.93
    
    
    
    124,574
    
    
    
    1,627
    
    
    
    5.22
    
    
    
    169,117
    
    
    
    2,452
    
    
    
    5.80Consumer installment
loans(3)(4)
    
    
    3,796
    
    
    
    75
    
    
    
    7.90
    
    
    
    4,400
    
    
    
    82
    
    
    
    7.45
    
    
    
    3,793
    
    
    
    69
    
    
    
    7.28Total loans
    
    
    1,230,481
    
    
    
    20,909
    
    
    
    6.80
    
    
    
    989,814
    
    
    
    14,828
    
    
    
    6.00
    
    
    
    1,185,697
    
    
    
    18,973
    
    
    
    6.40Total interest-earning
assets
    
    $
    1,937,819
    
    
    $
    29,561
    
    
    
    6.12
    %
    
    $
    1,897,763
    
    
    $
    24,186
    
    
    
    5.08
    %
    
    $
    1,900,377
    
    
    $
    27,299
    
    
    
    5.76
    %Interest-BearingLiabilities:Deposits:Interest-bearing demand
deposits
    
    $
    170,647
    
    
    $
    355
    
    
    
    0.83
    %
    
    $
    193,031
    
    
    $
    625
    
    
    
    1.30
    %
    
    $
    186,450
    
    
    $
    743
    
    
    
    1.59
    %Money-market demand accounts
and savings accounts
    
    
    335,347
    
    
    
    1,275
    
    
    
    1.52
    
    
    
    326,866
    
    
    
    1,182
    
    
    
    1.45
    
    
    
    344,722
    
    
    
    1,403
    
    
    
    1.63Time deposits less than
$100,000
    
    
    771,113
    
    
    
    6,353
    
    
    
    3.30
    
    
    
    726,964
    
    
    
    4,861
    
    
    
    2.67
    
    
    
    758,556
    
    
    
    5,844
    
    
    
    3.08Time deposits of $100,000 or
more
    
    
    44,929
    
    
    
    384
    
    
    
    3.42
    
    
    
    64,665
    
    
    
    352
    
    
    
    2.18
    
    
    
    38,547
    
    
    
    275
    
    
    
    2.85Public funds
    
    
    18,900
    
    
    
    154
    
    
    
    3.26
    
    
    
    4,956
    
    
    
    28
    
    
    
    2.26
    
    
    
    9,677
    
    
    
    58
    
    
    
    2.40Total interest-bearing
deposits
    
    
    1,340,936
    
    
    
    8,521
    
    
    
    2.56
    
    
    
    1,316,482
    
    
    
    7,048
    
    
    
    2.16
    
    
    
    1,337,952
    
    
    
    8,323
    
    
    
    2.48Borrowings:Federal funds purchased and
repurchase agreements
    
    
    224,556
    
    
    
    1,721
    
    
    
    3.07
    
    
    
    170,402
    
    
    
    1,107
    
    
    
    2.60
    
    
    
    246,203
    
    
    
    1,765
    
    
    
    2.87FHLB advances
    
    
    150,000
    
    
    
    1,340
    
    
    
    3.57
    
    
    
    211,573
    
    
    
    2,214
    
    
    
    4.19
    
    
    
    118,195
    
    
    
    1,594
    
    
    
    5.39Notes payable and other
borrowings
    
    
    55,672
    
    
    
    875
    
    
    
    6.29
    
    
    
    55,672
    
    
    
    896
    
    
    
    6.44
    
    
    
    55,672
    
    
    
    979
    
    
    
    7.03Total borrowings
    
    
    430,228
    
    
    
    3,936
    
    
    
    3.64
    
    
    
    437,647
    
    
    
    4,217
    
    
    
    3.84
    
    
    
    420,070
    
    
    
    4,338
    
    
    
    4.12Total interest-bearing
liabilities
    
    $
    1,771,164
    
    
    $
    12,457
    
    
    
    2.80
    %
    
    $
    1,754,129
    
    
    $
    11,265
    
    
    
    2.56
    %
    
    $
    1,758,022
    
    
    $
    12,661
    
    
    
    2.88
    %Net interest income (tax
equivalent)(1) (5)
    
    
    
    
    
    $
    17,104
    
    
    
    3.32
    %
    
    
    
    
    
    $
    12,921
    
    
    
    2.52
    %
    
    
    
    
    
    $
    14,638
    
    
    
    2.88
    %Net interest margin (tax
equivalent)(1)
    
    
    
    
    
    
    
    
    
    
    3.53
    %
    
    
    
    
    
    
    
    
    
    
    2.72
    %
    
    
    
    
    
    
    
    
    
    
    3.08
    %Net interest income(2) (5)
    
    
    
    
    
    $
    16,423
    
    
    
    
    
    
    
    
    
    
    $
    12,364
    
    
    
    
    
    
    
    
    
    
    $
    14,070Net interest margin(2)
    
    
    
    
    
    
    
    
    
    
    3.39
    %
    
    
    
    
    
    
    
    
    
    
    2.61
    %
    
    
    
    
    
    
    
    
    
    
    2.96
    %
 
 (1)
    
    Adjusted for 35% tax rate in 2005 and 2004 and adjusted for the dividends-received
deduction where applicable.(2)
    
    Not adjusted for 35% tax rate in 2005 and 2004 or for the dividends-received deduction.(3)
    
    Nonaccrual loans are included in the average balance; however, these loans are not earning
any interest. PAGE 20




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##### Table of Contents



(4)
    
    Includes loan fees which are immaterial.(5)
    
    The following table reconciles reported net interest income on a tax equivalent basis for the
periods presented: 3Q05
    
    
    3Q04
    
    
    2Q05Net interest income
    
    $
    16,423
    
    
    $
    12,364
    
    
    $
    14,070Tax equivalent adjustment to net interest income
    
    
    681
    
    
    
    557
    
    
    
    568Net interest income, tax equivalent basis
    
    $
    17,104
    
    
    $
    12,921
    
    
    $
    14,638
  For the Nine Months EndedSeptember 30, 2005
    
    
    September 30, 2004Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)Interest-EarningAssets:Federal funds sold and
other short term investments
    
    $
    20,159
    
    
    $
    387
    
    
    
    2.56
    %
    
    $
    136,416
    
    
    $
    1,033
    
    
    
