##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended June 30, 2009
 Commission File Number: 001-13735
 MIDWEST BANC HOLDINGS, INC.
 (Exact name of Registrant as specified in its charter.)
 Delaware
    
    36-3252484(State or other jurisdiction of
    
    (I.R.S. Employer Identification Number)incorporation or organization)501 W. North Ave.Melrose Park, Illinois
    
    60160(Address of principal executive offices)
    
    (Zip code)
 
 (708) 865-1053  (Registrants telephone number, including area code)
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer   o(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o o
 o þ
  Class
    
    
    Outstanding at August 10, 2009Common, par value $0.01
    
    
    27,943,994




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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
    
    
    23Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    48Item 4. Controls and Procedures
    
    
    49PART IIItem 1. Legal Proceedings
    
    
    54Item 1A. Risk Factors
    
    
    54Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
    
    
    75Item 3. Defaults upon Senior Securities
    
    
    75Item 4. Submission of Matters to a Vote of Security Holders
    
    
    75Item 5. Other Information
    
    
    75Item 6. Exhibits
    
    
    75Signature Page
    
    
    76EX-10.69EX-31.1EX-31.2EX-32.1
  i




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except for share data)
 June 30,
    
    
    December 31,2009
    
    
    2008ASSETSCash
    
    $
    36,965
    
    
    $
    61,330Federal funds sold and interest-bearing deposits in other banks
    
    
    160,538
    
    
    
    1,735Total cash and cash equivalents
    
    
    197,503
    
    
    
    63,065Securities available-for-sale (securities pledged to creditors: $358,164 at June 30, 2009 and $368,714 at December 31, 2008)
    
    
    633,282
    
    
    
    621,949Securities held-to-maturity (fair value: $30,387 at December 31, 2008)
    
    
    
    
    
    
    30,267Total securities
    
    
    633,282
    
    
    
    652,216Federal Reserve Bank and Federal Home Loan Bank stock, at cost
    
    
    29,648
    
    
    
    31,698Loans
    
    
    2,559,257
    
    
    
    2,509,759Allowance for loan losses
    
    
    (63,893
    )
    
    
    (44,432
    )Net loans
    
    
    2,495,364
    
    
    
    2,465,327Cash surrender value of life insurance
    
    
    
    
    
    
    84,675Premises and equipment, net
    
    
    40,795
    
    
    
    38,313Foreclosed properties
    
    
    19,588
    
    
    
    12,018Core deposit and other intangibles, net
    
    
    13,537
    
    
    
    14,683Goodwill
    
    
    78,862
    
    
    
    78,862Other assets
    
    
    60,620
    
    
    
    129,355Total assets
    
    $
    3,569,199
    
    
    $
    3,570,212LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesDepositsNoninterest-bearing
    
    $
    336,347
    
    
    $
    334,495Interest-bearing
    
    
    2,202,143
    
    
    
    2,078,296Total deposits
    
    
    2,538,490
    
    
    
    2,412,791Revolving note payable
    
    
    8,600
    
    
    
    8,600Securities sold under agreements to repurchase
    
    
    297,650
    
    
    
    297,650Advances from the Federal Home Loan Bank
    
    
    340,000
    
    
    
    380,000Junior subordinated debentures
    
    
    60,824
    
    
    
    60,791Subordinated debt
    
    
    15,000
    
    
    
    15,000Term note payable
    
    
    55,000
    
    
    
    55,000Total borrowings
    
    
    777,074
    
    
    
    817,041Other liabilities
    
    
    33,964
    
    
    
    34,546Total liabilities
    
    
    3,349,528
    
    
    
    3,264,378Commitments and contingencies (see note 7)Stockholders EquityPreferred stock, $0.01 par value, 1,000,000 shares authorized;
Series A, $2,500 liquidation preference, 17,250 shares issued and
outstanding at June 30, 2009 and December 31, 2008; Series T, $1,000
liquidation preference, 84,784 shares issued and outstanding at June
30, 2009 and December 31, 2008
    
    
    1
    
    
    
    1Common stock, $0.01 par value, 64,000,000 shares authorized;
29,807,270 shares issued and 27,943,994 outstanding at June 30, 2009
and 29,530,878 shares issued and 27,892,578 outstanding at December
31, 2008
    
    
    299
    
    
    
    296Additional paid-in capital
    
    
    384,707
    
    
    
    383,491Warrant
    
    
    5,229
    
    
    
    5,229Accumulated deficit
    
    
    (150,230
    )
    
    
    (66,325
    )Accumulated other comprehensive loss
    
    
    (5,582
    )
    
    
    (2,122
    )Treasury stock, at cost (1,863,276 shares at June 30, 2009 and
1,638,300 shares at December 31, 2008)
    
    
    (14,753
    )
    
    
    (14,736
    )Total stockholders equity
    
    
    219,671
    
    
    
    305,834Total liabilities and stockholders equity
    
    $
    3,569,199
    
    
    $
    3,570,212
 PAGE 1




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Interest IncomeLoans
    
    $
    35,348
    
    
    $
    37,392
    
    
    $
    69,897
    
    
    $
    78,198SecuritiesTaxable
    
    
    4,663
    
    
    
    8,977
    
    
    
    11,603
    
    
    
    18,037Exempt from federal income taxes
    
    
    406
    
    
    
    593
    
    
    
    956
    
    
    
    1,191Dividends from Federal Reserve stock
    
    
    170
    
    
    
    184
    
    
    
    360
    
    
    
    367Federal funds sold and interest-bearing deposits in other banks
    
    
    75
    
    
    
    98
    
    
    
    112
    
    
    
    246Total interest income
    
    
    40,662
    
    
    
    47,244
    
    
    
    82,928
    
    
    
    98,039Interest ExpenseDeposits
    
    
    12,210
    
    
    
    16,111
    
    
    
    25,895
    
    
    
    35,200Federal funds purchased and FRB discount window advances
    
    
    20
    
    
    
    672
    
    
    
    49
    
    
    
    1,487Revolving note payable
    
    
    88
    
    
    
    94
    
    
    
    131
    
    
    
    174Securities sold under agreements to repurchase
    
    
    3,229
    
    
    
    3,482
    
    
    
    6,434
    
    
    
    6,660Advances from the Federal Home Loan Bank
    
    
    3,035
    
    
    
    2,437
    
    
    
    6,064
    
    
    
    5,919Junior subordinated debentures
    
    
    615
    
    
    
    876
    
    
    
    1,354
    
    
    
    1,921Subordinated debt
    
    
    144
    
    
    
    232
    
    
    
    296
    
    
    
    235Term note payable
    
    
    266
    
    
    
    575
    
    
    
    548
    
    
    
    1,462Total interest expense
    
    
    19,607
    
    
    
    24,479
    
    
    
    40,771
    
    
    
    53,058Net interest income
    
    
    21,055
    
    
    
    22,765
    
    
    
    42,157
    
    
    
    44,981Provision for loan losses
    
    
    20,000
    
    
    
    4,415
    
    
    
    33,000
    
    
    
    9,815Net interest income after provision for loan losses
    
    
    1,055
    
    
    
    18,350
    
    
    
    9,157
    
    
    
    35,166Noninterest IncomeService charges on deposit accounts
    
    
    1,953
    
    
    
    1,953
    
    
    
    3,847
    
    
    
    3,916Net gains on securities transactions
    
    
    4,251
    
    
    
    44
    
    
    
    4,251
    
    
    
    56Impairment loss on securities
    
    
    (740
    )
    
    
    
    
    
    
    (740
    )
    
    
    (17,586
    )Insurance and brokerage commissions
    
    
    338
    
    
    
    683
    
    
    
    658
    
    
    
    1,243Trust fees
    
    
    296
    
    
    
    482
    
    
    
    578
    
    
    
    931Increase in cash surrender value of life insurance
    
    
    490
    
    
    
    865
    
    
    
    1,332
    
    
    
    1,723Gain on sale of property
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,196Other
    
    
    707
    
    
    
    367
    
    
    
    712
    
    
    
    705Total noninterest income
    
    
    7,295
    
    
    
    4,394
    
    
    
    10,638
    
    
    
    6,184Noninterest ExpenseSalaries and employee benefits
    
    
    11,859
    
    
    
    11,015
    
    
    
    22,942
    
    
    
    24,055Occupancy and equipment
    
    
    3,356
    
    
    
    3,093
    
    
    
    6,601
    
    
    
    5,992Professional services
    
    
    1,890
    
    
    
    1,796
    
    
    
    3,992
    
    
    
    3,334Loss on early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,121Marketing
    
    
    339
    
    
    
    713
    
    
    
    1,027
    
    
    
    1,289Foreclosed properties
    
    
    450
    
    
    
    237
    
    
    
    795
    
    
    
    242Amortization of intangible assets
    
    
    573
    
    
    
    591
    
    
    
    1,146
    
    
    
    1,181Merger related
    
    
    
    
    
    
    80
    
    
    
    
    
    
    
    194FDIC insurance
    
    
    3,261
    
    
    
    474
    
    
    
    4,436
    
    
    
    634Other
    
    
    3,442
    
    
    
    2,369
    
    
    
    5,992
    
    
    
    4,935Total noninterest expense
    
    
    25,170
    
    
    
    20,368
    
    
    
    46,931
    
    
    
    48,977(Loss) income before income taxes
    
    
    (16,820
    )
    
    
    2,376
    
    
    
    (27,136
    )
    
    
    (7,627
    )Provision (benefit) for income taxes
    
    
    59,647
    
    
    
    (52
    )
    
    
    54,651
    
    
    
    (4,639
    )Net (loss) income
    
    
    (76,467
    )
    
    
    2,428
    
    
    
    (81,787
    )
    
    
    (2,988
    )Preferred stock dividends and premium accretion
    
    
    1,290
    
    
    
    836
    
    
    
    3,413
    
    
    
    1,671Income allocated to participating securities
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    Net (loss) income available to common stockholders
    
    $
    (77,757
    )
    
    $
    1,557
    
    
    $
    (85,200
    )
    
    $
    (4,659
    )Basic earnings per share
    
    $
    (2.78
    )
    
    $
    0.06
    
    
    $
    (3.05
    )
    
    $
    (0.17
    )Diluted earnings per share
    
    $
    (2.78
    )
    
    $
    0.06
    
    
    $
    (3.05
    )
    
    $
    (0.17
    )Cash dividends declared per common share
    
    $
    
    
    
    $
    0.13
    
    
    $
    
    
    
    $
    0.26
 PAGE 2




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF  CHANGES IN STOCKHOLDERS EQUITY (Unaudited)
For the Six Months Ended June 30, 2009 and 2008
(In thousands, except share and per share data)
 Retained
    
    
    AccumulatedAdditional
    
    
    
    
    
    
    Earnings
    
    
    Other
    
    
    
    
    
    
    TotalPreferred
    
    
    Common
    
    
    Paid in
    
    
    
    
    
    
    (Accumulated
    
    
    Comprehensive
    
    
    Treasury
    
    
    StockholdersStock
    
    
    Stock
    
    
    Capital
    
    
    Warrant
    
    
    Deficit)
    
    
    Income (Loss)
    
    
    Stock
    
    
    EquityBalance, December 31, 2007
    
    $
    
    
    
    $
    293
    
    
    $
    300,762
    
    
    $
    
    
    
    $
    102,762
    
    
    $
    (13,917
    )
    
    $
    (14,736
    )
    
    $
    375,164Cash dividends declared ($96.875
per share) on Series A preferred
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,671
    )
    
    
    
    
    
    
    
    
    
    
    (1,671
    )Cash dividends declared ($0.26 per
share) on common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,404
    )
    
    
    
    
    
    
    
    
    
    
    (7,404
    )Issuance of common stock upon
exercise of 16,500 stock options,
net of tax benefit
    
    
    
    
    
    
    
    
    
    
    178
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    178Issuance of 226,324 shares
restricted stock
    
    
    
    
    
    
    2
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    1,591
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,591Comprehensive incomeNet loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,988
    )
    
    
    
    
    
    
    
    
    
    
    (2,988
    )Prior service cost resulting from
the application of SFAS No.
87, net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (469
    )
    
    
    
    
    
    
    (469
    )Net increase in fair value of
securities classified as
available- for-sale, net of
income taxes and
reclassification adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,297
    
    
    
    
    
    
    
    6,297Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,840Balance, June 30, 2008
    
    $
    
    
    
    $
    295
    
    
    $
    302,529
    
    
    $
    
    
    
    $
    90,699
    
    
    $
    (8,089
    )
    
    $
    (14,736
    )
    
    $
    370,698Balance, December 31, 2008
    
    $
    1
    
    
    $
    296
    
    
    $
    383,491
    
    
    $
    5,229
    
    
    $
    (66,325
    )
    
    $
    (2,122
    )
    
    $
    (14,736
    )
    
    $
    305,834Cash dividends declared ($48.4375
per share) on Series A preferred
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (836
    )
    
    
    
    
    
    
    
    
    
    
    (836
    )Cash dividends declared ($9.72 per
share) on Series T preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (824
    )
    
    
    
    
    
    
    
    
    
    
    (824
    )Issuance of 19,965 shares of common
stock to employee stock purchase
plan
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14Issuance of 334,882 shares of
restricted stock
    
    
    
    
    
    
    3
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accreted discount on Series T
preferred stock
    
    
    
    
    
    
    
    
    
    
    458
    
    
    
    
    
    
    
    (458
    )
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    747
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    747Repurchase of 10,695 shares of
common stock under benefit plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17
    )
    
    
    (17
    )Comprehensive incomeNet loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (81,787
    )
    
    
    
    
    
    
    
    
    
    
    (81,787
    )Prior service cost including
income taxes adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (224
    )
    
    
    
    
    
    
    (224
    )Income taxes adjustment on
decrease in value of projected
benefit obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (151
    )
    
    
    
    
    
    
    (151
    )Net decrease in fair value of
securities classified as
available- for-sale including
income taxes adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,085
    )
    
    
    
    
    
    
    (3,085
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (85,247
    )Balance, June 30, 2009
    
    $
    1
    
    
    $
    299
    
    
    $
    384,707
    
    
    $
    5,229
    
    
    $
    (150,230
    )
    
    $
    (5,582
    )
    
    $
    (14,753
    )
    
    $
    219,671
 PAGE 3




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Six Months Ended June 30, 2009 and 2008
 (In thousands)
 2009
    
    
    2008Cash flows from operating activitiesNet loss
    
    $
    (81,787
    )
    
    $
    (2,988
    )Adjustments to reconcile net (loss) income to net cash provided by operating activitiesDepreciation
    
    
    2,093
    
    
    
    2,067Provision for loan losses
    
    
    33,000
    
    
    
    9,815Amortization of core deposit and other intangibles
    
    
    724
    
    
    
    330Amortization of premiums and discounts on securities, net
    
    
    405
    
    
    
    316Realized gain on sale of securities, net
    
    
    (4,251
    )
    
    
    (56
    )Impairment loss on securities
    
    
    740
    
    
    
    17,586Gain on sale of property
    
    
    
    
    
    
    (15,196
    )Loss on early extinguishment of debt
    
    
    
