##### 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, 2008
 Commission File Number: 001-13735
 MIDWEST BANC HOLDINGS, INC.
 (Exact name of Registrant as specified in its charter.)
 Delaware(State or other jurisdiction of 
incorporation or organization)
    
    36-3252484(I.R.S. Employer Identification Number)501 W. North Ave. 
Melrose Park, Illinois(Address of principal executive offices)
    
    60160(Zip code)
 
 (708) 865-1053
 (Registrants telephone number, including area code)
 þ o
  Large accelerated filer o   
    Accelerated filer þ
    Non-accelerated filer o
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
  Class
    
    Outstanding at August 7, 2008Common, par value $0.01
    
    27,858,752




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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
    
    18Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    44Item 4. Controls and Procedures
    
    45PART IIItem 1. Legal Proceedings
    
    49Item 1A. Risk Factors
    
    49Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
    
    49Item 3. Defaults upon Senior Securities
    
    49Item 4. Submission of Matters to a Vote of Security Holders
    
    49Item 5. Other Information
    
    50Item 6. Exhibits
    
    50Signature Page
    
    54EXHIBIT 10.15EXHIBIT 10.27EXHIBIT 31.1Exhibit 31.2Exhibit 32.1
  i




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MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except for share data)
 June 30,
    
    
    December 31,2008
    
    
    2007ASSETSCash
    
    $
    85,015
    
    
    $
    70,111Federal funds sold and other short-term investments
    
    
    3,042
    
    
    
    14,388Total cash and cash equivalents
    
    
    88,057
    
    
    
    84,499Securities available-for-sale (securities pledged to
creditors: $314,551 at June 30, 2008 and $295,710 at
December 31, 2007)
    
    
    710,803
    
    
    
    710,881Securities held-to-maturity (fair value: $30,478 at June 30,
2008 and $36,912 at December 31, 2007)
    
    
    31,389
    
    
    
    37,601Total securities
    
    
    742,192
    
    
    
    748,482Federal Reserve Bank and Federal Home Loan Bank stock, at cost
    
    
    29,264
    
    
    
    29,264Loans
    
    
    2,501,082
    
    
    
    2,474,327Allowance for loan losses
    
    
    (22,606
    )
    
    
    (26,748
    )Net loans
    
    
    2,478,476
    
    
    
    2,447,579Cash surrender value of life insurance
    
    
    82,889
    
    
    
    81,166Premises and equipment, net
    
    
    38,739
    
    
    
    41,821Foreclosed properties
    
    
    2,375
    
    
    
    2,220Core deposit and other intangibles, net
    
    
    15,864
    
    
    
    17,044Goodwill
    
    
    159,083
    
    
    
    160,407Other assets
    
    
    89,781
    
    
    
    80,300Total assets
    
    $
    3,726,720
    
    
    $
    3,692,782LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesDepositsNoninterest-bearing
    
    $
    334,813
    
    
    $
    321,317Interest-bearing
    
    
    2,005,230
    
    
    
    2,136,831Total deposits
    
    
    2,340,043
    
    
    
    2,458,148Federal funds purchased and FRB discount window advances
    
    
    198,000
    
    
    
    81,000Securities sold under agreements to repurchase
    
    
    297,650
    
    
    
    283,400Advances from the Federal Home Loan Bank
    
    
    340,000
    
    
    
    323,439Junior subordinated debentures
    
    
    60,757
    
    
    
    60,724Subordinated debt
    
    
    15,000
    
    
    
    Notes payable
    
    
    62,600
    
    
    
    72,500Due to broker
    
    
    
    
    
    
    1,539Other liabilities
    
    
    41,972
    
    
    
    36,868Total liabilities
    
    
    3,356,022
    
    
    
    3,317,618Commitments and contingencies (see note 8)Stockholders EquityPreferred stock, $0.01 par value, $2,500 liquidation
preference, 1,000,000 shares authorized; 17,250 shares issued
and outstanding at June 30, 2008 and December 31, 2007
    
    
    
    
    
    
    Common stock, $0.01 par value, 64,000,000 shares authorized;
29,506,344 shares issued and 27,858,752 outstanding at
June 30, 2008 and 29,275,687 shares issued and 27,803,794
outstanding at December 31, 2007
    
    
    295
    
    
    
    293Additional paid-in capital
    
    
    302,529
    
    
    
    300,762Retained earnings
    
    
    90,699
    
    
    
    102,762Accumulated other comprehensive loss
    
    
    (8,089
    )
    
    
    (13,917
    )Treasury stock, at cost (1,647,592 shares at June 30, 2008
and 1,471,893 shares at December 31, 2007)
    
    
    (14,736
    )
    
    
    (14,736
    )Total stockholders equity
    
    
    370,698
    
    
    
    375,164Total liabilities and stockholders equity
    
    $
    3,726,720
    
    
    $
    3,692,782
 See accompanying notes to unaudited consolidated financial statements.
 PAGE 1




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MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share data)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Interest IncomeLoans
    