    1.01
    %Securities:Taxable(1)
    
    
    655,284
    
    
    
    22,860
    
    
    
    4.65
    
    
    
    724,930
    
    
    
    23,539
    
    
    
    4.33Exempt from federal income
taxes(1)
    
    
    19,113
    
    
    
    891
    
    
    
    6.22
    
    
    
    15,336
    
    
    
    766
    
    
    
    6.66Total securities
    
    
    674,397
    
    
    
    23,751
    
    
    
    4.70
    
    
    
    740,266
    
    
    
    24,305
    
    
    
    4.38FRB and FHLB stock
    
    
    13,919
    
    
    
    570
    
    
    
    5.46
    
    
    
    16,870
    
    
    
    850
    
    
    
    6.72Loans:Commercial loans(1) (3)(4)
    
    
    181,133
    
    
    
    8,701
    
    
    
    6.40
    
    
    
    161,905
    
    
    
    6,667
    
    
    
    5.49Commercial real estate
loans(1) (3)(4)(6)
    
    
    822,040
    
    
    
    40,754
    
    
    
    6.61
    
    
    
    698,086
    
    
    
    32,733
    
    
    
    6.25Agricultural loans(3)(4)
    
    
    1,424
    
    
    
    75
    
    
    
    7.02
    
    
    
    1,345
    
    
    
    60
    
    
    
    5.95Consumer real estate
loans(3)(4)(6)
    
    
    172,561
    
    
    
    7,460
    
    
    
    5.76
    
    
    
    99,820
    
    
    
    4,018
    
    
    
    5.37Consumer installment
loans(3)(4)
    
    
    3,776
    
    
    
    215
    
    
    
    7.59
    
    
    
    4,470
    
    
    
    249
    
    
    
    7.43Total loans
    
    
    1,180,934
    
    
    
    57,205
    
    
    
    6.46
    
    
    
    965,626
    
    
    
    43,727
    
    
    
    6.04Total interest-earning
assets
    
    $
    1,889,409
    
    
    $
    81,913
    
    
    
    5.78
    %
    
    $
    1,859,178
    
    
    $
    69,915
    
    
    
    5.01
    %Interest-BearingLiabilities:Deposits:Interest-bearing demand
deposits
    
    $
    184,117
    
    
    $
    1,825
    
    
    
    1.32
    %
    
    $
    185,335
    
    
    $
    1,773
    
    
    
    1.28
    %Money-market demand accounts
and savings accounts
    
    
    349,067
    
    
    
    4,263
    
    
    
    1.63
    
    
    
    320,753
    
    
    
    3,188
    
    
    
    1.33Time deposits less than
$100,000
    
    
    744,363
    
    
    
    17,175
    
    
    
    3.08
    
    
    
    711,311
    
    
    
    13,914
    
    
    
    2.61Time deposits of $100,000 or
more
    
    
    51,057
    
    
    
    1,078
    
    
    
    2.82
    
    
    
    64,187
    
    
    
    1,022
    
    
    
    2.12Public funds
    
    
    12,232
    
    
    
    256
    
    
    
    2.79
    
    
    
    10,880
    
    
    
    115
    
    
    
    1.41Total interest-bearing
deposits
    
    
    1,340,836
    
    
    
    24,597
    
    
    
    2.45
    
    
    
    1,292,466
    
    
    
    20,012
    
    
    
    2.06Borrowings:Federal funds purchased and
repurchase agreements
    
    
    213,089
    
    
    
    4,601
    
    
    
    2.88
    
    
    
    155,776
    
    
    
    3,199
    
    
    
    2.74FHLB advances
    
    
    128,867
    
    
    
    4,366
    
    
    
    4.52
    
    
    
    214,360
    
    
    
    6,345
    
    
    
    3.95Notes payable and other
borrowings
    
    
    55,943
    
    
    
    2,848
    
    
    
    6.79
    
    
    
    56,161
    
    
    
    2,629
    
    
    
    6.24Total borrowings
    
    
    397,899
    
    
    
    11,815
    
    
    
    3.96
    
    
    
    426,297
    
    
    
    12,173
    
    
    
    3.81Total interest-bearing
liabilities
    
    $
    1,738,735
    
    
    $
    36,412
    
    
    
    2.79
    %
    
    $
    1,718,763
    
    
    $
    32,185
    
    
    
    2.49
    %Net interest income (tax
equivalent)(1) (5)
    
    
    
    
    
    $
    45,501
    
    
    
    2.99
    %
    
    
    
    
    
    $
    37,730
    
    
    
    2.52
    %Net interest margin (tax
equivalent)(1)
    
    
    
    
    
    
    
    
    
    
    3.21
    %
    
    
    
    
    
    
    
    
    
    
    2.71
    %Net interest income(2) (5)
    
    
    
    
    
    $
    43,731
    
    
    
    
    
    
    
    
    
    
    $
    35,899Net interest margin(2)
    
    
    
    
    
    
    
    
    
    
    3.09
    %
    
    
    
    
    
    
    
    
    
    
    2.57
    %
 
 (1)
    
    Adjusted for 35% tax rate in 2005 and 2004 and adjusted for the dividends-received
deduction where applicable.(2)
    
    Not adjusted for 35% tax rate in 2005 and 2004 or for the dividends-received deduction.(3)
    
    Nonaccrual loans are included in the average balance; however, these loans are not earning
any interest.(4)
    
    Includes loan fees which are immaterial.(5)
    
    The following table reconciles reported net interest income on a tax equivalent basis for the
periods presented: 3Q05
    
    
    3Q04Net interest income
    
    $
    43,731
    
    
    $
    35,899Tax equivalent adjustment to net interest income
    
    
    1,770
    
    
    
    1,831Net interest income, tax equivalent basis
    
    $
    45,501
    
    
    $
    37,730
 
 (6)
    
    Includes construction loans. PAGE 21




---



##### Table of Contents




    
    Yields on average earning assets increased 104 basis points in the
third quarter of 2005 compared to the third quarter of 2004, and average balances
increased by $40.1 million. Yields on average earning assets increased 77 basis
points in the first nine months of 2005 compared to the similar period in 2004, and
average balances increased by $30.2 million.
    