    
    
    
    7,121Increase in cash surrender value of life insurance
    
    
    (1,332
    )
    
    
    (1,723
    )Deferred income taxes
    
    
    47,894
    
    
    
    1,673Loss on disposition of foreclosed properties, net
    
    
    178
    
    
    
    222Amortization of deferred stock based compensation
    
    
    747
    
    
    
    1,591Change in other assets
    
    
    19,213
    
    
    
    (14,926
    )Change in other liabilities
    
    
    (190
    )
    
    
    4,177Net cash provided by operating activities
    
    
    17,434
    
    
    
    10,009Cash flows from investing activitiesSales of securities available-for-sale
    
    
    514,481
    
    
    
    87,185Sales of securities held-to-maturity
    
    
    27,856
    
    
    
    4,443Maturities of securities available-for-sale
    
    
    194,000
    
    
    
    82,585Principal payments on securities available-for-sale
    
    
    42,279
    
    
    
    32,232Principal payments on securities held-to-maturity
    
    
    2,468
    
    
    
    1,871Purchases of securities available-for-sale
    
    
    (761,219
    )
    
    
    (210,864
    )Redemptions of Federal Reserve Bank and Federal Home Loan Bank stock
    
    
    2,050
    
    
    
    Loan originations and principal collections, net
    
    
    (72,161
    )
    
    
    (39,432
    )Proceeds from sale of property
    
    
    
    
    
    
    18,259Proceeds from disposition of foreclosed properties
    
    
    1,659
    
    
    
    244Liquidation of bank-owned life insurance
    
    
    86,008
    
    
    
    Additions to property and equipment
    
    
    (4,575
    )
    
    
    (2,047
    )Net cash provided by (used in) investing activities
    
    
    32,846
    
    
    
    (25,524
    )Cash flows from financing activitiesNet increase(decrease) in deposits
    
    
    125,821
    
    
    
    (117,833
    )Proceeds from borrowings
    
    
    
    
    
    
    158,600Repayments on borrowings
    
    
    (40,000
    )
    
    
    (144,075
    )Preferred cash dividends paid
    
    
    (1,660
    )
    
    
    (1,671
    )Common cash dividends paid
    
    
    
    
    
    
    (7,373
    )Change in federal funds purchased, FRB discount window advances, and securities sold under
agreements to repurchase
    
    
    
    
    
    
    131,250Issuance of common stock to employee stock purchase plan
    
    
    14
    
    
    
    Repurchase of common stock under stock and incentive option plan
    
    
    (17
    )
    
    
    Proceeds from issuance of common under stock and incentive plan
    
    
    
    
    
    
    175Net cash provided by financing activities
    
    
    84,158
    
    
    
    19,073Increase in cash and cash equivalents
    
    
    134,438
    
    
    
    3,558Cash and cash equivalents at beginning of period
    
    
    63,065
    
    
    
    84,499Cash and cash equivalents at end of period
    
    $
    197,503
    
    
    $
    88,057Supplemental disclosuresCash paid during period for:Interest
    
    $
    42,336
    
    
    $
    53,596Income taxes
    
    
    742
    
    
    
    2,700
 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
     PAGE 6




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
     PAGE 7




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 3  SECURITIES
  June 30, 2009Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)Securities available-for-saleObligations of U.S. Treasury
    
    $
    518,780
    
    
    $
    2
    
    
    $
    (13
    )
    
    $
    518,769Obligations of states and political subdivisions
    
    
    2,597
    
    
    
    
    
    
    
    
    
    
    
    2,597Mortgage-backed securities:U.S. government agencies  residential (1)
    
    
    51,303
    
    
    
    3
    
    
    
    (23
    )
    
    
    51,283U.S. government agencies  commercial (1)
    
    
    19,065
    
    
    
    
    
    
    
    (503
    )
    
    
    18,562U.S. government-sponsored entities  residential (2)
    
    
    24,243
    
    
    
    
    
    
    
    
    
    
    
    24,243Equity securities of U.S. government-sponsored entities (3)
    
    
    2,749
    
    
    
    30
    
    
    
    (674
    )
    
    
    2,105Qther bonds
    
    
    19,079
    
    
    
    
    
    
    
    (3,356
    )
    
    
    15,723Total securities available-for-sale
    
    $
    637,816
    
    
    $
    35
    
    
    $
    (4,569
    )
    
    $
    633,282Total securities held-to-maturity
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 
 (1)
    
    Includes obligations of the Government National Mortgage Association (GNMA).(2)
    
    Includes obligations of the Federal Home Loan Mortgage Corporation (FHLMC)
and Federal National Mortgage Association (FNMA).(3)
    
    Includes issues from FNMA and FHLMC. December 31, 2008Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)Securities available-for-saleObligations of U.S. Treasury and U.S. government-sponsored entities(1)
    
    $
    263,483
    
    
    $
    1,952
    
    
    $
    
    
    
    $
    265,435Obligations of states and political subdivisions
    
    
    57,309
    
    
    
    241
    
    
    
    (886
    )
    
    
    56,664Mortgage-backed securities(1)(2)
    
    
    281,592
    
    
    
    3,363
    
    
    
    (1,276
    )
    
    
    283,679Equity securities(3)
    
    
    2,749
    
    
    
    
    
    
    
    (1,819
    )
    
    
    930Corporate and other debt securities
    
    
    19,176
    
    
    
    
    
    
    
    (3,935
    )
    
    
    15,241Total securities available-for-sale
    
    $
    624,309
    
    
    $
    5,556
    
    
    $
    (7,916
    )
    
    $
    621,949Securities held-to-maturityObligations of states and political subdivisions
    
    $
    1,251
    
    
    $
    12
    
    
    $
    
    
    
    $
    1,263Mortgage-backed securities(1)(2)
    
    
    29,016
    
    
    
    138
    
    
    
    (30
    )
    
    
    29,124Total securities held-to-maturity
    
    $
    30,267
    
    
    $
    150
    
    
    $
    (30
    )
    
    $
    30,387
 
 (1)
    
    Includes obligations of the Federal Home Loan Mortgage Corporation (FHLMC)
and Federal National Mortgage Association (FNMA).(2)
    
    Includes obligations of the Government National Mortgage Association (GNMA).(3)
    
    Includes issues from government-sponsored entities (FNMA and FHLMC). PAGE 8




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MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
    June 30, 2009Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(In thousands)Securities available-for-sale:Obligations of U.S. Treasury
    
    $
    281,930
    
    
    $
    (13
    )
    
    $
    
    
    
    $
    
    
    
    $
    281,930
    
    
    $
    (13
    )Mortgage-backed securities:U.S. government agencies  residential (1)
    
    
    7,825
    
    
    
    (23
    )
    
    
    
    
    
    
    
    
    
    
    7,825
    
    
    
    (23
    )U.S. government agencies  commercial (1)
    
    
    18,562
    
    
    
    (503
    )
    
    
    
    
    
    
    
    
    
    
    18,562
    
    
    
    (503
    )Equity securities of U.S. government-sponsored entities (2)
    
    
    1,610
    
    
    
    (674
    )
    
    
    
    
    
    
    
    
    
    
    1,610
    
    
    
    (674
    )Corporate and other debt securities
    
    
    
    
    
    
    
    
    
    
    15,273
    
    
    
    (3,356
    )
    
    
    15,723
    
    
    
    (3,356
    )Total available-for-sale
    
    
    309,927
    
    
    
    (1,213
    )
    
    
    15,723
    
    
    
    (3,356
    )
    
    
    325,650
    
    
    
    (4,569
    )Total held-to-maturity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total temporarily impaired securities
    
    $
    309,927
    
    
    $
    (1,213
    )
    
    $
    15,723
    
    
    $
    (3,356
    )
    
    $
    325,650
    
    
    $
    (4,569
    )
 
 (1)
    
    Includes obligations of GNMA.(2)
    
    Includes issues from FNMA and FHLMC.  PAGE 9




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 4  LOANS
  June 30,
    
    
    December 31,2009
    
    
    2008% of Gross
    
    
    
    
    
    
    % of GrossAmount
    
    
    Loans
    
    
    Amount
    
    
    Loans(Dollars in thousands)Commercial
    
    $
    1,100,979
    
    
    
    43.1
    %
    
    $
    1,090,078
    
    
    
    43.3
    %Construction
    
    
    350,688
    
    
    
    13.7
    
    
    
    366,178
    
    
    
    14.6Commercial real estate
    
    
    766,113
    
    
    
    29.9
    
    
    
    729,729
    
    
    
    29.1Home equity
    
    
    225,789
    
    
    
    8.8
    
    
    
    194,673
    
    
    
    7.8Other consumer
    
    
    5,627
    
    
    
    0.2
    
    
    
    6,332
    
    
    
    0.3Residential mortgage
    
    
    110,735
    
    
    
    4.3
    
    
    
    123,161
    
    
    
    4.9Total loans, gross
    
    
    2,559,931
    
    
    
    100.0
    %
    
    
    2,510,151
    
    
    
    100.0
    %Net deferred fees
    
    
    (674
    )
    
    
    
    
    
    
    (392
    )Total loans, net
    
    $
    2,559,257
    
    
    
    
    
    
    $
    2,509,759
 NOTE 5  ALLOWANCE FOR LOAN LOSSES
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Balance, at beginning of period
    
    $
    53,011
    
    
    $
    20,344
    
    
    $
    44,432
    
    
    $
    26,748Provision charged to operations
    
    
    20,000
    
    
    
    4,415
    
    
    
    33,000
    
    
    
    9,815Loans charged off
    
    
    (9,726
    )
    
    
    (2,998
    )
    
    
    (14,545
    )
    
    
    (15,248
    )Recoveries
    
    
    608
    
    
    
    845
    
    
    
    1,006
    
    
    
    1,291Net loans charged off
    
    
    (9,118
    )
    
    
    (2,153
    )
    
    
    (13,539
    )
    
    
    (13,957
    )Balance, at end of period
    
    $
    63,893
    
    
    $
    22,606
    
    
    $
    63,893
    
    
    $
    22,606
  June 30, 2009(In thousands)Impaired loans for which no allowance for loan losses is allocated
    
    $
    20,420Impaired loans with an allocation of the allowance for loan losses
    
    
    72,443Total impaired loans
    
    $
    92,864Allowance for loan losses allocated to impaired loans
    
    $
    13,997
 Six Months EndedJune 30, 2009Average impaired loans
    
    $
    73,513Interest income recognized on impaired loans on a cash basis
    
    
    232
 PAGE 10




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 6  GOODWILL AND INTANGIBLES
  June 30, 2009
    
    December 31, 2008Gross Carrying
    
    Accumulated
    
    Net Carrying
    
    Gross Carrying
    
    Accumulated
    
    Net CarryingAmount
    
    Amortization
    
    Amount
    
    Amount
    
    Amortization
    
    AmountAmortized intangible assets:Core deposit and other intangibles
    
    $
    21,091
    
    
    $
    (7,554
    )
    
    $
    13,537
    
    
    $
    21,091
    
    
    $
    (6,408
    )
    
    $
    14,683
  2009
    
    $
    2,2922010
    
    
    2,2222011
    
    
    1,9182012
    
    
    1,8032013
    
    
    1,696Thereafter
    
    
    4,752
   Core Depositand OtherGoodwill
    
    
    IntangiblesBalance at beginning of period
    
    $
    78,862
    
    
    $
    14,683Amortization
    
    
    
    
    
    
    (1,146
    )Balance at end of period
    
    $
    78,862
    
    
    $
    13,537
  PAGE 11




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 7  OFF-BALANCE-SHEET RISK
  Amount of Commitment Expiration Per PeriodWithin
    
    
    
    
    
    
    
    
    
    
    After1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    5 Years
    
    
    Total(In thousands)Lines of Credit:Commercial real estate
    
    $
    83,708
    
    
    $
    9,367
    
    
    $
    2,984
    
    
    $
    80
    
    
    $
    96,139Home equity
    
    
    31,352
    
    
    
    28,685
    
    
    
    33,305
    
    
    
    42,894
    
    
    
    136,236Consumer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,277
    
    
    
    2,277Commercial
    
    
    183,043
    
    
    
    2,746
    
    
    
    2,942
    
    
    
    249
    
    
    
    188,980Letters of credit
    
    
    37,627
    
    
    
    10,148
    
    
    
    3,146
    
    
    
    
    
    
    
    50,921Commitments to extend credit
    
    
    8,723
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,723Total commitments
    
    $
    344,453
    
    
    $
    50,946
    
    
    $
    42,377
    
    
    $
    45,500
    
    
    $
    483,276
     NOTE 8  FAIR VALUE
  PAGE 12




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 
    
    Level 1:Quoted prices (unadjusted) for identical assets or liabilities in active
markets that the entity has the ability to access as of the measurement date.
    
    Level 2:Significant other observable inputs other than Level 1 prices, such as
quoted prices for similar assets or liabilities, quoted prices in markets that are not
active, and other inputs that are observable or can be corroborated by observable
market data.
    