    $
    37,392
    
    
    $
    36,822
    
    
    $
    78,198
    
    
    $
    72,880Loans held for sale
    
    
    
    
    
    
    48
    
    
    
    
    
    
    
    78SecuritiesTaxable
    
    
    8,977
    
    
    
    8,729
    
    
    
    18,037
    
    
    
    16,292Exempt from federal income taxes
    
    
    593
    
    
    
    462
    
    
    
    1,191
    
    
    
    1,162Dividends from Federal Reserve and Federal Home Loan Bank stock
    
    
    184
    
    
    
    226
    
    
    
    367
    
    
    
    454Federal funds sold and other short-term investments
    
    
    98
    
    
    
    205
    
    
    
    246
    
    
    
    392Total interest income
    
    
    47,244
    
    
    
    46,492
    
    
    
    98,039
    
    
    
    91,258Interest ExpenseDeposits
    
    
    16,111
    
    
    
    18,582
    
    
    
    35,200
    
    
    
    36,481Federal funds purchased and FRB discount window advances
    
    
    672
    
    
    
    393
    
    
    
    1,487
    
    
    
    1,092Securities sold under agreements to repurchase
    
    
    3,482
    
    
    
    2,563
    
    
    
    6,660
    
    
    
    4,722Advances from the Federal Home Loan Bank
    
    
    2,437
    
    
    
    3,670
    
    
    
    5,919
    
    
    
    7,318Junior subordinated debentures
    
    
    876
    
    
    
    1,315
    
    
    
    1,921
    
    
    
    2,616Subordinated debt
    
    
    232
    
    
    
    
    
    
    
    235
    
    
    
    Notes payable
    
    
    669
    
    
    
    
    
    
    
    1,636
    
    
    
    Total interest expense
    
    
    24,479
    
    
    
    26,523
    
    
    
    53,058
    
    
    
    52,229Net interest income
    
    
    22,765
    
    
    
    19,969
    
    
    
    44,981
    
    
    
    39,029Provision for loan losses
    
    
    4,415
    
    
    
    1,036
    
    
    
    9,815
    
    
    
    1,681Net interest income after provision for loan losses
    
    
    18,350
    
    
    
    18,933
    
    
    
    35,166
    
    
    
    37,348Noninterest IncomeService charges on deposit accounts
    
    
    1,953
    
    
    
    1,575
    
    
    
    3,916
    
    
    
    3,209Net gains on securities transactions
    
    
    44
    
    
    
    31
    
    
    
    56
    
    
    
    17Impairment loss on securities
    
    
    
    
    
    
    
    
    
    
    (17,586
    )
    
    
    Gains on sales of loans
    
    
    
    
    
    
    225
    
    
    
    
    
    
    
    401Insurance and brokerage commissions
    
    
    683
    
    
    
    541
    
    
    
    1,243
    
    
    
    1,114Trust
    
    
    482
    
    
    
    503
    
    
    
    931
    
    
    
    896Increase in cash surrender value of life insurance
    
    
    865
    
    
    
    703
    
    
    
    1,723
    
    
    
    1,456Gain on sale of property
    
    
    
    
    
    
    
    
    
    
    15,196
    
    
    
    Other
    
    
    367
    
    
    
    318
    
    
    
    705
    
    
    
    523Total noninterest income
    
    
    4,394
    
    
    
    3,896
    
    
    
    6,184
    
    
    
    7,616Noninterest ExpenseSalaries and employee benefits
    
    
    11,015
    
    
    
    10,363
    
    
    
    24,055
    
    
    
    20,810Occupancy and equipment
    
    
    3,093
    
    
    
    2,190
    
    
    
    5,992
    
    
    
    4,380Professional services
    
    
    1,796
    
    
    
    1,108
    
    
    
    3,334
    
    
    
    2,316Loss on early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    7,121
    
    
    
    Marketing
    
    
    713
    
    
    
    478
    
    
    
    1,289
    
    
    
    1,157Foreclosed properties
    
    
    237
    
    
    
    7
    
    
    
    242
    
    
    
    32Amortization of intangible assets
    
    
    625
    
    
    
    409
    
    
    
    1,250
    
    
    
    865Merger related
    
    
    80
    
    
    
    (21
    )
    
    
    194
    
    
    
    (21
    )Other
    
    
    2,809
    
    
    
    2,110
    
    
    
    5,500
    
    
    
    4,186Total noninterest expense
    
    
    20,368
    
    
    
    16,644
    
    
    
    48,977
    
    
    
    33,725Income (loss) before income taxes
    
    
    2,376
    
    
    
    6,185
    
    
    
    (7,627
    )
    
    
    11,239Provision (benefit) for income taxes
    
    
    (52
    )
    
    
    1,078
    
    
    
    (4,639
    )
    
    
    1,720Net income (loss)
    
    
    2,428
    
    
    
    5,107
    
    
    
    (2,988
    )
    
    
    9,519Preferred stock dividends
    
    
    836
    
    
    
    
    
    
    
    1,671
    
    
    