    Yields on average earning assets increased by 36 basis points during
the third quarter of 2005 compared to the second quarter of 2005. Yields on
average loans increased 40 basis points in the third quarter of 2005 compared to
the second quarter of 2005. Yields on securities increased 28 basis points in the
third quarter of 2005 compared to the second quarter of 2005.
    
    Average cash equivalents decreased by $24.6 million compared to the
third quarter of 2004 and by $116.3 million compared to the nine months ended
September 30, 2004, due to more proactive funds management.
    
    Yields on average loans increased by 80 basis points while average
loans increased by $240.7 million in the quarter ended September 30, 2005 compared
to the same period in 2004 and by $44.8 million compared to the second quarter of
2005. Year-to-date yields on loans increased by 42 basis points and averages
balances increased by $215.3 million compared to the same period in 2004.
    
    Yields on average securities increased 72 basis points while balances
decreased by $176.3 million in the third quarter of 2005 compared to the similar
period in 2004. Yields on average securities increased by 28 basis points compared
to the second quarter of 2005. Year-to-date yields on securities increased by 32
basis points while average balances decreased by $65.9 million compared to the same
period in 2004.
 
    
    Consistent with its strategy, the Company has changed the mix
of its securities portfolio through the sale of U.S. government-sponsored
entity notes in the fourth quarter of 2004 and the first half 2005 and the
investment in mortgage-backed securities described below.
 PAGE 22




---



##### Table of Contents




    
    During the first nine months of 2005, the Company invested
$342.4 million in hybrid adjustable rate mortgage-backed securities with a
weighted average yield of 4.84% as well as $201.4 million in 15-year fixed
mortgage-backed securities with a weighted average yield of 4.87%. The
Company expects these securities to provide added liquidity to fund future
loan growth.
  
    
    Yields on interest-bearing liabilities increased by 24 basis points and
the average balances increased $17.0 million in the third quarter of 2005 compared
to the similar period in 2004. Compared to the second quarter of 2005, yields on
interest-bearing liabilities decreased slightly by 8 basis points, while balances
increased by $13.1 million. Yields on average interest-bearing liabilities
increased 30 basis points in the first nine months of 2005 compared to similar the
similar period in 2004, and average balances increased by $20.0 million.
    
    Average interest-bearing deposits for the third quarter of 2005
increased by $24.5 million while yields increased 40 basis points compared to the
similar period of 2004. Most of this increase was in certificates of deposit and
public funds. Year-to-date yields and balances on interest-bearing deposits
increased by 39 basis points and $48.4 million, respectively, compared to the same
period in 2004.
    
    Average interest-bearing deposits increased by $3.0 million compared to
the prior quarter, and yields increased slightly by 8 basis points. Pricing
reductions for interest-bearing, money market, and savings accounts in the second
quarter of 2005 were offset by increased rates paid on time deposits.
    
    Total average borrowings decreased by $7.4 million and yields decreased
by 20 basis points in the third quarter of 2005 compared to third quarter of 2004.
Compared to the prior quarter, average borrowings increased by $10.2 million while
average rates decreased by 48 basis points as a result of the replacement of the
FHLB advances paid-off in the second quarter as described below. Year-to-date
yields increased by 15 basis points while average balances decrease by $28.4
million.
    
    During June 2005, the Company prepaid $121.5 million of FHLB advances
with an average rate of 5.47%, unwound the interest rate swaps associated with
those advances, and replaced them with $150.0 million in new advances with an
average rate of 3.48%.
    
    The Company also redeemed $20.6 million of its junior subordinated debt
at a rate of 10.00% during June 2005 and replaced it with another issuance for the
same amount at LIBOR plus 177 basis points, with an initial rate of 5.13%.
 Noninterest Income
  PAGE 23




---



##### Table of Contents




    
    Net trading profits were $269,000 in the third quarter of 2005 compared
to $937,000 in the third quarter of 2004. Trading activities have
been curtailed with reductions in the volume of securities traded and
number of transactions. Security trading is not a primary activity. Net trading profits were $400,000
for the nine months ended September 30, 2005 compared to $24,000 for the same
period in 2004.
    
    Insurance and brokerage commissions increased by $90,000 in the three
months ended September 30, 2005 compared to the similar period in 2004 and by
$148,000 in the nine months ended September 30, 2005 compared to the similar period
in 2004, mainly due to increased sales related to the Companys secondary offering
and growth in number of accounts and registered representatives.
    
    Customer service fees decreased slightly by 1.0% and 3.1% in the first
three and nine months ended September 30, 2005, as a result of decreased fees
earned on non-interest bearing deposits.
    
    Gains on sales of loans increased slightly during the three months
ended September 30, 2005 by 9.4% or $10,000 compared to 2004; but decreased during
the nine months ended September 30, 2005 by 41.7% or $182,000, due to a lower level
of mortgage refinancing volume and more variable rate mortgages which were retained
in the portfolio rather than sold.
    
    Increase in the cash surrender value of life insurance decreased by
$41,000, due to a decrease in crediting rates, to $399,000 during the three months
ended September 30, 2005 compared to the similar period in 2004 but increased by
$168,000 for the first nine months of 2005 compared to the same period in 2004. In
July 2004, the Company invested an additional $23.0 million in life insurance.
    
    A life insurance benefit was received in the third quarter of 2005 in
the amount of $789,000.
    
    Net losses on securities transactions were $5.0 million for the third
quarter of 2004 compared to none in the third quarter of 2005. For the nine months
ended September 30, 2005, net losses on securities transactions increased by $14.3
million to $17.4 million compared to the similar period in 2004 as the result of
the sale of the U.S. government-sponsored entity notes associated with the balance
sheet repositioning.
 Noninterest Expenses
  PAGE 24




---



##### Table of Contents




    
    During the second quarter of 2005, a $13.1 million loss
on the early extinguishment of FHLB advances was recorded as a result of the balance sheet
repositioning consisting of $9.5 million in prepayment penalties and $3.6 million
to unwind the interest rate swaps associated with the advances.
    
    Reflected in the year-to-date noninterest expenses also was the $2.4
million write-down of the townhouse project held in other real estate owned taken
in the second quarter of 2005.
    