    Level 3:Significant unobservable inputs that reflect a companys own assumptions
about the assumptions that market participants would use in pricing an asset or
liability.
   Quoted Prices or
    
    
    Significant
    
    
    SignificantIdentical Assets in
    
    
    Other Observable
    
    
    UnobservableTotal
    
    
    Active Markets
    
    
    Inputs
    
    
    InputsFair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(In thousands)Assets at June 30, 2009:Obligations of the U.S. Treasury
    
    $
    518,769
    
    
    $
    
    
    
    $
    518,769
    
    
    $
    Obligations of states and political subdivisions
    
    
    2,597
    
    
    
    
    
    
    
    2,597
    
    
    
    Mortgage-backed securities:U.S. government agencies  residential (1)
    
    
    51,283
    
    
    
    
    
    
    
    51,283
    
    
    
    U.S. government agencies  commercial (1)
    
    
    18,562
    
    
    
    
    
    
    
    18,562
    
    
    
    U.S. government-sponsored entities  residential (2)
    
    
    24,243
    
    
    
    
    
    
    
    24,243
    
    
    
    Equity securities of U.S. government-sponsored entities (2)
    
    
    2,105
    
    
    
    2,105
    
    
    
    
    
    
    
    Other bonds
    
    
    15,723
    
    
    
    
    
    
    
    6,842
    
    
    
    8,881Available-for-sale securities
    
    $
    633,282
    
    
    $
    2,105
    
    
    $
    622,296
    
    
    $
    8,881Assets at December 31, 2008:Obligations of the U.S. Treasury and of
U.S. government-sponsored entities
    
    $
    265,435
    
    
    $
    
    
    
    $
    265,435
    
    
    $
    Obligations of states and political subdivisions
    
    
    56,664
    
    
    
    
    
    
    
    56,664
    
    
    
    Mortgage-backed securities
    
    
    283,679
    
    
    
    
    
    
    
    283,679
    
    
    
    Equity securities
    
    
    930
    
    
    
    930
    
    
    
    
    
    
    
    Other bonds
    
    
    15,241
    
    
    
    
    
    
    
    6,808
    
    
    
    8,433Available-for-sale securities
    
    $
    621,949
    
    
    $
    930
    
    
    $
    612,586
    
    
    $
    8,433
 
 (1)
    
    Includes obligations of GNMA.(2)
    
    Includes obligations of FNMA and FHLMC.(3)
    
    Includes issues from FNMA and FHLMC. PAGE 13




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Beginning balance
    
    $
    7,019
    
    
    $
    9,660
    
    
    $
    8,433
    
    
    $
    10,479Paydowns received
    
    
    (56
    )
    
    
    
    
    
    
    (95
    )
    
    
    Total gains or losses (realized/unrealized):Included in earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Included in other comprehensive income
    
    
    1,918
    
    
    
    (374
    )
    
    
    543
    
    
    
    (1,193
    )Ending balance
    
    $
    8,881
    
    
    $
    9,286
    
    
    $
    8,881
    
    
    $
    9,286
   Quoted Prices or
    
    Significant
    
    SignificantIdentical Assets in
    
    Other Observable
    
    UnobservableTotal
    
    Active Markets
    
    Inputs
    
    InputsFair Value
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)(In thousands)Assets at June 30, 2009:Impaired loans
    
    $
    58,446
    
    
    $
    
    
    
    $
    
    
    
    $
    58,446Assets at December 31, 2008:Impaired loans
    
    $
    37,098
    
    
    $
    
    
    
    $
    
    
    
    $
    37,098
  PAGE 14




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
    June 30, 2009
    
    December 31, 2008Carrying
    
    Estimated
    
    Carrying
    
    EstimatedAmount
    
    Fair Value
    
    Amount
    
    Fair Value(In thousands)Financial assetsCash and cash equivalents
    
    $
    197,503
    
    
    $
    197,503
    
    
    $
    63,065
    
    
    $
    63,065Securities available-for-sale
    
    
    633,282
    
    
    
    633,282
    
    
    
    621,949
    
    
    
    621,949Securities held-to-maturity
    
    
    
    
    
    
    
    
    
    
    30,267
    
    
    
    30,387Federal Reserve Bank and Federal Home Loan Bank stock
    
    
    29,648
    
    
    
    29,648
    
    
    
    31,698
    
    
    
    31,698Loans, net of allowance for loan losses
    
    
    2,495,364
    
    
    
    2,530,172
    
    
    
    2,465,327
    
    
    
    2,485,011Accrued interest receivable
    
    
    9,362
    
    
    
    9,362
    
    
    
    13,302
    
    
    
    13,302Financial liabilitiesDepositsNoninterest-bearing
    
    
    336,347
    
    
    
    336,347
    
    
    
    334,495
    
    
    
    334,495Interest-bearing
    
    
    2,202,143
    
    
    
    2,096,884
    
    
    
    2,078,296
    
    
    
    2,008,100Revolving note payable
    
    
    8,600
    
    
    
    8,600
    
    
    
    8,600
    
    
    
    8,600Securities sold under agreements to repurchase
    
    
    297,650
    
    
    
    330,497
    
    
    
    297,650
    
    
    
    369,376Advances from Federal Home Loan Bank
    
    
    340,000
    
    
    
    366,849
    
    
    
    380,000
    
    
    
    410,992Junior subordinated debentures
    
    
    60,824
    
    
    
    47,450
    
    
    
    60,791
    
    
    
    56,572Subordinated debt
    
    
    15,000
    
    
    
    15,000
    
    
    
    15,000
    
    
    
    15,000Term note payable
    
    
    55,000
    
    
    
    55,000
    
    
    
    55,000
    
    
    
    55,000Accrued interest payable
    
    
    6,899
    
    
    
    6,899
    
    
    
    8,553
    
    
    
    8,553
   PAGE 15




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 9  STOCK COMPENSATION AND RESTRICTED STOCK AWARDS
    Weighted Average
    
    Weighted AverageNumber of
    
    Exercise Price
    
    Grant- Date FairOptions
    
    Per Share
    
    Value Per ShareOutstanding at December 31, 2008
    
    
    379,371
    
    
    $
    14.28
    
    
    $
    4.80Granted
    
    
    288,693
    
    
    
    1.15
    
    
    
    0.66Exercised
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    (63,783
    )
    
    
    12.38
    
    
    
    3.66Outstanding at June 30, 2009
    
    
    604,281
    
    
    
    8.21
    
    
    
    2.94
  2009Fair value
    
    $
    0.66Risk-free interest rate
    
    
    2.78
    %Expected option life
    
    7.5 yearsExpected stock price volatility
    
    
    52.54
    %
  PAGE 16




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MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
    Number of
    
    Weighted AverageRestricted
    
    Grant-Date Fair ValueShares
    
    Per ShareOutstanding at December 31, 2008
    
    
    609,901
    
    
    $
    16.42Granted
    
    
    334,882
    
    
    
    1.22Vested
    
    
    (47,896
    )
    
    
    15.80Forfeited
    
    
    (78,455
    )
    
    
    18.13Outstanding at June 30, 2009
    
    
    818,432
    
    
    
    10.06
 NOTE 10  SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
   PAGE 17




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MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Beginning balance
    
    $
    6,403Service cost
    
    
    412Interest cost
    
    
    178Distributions
    
    
    (47
    )Ending balance
    
    $
    6,946
 NOTE 11  INCOME TAXES
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Income taxes computed at the statutory rate
    
    $
    (5,887
    )
    
    
    35.0
    %
    
    $
    831
    
    
    
    35.0
    %
    
    $
    (9,498
    )
    
    
    35.0
    %
    
    $
    (2,670
    )
    
    
    35.0
    %Tax-exempt interest income on securities and loans
    
    
    (173
    )
    
    
    1.0
    
    
    
    (207
    )
    
    
    (8.7
    )
    
    
    (402
    )
    
    
    1.5
    
    
    
    (404
    )
    
    
    5.3General business credits
    
    
    315
    
    
    
    (1.9
    )
    
    
    (148
    )
    
    
    (6.2
    )
    
    
    (294
    )
    
    
    1.1
    
    
    
    (278
    )
    
    
    3.6State income taxes, net of federal tax benefit
due to state operating loss
    
    
    304
    
    
    
    (1.8
    )
    
    
    (28
    )
    
    
    (1.2
    )
    
    
    (219
    )
    
    
    0.8
    
    
    
    (760
    )
    
    
    10.0Life insurance cash surrender value increase, net
of premiums
    
    
    (173
    )
    
    
    1.0
    
    
    
    (303
    )
    
    
    (12.8
    )
    
    
    (466
    )
    
    
    1.7
    
    
    
    (603
    )
    
    
    7.9Liquidation of bank owned life insurance
    
    
    6,924
    
    
    
    (41.1
    )
    
    
    
    
    
    
    
    
    
    
    6,924
    
    
    
    (25.5
    )
    
    
    
    
    
    
    Dividends received deduction
    
    
    
    
    
    
    
    
    
    
    (301
    )
    
    
    (12.7
    )
    
    
    
    
    
    
    
    
    
    
    (602
    )
    
    
    7.9Valuation allowance
    
    
    57,862
    
    
    
    (344.0
    )
    
    
    
    
    
    
    
    
    
    
    57,862
    
    
    
    (213.2
    )
    
    
    
    
    
    
    Nondeductible costs and other, net
    
    
    475
    
    
    
    (2.8
    )
    
    
    104
    
    
    
    4.4
    
    
    
    744
    
    
    
    (2.7
    )
    
    
    678
    
    
    
    (8.9
    )(Benefit) provision for income taxes
    
    $
    59,647
    
    
    
    (354.6
    )%
    
    $
    (52
    )
    
    
    (2.2
    )%
    
    $
    54,651
    
    
    
    (201.3
    )%
    
    $
    (4,639
    )
    
    
    60.8
    %
    PAGE 18




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




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MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 12  EARNINGS PER SHARE
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands, except per share data)Net (loss) income
    
    $
    (76,467
    )
    
    $
    2,428
    
    
    $
    (81,787
    )
    
    $
    (2,988
    )Less:Series A preferred stock dividends
    
    
    
    
    
    
    836
    
    
    
    835
    
    
    
    1,671Series T preferred stock dividends (1)
    
    
    1,060
    
    
    
    
    
    
    
    2,120
    
    
    
    Series T preferred stock discount accretion
    
    
    230
    
    
    
    
    
    
    
    458
    
    
    
    Income allocated to participating securities (2)
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    Loss available to common stockholders
    
    $
    (77,757
    )
    
    $
    1,557
    
    
    $
    (85,200
    )
    
    $
    (4,659
    )BasicWeighted average common shares outstanding
    
    
    27,926
    
    
    
    27,855
    
    
    
    27,926
    
    
    
    27,847Basic earnings per share
    
    $
    (2.78
    )
    
    $
    0.06
    
    
    $
    (3.05
    )
    
    $
    (0.17
    )DilutedWeighted average common shares outstanding
    
    
    27,926
    
    
    
    27,855
    
    
    
    27,926
    
    
    
    27,847Dilutive effect of stock options (3)
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    Dilutive effect of restricted stock (3)
    
    
    
    
    
    
    100
    
    
    
    
    
    
    
    Diluted average common shares
    
    
    27,926
    
    
    
    27,958
    
    
    
    27,926
    
    
    
    27,847Diluted earnings per share
    
    $
    (2.78
    )
    
    $
    0.06
    
    
    $
    (3.05
    )
    
    $
    (0.17
    )
 
 (1)
    
    Reflects $824 in dividends declared in first quarter of 2009 and $1,060 and $1,296 in
cumulative dividends not declared for the three and six months ended June 30, 2009,
respectively.(2)
    
    No adjustment for unvested restricted shares was included in the computation of loss
available to common stockholders for any period there was a loss. See Note 2  New Accounting
Pronouncements.(3)
    
    No shares of stock options or restricted stock were included in the computation of diluted
earnings per share for any period there was a loss.  PAGE 20




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MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 13  CREDIT AGREEMENTS
         PAGE 21




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MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 14  SUBSEQUENT EVENTS
  PAGE 22




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ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following discussion and analysis is intended as a review of significant factors affecting
the financial condition and results of operations of the Company for the periods indicated. The
discussion should be read in conjunction with the unaudited Consolidated Financial Statements and
the Notes thereto presented herein. In addition to historical information, the following
Managements Discussion and Analysis of Financial Condition and Results of Operations contains
forward-looking statements that involve risks and uncertainties. The Companys actual results could
differ significantly from those anticipated in these forward-looking statements as a result of
certain factors discussed in this report.
 Critical Accounting Policies and Estimates
  Recent Developments
    PAGE 23




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
    
    Cost reduction initiatives which will eliminate $14.6 million in expenses on an
annualized basis when compared to either our 2008 expenses excluding the goodwill
impairment and loss on extinguishment of debt or our 2nd quarter 2009 expenses similarly
excluding the FDIC special assessment and severance expenses. This will be accomplished
through a reduction in force of over 100 employees, in-process and to be completed by
September 30, 2009, salary reductions for employees led by our top executives salaries of
7% to 10%, suspension of certain benefits, elimination of discretionary projects and
initiatives and an increased focus on expense control;
    
    Retained independent consultants to refine credit loss projections through 2010;
    
    Broadened investment banking support to assist with the capital plan;
    
    Undertaking an offer to holders of the Companys outstanding Depositary Shares, each
representing 1/100th fractional interest in a share of the Companys Series A noncumulative
redeemable convertible perpetual preferred stock, to exchange their Depositary Shares for
shares of the Companys common stock (the Exchange Offer);
    
    Other possible capital raising activities;
    
    Continued negotiations with the companys primary lender to restructure $55.0 million
senior debt and $15.0 million subordinated debt;
    
    Analyzed the ability to exchange $59.0 million of trust preferred securities into
equity. We have been advised an exchange for equity cannot be facilitated for the
collateral in a trust preferred pooled securitization as a consequence of the tax status of
the trust prohibiting the ownership of an equity security; and
    
    Filed an application seeking an investment by the U.S. Treasury of up to approximately
$137.9 million (based on June 30, 2009 risk weighted assets) pursuant to its Capital
Assistance Program (CAP) that would be used to redeem the $84.8 million outstanding
preferred stock issued to the U.S. Treasury under its Capital Purchase Program (CPP) in
2008. The Company would seek to convert the CAP preferred stock to common stock following
issuance of the CAP preferred stock to the U.S. Treasury (subject to regulatory approval).
A condition precedent to the redemption of the $84.8 million outstanding preferred stock
issued under the CPP is the payment of the deferred dividends.
   PAGE 24




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##### Table of Contents



Selected Consolidated Financial Data
  At or For the Three Months Ended
    
    
    At or For the Six Months EndedJune 30,
    
    
    March 31,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2009
    
    
    2008(Dollars in thousands, except per share data)Statement of Income Data:Total interest income
    
    $
    40,662
    
    
    $
    47,244
    
    
    $
    42,266
    
    
    $
    82,928
    
    
    $
    98,039Total interest expense
    
    
    19,607
    
    
    
    24,479
    
    
    
    21,164
    
    
    
    40,771
    
    
    
    53,058Net interest income
    
    
    21,055
    
    
    
    22,765
    
    
    
    21,102
    
    
    
    42,157
    
    
    
    44,981Provision for loan losses
    
    
    20,000
    
    
    
    4,415
    
    
    
    13,000
    
    
    
    33,000
    
    
    
    9,815Noninterest income
    
    
    7,295
    
    
    
    4,394
    
    
    
    3,343
    
    
    
    10,638
    
    
    
    6,184Noninterest expenses
    
    
    25,170
    
    
    
    20,368
    
    
    
    21,761
    
    
    
    46,931
    
    
    
    48,977Income before income taxes
    
    
    (16,820
    )
    
    
    2,376
    
    
    
    (10,316
    )
    
    
    (27,136
    )
    
    
    (7,627
    )Provision for income taxes
    
    
    59,647
    
    
    
    (52
    )
    
    
    (4,996
    )
    
    
    54,651
    
    
    
    (4,639
    )Net (loss) income
    
    
    (76,467
    )
    
    
    2,428
    
    
    $
    (5,320
    )
    
    
    (81,787
    )
    
    
    (2,988
    )Preferred stock dividends and premium accretion
    
    
    1,290
    
    
    
    836
    
    
    
    2,123
    
    
    
    3,413
    
    
    
    1,671Income allocated to participating securities (9)
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    Net (loss) income available to common stockholders (9)
    
    $
    (77,757
    )
    
    $
    1,557
    
    
    $
    (7,443
    )
    
    $
    (85,200
    )
    
    $
    (4,659
    )Per Share Data:Earnings per share (basic)
    
    $
    (2.78
    )
    
    $
    0.06
    
    
    $
    (0.27
    )
    
    $
    (3.05
    )
    
    $
    (0.17
    )Earnings per share (diluted)
    
    
    (2.78
    )
    
    
    0.06
    
    
    
    (0.27
    )
    
    
    (3.05
    )
    
    
    (0.17
    )Cash dividends declared on common stock
    
    
    
    
    
    
    0.13
    
    
    
    
    
    
    
    
    
    
    
    0.26Book value
    
    
    3.45
    
    
    
    11.76
    
    
    