    Salaries and benefits expense decreased by $256,000 or 3.6% during the
third quarter of 2005 compared to the third quarter of 2004. Salaries and benefits
expense increased by $1.7 or 9.2% during the first nine months of 2005 compared to
same period in 2004. The third quarter and nine month expense increases would be
higher because the third quarter of 2004 reflects the $1.5 million retirement
benefit obligation associated to the former president. The nine months end
September 30, 2005 also reflects 19 additions to management.
    
    Occupancy and equipment expense increased by $63,000 and $158,000
during the three and nine months ended September 30, 2005, respectively, compared
to the similar periods in 2004. The Addison and Glenview, Illinois branches opened
during the third quarter of 2004.
    
    Professional services expense decreased by $336,000 to $1.0 million in
the three months ended September 30, 2005 compared to the similar period in 2004
reflecting a decrease in Sarbanes-Oxley compliance expense and legal expense for
the quarter. For the nine months ended September 30, 2005, professional services
expense increased by $140,000 to $3.4 million due to an increase in audit and ATM
processing fees.
    
    Marketing expenses were $131,000 and $614,000 higher than in the third
quarter and first nine months of 2004 as a result of increased marketing efforts.
 Income Taxes
  Continuing OperationsPeriod EndedSeptember 30,2005
    
    
    2004Income taxes computed at the statutory rate
    
    
    (35.0
    )%
    
    
    35.0
    %Tax-exempt interest income on securities and loans
    
    
    (1.8
    )
    
    
    (4.6
    )General business credits
    
    
    (0.4
    )
    
    
    (1.1
    )State income taxes, net of federal tax benefit
    
    
    (6.8
    )
    
    
    (8.9
    )Cash surrender value increase, net of premiums
    
    
    (2.7
    )
    
    
    (6.0
    )Life insurance benefit
    
    
    (1.6
    )
    
    
    0.0Dividends received deduction
    
    
    (3.8
    )
    
    
    (10.2
    )Other
    
    
    0.4
    
    
    
    2.6Total provision for income taxes
    
    
    (51.9
    )%
    
    
    6.8
    %
 PAGE 25




---



##### Table of Contents



Financial Condition
  
    
    Total assets slightly decreased to $2.2 billion at September 30, 2005 compared to year
end. The Company sold MBWI on September 30, 2005, which had $274.0 million in assets at
December 31, 2004.
    
    In line with the Companys objectives, total loans increased 16.3% to $1.3 billion at
September 30, 2005 compared to year end 2004 and increased 26.8% from a year ago.
    
    The loan to deposit ratio rose to 83.32% from 73.12% at December 31, 2004 and 68.29% at
September 30, 2004.
    
    Deposits increased modestly by $31.6 million to $1.5 billion in the third quarter of
2005 compared to year end and increased by 3.9% compared to September 30, 2004.
    
    In accordance with FAS 144, the related assets and liabilities are reflected on the balance
sheets as assets held for sale and liabilities held for sale at December 31, 2004.
  
    
    Net charge-offs were $664,000 for the nine months ended September 30, 2005 compared to
$1.1 million for the similar period in 2004.
    
    The allowance for loan losses was 1.41% of total loans, versus 1.48% at year end and
1.48% at September 30, 2004.
    
    The allowance for loan losses increased to 2.61 times nonaccruing loans from 1.74 times
at year end and 1.70 times at September 30, 2004.
    
    Nonaccruing loans were reduced to 0.54% of total loans from 0.85% at year end and 0.87%
at September 30, 2004.
    
    Nonperforming assets increased to 0.81% of total assets from 0.78% at year end and 0.64%
at September 30, 2004.
 PAGE 26




---



##### Table of Contents



Loans
  September 30,
    
    
    December 31,2005
    
    
    2004% of Gross
    
    
    
    
    
    
    % of GrossAmount
    
    
    Loans
    
    
    Amount
    
    
    Loans(Dollars in thousands)Commercial
    
    $
    201,708
    
    
    
    15.8
    %
    
    $
    184,558
    
    
    
    16.8
    %Construction
    
    
    315,857
    
    
    
    24.7
    
    
    
    270,836
    
    
    
    24.7Commercial real estate
    
    
    483,023
    
    
    
    37.8
    
    
    
    411,535
    
    
    
    37.5ConsumerHome equity
    
    
    113,790
    
    
    
    8.9
    
    
    
    100,322
    
    
    
    9.1Other consumer
    
    
    4,472
    
    
    
    0.3
    
    
    
    4,377
    
    
    
    0.4Total consumer
    
    
    118,262
    
    
    
    9.2
    
    
    
    104,669
    
    
    
    9.5Residential mortgage
    
    
    159,300
    
    
    
    12.5
    
    
    
    126,740
    
    
    
    11.5Total loans, gross
    
    
    1,278,150
    
    
    
    100.0
    %
    
    
    1,098,368
    
    
    
    100.0
    %Net deferred fees
    
    
    (718
    )
    
    
    
    
    
    
    (376
    )Total loans
    
    $
    1,277,432
    
    
    
    
    
    
    $
    1,097,992
   
    
    Commercial loans increased $17.2 million to $201.7 million as of September 30, 2005 from
$184.6 million as of December 31, 2004.
    
    Construction loans increased by $45.0 million to $315.9 million as of September 30, 2005
from $270.8 million at December 31, 2004.
    
    Commercial real estate loans rose to $483.0 million at September 30, 2005, an increase
of 17.4% from December 31, 2004 reflecting the addition of lending personnel to assist in
the growth in this primary area of focus.
    
    Consumer loans increased $13.6 million, or 13.0%, as of September 30, 2005 compared to
December 31, 2004.
    
    Residential mortgage loans increased $32.6 million to $159.3 million as of September 30,
2005 from $126.7 million as of December 31, 2004.
  PAGE 27




---



##### Table of Contents








    
    The primary risks associated with commercial loans are the quality of the borrowers
management, financial strength and cash flow resources, and the impact of local economic
factors.
    
    Risks associated with real estate loans include concentrations of loans in a certain
loan type, such as commercial or residential, and fluctuating land and property values.
    
    Consumer loans also have risks associated with concentrations of loans in a single type
of loan, as well as the risk a borrower may become unemployed as a result of deteriorating
economic conditions.


Allowance for Loan Losses






2005
    
    
    2004(In thousands)Balance, January 1
    
    $
    16,217
    
    
    $
    14,459Provision charged to operations
    
    
    2,440
    
    
    
    1,600Loans charged off
    
    
    (1,013
    )
    
    
    (1,331
    )Recoveries
    
    
    349
    
    
    
    219Balance, September 30
    
    $
    17,993
    
    
    $
    14,947




PAGE 28




---



##### Table of Contents











September 30, 2005
    
    December 31, 2004QTD
    
    YTD
    
    QTD
    
    YTDNet loans charged off to average loans
    
    
    0.08
    %
    
    
    0.08
    %
    
    
    0.20
    %
    
    
    0.17
    %Provision for loan losses to total loans
    
    
    0.25
    %
    
    
    0.26
    %
    
    
    0.68
    %
    
    
    0.31
    %Allowance for loan losses to total loans
    
    
    1.41
    %
    
    
    1.41
    %
    
    
    1.48
    %
    
    
    1.48
    %Allowance to nonaccruing loans
    
    
    2.61
    x
    
    
    2.61
    x
    
    
    1.74
    x
    
    
    1.74
    x


Nonaccrual Loans and Nonperforming Assets




PAGE 29



---



##### Table of Contents



September 30,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Impaired and other loans 90 days past
due and accruing
    
    $
    7
    
    
    $
    21Nonaccrual and impaired loans not
accruing
    
    $
    6,906
    
    
    $
    9,296Other real estate
    
    
    11,154
    
    
    
    8,064Total nonperforming assets
    
    $
    18,067
    
    
    $
    17,360Total nonaccruing loans to total
loans
    
    
    0.54
    %
    
    
    0.85
    %Total nonperforming assets to total
loans and other real estate
    
    
    1.40
    
    
    
    1.57Total nonperforming assets to total
assets
    
    
    0.81
    
    
    
    0.78
     PAGE 30




---



##### Table of Contents



September 30,
    
    
    June 30,
    
    
    March 31,
    
    
    December 31,2005
    
    
    2005
    
    
    2005
    
    
    2004(In thousands)Special mention
    
    $
    35,293
    
    
    $
    34,950
    
    
    $
    22,993
    
    
    $
    22,535Substandard
    
    $
    28,407
    
    
    $
    32,986
    
    
    $
    32,324
    
    
    $
    36,797Doubtful
    
    
    1,015
    
    
    
    272
    
    
    
    2,939
    
    
    
    1,472Total classified
    
    
    29,422
    
    
    
    33,258
    
    
    
    35,263
    
    
    
    38,269Total special mention and classified
    
    $
    64,715
    
    
    $
    68,208
    
    
    $
    58,256
    
    
    $
    60,804
   Securities
   September 30, 2005Held-to-Maturity
    
    
    Available-for-Sale
    
    
    TotalAmortized
    
    
    Fair
    
    
    Amortized
    
    
    
    
    
    
    Amortized
    
    
    
    
    
    
    % ofCost
    
    
    Value
    
    
    Cost
    
    
    Fair Value
    
    
    Cost
    
    
    Fair Value
    
    
    Portfolio(In thousands)U.S. Treasury and obligations of
U.S. government-sponsored entities
    
    $
    
    
    
    $
    
    
    
    $
    14,930
    
    
    $
    14,934
    
    
    $
    14,930
    
    
    $
    14,934
    
    
    
    1.97
    %Obligations of states and
political subdivisions
    
    
    8,307
    
    
    
    8,391
    
    
    
    54,566
    
    
    
    54,132
    
    
    
    62,873
    
    
    
    62,523
    
    
    
    8.29Mortgage-backed securities
    
    
    58,460
    
    
    
    57,609
    
    
    
    547,288
    
    
    
    541,688
    
    
    
    605,748
    
    
    
    599,297
    
    
    
    79.89Equity securities
    
    
    
    
    
    
    
    
    
    
    63,574
    
    
    
    63,108
    
    
    
    63,574
    
    
    
    63,108
    
    
    
    8.39Other bonds
    
    
    
    
    
    
    
    
    
    
    11,059
    
    
    
    10,713
    
    
    
    11,059
    
    
    
    10,713
    
    
    
    1.46Total
    
    $
    66,767
    
    
    $
    66,000
    
    
    $
    691,417
    
    
    $
    684,575
    
    
    $
    758,184
    
    
    $
    750,575
    
    
    
    100.00
    %
 PAGE 31
    Table of Contents     
    
    The Company has changed the mix of its securities portfolio through the sale of U.S.
government-sponsored entity notes in the fourth quarter of 2004 and the first half of 2005
and the investment in mortgage-backed securities to increase liquidity to fund loans as
described below. The Company has established a limit on the duration of all purchases to a
maximum of 7 years and on the premium paid to a maximum of 1% of the underlying principal
(price of $101) for mortgage-backed securities. These limits were set to reduce the
prepayment risk in a declining interest rate environment.
    
    During the first nine months of 2005, the Company invested $342.4 million in 5/1, 7/1,
and 10/1 hybrid adjustable rate mortgage-backed securities with a weighted average yield of
4.84% as well as $201.4 million in 15-year fixed mortgage-backed securities with a weighted
average yield of 4.87%. The Company expects these securities to provide added liquidity to
fund future loan growth. Accordingly, U.S. government and government-sponsored entity
mortgage-backed securities increased $507.8 million, from $33.8 million at December 31,
2004 to $541.7 million at September 30, 2005.
    
    Equity securities decreased $18.0 million, following the sale of the FNMA Series F
perpetual preferred equity securities, from $81.1 million at December 31, 2004 to $63.1
million at September 30, 2005. Equity securities included capital securities of U.S.
government-sponsored entities.
    
    Obligations of state and political subdivisions increased $53.8 million to $54.1 million
at September 30, 2005 from $320,000 at December 31, 2004 reflecting the purchases in the
second and third quarters of 2005.
    
    Other bonds increased $60,000 to $10.7 million at September 30, 2005 compared to $10.7
million at December 31, 2004. Other bonds include high grade corporate bonds primarily
issued by financial institutions.
   PAGE 32
    Table of Contents   Other Assets
  Deposits and Borrowed Funds
  
    
    Noninterest-bearing deposits were $154.7 million at September 30, 2005,
approximately $8.0 million lower than the $162.6 million level at December 31,
2004.
    