    6.38
    
    
    
    3.45
    
    
    
    11.76Tangible book value (non-GAAP measure) (8)
    
    
    0.15
    
    
    
    5.48
    
    
    
    3.05
    
    
    
    0.15
    
    
    
    5.48Selected Financial Ratios:Return on average assets (1)
    
    
    (8.38
    )%
    
    
    0.26
    %
    
    
    (0.59
    )%
    
    
    (4.51
    )%
    
    
    (0.16
    )%Return on average equity (2)
    
    
    (103.60
    )
    
    
    2.57
    
    
    
    (7.12
    )
    
    
    (55.07
    )
    
    
    (1.58
    )Dividend payout ratio
    
    
    
    
    
    
    237.83
    
    
    
    
    
    
    
    
    
    
    
    N/MAverage equity to average assets
    
    
    8.09
    
    
    
    10.30
    
    
    
    8.30
    
    
    
    8.20
    
    
    
    10.34Tier 1 common capital to risk-weighted assets
    
    
    0.33
    
    
    
    5.50
    
    
    
    1.25
    
    
    
    0.33
    
    
    
    5.50Tier 1 risk-based capital to risk-weighted assets
    
    
    7.20
    
    
    
    9.09
    
    
    
    7.42
    
    
    
    7.20
    
    
    
    9.09Total risk-based capital to risk-weighted assets
    
    
    9.03
    
    
    
    10.43
    
    
    
    9.18
    
    
    
    9.03
    
    
    
    10.43Net interest margin (tax equivalent) (3)(4)
    
    
    2.52
    
    
    
    2.89
    
    
    
    2.63
    
    
    
    2.55
    
    
    
    2.86Loan to deposit ratio
    
    
    100.82
    
    
    
    106.88
    
    
    
    101.85
    
    
    
    100.82
    
    
    
    106.88Net overhead expense to average assets (5)
    
    
    2.34
    
    
    
    1.75
    
    
    
    2.05
    
    
    
    2.20
    
    
    
    1.38Efficiency ratio (6)
    
    
    97.21
    
    
    
    69.60
    
    
    
    84.04
    
    
    
    91.29
    
    
    
    67.36Loan Quality Ratios:Allowance for loan losses to total loans
    
    
    2.50
    
    
    
    0.90
    
    
    
    2.05
    
    
    
    2.50
    
    
    
    0.90Provision for loan losses to total loans
    
    
    3.13
    
    
    
    0.71
    
    
    
    2.03
    
    
    
    2.60
    
    
    
    0.79Net loans charged off to average total loans
    
    
    1.41
    
    
    
    0.35
    
    
    
    0.70
    
    
    
    1.06
    
    
    
    1.14Nonaccrual loans to total loans
    
    
    3.71
    
    
    
    1.64
    
    
    
    3.10
    
    
    
    3.71
    
    
    
    1.64Nonperforming assets to total assets (7)
    
    
    3.52
    
    
    
    1.16
    
    
    
    2.96
    
    
    
    3.52
    
    
    
    1.16Allowance for loan losses to nonaccrual loans
    
    
    0.67
    x
    
    
    0.55
    x
    
    
    0.66
    x
    
    
    0.67
    x
    
    
    0.55
    xBalance Sheet Data:Total assets
    
    $
    3,569,199
    
    
    $
    3,726,720
    
    
    $
    3,713,064
    
    
    $
    3,569,199
    
    
    $
    3,726,720Total earning assets
    
    
    3,344,103
    
    
    
    3,275,580
    
    
    
    3,339,448
    
    
    
    3,344,103
    
    
    
    3,275,580Average assets
    
    
    3,660,670
    
    
    
    3,686,350
    
    
    
    3,648,873
    
    
    
    3,654,804
    
    
    
    3,686,309Loans
    
    
    2,559,257
    
    
    
    2,501,082
    
    
    
    2,591,048
    
    
    
    2,559,257
    
    
    
    2,501,082Allowance for loan losses
    
    
    63,893
    
    
    
    22,606
    
    
    
    53,011
    
    
    
    63,893
    
    
    
    22,606Deposits
    
    
    2,538,490
    
    
    
    2,340,043
    
    
    
    2,544,005
    
    
    
    2,538,490
    
    
    
    2,340,043Borrowings
    
    
    777,074
    
    
    
    974,007
    
    
    
    832,057
    
    
    
    777,074
    
    
    
    974,007Stockholders equity
    
    
    219,671
    
    
    
    370,698
    
    
    
    301,070
    
    
    
    219,671
    
    
    
    370,698Tangible stockholders equity (non-GAAP measure) (8)
    
    
    127,272
    
    
    
    195,751
    
    
    
    208,098
    
    
    
    127,272
    
    
    
    195,751
 
 (1)
    
    Net income divided by average assets.(2)
    
    Net income divided by average equity.(3)
    
    Net interest income, on a fully tax-equivalent basis, divided by average earning assets. PAGE 25




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##### Table of Contents



(4)
    
    The following table reconciles reported net interest income on a fully tax-equivalent basis for the periods presented:
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    March 31,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2009
    
    
    2008Net interest income
    
    $
    21,055
    
    
    $
    22,765
    
    
    $
    21,102
    
    
    $
    42,157
    
    
    $
    44,981Tax-equivalent adjustment to net interest income
    
    
    
    
    
    
    909
    
    
    
    357
    
    
    
    
    
    
    
    1,801Net interest income, fully tax-equivalent basis
    
    $
    21,055
    
    
    $
    23,674
    
    
    $
    21,459
    
    
    $
    42,157
    
    
    $
    46,782
 
 No tax-equivalent adjustment is included for the quarter and six months ended June 30, 2009 as a result of the Companys current tax positon.(5)
    
    Noninterest expense less noninterest income, excluding security gains or losses, divided by average assets.(6)
    
    Noninterest expense excluding amortization and foreclosed properties expense divided by noninterest income, excluding security gains or
losses, plus net interest income on a fully tax-equivalent basis.(7)
    
    Includes total nonaccrual and foreclosed properties.(8)
    
    Stockholders equity less goodwill, core deposit and other intangible assets. Management believes that tangible stockholders equity
(non-GAAP measure) is a more useful measure since it excludes the balances of intangible assets reflecting the Companys underlying worth.
The following table reconciles reported stockholders equity to tangible stockholders equity for the periods presented (in thousands): At June 30,
    
    
    At March 31,2009
    
    
    2008
    
    
    2009Stockholders equity
    
    $
    219,671
    
    
    $
    370,698
    
    
    $
    301,070Core deposit intangible and other intangibles, net
    
    
    (13,537
    )
    
    
    (15,864
    )
    
    
    (14,110
    )Goodwill
    
    
    (78,862
    )
    
    
    (159,083
    )
    
    
    (78,862
    )Tangible stockholders equity
    
    $
    127,272
    
    
    $
    195,751
    
    
    $
    208,098
 (9)
    
    Prior periods with earnings were re-stated as required by FSP EITF
03-6-1, which was effective on January 1, 2009, to allocate earnings
available to common stockholders to restricted shares of common stock
that are considered participating securities.
 Results of Operations  Three and Six Months Ended
June 30, 2009 and 2008
  
    
    Basic and diluted loss per share for the three months ended June 30, 2009 was $2.78
compared to earnings of $0.06 for the comparable period in 2008 and a loss of $0.27 for
the first quarter of 2009.
    
    Net loss for the second quarter of 2009 was $76.5 million compared to $5.3 million
loss in the first quarter of 2009 and earnings of $2.4 million for the second quarter
of 2008.
    
    The Company recorded a $57.9 million tax charge due to a valuation allowance on its
deferred tax assets and an $8.1 million tax charge related to the liquidation of bank
owned life insurance in the second quarter of 2009.
    
    The Company recognized net gains on the securities portfolio repositioning of $4.3
million in the second quarter of 2009.
    
    Net interest income decreased 7.5% to $21.1 million in the second quarter of 2009
compared to $22.8 million in the second quarter of 2008 but was flat compared to the
first quarter of 2009. The net interest margin decreased to 2.52% in the second quarter
of 2009 compared to 2.63% in the first quarter of 2009 and 2.89% in the second quarter
of 2008 as a result of repositioning the securities portfolio into shorter term lower
yielding securities.
    
    The annualized return on average assets for the three months ended June 30, 2009 was
(8.38)% compared to 0.26% for the similar period in 2008 and (0.59)% for the first
quarter of 2009.
 PAGE 26




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##### Table of Contents




    
    The annualized return on average equity for the three months ended June 30, 2009 was
(103.60)% compared to 2.57% for the similar period in 2008 and (7.12)% for the first
quarter of 2009.
    
    The provision for loan losses was $20.0 million in the second quarter of 2009
compared to $4.4 million for the comparable period in 2008 and $13.0 million in the
first quarter of 2009.
    
    Noninterest income increased 66.0% to $7.3 million in the second quarter of 2009
compared to $4.4 million in the second quarter of 2008 and was $4.0 million higher than
the $3.3 million in the first quarter of 2009, due to the $4.3 million net gains on the
securities portfolio repositioning. Noninterest income ignoring the securities gains
and impairment loss for the second quarter of 2009 was $3.8 million.
    
    Noninterest expenses increased 23.6% to $25.2 million in the second quarter of 2009
compared to $20.4 million in the second quarter of 2008 and was $3.4 million higher
than the $21.8 million in the first quarter of 2009.
    
    The increase in noninterest expenses was largely due to the FDIC insurance special
assessment of $1.7 million and increased regular quarterly FDIC premiums which was $1.7
million and $350,000 higher than the second quarter of 2008 and the first quarter of
2009, respectively. The Company also recognized net severance expense of $699,000 in
the second quarter of 2009.
  
    
    Basic and diluted loss per share for the six months ended June 30, 2009 was $3.05
compared to $0.17 for the same period in 2008.
    
    Net interest income decreased 6.3% to $42.2 million in the first half of 2009
compared to $45.0 million in the first half of 2008. The net interest margin was 2.55%
for the six months ended June 30, 2009 compared to 2.86% for the similar period of
2008.
    
    The annualized return on average assets for the six months ended June 30, 2009 was
(4.51)% compared to (0.16)% for the similar period in 2008.
    
    The annualized return on average equity for the six months ended June 30, 2009 was
(55.07)% compared to (1.58)% for the similar period in 2008.
    
    The provision for loan losses was $33.0 million in the first half of 2009 compared
to $9.8 million for the comparable period in 2008.
    
    Noninterest income increased 72.0% to $10.6 million in the first six months of 2009
compared to $6.2 million in the same period of 2008. Excluding the impairment charges
and net gains on securities transactions and the gain on the sale of real estate,
noninterest income was $7.1 million for the first half of 2009 compared to $8.5 million
for same period in 2008.
    
    Noninterest expenses decreased by 4.2% to $46.9 million in the first half of 2009
compared to $49.0 million in the first half of 2008. Excluding the loss on
extinguishment of debt, noninterest expenses were $41.9 million the first half of 2008.
The increase in noninterest expenses was largely due to the FDIC insurance special
assessment of $1.7 million and increased regular quarterly FDIC premiums which was $2.1
million higher than the first six months of 2008.
 
 PAGE 27




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##### Table of Contents



Net Interest Income
  For the Three Months EndedJune 30, 2009
    
    
    June 30, 2008
    
    
    March 31, 2009Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)Interest-Earning Assets:Federal funds sold and interest-bearing
deposits due from banks
    
    $
    59,551
    
    
    
    75
    
    
    
    0.50
    %
    
    $
    22,696
    
    
    
    98
    
    
    
    1.73
    %
    
    $
    4,787
    
    
    $
    37
    
    
    
    3.09
    %Securities:Taxable(1)
    
    
    626,489
    
    
    
    4,663
    
    
    
    2.98
    
    
    
    701,254
    
    
    
    9,512
    
    
    
    5.43
    
    
    
    629,783
    
    
    
    6,940
    
    
    
    4.41Exempt from federal income 
taxes(1)
    
    
    43,005
    
    
    
    406
    
    
    
    3.78
    
    
    
    61,635
    
    
    
    912
    
    
    
    5.92
    
    
    
    58,551
    
    
    
    846
    
    
    
    5.78Total securities
    
    
    669,494
    
    
    
    5,069
    
    
    
    3.03
    
    
    
    762,889
    
    
    
    10,424
    
    
    
    5.47
    
    
    
    688,334
    
    
    
    7,786
    
    
    
    4.52FRB and FHLB stock
    
    
    30,301
    
    
    
    170
    
    
    
    2.24
    
    
    
    29,264
    
    
    
    184
    
    
    
    2.52
    
    
    
    31,698
    
    
    
    190
    
    
    
    2.40Loans:Commercial loans(1)(2)(3)
    
    
    549,168
    
    
    
    6,770
    
    
    
    4.93
    
    
    
    486,794
    
    
    
    7,360
    
    
    
    6.05
    
    
    
    530,467
    
    
    
    6,588
    
    
    
    4.97Commercial real estate 

loans(1)(2)(3)(4)
    
    
    1,675,704
    
    
    
    24,608
    
    
    
    5.87
    
    
    
    1,642,838
    
    
    
    25,702
    
    
    
    6.26
    
    
    
    1,663,760
    
    
    
    24,230
    
    
    
    5.83Agricultural loans(2)(3)
    
    
    9,991
    
    
    
    164
    
    
    
    6.57
    
    
    
    6,139
    
    
    
    95
    
    
    
    6.19
    
    
    
    7,516
    
    
    
    119
    
    
    
    6.33Consumer real estate 
loans(2)(3)(4)
    
    
    343,898
    
    
    
    3,708
    
    
    
    4.31
    
    
    
    313,556
    
    
    
    4,120
    
    
    
    5.26
    
    
    
    335,768
    
    
    
    3,566
    
    
    
    4.25Consumer installment loans(2)(3)
    
    
    5,996
    
    
    
    98
    
    
    
    6.54
    
    
    
    10,159
    
    
    
    170
    
    
    
    6.69
    
    
    
    6,259
    
    
    
    107
    
    
    
    6.84Total loans
    
    
    2,584,757
    
    
    
    35,348
    
    
    
    5.47
    
    
    
    2,459,486
    
    
    
    37,447
    
    
    
    6.09
    
    
    
    2,543,770
    
    
    
    34,610
    
    
    
    5.44Total interest-earning assets
    
    $
    3,344,103
    
    
    $
    40,662
    
    
    
    4.86
    %
    
    $
    3,274,335
    
    
    $
    48,153
    
    
    
    5.88
    %
    
    $
    3,268,589
    
    
    $
    42,623
    
    
    
    5.22
    %Noninterest-Earning Assets:Cash
    
    $
    44,037
    
    
    
    
    
    
    
    
    
    
    $
    52,693
    
    
    
    
    
    
    
    
    
    
    $
    69,006Premises and equipment, net
    
    
    39,331
    
    
    
    
    
    
    
    
    
    
    
    38,144
    
    
    
    
    
    
    
    
    
    
    
    38,166Allowance for loan losses
    
    
    (58,211
    )
    
    
    
    
    
    
    
    
    
    
    (20,412
    )
    