    Over the same period, interest-bearing deposits increased by 3.0%, or
$39.5 million to $1.4 billion at September 30, 2005 compared to December 31, 2004.
    
    Core deposits, which include demand, interest-bearing demand, money
market, and savings, decreased $34.2 million to $684.6 million at September 30,
2005 from $718.8 million at December 31, 2004.
    
    Certificates of deposit under $100,000 increased $56.9 million from
December 31, 2004 to $767.5 million at September 30, 2005.
    
    Certificates of deposit over $100,000 and public funds increased $8.9
million from December 31, 2004 to $81.1 million at September 30, 2005.
   PAGE 33




---



##### Table of Contents



2005
    
    
    2004(In thousands)Federal funds purchased
    
    $
    25,000
    
    
    $
    Securities sold under agreements to
repurchase
    
    
    211,583
    
    
    
    146,885Federal Home Loan Bank advances to bank
subsidiary
    
    
    150,000
    
    
    
    118,079Junior subordinated debt owed to
unconsolidated trusts
    
    
    55,672
    
    
    
    55,672Total
    
    $
    442,255
    
    
    $
    320,636
   Capital Resources
   PAGE 34
    Table of Contents      At September 30, 2005Minimum Required
    
    
    Minimum RequiredActual
    
    
    for Capital Adequacy
    
    
    to be Well CapitalizedAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(In thousands)Total capital to risk-weighted assets
Company
    
    $
    287,864
    
    
    
    18.5
    %
    
    $
    124,587
    
    
    
    8.0
    %
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    198,684
    
    
    
    12.8
    
    
    
    124,020
    
    
    
    8.0
    
    
    $
    155,025
    
    
    
    10.0
    %Tier I capital to risk-weighted assets
Company
    
    
    269,870
    
    
    
    17.3
    
    
    
    62,294
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    180,690
    
    
    
    11.7
    
    
    
    62,010
    
    
    
    4.0
    
    
    
    93,015
    
    
    
    6.0Tier I capital to average assets
Company
    
    
    269,870
    
    
    
    11.3
    
    
    
    95,304
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    180,690
    
    
    
    8.6
    
    
    
    83,818
    
    
    
    4.0
    
    
    
    104,772
    
    
    
    5.0
 At December 31, 2004Minimum Required
    
    
    Minimum RequiredActual
    
    
    for Capital Adequacy
    
    
    to be Well CapitalizedAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(In thousands)Total capital to risk-weighted assets
Company
    
    $
    219,343
    
    
    
    14.7
    %
    
    $
    119,758
    
    
    
    8.0
    %
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    189,276
    
    
    
    14.3
    
    
    
    105,724
    
    
    
    8.0
    
    
    $
    132,155
    
    
    
    10.0
    %Tier I capital to risk-weighted assets
Company
    
    
    198,597
    
    
    
    13.3
    
    
    
    59,879
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    172,985
    
    
    
    13.1
    
    
    
    52,862
    
    
    
    4.0
    
    
    
    79,293
    
    
    
    6.0Tier I capital to average assets
Company
    
    
    198,597
    
    
    
    8.5
    
    
    
    93,225
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    172,985
    
    
    
    8.5
    
    
    
    80,991
    
    
    
    4.0
    
    
    
    101,239
    
    
    
    5.0
 Liquidity
 PAGE 35
    Table of Contents      PAGE 36




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##### Table of Contents



ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
 Interest Rate Sensitivity Analysis
  Change in Net Interest Income Over One Year HorizonAt September 30, 2005
    
    
    At December 31, 2004
    
    
    GuidelinesChange in
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    MaximumLevels of
    
    Dollar
    
    
    Percentage
    
    
    Dollar
    
    
    Percentage
    
    
    PercentageInterest Rates
    
    Change
    
    
    Change
    
    
    Change
    
    
    Change
    
    
    Change+200 bp
    
    $
    2,598
    
    
    
    4.07
    %
    
    $
    251
    
    
    
    0.43
    %
    
    
    (15.0
    )%+100 bp
    
    
    1,274
    
    
    
    2.00
    
    
    
    29
    
    
    
    0.05
    
    
    
    (15.0
    )-100 bp
    
    
    904
    
    
    
    1.42
    
    
    
    329
    
    
    
    0.56
    
    
    
    (15.0
    )
    PAGE 37




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##### Table of Contents



ITEM
4  CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls Over Financial Reporting
  PAGE 38




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##### Table of Contents



SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
     
    
    Managements ability to reduce and effectively manage interest rate risk and the impact
of interest rates in general on the volatility of the Companys net interest income;
    
    Fluctuations in the value of the Companys investment securities;
    
    The ability to attract and retain senior management experienced in banking and
financial services;
    
    The sufficiency of allowances 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
 PAGE 39




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##### Table of Contents



Banks loan portfolio and individual large loans;
    
    The effects of competition from other commercial banks, thrifts, mortgage banking
firms, consumer finance companies, credit unions, securities brokerage firms, insurance
companies, money market and other mutual funds, and other financial institutions operating
in the Companys market or elsewhere or providing similar services;
    
    The failure of assumptions underlying the establishment of allowances for loan losses
and estimation of values of collateral and various financial assets and liabilities;
    
    Volatility of rate sensitive deposits;
    
    Operational risks, including data processing system failures or fraud;
    
    Asset/liability matching risks and liquidity risks;
    
    Changes in the economic environment, competition, or other factors that may influence
the anticipated growth rate of loans and deposits, the quality of the loan portfolio and
loan and deposit pricing, and the Companys ability to successfully pursue acquisition and
expansion strategies and integrate any acquired companies;
    
    The impact from liabilities arising from legal or administrative proceedings on the
financial condition of the Company;
    
    Possible administrative or enforcement actions of banking regulators in connection with
any material failure of the Bank to comply with banking laws, rules or regulations;
    
    Possible administrative or enforcement actions of the Securities and Exchange
Commission (the SEC) in connection with the SEC inquiry of the restatement of the
Companys September 30, 2002 financial statements;
    
    Governmental monetary and fiscal policies, as well as legislative and regulatory
changes, that may result in the imposition of costs and constraints on the Company through
higher FDIC insurance premiums, significant fluctuations in market interest rates,
increases in capital requirements, and operational limitations;
    
    Changes in general economic or industry conditions, nationally or in the communities in
which the Company conducts business;
    
    Changes in accounting principles, policies, or guidelines affecting the businesses
conducted by the Company;
    
    Acts of war or terrorism; and
    
    Other economic, competitive, governmental, regulatory, and technical factors affecting
the Companys operations, products, services, and prices.
 PAGE 40
    Table of Contents     PAGE 41




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##### Table of Contents



PART II
 
 Item 1. Legal Proceedings
  
 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
  2.2
    
    Amendment to Stock Purchase Agreement between Western Illinois
Bancshares, Inc. and Midwest Banc Holdings, Inc. (incorporated by
reference to Registrants Form 10-Q for the quarter ended June
30, 2005, File No. 001-13735).3.1
    
    Amended and Restated Certificate of Incorporation, as amended
(incorporated by reference to Registrants Form 10-Q for the
quarter ended June 30, 2005, File No. 001-13735).3.2
    
    Amended and Restated By-laws, filed February 28, 2005
(incorporated by reference to Registrants Report on Form 8-K
filed February 28, 2005, File No. 001-13735).4.1
    
    Specimen Common Stock Certificate (incorporated by reference to
Registrants Registration Statement on Form S-1, Registration No.
333-42827).4.2
    
    Certain instruments defining the rights of the holders of
long-term debt of the Company and certain of its subsidiaries,
none of which authorize a total amount of indebtedness in excess
of 10% of the total assets of the Company and its subsidiaries on
a consolidated basis, have not been filed as Exhibits. The
Company hereby agrees to furnish a copy of any of these
agreements to the SEC upon request.*10.1
    
    Midwest Banc Holdings, Inc. Stock and Incentive Plan
(incorporated by reference to Registrants Proxy Statement filed
April 13, 2005, Registration No. 001-13735).*10.4
    
    Form of Transitional Employment Agreements (incorporated by
reference to Registrants Registration Statement on Form S-1,
Registration No. 333-42827).10.5
    
    Lease dated as of December 24, 1958, between Western National
Bank of Cicero and Midwest Bank and Trust Company, as amended
(incorporated by reference to Registrants Registration Statement
on Form S-1, Registration No. 333-42827).10.6
    
    Britannica Centre Lease, dated as of May 1, 1994, between Chicago
Title and Trust Company, as Trustee under Trust Agreement dated
November 2, 1977 and known as Trust No. 1070932 and Midwest Bank
& Trust Company (incorporated by reference to
 PAGE 42




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##### Table of Contents



Registrants
Registration Statement on Form S-1, Registration No. 333-42827).10.7
    
    Lease dated as of March 20, 1996 between Grove Lodge No. 824
Ancient Free and Accepted Masons and Midwest Bank of Hinsdale
(incorporated by reference to Registrants Registration Statement
on Form S-1, Registration No. 333-42827).10.8
    
    Office Lease, undated, between Grove Lodge No. 824 Ancient Free
and Accepted Masons and Midwest Bank of Hinsdale (incorporated by
reference to Registrants Registration Statement on Form S-1,
Registration No. 333-42827).*10.15
    
    Form of Supplemental Executive Retirement Agreement (incorporated
by reference to Registrants Form 10-Q for the quarter ended
September 30, 2001, File No. 001-13735).*10.16
    
    Form of Transitional Employment Agreement (Executive Officer
Group) (incorporated by reference to Registrants Form 10-Q for
the quarter ended September 30, 2001, File No. 001-13735).10.17
    
    Form of Restricted Stock Award Agreement for Officers, Restricted
Stock Grant Notice for Officers, Incentive and Nonqualified Stock
Options Award Agreements, and Stock Option Grant Notice for
Officers (incorporated by reference to Registrants Report on
Form 8-K filed August 29, 2005, File No. 001-13735).*10.18
    
    Form of Supplemental Executive Retirement Agreement and First
Amendment to the Form of Supplemental Executive Retirement
Agreement (incorporated by reference to Registrants Report on
Form 8-K filed October 28, 2005, File No. 001-13735).10.19
    
    Form of Restricted Stock Award Agreement for Non-employee
Directors and Restricted Stock Grant Notice for Non-employee
Directors (incorporated by reference to Registrants Report on
Form 8-K filed October 28, 2005, File No. 001-13735).10.21
    
    Lease dated as of April 29, 1976, between Sanfilippo, Joseph C.
and Grace Ann and Fairfield Savings and Loan Association, as
amended (incorporated by reference to Registrants Form 10-K for
the year ended December 31, 2003, File No. 001-13735).10.22
    
    Lease dated as of August 28, 2002 between Glen Oak Plaza and
Midwest Bank and Trust Company (incorporated by reference to
Registrants Form 10-K for the year ended December 31, 2003, File
No. 001-13735).10.24
    
    Loan Agreement as of April 8, 2004, between the Company and
LaSalle Bank National Association (incorporated by reference to
Registrants Form 10-Q for the quarter ended September 30, 2004,
File No. 001-13735).10.25
    
    Employment Agreement as of September 28, 2004 between the Company
and the Chief Executive Officer (incorporated by reference to
Registrants Form 10-Q for the quarter ended September 30, 2004,
File No. 001-13735).10.26
    
    Retirement Agreement as of September 28, 2004 between the Company
and retiring Chief Executive Officer (incorporated by reference
to Registrants Form 10-Q for the quarter ended September 30,
2004, File No. 001-13735).10.27
    
    Midwest Banc Holdings, Inc. Severance Policy as of June 28, 2005
(incorporated by reference to Registrants Form 8-K dated June
28, 2005, File No. 001-13735).10.28
    
    First amendment to Loan Agreement as of April 8, 2004, between
the Company and LaSalle Bank National Association (incorporated
by reference to Registrants Report Form 8-K, dated April 28,
2005, File No. 001-13735).31.1
    
    Rule 13a-14(a) Certification of Principal Executive Officer.31.2
    
    Rule 13a-14(a) Certification of Principal Financial Officer.32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, from
the Companys Chief Executive Officer and Chief Financial
Officer.
 