    
    
    
    
    
    
    
    
    
    (46,503
    )Other assets
    
    
    291,410
    
    
    
    
    
    
    
    
    
    
    
    341,590
    
    
    
    
    
    
    
    
    
    
    
    319,615Total noninterest-earning assets
    
    
    316,567
    
    
    
    
    
    
    
    
    
    
    
    412,015
    
    
    
    
    
    
    
    
    
    
    
    380,284Total assets
    
    $
    3,660,670
    
    
    
    
    
    
    
    
    
    
    $
    3,686,350
    
    
    
    
    
    
    
    
    
    
    $
    3,648,873Interest-Bearing Liabilities:Deposits:Interest-bearing demand deposits
    
    $
    178,231
    
    
    $
    222
    
    
    
    0.50
    %
    
    $
    215,076
    
    
    $
    492
    
    
    
    0.92
    %
    
    $
    173,291
    
    
    $
    256
    
    
    
    0.59
    %Money-market demand and savings accounts
    
    
    358,791
    
    
    
    721
    
    
    
    0.80
    
    
    
    399,380
    
    
    
    1,197
    
    
    
    1.20
    
    
    
    351,778
    
    
    
    753
    
    
    
    0.86Time deposits
    
    
    1,658,904
    
    
    
    11,267
    
    
    
    2.72
    
    
    
    1,448,198
    
    
    
    14,422
    
    
    
    3.98
    
    
    
    1,618,236
    
    
    
    12,676
    
    
    
    3.13Total interest-bearing deposits
    
    
    2,195,926
    
    
    
    12,210
    
    
    
    2.22
    
    
    
    2,062,654
    
    
    
    16,111
    
    
    
    3.12
    
    
    
    2,143,305
    
    
    
    13,685
    
    
    
    2.55Borrowings:Federal funds purchased, FRB discount
window advances, and repurchase agreements
    
    
    319,397
    
    
    
    3,249
    
    
    
    4.07
    
    
    
    451,351
    
    
    
    4,154
    
    
    
    3.68
    
    
    
    333,990
    
    
    
    3,234
    
    
    
    3.87FHLB advances
    
    
    342,637
    
    
    
    3,035
    
    
    
    3.54
    
    
    
    296,044
    
    
    
    2,437
    
    
    
    3.29
    
    
    
    363,000
    
    
    
    3,029
    
    
    
    3.34Junior subordinated debentures
    
    
    60,816
    
    
    
    615
    
    
    
    4.04
    
    
    
    60,749
    
    
    
    876
    
    
    
    5.77
    
    
    
    60,799
    
    
    
    739
    
    
    
    4.86Revolving note payable
    
    
    8,600
    
    
    
    88
    
    
    
    4.09
    
    
    
    8,896
    
    
    
    94
    
    
    
    4.23
    
    
    
    8,600
    
    
    
    43
    
    
    
    2.00Term note payable
    
    
    55,000
    
    
    
    266
    
    
    
    1.93
    
    
    
    55,000
    
    
    
    575
    
    
    
    4.18
    
    
    
    55,000
    
    
    
    282
    
    
    
    2.05Subordinated debt
    
    
    15,000
    
    
    
    144
    
    
    
    3.84
    
    
    
    15,000
    
    
    
    232
    
    
    
    6.19
    
    
    
    15,000
    
    
    
    152
    
    
    
    4.05Total borrowings
    
    
    801,450
    
    
    
    7,397
    
    
    
    3.69
    
    
    
    887,040
    
    
    
    8,368
    
    
    
    3.77
    
    
    
    836,389
    
    
    
    7,479
    
    
    
    3.58Total interest-bearing liabilities
    
    $
    2,997,376
    
    
    $
    19,607
    
    
    
    2.62
    %
    
    $
    2,949,694
    
    
    $
    24,479
    
    
    
    3.32
    %
    
    $
    2,979,694
    
    
    $
    21,164
    
    
    
    2.84
    %Noninterest-Bearing Liabilities:Noninterest-bearing demand deposits
    
    $
    333,600
    
    
    
    
    
    
    
    
    
    
    $
    322,110
    
    
    
    
    
    
    
    
    
    
    $
    330,957Other liabilities
    
    
    33,639
    
    
    
    
    
    
    
    
    
    
    
    34,869
    
    
    
    
    
    
    
    
    
    
    
    35,203Total noninterest-bearing liabilities
    
    
    367,239
    
    
    
    
    
    
    
    
    
    
    
    356,979
    
    
    
    
    
    
    
    
    
    
    
    366,160Stockholders equity
    
    
    296,055
    
    
    
    
    
    
    
    
    
    
    
    379,677
    
    
    
    
    
    
    
    
    
    
    
    303,019Total liabilities and stockholders equity
    
    $
    3,660,670
    
    
    
    
    
    
    
    
    
    
    $
    3,686,350
    
    
    
    
    
    
    
    
    
    
    $
    3,648,873Net interest income 
(tax equivalent)(1)(5)
    
    
    
    
    
    $
    21,055
    
    
    
    2.24
    %
    
    
    
    
    
    $
    23,674
    
    
    
    2.56
    %
    
    
    
    
    
    $
    21,459
    
    
    
    2.38
    %Net interest margin 
(tax equivalent)(1)
    
    
    
    
    
    
    
    
    
    
    2.52
    %
    
    
    
    
    
    
    
    
    
    
    2.89
    %
    
    
    
    
    
    
    
    
    
    
    2.63
    %Net interest income(5)(6)
    
    
    
    
    
    $
    21,055
    
    
    
    
    
    
    
    
    
    
    $
    22,765
    
    
    
    
    
    
    
    
    
    
    $
    21,102Net interest margin(5)
    
    
    
    
    
    
    
    
    
    
    2.52
    %
    
    
    
    
    
    
    
    
    
    
    2.78
    %
    
    
    
    
    
    
    
    
    
    
    2.58
    %Average interest-earning assets to
Interest-bearing liabilities
    
    
    111.57
    %
    
    
    
    
    
    
    
    
    
    
    111.01
    %
    
    
    
    
    
    
    
    
    
    
    109.70
    %
 
 (1)
    
    Adjusted for 35% tax rate and adjusted for the dividends-received deduction, except for the
quarter ended June 30, 2009 as a result of the Companys current tax positon.(2)
    
    Nonaccrual loans are included in the average balance; however, these loans are not earning
any interest.(3)
    
    Includes loan fees of $574, $773, and $476 for the three months ended June 30, 2009, June 30,
2008, and March 31, 2009, respectively. PAGE 28




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##### Table of Contents



(4)
    
    Includes construction loans.(5)
    
    The following table reconciles reported net interest income on a tax equivalent basis for the
periods presented: For the three months ended,June 30,
    
    
    June 30,
    
    
    March 31,2009
    
    
    2008
    
    
    2009Net interest income
    
    $
    21,055
    
    
    $
    22,765
    
    
    $
    21,102Tax equivalent adjustment to net interest income
    
    
    
    
    
    
    909
    
    
    
    357$
    21,055
    
    
    $
    23,674
    
    
    $
    21,459
 (6)
    
    Not adjusted for 35% tax rate or for the dividends-received deduction.
 For the Six Months EndedJune 30, 2009
    
    
    June 30, 2008Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)Interest-Earning Assets:Federal funds sold and interest-bearing
deposits due from banks
    
    $
    32,320
    
    
    $
    112
    
    
    
    0.69
    %
    
    $
    22,317
    
    
    $
    246
    
    
    
    2.20
    %Securities:Taxable(1)
    
    
    628,127
    
    
    
    11,603
    
    
    
    3.69
    
    
    
    702,687
    
    
    
    19,078
    
    
    
    5.43Exempt from federal income taxes(1)
    
    
    50,735
    
    
    
    956
    
    
    
    3.77
    
    
    
    61,741
    
    
    
    1,832
    
    
    
    5.93Total securities
    
    
    678,862
    
    
    
    12,559
    
    
    
    3.70
    
    
    
    764,428
    
    
    
    20,910
    
    
    
    5.47FRB and FHLB stock
    
    
    30,996
    
    
    
    360
    
    
    
    2.32
    
    
    
    29,247
    
    
    
    367
    
    
    
    2.51Loans:Commercial loans(1)(2)(3)
    
    
    539,869
    
    
    
    13,321
    
    
    
    4.93
    
    
    
    493,127
    
    
    
    16,137
    
    
    
    6.54Commercial real estate loans(1)(2)(3)(4)
    
    
    1,669,766
    
    
    
    48,814
    
    
    
    5.85
    
    
    
    1,637,451
    
    
    
    52,797
    
    
    
    6.45Agricultural loans(2)(3)
    
    
    8,760
    
    
    
    283
    
    
    
    6.46
    
    
    
    5,775
    
    
    
    187
    
    
    
    6.48Consumer real estate loans(2)(3)(4)
    
    
    339,855
    
    
    
    7,274
    
    
    
    4.28
    
    
    
    312,677
    
    
    
    8,831
    
    
    
    5.65Consumer installment loans(2)(3)
    
    
    6,127
    
    
    
    205
    
    
    
    6.69
    
    
    
    10,628
    
    
    
    365
    
    
    
    6.87Total loans
    
    
    2,564,377
    
    
    
    69,897
    
    
    
    5.45
    
    
    
    2,459,658
    
    
    
    78,317
    
    
    
    6.37Total interest-earning assets
    
    $
    3,306,555
    
    
    $
    82,928
    
    
    
    5.02
    %
    
    $
    3,275,650
    
    
    $
    99,840
    
    
    
    6.10
    %Noninterest-Earning Assets:Cash
    
    $
    56,453
    
    
    
    
    
    
    
    
    
    
    $
    54,164Premises and equipment, net
    
    
    38,752
    
    
    
    
    
    
    
    
    
    
    
    39,735Allowance for loan losses
    
    
    (52,389
    )
    
    
    
    
    
    
    
    
    
    
    (23,850
    )Other assets
    
    
    305,433
    
    
    
    
    
    
    
    
    
    
    
    340,610Total noninterest-earning assets
    
    
    348,249
    
    
    
    
    
    
    
    
    
    
    
    410,659Total assets
    
    $
    3,654,804
    
    
    
    
    
    
    
    
    
    
    $
    3,686,309Interest-Bearing Liabilities:Deposits:Interest-bearing demand deposits
    
    $
    175,775
    
    
    $
    479
    
    
    
    0.55
    %
    
    $
    216,296
    
    
    $
    1,238
    
    
    
    1.14
    %Money-market demand and savings accounts
    
    
    355,304
    
    
    
    1,474
    
    
    
    0.83
    
    
    
    405,235
    
    
    
    3,025
    
    
    
    1.49Time deposits
    
    
    1,638,682
    
    
    
    23,942
    
    
    
    2.92
    
    
    
    1,459,235
    
    
    
    30,937
    
    
    
    4.24Total interest-bearing deposits
    
    
    2,169,761
    
    
    
    25,895
    
    
    
    2.39
    
    
    
    2,080,766
    
    
    
    35,200
    
    
    
    3.38Borrowings:Federal funds purchased, FRB discount
window advances and repurchase agreements
    
    
    326,653
    
    
    
    6,483
    
    
    
    3.97
    
    
    
    427,063
    
    
    
    8,147
    
    
    
    3.82FHLB advances
    
    
    352,762
    
    
    
    6,064
    
    
    
    3.44
    
    
    
    305,601
    
    
    
    5,919
    
    
    
    3.87Junior subordinated debentures
    
    
    60,808
    
    
    
    1,354
    
    
    
    4.45
    
    
    
    60,741
    
    
    
    1,921
    
    
    
    6.33Revolving note payable
    
    
    8,600
    
    
    
    131
    
    
    
    3.05
    
    
    
    7,632
    
    
    
    174
    
    
    
    4.56Term note payable
    
    
    55,000
    
    
    
    548
    
    
    
    1.99
    
    
    
    62,417
    
    
    
    1,462
    
    
    
    4.68Subordinated debt
    
    
    15,000
    
    
    
    296
    
    
    
    3.95
    
    
    
    7,582
    
    
    
    235
    
    
    
    6.20Total borrowings
    
    
    818,823
    
    
    
    14,876
    
    
    
    3.63
    
    
    
    871,036
    
    
    
    17,858
    
    
    
    4.10Total interest-bearing liabilities
    
    $
    2,988,584
    
    
    $
    40,771
    
    
    
    2.73
    %
    
    $
    2,951,802
    
    
    $
    53,058
    
    
    
    3.59
    %Noninterest-Bearing Liabilities:Noninterest-bearing demand deposits
    
    $
    332,286
    
    
    
    
    
    
    
    
    
    
    $
    319,309Other liabilities
    
    
    34,417
    
    
    
    
    
    
    
    
    
    
    
    34,058Total noninterest-bearing liabilities
    
    
    366,703
    
    
    
    
    
    
    
    
    
    
    
    353,367Stockholders equity
    
    
    299,517
    
    
    
    
    
    
    
    
    
    
    
    381,140Total liabilities and stockholders equity
    
    $
    3,654,804
    
    
    
    
    
    
    
    
    
    
    $
    3,686,309Net interest income (tax equivalent)(1)(5)
    
    
    
    
    
    $
    42,157
    
    
    
    2.29
    %
    
    
    
    
    
    $
    46,782
    
    
    
    2.51
    %Net interest margin (tax equivalent)(1)
    
    
    
    
    
    
    
    
    
    
    2.55
    %
    
    
    
    
    
    
    
    
    
    
    2.86
    %Net interest income(5)(6)
    
    
    
    
    
    $
    42,157
    
    
    
    
    
    
    
    
    
    
    $
    44,981Net interest margin(5)
    
    
    
    
    
    
    
    
    
    
    2.55
    %
    
    
    
    
    
    
    
    
    
    
    2.75
    %Average interest-earning assets to Interest-
bearing liabilities
    
    
    110.64
    %
    
    
    
    
    
    
    
    
    
    
    110.97
    %
 PAGE 29




---



##### Table of Contents



(1)
    
    Adjusted for 35% tax rate and adjusted for the dividends-received deduction where
applicable, except for the six months ended June 30, 2009 as a result of the Companys current
tax positon.(2)
    
    Nonaccrual loans are included in the average balance; however, these loans are not earning
any interest.(3)
    
    Includes loan fees of $1,052 and $1,387 for the six months ended June 30, 2009 and 2008,
respectively.(4)
    
    Includes construction loans.(5)
    
    The following table reconciles reported net interest income on a tax equivalent basis for the
periods presented: For the six months ended,June 30,2009
    
    
    2008Net interest income
    
    $
    42,157
    
    
    $
    44,981Tax equivalent adjustment to net interest income
    
    
    
    
    
    
    1,801Net interest income, tax equivalent basis
    
    $
    42,157
    
    
    $
    46,782
 
 (6)
    
    Not adjusted for 35% tax rate or for the dividends-received deduction.    
    
    Yields on average earning assets decreased by 102 basis points in the
second quarter of 2009 compared to the second quarter of 2008, while average
balances on earning assets increased by $69.8 million, mainly the result of loan
growth. Yields on average earning assets decreased by 36 basis points compared to
the first quarter of 2009. Yields on average earning assets decreased 108 basis
points in the first six months of 2009 compared to the similar period in 2008, while
average balances increased by $30.9 million. The decrease in yields was primarily
due to the decrease in the overall market rates impacting variable rate loans and
the drop in interest income on securities due to the securities portfolio
repositioning.
    
    Average yields on loans for the second quarter of 2009 increased
slightly by 3 basis points to 5.47% compared to the first quarter of 2009 but were
62 basis points lower compared to the same period in 2008. For the first six months
of 2009, average yields on loans decreased by 92 basis points to 5.45% compared to
the first half of 2008. This decline in yields was primarily due to the re-pricing
of the variable rate loans resulting from decreases in the prime rate which was
partially mitigated by interest rate floors. Average loans increased by $125.3
million in the quarter ended June 30, 2009 compared to the same period in 2008.
Average loan increased by $41.0 million compared to the first quarter of 2009.
Average loans increased by $104.7 million in the first half of 2009 compared to the
same period in 2008.
    
    Yields on average securities decreased in the second quarter of 2009
compared to the prior quarter and the same period in 2008 due largely to the
repositioning of the securities portfolio into shorter term lower yielding
securities. Average securities decreased by $93.4 million in the second quarter of
2009 compared to the similar period in 2008 and decreased by $18.8 million compared
to the first quarter of 2009. Yields on average securities decreased by 177 basis
 PAGE 30




---



##### Table of Contents



points in the first six months of 2009 compared to the similar period in 2008 and
average balances decreased by $85.6 million.
    
    During second quarter of 2009, the Company repositioned its securities
portfolio to lower capital requirements associated with higher risk-weighted assets,
restructure expected cash flows, reduce credit risk, and enhance the Banks asset
sensitivity. The Company sold $538.1 million of its securities portfolio with an
average yield of 3.94% and average life of slightly over two years. These
securities were sold in the open market at a net gain of $4.3 million. The Company
purchased $571.0 million of U.S. Treasury bills and Government National Mortgage
Association mortgage-backed securities. The average yield on these securities is
0.43% with an average life of less than six months.
  
    
    The Companys cost of funds decreased by 22 basis points on a
linked-quarter basis as a result of decreased rates paid on interest-bearing
deposits. Average interest-bearing liabilities increased by $17.7 million for the
second quarter of 2009 compared to the prior quarter. Yields on average
interest-bearing liabilities decreased by 70 basis points, while average balances
increased $47.7 million in the second quarter of 2009 compared to the similar period
in 2008. When compared to the first half of 2008, the cost of funds decreased by 86
basis points to 2.73% for the first half of 2009, while average interest-bearing
liabilities increased $36.8 million.
    
    Average interest-bearing deposits increased by $133.3 million, while
average rates decreased 90 basis points in the second quarter of 2009 compared to
the similar period of 2008. Average rates paid on interest-bearing deposits
decreased by 33 basis points to 2.22% for the second quarter of 2009 compared to the
first quarter of 2009, but average balances increased by $52.6 million. Yields on
average interest-bearing deposits decreased by 99 basis points in the first six
months of 2009 compared to the similar period in 2008, and average balances
increased by $89.0 million. Most of the decrease in average rates was in
certificates of deposit that matured and re-priced at lower rates.
    
    Average interest-bearing demand deposit, money market, and savings
accounts increased by $12.0 million for the second quarter of 2009 compared to the
first quarter of 2009 but decreased by $77.4 million compared to June 30, 2008. On
a year-to-date basis, average interest-bearing demand deposit, money market, and
savings accounts decreased by $90.5 million compared to 2008.
    
    The costs of average borrowings decreased by 8 basis points in the
second quarter of 2009 compared to the same period in 2008, while average balances
decreased by $85.6 million largely due to increased deposits. Average borrowings
decreased by $34.9 million in the second quarter of 2009 over the first quarter of
2009, while average rates paid increased by 11 basis points to 3.69%. For the six
months ended June 30, 2009, average borrowings decreased by $52.2 million and
average rates paid decreased by 47 basis points, largely due to decreases in
short-term LIBOR rates.
 PAGE 31




---



##### Table of Contents



Noninterest Income
  
    
    Noninterest income was $7.3 million for the three months ended June 30,
2009, an increase of $2.9 million, or 66.0%, over the comparable period in 2008, and
was $4.0 million higher than the first quarter of 2009. This increase was primarily
attributable to the net gains on the securities portfolio repositioning of $4.3
million recognized in the second quarter of 2009.
    
    Due to these net gains, the annualized noninterest income to average
assets ratio was 0.80% for the three months ended June 30, 2009 compared to 0.48%
for the same period in 2008 and 0.37% for the three months ended March 31, 2009.
    
    Service charges on deposits in the second quarter of 2009 were flat at
$2.0 million when compared to the same period in 2008 and increased by $59,000 when
compared to the first quarter of 2009.
    
    Insurance and brokerage commissions for the three months ended June 30,
2009 decreased by $345,000, or 50.5%, to $338,000 when compared to the second
quarter of 2008, mostly due to the difficult economy, but slightly increased by
$18,000 when compared to first quarter of 2009.
    
    Trust income decreased by $186,000 in the second quarter of 2009
compared to the second quarter of 2008 due to the decreased value of trust assets
under management but slightly increased by $14,000 compared to the first quarter of
2009.
    
    Income from the increase in the cash surrender value of life insurance
decreased by $375,000 and $352,000 for the three months ended June 30, 2009 compared
to the similar period in 2008 and the first quarter of 2009, respectively,
reflecting the liquidation of the bank owned life insurance during the second
quarter of 2009.
  
    
    Noninterest income was $10.6 million for the six months ended June 30,
2009, an increase of $4.5 million, or 72.0%, over the comparable period in 2008.
This increase was primarily attributable to the net gains on the securities
portfolio repositioning of $4.3 million recognized in the second quarter of 2009. In
the first half of 2008, the Company recognized an impairment charge on securities of
$17.6 million and a gain on the sale of property of $15.2 million. Excluding the
net gains on the securities portfolio repositioning in 2009, the impairment charge
on securities and the gain on the sale of property in 2008, noninterest income in
the first half of 2009 decreased by $1.4 million when compared to the first half of
2008.
    
    The annualized noninterest income to average assets ratio was 0.59% for
the six months ended June 30, 2009 compared to 0.34% for the same period in 2008.
Excluding the net gains on the securities portfolio repositioning in 2009, the
impairment charge on securities and the gain on the sale of property in 2008, the
annualized noninterest income to average assets ratio was 0.39% and 0.47% for the
first half of 2009 and 2008, respectively.
 PAGE 32




---



##### Table of Contents




    
    Insurance and brokerage commissions for the six months ended June 30,
2009 decreased by
$585,000 when compared to the first half of 2008, mostly due to the difficult economy
causing a lower volume of transactions.
    
    Trust income decreased by $353,000 in the first half of 2009 compared to
the same period in 2008, partially due to market value decreases and loss of
accounts. Trust income is largely based on a percentage of assets under management.
    
    Income from the increase in the cash surrender value of life insurance
decreased by $391,000 to $1.3 million during the six months ended June 30, 2009
compared to the similar period in 2008, reflecting the liquidation of the bank owned
life insurance in the second quarter of 2009.
 Noninterest Expenses
  
    
    Total noninterest expenses increased 23.6%, or $4.8 million, to
$25.2 million during the second quarter of 2009 compared to $20.4 million for the
similar period in 2008. In comparison to the first quarter of 2009, total
noninterest expenses increased by $3.4 million. This increase was largely due to
the FDIC insurance special assessment of $1.7 million and increased quarterly FDIC
insurance premiums which were $1.7 million and $350,000 higher than the second
quarter of 2008 and the first quarter of 2009, respectively.
    
    The annualized noninterest expenses to average assets ratio was 2.76%
for the three months ended June 30, 2009 compared to 2.22% for the same period in
2008 and 2.42% for the three months ended March 31, 2009.
    
    Salaries and benefits expense increased by $844,000, or 7.7%, during the
second quarter of 2009 compared to the second quarter of 2008, and increased by
$776,000, or 7.0%, compared to the first quarter of 2009, mostly due to severance
costs related to cost reduction initiatives.
    
    Occupancy and equipment expense increased by $263,000, or 8.5%, during
the second quarter of 2009 to $3.4 million compared to the similar period in 2008,
and by $111,000, or 3.4%, compared to the first quarter of 2008, mainly due to
increased rent and maintenance expenses.
    
    Professional services expense rose by $94,000 to $1.9 million in the
second quarter of 2009 compared to the second quarter of 2008. Professional
services expense decreased by $212,000 compared to the first quarter of 2009.
    
    Marketing expenses in the second quarter of 2009 were $374,000 lower
than in the second quarter of 2008 and $349,000 lower than the first quarter of
2009, as certain product programs were scaled back or put on hold in order to
control costs.
    
    Foreclosed properties expense increased in the second quarter of 2009 by
$213,000 and $105,000 compared to the second quarter of 2008 and first quarter of
2009, respectively, due to the increase of $17.2 million and $1.1 million in
foreclosed properties when compared to June 30, 2008 and March 30, 2009,
respectively.
 
 PAGE 33




---



##### Table of Contents




    
    Total noninterest expenses decreased $2.0 million to $46.9 million
during the first half of 2009 compared to $49.0 million for the similar period in
2008. The Company recognized a loss on the early extinguishment of debt of $7.1
million resulting from the prepayment of $130.0 million in advances from the FHLB in
the first quarter of 2008. Compared to the first half of 2008, the FDIC insurance
expense was higher by $3.8 million due to the special assessment of $1.7 million and
increased quarterly premiums.
    
    The annualized noninterest expenses to average assets ratio was 2.59%
for the six months ended June 30, 2009 compared to 2.67% for the same period in
2008. Excluding the loss on the early extinguishment of debt, the annualized
noninterest expenses to average assets ratio was 2.28% for the first half of 2008.
    
    Salaries and benefits expense decreased by $1.1 million during the first
half of 2009 compared to the first half of 2008, which was due in large part to the
difference in first quarter 2009 officer incentive expense including the reversal of
$850,000 accrued in prior periods. This reversal was related to a reduction in
previously planned staff bonuses and a decision in 2009 to forego all 2008 bonuses
for executive officers. This reversal was partly offset by the severance costs
related to the cost reduction initiatives.
    
    Occupancy and equipment expense increased by $609,000, or 10.2%, during
the six months ended June 30, 2009 to $6.6 million compared to the similar period in
2009 mainly due to increased rent and maintenance expenses.
    
    Professional services expense rose by $658,000, or 19.7%, to $4.0
million in the first half of 2009 compared to the first half of 2008 due to higher
legal, including legal expenses related to problem loan workouts, and consulting
expenses.
    
    Marketing expenses for the six months ended June 30, 2009 were $1.0
million, or 20.3% lower than in the same period in 2008, as certain product programs
were scaled back or put on hold in an effort to control costs.
    
    Foreclosed properties expense increased in the first half of 2009 by
$553,000 compared to the same period in 2008, due to the increase in foreclosed
properties.
 Income Taxes
  PAGE 34




---



##### Table of Contents



Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Income taxes computed at the statutory rate
    
    $
    (5,887
    )
    
    
    35.0
    %
    
    $
    831
    
    
    
    35.0
    %
    
    $
    (9,498
    )
    
    
    35.0
    %
    
    $
    (2,670
    )
    
    
    35.0
    %Tax-exempt interest income on securities and loans
    
    
    (173
    )
    
    
    1.0
    
    
    
    (207
    )
    
    
    (8.7
    )
    
    
    (402
    )
    
    
    1.5
    
    
    
    (404
    )
    
    
    5.3General business credits
    
    
    315
    
    
    
    (1.9
    )
    
    
    (148
    )
    
    
    (6.2
    )
    
    
    (294
    )
    
    
    1.1
    
    
    
    (278
    )
    
    
    3.6State income taxes, net of federal tax benefit
due to state operating loss
    
    
    304
    
    
    
    (1.8
    )
    
    
    (28
    )
    
    
    (1.2
    )
    
    
    (219
    )
    
    
    0.8
    
    
    
    (760
    )
    
    
    10.0Life insurance cash surrender value increase, net
of premiums
    
    
    (173
    )
    
    
    1.0
    
    
    
    (303
    )
    
    
    (12.8
    )
    
    
    (466
    )
    
    
    1.7
    
    
    
    (603
    )
    
    
    7.9Liquidation of bank owned life insurance
    
    
    6,924
    
    
    
    (41.1
    )
    
    
    
    
    
    
    
    
    
    
    6,924
    
    
    
    (25.5
    )
    
    
    
    
    
    
    Dividends received deduction
    
    
    
    
    
    
    
    
    
    
    (301
    )
    
    
    (12.7
    )
    
    
    
    
    
    
    
    
    
    
    (602
    )
    
    
    7.9Valuation allowance
    
    
    57,862
    
    
    
    (344.0
    )
    
    
    
    
    
    
    
    
    
    
    57,862
    
    
    
    (213.2
    )
    
    
    
    
    
    
    Nondeductible costs and other, net
    
    
    475
    
    
    
    (2.8
    )
    
    
    104
    
    
    
    4.4
    
    
    
    744
    
    
    
    (2.7
    )
    
    
    678
    
    
    
    (8.9
    )(Benefit) provision for income taxes
    
    $
    59,647
    
    
    
    (354.6
    )%
    
    $
    (52
    )
    
    
    (2.2
    )%
    
    $
    54,651
    
    
    
    (201.3
    )%
    
    $
    (4,639
    )
    
    
    60.8
    %
    PAGE 35




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##### Table of Contents



Financial Condition
  
    
    Total assets decreased slightly at June 30, 2009 compared to year end 2008 and were down
$157.5 million compared to June 30, 2008.
    
    Total loans increased $49.5 million to $2.6 billion at June 30, 2009 compared to year
end 2008 and by $58.2 million over the second quarter of 2008, but decreased by $31.8
million compared to the first quarter of 2009.
    
    The $85.8 million investment in bank owned life insurance was liquidated during the
second quarter of 2009 in order to reduce the Companys investment risk and the Banks
regulatory capital requirement.
    
    At June 30, 2009, the Company established a valuation allowance of $60.0 million against
its existing net deferred tax assets.
    
    Deposits increased by $125.7 million to $2.5 billion at June 30, 2009 compared to year
end 2008 and increased by $198.4 million when compared to June 30, 2008.
  
    
    The downturn in the commercial and residential real estate markets continued to have a
significant negative impact on the Companys loan portfolio, resulting in a significant
deterioration in credit quality and an increase in loan losses and its allowance for loan losses.
The Company believes it is likely that the credit quality of its loan portfolio will further
deteriorate through the end of 2009.
    
    Nonaccrual loans were 3.71% of total loans at June 30, 2009, up from 2.43% of total
loans at year end and 1.64% at June 30, 2008.
    
    Foreclosed properties increased from $12.0 million at year end to $19.6 million at June
30, 2009, mainly due to the foreclosure action on three large loan relationships.
    