 *
    
    Indicates management contracts or compensatory plans or arrangements required to be filed as
an exhibit. PAGE 43




---



##### Table of Contents



SIGNATURES
  Date:
November 9, 2005MIDWEST BANC HOLDINGS, INC.
(Registrant)By:
    
    /s/ James J. GiancolaJames J. Giancola,
President and Chief Executive OfficerBy:
    
    /s/ Daniel R. KadolphDaniel R. Kadolph,
Senior Vice President and
Chief Financial Officer
 PAGE 44




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##### Table of Contents



2.2
    
    Amendment Stock Purchase Agreement between Western Illinois
Bancshares, Inc. and Midwest Banc Holdings, Inc. (incorporated by
reference to Registrants Form 10-Q for the quarter ended June
30, 2005, File No. 001-13735).3.1
    
    Amended and Restated Certificate of Incorporation (incorporated
by reference to Registrants Form 10-Q for the quarter ended June
30, 2005, File No. 001-13735).3.2
    
    Amended and Restated By-laws, filed February 28, 2005
(incorporated by reference to Registrants Report on Form 8-K
filed February 28, 2005, File No. 001-13735).3.11
    
    Certificate of Amendment of Restated Certificate of Incorporation
(incorporated by reference to Registrants Form 10-Q for quarter
ended June 30, 2002, File No. 001-13735).4.1
    
    Specimen Common Stock Certificate (incorporated by reference to
Registrants Registration Statement on Form S-1, Registration No.
333-42827).4.2
    
    Certain instruments defining the rights of the holders of
long-term debt of the Company and certain of its subsidiaries,
none of which authorize a total amount of indebtedness in excess
of 10% of the total assets of the Company and its subsidiaries on
a consolidated basis, have not been filed as Exhibits. The
Company hereby agrees to furnish a copy of any of these
agreements to the SEC upon request.*10.1
    
    Midwest Banc Holdings, Inc. Stock and Incentive Plan
(incorporated by reference to Registrants Proxy Statement filed
April 13, 2005, Registration No. 001-13735).*10.4
    
    Form of Transitional Employment Agreements (incorporated by
reference to Registrants Registration Statement on Form S-1,
Registration No. 333-42827).10.5
    
    Lease dated as of December 24, 1958, between Western National
Bank of Cicero and Midwest Bank and Trust Company, as amended
(incorporated by reference to Registrants Registration Statement
on Form S-1, Registration No. 333-42827).10.6
    
    Britannica Centre Lease, dated as of May 1, 1994, between Chicago
Title and Trust Company, as Trustee under Trust Agreement dated
November 2, 1977 and known as Trust No. 1070932 and Midwest Bank
& Trust Company (incorporated by reference to Registrants
Registration Statement on Form S-1, Registration No. 333-42827).10.7
    
    Lease dated as of March 20, 1996 between Grove Lodge No. 824
Ancient Free and Accepted Masons and Midwest Bank of Hinsdale
(incorporated by reference to Registrants Registration Statement
on Form S-1, Registration No. 333-42827).10.8
    
    Office Lease, undated, between Grove Lodge No. 824 Ancient Free
and Accepted Masons and Midwest Bank of Hinsdale (incorporated by
reference to Registrants Registration Statement on Form S-1,
Registration No. 333-42827).*10.15
    
    Form of Supplemental Executive Retirement Agreement (incorporated
by reference to Registrants Form 10-Q for the quarter ended
September 30, 2001, File No. 001-13735).*10.16
    
    Form of Transitional Employment Agreement (Executive Officer
Group) (incorporated by reference to Registrants Form 10-Q for
the quarter ended September 30, 2001, File No. 001-13735).10.17
    
    Form of Restricted Stock Award Agreement for Officers, Restricted
Stock Grant Notice for Officers, Incentive and Nonqualified Stock
Options Award Agreements, and Stock Option Grant Notice for
Officers (incorporated by reference to Registrants Report on
Form 8-K filed August 29, 2005, File No. 001-13735).*10.18
    
    Form of Supplemental Executive Retirement Agreement and First
Amendment to the Form of Supplemental Executive Retirement
Agreement (incorporated by reference to Registrants Report on
Form 8-K filed October 28, 2005, File No. 001-13735).10.19
    
    Form of Restricted Stock Award Agreement for Non-employee
Directors and Restricted




---



##### Table of Contents



Stock Grant Notice for Non-employee
Directors (incorporated by reference to Registrants Report on
Form 8-K filed October 28, 2005, File No. 001-13735).10.21
    
    Lease dated as of April 29, 1976, between Sanfilippo, Joseph C.
and Grace Ann and Fairfield Savings and Loan Association, as
amended (incorporated by reference to Registrants Form 10-K for
the year ended December 31, 2003, File No. 001-13735).10.22
    
    Lease dated as of August 28, 2002 between Glen Oak Plaza and
Midwest Bank and Trust Company (incorporated by reference to
Registrants Form 10-K for the year ended December 31, 2003, File
No. 001-13735).10.24
    
    Loan Agreement as of April 8, 2004, between the Company and
LaSalle Bank National Association (incorporated by reference to
Registrants Form 10-Q for the quarter ended September 30, 2004,
File No. 001-13735).10.25
    
    Employment Agreement as of September 28, 2004 between the Company
and the Chief Executive Officer (incorporated by reference to
Registrants Form 10-Q for the quarter ended September 30, 2004,
File No. 001-13735).10.26
    
    Retirement Agreement as of September 28, 2004 between the Company
and retiring Chief Executive Officer (incorporated by reference
to Registrants Form 10-Q for the quarter ended September 30,
2004, File No. 001-13735).10.27
    
    Midwest Banc Holdings, Inc. Severance Policy as of June 28, 2005
(incorporated by reference to Registrants Form 8-K dated June
28, 2005, File No. 001-13735).10.28
    
    First amendment to Loan Agreement as of April 8, 2004, between
the Company and LaSalle Bank National Association (incorporated
by reference to Registrants Report Form 8-K dated April 28,
2005, File No. 001-13735).31.1
    
    Rule 13a-14(a) Certification of Principal Executive Officer.31.2
    
    Rule 13a-14(a) Certification of Principal Financial Officer.32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, from
the Companys Chief Executive Officer and Chief Financial
Officer.
 
 *
    
    Indicates management contracts or compensatory plans or arrangements required to be filed as
an exhibit.