    Loan delinquencies of 30-89 days were 2.18% of loans at June 30, 2009, up from 1.03% at
December 31, 2008 and 0.35% at June 30, 2008, due to the continued deterioration of
economic conditions.
    
    Nonperforming assets were 3.52% of total assets at June 30, 2009, up from 2.36% at year
end and 1.16% at June 30, 2008, as a result of the increase in nonaccrual loans and
foreclosed properties.
    
    The allowance for loan losses was 2.50% of total loans as of June 30, 2009, versus 1.77%
at year end 2008 and 0.90% at June 30, 2008, due to a $33.0 million provision in the first
half of 2009 with net charge-offs of $13.5 million during that period.
    
    The allowance for loan losses to nonaccrual loans ratio was 67.24% at June 30, 2009,
72.72% at year end, and 55.20% for the corresponding period of 2008.
 
 PAGE 36




---



##### Table of Contents



Loans
  June 30,
    
    
    December 31,2009
    
    
    2008% of Gross
    
    
    
    
    
    
    % of GrossAmount
    
    
    Loans
    
    
    Amount
    
    
    Loans(Dollars in thousands)Commercial
    
    $
    1,100,979
    
    
    
    43.1
    %
    
    $
    1,090,078
    
    
    
    43.3
    %Construction
    
    
    350,688
    
    
    
    13.7
    
    
    
    366,178
    
    
    
    14.6Commercial real estate
    
    
    766,113
    
    
    
    29.9
    
    
    
    729,729
    
    
    
    29.1Home equity
    
    
    225,789
    
    
    
    8.8
    
    
    
    194,673
    
    
    
    7.8Other consumer
    
    
    5,627
    
    
    
    0.2
    
    
    
    6,332
    
    
    
    0.3Residential mortgage
    
    
    110,735
    
    
    
    4.3
    
    
    
    123,161
    
    
    
    4.9Total loans, gross
    
    
    2,559,931
    
    
    
    100.0
    %
    
    
    2,510,151
    
    
    
    100.0
    %Net deferred fees
    
    
    (674
    )
    
    
    
    
    
    
    (392
    )Total loans, net
    
    $
    2,559,257
    
    
    
    
    
    
    $
    2,509,759
  
    
    Commercial loans increased $10.9 million to $1.1 billion as of June 30, 2009 from
December 31, 2008 and comprise 43.1% of the loan portfolio.
    
    Construction loans decreased by $15.5 million to $350.7 million, or 13.7% of the loan
portfolio, as of June 30, 2009 from $366.2 million and 14.6% at December 31, 2008.
    
    Commercial real estate loans increased by $36.4 million to $766.1 million, or 29.9% of
the loan portfolio, as of June 30, 2009 from $729.7 million and 29.1% at year end.
    
    Home equity loans increased by $31.1 million to $225.8 million, or 8.8% of the loan
portfolio, as of June 30, 2009 from $194.7 million at year end.
    
    Residential mortgage loans decreased by $12.4 million to $110.7 million as of June 30,
2009 from $123.2 million at year end.
    
    The Company does not hold any sub-prime loans in its portfolio.
 Allowance for Loan Losses
  PAGE 37




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Balance, at beginning of period
    
    $
    53,011
    
    
    $
    20,344
    
    
    $
    44,432
    
    
    $
    26,748Provision charged to operations
    
    
    20,000
    
    
    
    4,415
    
    
    
    33,000
    
    
    
    9,815Loans charged off
    
    
    (9,726
    )
    
    
    (2,998
    )
    
    
    (14,545
    )
    
    
    (15,248
    )Recoveries
    
    
    608
    
    
    
    845
    
    
    
    1,006
    
    
    
    1,291Net loans charged off
    
    
    (9,118
    )
    
    
    (2,153
    )
    
    
    (13,539
    )
    
    
    (13,957
    )Balance, at end of period
    
    $
    63,893
    
    
    $
    22,606
    
    
    $
    63,893
    
    
    $
    22,606
     June 30,
    
    December 31,
    
    June 30,2009
    
    2008
    
    2008Net loans charged off to average loans during quarter
    
    
    1.41
    %
    
    
    2.39
    %
    
    
    0.35
    %Provision for loan losses to total loans
    
    
    3.13
    
    
    
    3.17
    
    
    
    0.71Allowance for loan losses to total loans
    
    
    2.50
    
    
    
    1.77
    
    
    
    0.90Allowance to nonaccrual loans
    
    
    0.67
    x
    
    
    0.73
    x
    
    
    0.55
    x
    PAGE 38




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##### Table of Contents



Nonaccrual Loans and Nonperforming Assets
   
    
    a $6.5 million loan to a company that markets to real estate agents and brokers that
has been negatively affected by the real estate downturn;
    
    a $2.8 million loan relationship with an energy company currently operating under a
forebearance agreement; and
    
    a $2.8 million loan relationship with a full-service tradeshow display company where
the recent death of the principal caused a disruption in its business operations. This
borrower is currently operating under a forebearance agreement.
  
    
    a $4.9 million loan originated in 2003 for a commercial property in a western suburb of
Chicago which has been stalled due to on-going litigation with the local municipality;
    
    a $4.1 million relationship with a contractor for the development of three residential
properties in northern suburbs of Chicago which have been slow to sell; and
    
    a $2.4 million relationship with a real estate developer for eight investment
properties near Rockford which have been impacted by local economic conditions.
 PAGE 39




---



##### Table of Contents



June 30,
    
    
    December 31,
    
    
    June 30,2009
    
    
    2008
    
    
    2008(Dollars in thousands)Nonaccrual loans
    
    $
    95,023
    
    
    $
    61,104
    
    
    $
    40,956Troubled-debt restructuring
    
    
    11,006
    
    
    
    11,006
    
    
    
    Total nonperforming loans
    
    
    106,029
    
    
    
    72,110
    
    
    
    40,956Foreclosed properties
    
    
    19,588
    
    
    
    12,018
    
    
    
    2,375Total nonperforming assets
    
    $
    125,617
    
    
    $
    84,128
    
    
    $
    43,331Nonaccrual loans to loans
    
    
    3.71
    %
    
    
    2.43
    %
    
    
    1.64
    %Nonperforming assets to loans and foreclosed properties
    
    
    4.87
    
    
    
    3.34
    
    
    
    1.73Nonperforming assets to assets
    
    
    3.52
    
    
    
    2.36
    
    
    
    1.16
   Securities
  PAGE 40




---



##### Table of Contents



June 30, 2009Held-to-Maturity
    
    
    Available-for-Sale
    
    
    Total% ofAmortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    AmortizedCost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Cost(Dollars in thousands)Obligations of the U.S. Treasury
    
    $
    
    
    
    $
    
    
    
    $
    518,780
    
    
    $
    518,769
    
    
    $
    518,780
    
    
    $
    518,769
    
    
    
    81.4
    %Obligations of states and political subdivisions
    
    
    
    
    
    
    
    
    
    
    2,597
    
    
    
    2,597
    
    
    
    2,597
    
    
    
    2,597
    
    
    
    0.4Mortgage-backed securities:U.S. government agencies  residential (1)
    
    
    
    
    
    
    
    
    
    
    51,303
    
    
    
    51,283
    
    
    
    51,303
    
    
    
    51,283
    
    
    
    8.0U.S. government agencies  commercial (1)
    
    
    
    
    
    
    
    
    
    
    19,065
    
    
    
    18,562
    
    
    
    19,065
    
    
    
    18,562
    
    
    
    3.0U.S. government-sponsored entities (2)
    
    
    
    
    
    
    
    
    
    
    24,243
    
    
    
    24,243
    
    
    
    24,243
    
    
    
    24,243
    
    
    
    3.8Equity securities of U.S. government-sponsored
entities (3)
    
    
    
    
    
    
    
    
    
    
    2,749
    
    
    
    2,105
    
    
    
    2,749
    
    
    
    2,105
    
    
    
    0.4Other bonds
    
    
    
    
    
    
    
    
    
    
    19,079
    
    
    
    15,723
    
    
    
    19,079
    
    
    
    15,723
    
    
    
    3.0Total
    
    $
    
    
    
    $
    
    
    
    $
    637,816
    
    
    $
    633,282
    
    
    $
    637,816
    
    
    $
    633,282
    
    
    
    100.0
    %
 
 (1)
    
    Includes obligations of GNMA.(2)
    
    Includes obligations of FNMA and FHLMC.(3)
    
    Includes issues from FNMA and FHLMC.     
    
    U.S. Treasury and obligations of U.S. government-sponsored entities increased by $253.3
million to $518.8 million, or 95.4% of the portfolio, at June 30, 2009 compared to $265.4
million at year end. At June 30, 2009, the Companys holdings in this category consisted of
only U.S. Treasury bills with maturities of less than four months.
    
    U.S. government agency and government-sponsored entity mortgage-backed securities
decreased $189.6 million, from $283.7 million at December 31, 2008 to $94.1 million at June
30, 2009.
    
    Equity securities increased $1.2 million to $2.1 million at June 30, 2009 from December
31, 2008 as
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a result of the increase in fair market value.
    
    Other bonds increased by $482,000 to $15.7 million at June 30, 2009 from $15.2 million
at December 31, 2008 as a result of the increase in fair market value.
    
    The securities portfolio does not contain any sub-prime or Alt-A mortgage-backed
securities.
    Cash Surrender Value of Life Insurance
  Deposits and Borrowed Funds
  June 30,
    
    
    December 31,2009
    
    
    2008(In thousands)Noninterest-bearing demand
    
    $
    336,347
    
    
    $
    334,495Interest-bearing demand
    
    
    177,782
    
    
    
    176,224Money market
    
    
    218,946
    
    
    
    208,484Savings
    
    
    133,072
    
    
    
    129,101Certificates of deposit less than $100,000
    
    
    851,469
    
    
    
    689,896Certificates of deposit of $100,000 or more
    
    
    441,078
    
    
    
    435,687Brokered certificates of deposit
    
    
    379,796
    
    
    
    438,904Total interest-bearing deposits
    
    
    2,202,143
    
    
    
    2,078,296Total
    
    $
    2,538,490
    
    
    $
    2,412,791Total core deposits (1)
    
    $
    866,147
    
    
    $
    848,304
 
 (1)
    
    Consists of noninterest-bearing and interest-bearing demand, money market, and
savings.  PAGE 42




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##### Table of Contents




    
    Noninterest-bearing deposits were $336.3 million at June 30, 2009, $1.9 million more
than the $334.5 million level at December 31, 2008.
    
    Interest-bearing deposits increased 6.0%, or $123.8 million to $2.2 billion at June 30,
2009 compared to December 31, 2008.
    
    Core deposits, which consist of demand deposit, interest-bearing demand deposit, money
market, and savings accounts, increased $17.8 million to $866.1 million at June 30, 2009
from $848.3 million at December 31, 2008 due to strong sales efforts.
    
    Certificates of deposit under $100,000 increased $161.6 million, or 23.4%, from
December 31, 2008 to $851.5 million at June 30, 2009, as a result of successful promotions.
    
    Certificates of deposit over $100,000 increased by $5.4 million from December 31, 2008
to $441.1 million at June 30, 2009.
    
    Certificates of deposits through the CDARS and Internet networks were $124.1 million at
June 30, 2009 compared to $41.6 million at December 31, 2008. These networks allow the
Company to access other deposit funding sources.
    
    Brokered certificates of deposit decreased $59.1 million, or 13.5%, to $379.8 million
at June 30, 2009 compared to year end 2008. The brokered certificates of deposit are
comprised of underlying certificates of deposits in denominations of less than $100,000.
     PAGE 43




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June 30,
    
    
    December 31,2009
    
    
    2008(In thousands)Revolving note payable
    
    $
    8,600
    
    
    $
    8,600Securities sold under agreements to repurchase
    
    
    297,650
    
    
    
    297,650Federal Home Loan Bank advances
    
    
    340,000
    
    
    
    380,000Junior subordinated debentures
    
    
    60,824
    
    
    
    60,791Subordinated debt
    
    
    15,000
    
    
    
    15,000Term note payable
    
    
    55,000
    
    
    
    55,000Total
    
    $
    777,074
    
    
    $
    817,041
       PAGE 44




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Capital Resources
     PAGE 45




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June 30,
    
    
    December 31,2009
    
    
    2008(In thousands)Risk-weighted assets
    
    $
    2,653,771
    
    
    $
    2,878,087Average assets
    
    
    3,660,670
    
    
    
    3,590,313Capital components:Stockholders equity
    
    $
    219,671
    
    
    $
    305,834Plus: Guaranteed trust preferred securities
    
    
    59,000
    
    
    
    59,000Less: Core deposit and other intangibles, net
    
    
    (13,537
    )
    
    
    (14,683
    )Less: Goodwill
    
    
    (78,862
    )
    
    
    (78,862
    )Less: Disallowed tax assets
    
    
    (265
    )
    
    
    (32,748
    )Less: Prior service cost and decrease in projected benefit obligation
    
    
    1,048
    
    
    
    Less: Unrealized (gains) losses on securities, net of tax
    
    
    4,533
    
    
    
    1,449Plus: Unrealized losses on equity securities, net of tax
    
    
    (644
    )
    
    
    (1,117
    )Tier I capital
    
    
    190,944
    
    
    
    238,873Allowance for loan losses
    
    
    63,893
    
    
    
    44,432Reserve for unfunded commitments
    
    
    1,342
    
    
    
    1,068Disallowed allowance
    
    
    (31,667
    )
    
    
    (9,406
    )Qualifying subordinated debt
    
    
    15,000
    
    
    
    15,000Total risk-based capital
    
    $
    239,512
    
    
    $
    289,967
  At June 30, 2009Minimum Required
    
    Minimum RequiredActual
    
    for Capital Adequacy
    
    to be Well CapitalizedAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in thousands)Total capital to risk-weighted
assets Company
    
    $
    239,598
    
    
    
    9.0
    %
    
    $
    212,302
    
    
    
    8.0
    %
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    277,107
    
    
    
    10.5
    
    
    
    211,633
    
    
    
    8.0
    
    
    $
    264,542
    
    
    
    10.0
    %Tier I capital to
risk-weighted assets Company
    
    
    191,030
    
    
    
    7.2
    
    
    
    106,151
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    192,643
    
    
    
    7.3
    
    
    
    105,817
    
    
    
    4.0
    
    
    
    158,725
    
    
    
    6.0Tier I capital to average
assets Company
    
    
    191,030
    
    
    
    5.2
    
    
    
    146,427
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    192,643
    
    
    
    5.3
    
    
    
    145,793
    
    
    
    4.0
    
    
    
    182,241
    
    
    
    5.0
 At December 31, 2008Minimum Required
    
    Minimum RequiredActual
    
    for Capital Adequacy
    
    to be Well CapitalizedAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in thousands)Total capital to risk-weighted
assets Company
    
    $
    289,967
    
    
    
    10.1
    %
    
    $
    230,247
    
    
    
    8.0
    %
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    301,993
    
    
    
    10.5
    
    
    
    229,244
    
    
    
    8.0
    
    
    $
    286,555
    
    
    
    10.0
    %Tier I capital to
risk-weighted assets Company
    
    
    238,873
    
    
    
    8.3
    
    
    
    115,123
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    236,054
    
    
    
    8.2
    
    
    
    114,622
    
    
    
    4.0
    
    
    
    171,933
    
    
    
    6.0Tier I capital to average
assets Company
    
    
    238,873
    
    
    
    6.7
    
    
    
    143,613
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    236,054
    
    
    
    6.6
    
    
    
    143,000
    
    
    
    4.0
    
    
    
    178,750
    
    
    
    5.0
  PAGE 46




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Liquidity
        PAGE 47




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ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
 Interest Rate Sensitivity Analysis
  Change in Net Interest Income Over One Year HorizonGuidelineJune 30, 2009
    
    December 31, 2008
    
    MaximumDollar
    
    %
    
    Dollar
    
    %
    
    %Change
    
    Change
    
    Change
    
    Change
    
    Change(Dollars in thousands)+200 bp
    
    $
    12,789
    
    
    
    18.72
    %
    
    $
    6,274
    
    
    
    8.23
    %
    
    
    (10.0
    )%+100 bp
    
    
    5,731
    
    
    
    8.39
    
    
    
    2,850
    
    
    
    3.74
    
    
    
    -100 bp
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    -200 bp
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    (10.0
    )
   PAGE 48




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ITEM 4  CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls Over Financial Reporting
  PAGE 49




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SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
     
    
    Managements ability to effectively manage interest rate risk and the impact of
interest rates in general on the volatility of the Companys net interest income;
    
    Risks and uncertainties related to the contemplated Exchange Offer and to the Capital
Plan, including
 
    
    the Companys ability to successfully execute the Exchange Offer, including
securing the exchange of a significant number of Depositary Shares;
    
    the Companys ability to successfully implement and achieve the other goals
of the Capital Plan, the success of which is dependent on a successful Exchange
Offer; and
    
    whether the Company will need to materially modify our Capital Plan in the
future;
 
    
    the effect of the recently enacted Emergency Economic Stabilization Act of 2008, the
American Recovery and Reinvestment Act of 2009, the implementation by the Department of the
U.S. Treasury (the U.S. Treasury) and federal banking regulators of a number of programs
to address capital and liquidity issues in the banking system and additional programs that
will apply to us in the future, all of which may have significant effects on us and the
financial services industry;
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
    
    The possibility that the Companys wholesale funding sources may prove insufficient to
replace deposits at maturity and support potential growth;
    
    Inaccessibility of funding sources on the same terms on which the Company has
historically relied if it is unable to maintain its current capital ratings;
    
    The decline in commercial and residential real estate sales volume and the likely
potential for continuing illiquidity in the real estate market, including within the
Chicago metropolitan area;
    
    The risks associated with the high concentration of commercial real estate loans in the
Companys portfolio;
    
    The uncertainties in estimating the fair value of developed real estate and undeveloped
land in light of declining demand for such assets and continuing illiquidity in the real
estate market;
    
    Uncertainties with respect to the future utilization of the Companys deferred tax
assets;
    
    Negative developments and disruptions in the credit and lending markets, including the
impact of the ongoing credit crisis on the Companys business and on the businesses of its
customers as well as other banks and lending institutions with which the Company has
commercial relationships;
    
    A continuation of the recent unprecedented volatility in the capital markets;
    
    The risks associated with implementing the Companys business strategy, including its
ability to preserve and access sufficient capital to execute on its strategy;
    
    Rising unemployment and its impact on the Companys customers savings rates and their
ability to service debt obligations;
    
    Fluctuations in the value of the Companys investment securities;
    
    The ability to attract and retain senior management experienced in banking and
financial services;
    
    The sufficiency of the allowance for loan losses to absorb the amount of actual losses
inherent in the existing portfolio of loans;
    
    The Companys ability to adapt successfully to technological changes to compete
effectively in the marketplace;
    
    Credit risks and risks from concentrations (by geographic area and by industry) within
the Banks loan portfolio and individual large loans;
    
    The effects of competition from other commercial banks, thrifts, mortgage banking
firms, consumer finance companies, credit unions, securities brokerage firms, insurance
companies, money market and other mutual funds, and other financial institutions operating
in the Companys market or elsewhere or providing similar services;
    
    The failure of assumptions underlying the establishment of the allowance for loan
losses and estimation of values of collateral or cash flow projections and various
financial assets and liabilities;
    
    Volatility of rate sensitive deposits;
 PAGE 51




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
    
    Operational risks, including data processing system failures or fraud;
    
    Liquidity risks;
    
    The ability to successfully acquire low cost deposits or funding;
    
    The ability to successfully execute strategies to increase noninterest income;
    
    Changes in the economic environment, competition, or other factors that may influence
 loan demand, deposit flows, and the quality of the loan portfolio and loan and deposit
pricing;
    
    The impact from changes in federal and state tax laws relating to certain tax
structures of the Company including an 80/20 company which holds a portion of the Companys
securities portfolio and a real estate investment trust which holds certain real estate
loans previously held by the Bank;
    
    The impact from liabilities arising from legal or administrative proceedings on the
financial condition of the Company;
    
    The ability of the Bank to pay dividends to the Company;
    
    The Companys ability to pay cash dividends on its common and preferred stock and
interest on its junior subordinated debentures;
    
    The Companys ability to negotiate waivers for its loan covenant violations and
restructure payment;
    
    Possible administrative or enforcement actions of banking regulators in connection with
any material failure of the Company or the Bank to comply with banking laws, rules or
regulations;
    
    Possible administrative or enforcement actions of the SEC in connection with the SEC
inquiry of the restatement of the Companys September 30, 2002 financial statements;
    
    Governmental monetary and fiscal policies, as well as legislative and regulatory
changes, that may result in the imposition of costs and constraints on the Company through
higher FDIC insurance premiums, significant fluctuations in market interest rates,
increases in capital requirements, and operational limitations;
    
    Changes in general economic or industry conditions, nationally or in the communities in
which the Company conducts business;
    
    Changes in legislation or regulatory and accounting principles, policies, or guidelines
affecting the business conducted by the Company;
    
    The impact of possible future goodwill and other material impairment charges;
    
    The effects of increased deposit insurance premiums;
    
    Acts of war or terrorism; and
    
    Other economic, competitive, governmental, regulatory, and technical factors affecting
the Companys operations, products, services, and prices.
 PAGE 52




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PART II
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Risks Related to Our Contemplated Exchange Offer and to Our Capital Plan
 The Exchange Offer and other aspects of our Capital Plan will result in a substantial amount of our
common stock entering the market, which could adversely affect the market price of our Common
Stock.
  The market price of our Common Stock may be subject to continued significant fluctuations and
volatility.
  
 PAGE 54




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##### Table of Contents




 
 
 
 
 
 
 Future dividend payments and Common Stock repurchases are restricted by the terms of the U.S.
Treasurys current equity investment in the Company as well as the terms of the Companys
outstanding Series A Preferred Stock and trust preferred securities .
 pari passu
  PAGE 55




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We may fail to realize all of the anticipated benefits of the Exchange Offer.
   
 
 
 We contemplate issuing a significant amount of Common Stock to accomplish the goals of our Capital
Plan. The issuance of even a portion of the additional Common Stock contemplated under our Capital
Plan will be dilutive, potentially significantly, to holders of our Common Stock.
  
 
 
   PAGE 56




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Exchanging our Series T Preferred Stock for mandatory convertible preferred shares under the CAP is
likely to impose additional restrictions on operations and could adversely affect liquidity.
      PAGE 57




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##### Table of Contents



Issuing a significant amount of convertible preferred equity to the U.S. Treasury or issuing a
significant amount of common equity to a private investor may result in a change in control of us
under regulatory standards and contractual terms.
  Risks Related to Our Business, Operations and Industry
 Our results of operations, financial condition and business may be materially, adversely affected
if we fail to successfully implement our Capital Plan.
  Failure to maintain compliance with regulatory standards and mandates could result in adverse
regulatory action against us and restrict certain activities.
  PAGE 58




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Changes in economic conditions, in particular a continued economic slowdown in Chicago, Illinois,
could hurt our business materially.
  
 
 
 
 
 
 A large percentage of our loans are collateralized by real estate, including our construction
loans, and adverse changes in the real estate market may result in losses and adversely affect our
profitability.
     PAGE 59




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The Companys allowance for loan losses may not be sufficient to cover actual loan losses, which
could adversely affect its results of operations or its financial condition.
  
 
 
 
    PAGE 60




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While the Company attempts to manage the risk from changes in market interest rates, interest rate
risk management techniques are not exact. In addition, the Company may not be able to economically
hedge its interest rate risk. A rapid or substantial increase or decrease in interest rates could
adversely affect its net interest income and results of operations.
     PAGE 61




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We may not be able to access sufficient and cost-effective sources of liquidity necessary to fund
our operations and meet our payment obligations under our existing funding commitments, including
the repayment of our brokered deposits.
     PAGE 62




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The Companys cost of funds for banking operations may increase as a result of general economic
conditions, interest rates and competitive pressures.
   The Company is party to loan agreements that require it to observe certain covenants that limit its
flexibility in operating its business; and it has recently breached covenants under its loan
agreements, which , as a result, have given its lenders the right to take certain courses of
actions that have been and, with respect to unexercised rights, would be significantly detrimental
to holders of the Companys securities.
   
 
 
 PAGE 63




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Our common stock could be delisted from Nasdaq.
   Markets have experienced, and may continue to experience, periods of high volatility accompanied by
reduced liquidity.
  Concern of the Companys customers over deposit insurance may cause a decrease in deposits.
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The Companys deposit insurance premium could be substantially higher in the future, which could
have a material adverse effect on our future earnings.
    Defaults by another financial institution could adversely affect financial markets generally.
    PAGE 66




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The widespread effect of falling housing prices on financial markets has adversely affected and
could continue to adversely affect the Companys profitability, liquidity, and financial condition.
  The value of securities in the Companys investment securities portfolio may be negatively affected
by continued disruptions in securities markets.
  If the Company is required to write down goodwill or other intangible assets or if it is required
to mark-to-market certain of its assets or reduce its deferred tax assets by a valuation allowance,
its financial condition and results of operations would be negatively affected.
   
 
 
 
 
 PAGE 67




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##### Table of Contents




 
     If the Companys investment in the common stock of the Federal Home Loan Bank of Chicago is other
than temporarily impaired, its financial condition and results of operations could be materially
impaired.
  PAGE 68




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As a bank holding company that conducts substantially all of the Companys operations through its
subsidiaries, its ability to pay dividends, repurchase its shares, or to repay its indebtedness
depends upon liquid assets held by the bank holding company as well as the results of operations of
the Companys subsidiaries the Company and its subsidiaries are subject to other restrictions.
    PAGE 69




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
 
 The Company expects to seek or may be compelled to seek additional capital in the future, but
capital may not be available when it is needed.
   The Companys effective tax rates may be adversely affected by changes in federal and state tax
laws.
  PAGE 70




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An interruption in or breach in security of the Companys information systems may result in a loss
of customer business.
    The Company continually encounters technological change.
  PAGE 71




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The Companys business may be adversely affected by the highly regulated environment in which it
operates.
  There can be no assurance that the recently enacted Emergency Economic Stabilization Act of 2008,
the American Recovery and Reinvestment Act of 2009 and other recently enacted government programs will
help stabilize the U.S. financial system.
    PAGE 72




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The limitations on incentive compensation contained in the ARRA may adversely affect the Companys
ability to retain its highest performing employees.
  The Company is subject to claims and litigation pertaining to fiduciary responsibility.
  PAGE 73




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The Company is exposed to risk of environmental liabilities with respect to properties to which we
take title.
  Severe weather, natural disasters, acts of war or terrorism and other external events could
significantly impact our business.
  Non-Compliance with USA PATRIOT Act, Bank Secrecy Act, or Other Laws and Regulations Could Result
in Fines or Sanctions, and Curtail Expansion Opportunities
  Provisions in the Companys amended and restated certificate of incorporation and its amended and
restated bylaws may delay or prevent an acquisition of the Company by a third party.
  PAGE 74




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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  1.
    
    To elect eleven members to serve on the Companys Board of Directors for a
term of one year:
 Nominee
    
    For
    
    Against
    
    AbstainPercy L. Berger, CPA
    
    
    21,086,285
    
    
    
    2,149,719
    
    
    
    416,507J. J Fritz
    
    
    18,805,300
    
    
    
    4,740,596
    
    
    
    106,614Angelo DiPaolo
    
    
    21,629,415
    
    
    
    1,911,517
    
    
    
    111,578Barry I. Forrester, CFA
    
    
    20,884,077
    
    
    
    2,644,880
    
    
    
    123,554Robert J. Genetski, PhD
    
    
    20,859,998
    
    
    
    2,675,977
    
    
    
    116,535Gerald F. Hartley, CPA
    
    
    20,821,655
    
    
    
    2,713,060
    
    
    
    117,795Dennis M. OHara
    
    
    20,929,766
    
    
    
    2,599,540
    
    
    
    123,205Joseph Rizza
    
    
    21,760,175
    
    
    
    1,785,991
    
    
    
    106,344Thomas A. Rosenquist
    
    
    21,876,892
    
    
    
    1,658,248
    
    
    
    117,371E.V. Silveri
    
    
    20,674,682
    
    
    
    2,869,119
    
    
    
    108,709Monsignor Kenneth Velo
    
    
    21,950,226
    
    
    
    1,579,400
    
    
    
    122,885
 2.
    
    To ratify the appointment of PricewaterhouseCoopers LLP:
 Votes For:
    
    
    22,141,375Against:
    
    
    1,458,030Abstain:
    
    
    53,106
 3.
    
    To approve, in an advisory (non-binding) vote, the compensation of the
named executive officers:
 Votes For:
    
    
    19,787,056Against:
    
    
    2,903,426Abstain:
    
    
    962,030
 
 Item 5. Other Information
  
 Item 6. Exhibits
  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.10.69
    
    Short-term Revolving Line of Credit Loan Agreement dated June 3,
2009 between the Company and M&I Marshall & Ilsley.31.1
    
    Rule 13a-14(a) Certification of Principal Executive Officer.31.2
    
    Rule 13a-14(a) Certification of Principal Financial Officer.32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, from the
Companys Chief Executive Officer and Chief Accounting Officer.
 PAGE 75




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##### Table of Contents



SIGNATURES
   MIDWEST BANC HOLDINGS, INC.
(Registrant)By:
    /s/ Roberto R. HerenciaRoberto R. Herencia,President and Chief Executive OfficerBy:
    /s/ JoAnn Sannasardo LilekJoAnn Sannasardo Lilek,Executive Vice President and
Chief Financial Officer PAGE 76




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##### Table of Contents



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.10.69
    
    Short-term Revolving Line of Credit Loan Agreement dated June 3,
2009 between the Company and M&I Marshall & Ilsley.31.1
    
    Rule 13a-14(a) Certification of Principal Executive Officer.31.2
    
    Rule 13a-14(a) Certification of Principal Financial Officer.32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, from the
Companys Chief Executive Officer and Chief Accounting Officer.