    Net income (loss) available to common stockholders
    
    $
    1,592
    
    
    $
    5,107
    
    
    $
    (4,659
    )
    
    $
    9,519Basic earnings per share
    
    $
    0.06
    
    
    $
    0.21
    
    
    $
    (0.17
    )
    
    $
    0.39Diluted earnings per share
    
    $
    0.06
    
    
    $
    0.21
    
    
    $
    (0.17
    )
    
    $
    0.38Cash dividends declared per common share
    
    $
    0.13
    
    
    $
    0.13
    
    
    $
    0.26
    
    
    $
    0.26
 See accompanying notes to unaudited consolidated financial statements.
 PAGE 2




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MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (Unaudited)
For the Six Months Ended June 30, 2008 and 2007
(In thousands, except share and per share data)
 AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    TotalPreferred
    
    
    Common
    
    
    Paid in
    
    
    Retained
    
    
    Comprehensive
    
    
    Treasury
    
    
    StockholdersStock
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Loss
    
    
    Stock
    
    
    EquityBalance, December 31, 2006
    
    $
    
    
    
    $
    255
    
    
    $
    200,797
    
    
    $
    97,807
    
    
    $
    (6,273
    )
    
    $
    (5,344
    )
    
    $
    287,242Cash dividends declared 
($0.26 per share)
on common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,515
    )
    
    
    
    
    
    
    
    
    
    
    (6,515
    )Issuance of common stock upon
exercise of 26,396 stock options,
net of tax benefit
    
    
    
    
    
    
    
    
    
    
    320
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    320Purchase of 179,500 shares of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,976
    )
    
    
    (2,976
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,573
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,573Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,519
    
    
    
    
    
    
    
    
    
    
    
    9,519Net decrease in fair value of
securities classified as available-for-sale, net of income taxes and
reclassification adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,588
    )
    
    
    
    
    
    
    (5,588
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,931Balance, June 30, 2007
    
    $
    
    
    
    $
    255
    
    
    $
    202,690
    
    
    $
    100,811
    
    
    $
    (11,861
    )
    
    $
    (8,320
    )
    
    $
    283,575Balance, December 31, 2007
    
    $
    
    
    
    $
    293
    
    
    $
    300,762
    
    
    $
    102,762
    
    
    $
    (13,917
    )
    
    $
    (14,736
    )
    
    $
    375,164Cash dividends declared 
($96.875 per share)
on 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
    
    
    
    
    
    
    
    
    
    
    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
    )
    
    $
    370,698
 See accompanying notes to unaudited consolidated financial statements.
 PAGE 3




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Six Months Ended June 30, 2008 and 2007
(In thousands)
 2008
    
    
    2007Cash flows from operating activitiesNet (loss) income
    
    $
    (2,988
    )
    
    $
    9,519Adjustments to reconcile net (loss) income to net cash provided by operating activitiesDepreciation
    
    
    2,067
    
    
    
    1,538Provision for loan losses
    
    
    9,815
    
    
    
    1,681Amortization of core deposit and other intangibles
    
    
    330
    
    
    
    628Amortization of premiums and discounts on securities, net
    
    
    316
    
    
    
    451Realized gain on sale of securities, net
    
    
    (56
    )
    
    
    (17
    )Impairment loss on securities
    
    
    17,586
    
    
    
    Net gain on sales of loans held for sale
    
    
    
    
    
    
    (401
    )Originations of loans held for sale
    
    
    
    
    
    
    (36,729
    )Proceeds from sales of loans held for sale
    
    
    
    
    
    
    37,453Gain on sale of property
    
    
    (15,196
    )
    
    
    Loss on early extinguishment of debt
    
    
    7,121
    
    
    
    Increase in cash surrender value of life insurance
    
    
    (1,723
    )
    
    
    (1,456
    )Deferred income taxes
    
    
    1,673
    
    
    
    4,658Loss on disposition of foreclosed properties, net
    
    
    222
    
    
    
    12Amortization of deferred stock based compensation
    
    
    1,591
    
    
    
    1,515Change in other assets
    
    
    (14,926
    )
    
    
    205Change in other liabilities
    
    
    4,177
    
    
    
    (10,035
    )Net cash provided by operating activities
    
    
    10,009
    
    
    
    9,022Cash flows from investing activitiesSales of securities available-for-sale
    
    
    87,185
    
    
    
    70,340Sales of securities held-to-maturity
    
    
    4,443
    
    
    
    Maturities of securities available-for-sale
    
    
    82,585
    
    
    
    12,035Principal payments on securities available-for-sale
    
    
    32,232
    
    
    
    42,039Principal payments on securities held-to-maturity
    
    
    1,871
    
    
    
    Purchases of securities available-for-sale
    
    
    (210,864
    )
    
    
    (217,333
    )Loan originations and principal collections, net
    
    
    (39,432
    )
    
    
    (36,411
    )Proceeds from sale of property
    
    
    18,259
    
    
    
    Proceeds from disposition of foreclosed properties
    
    
    244
    
    
    
    225Additions to property and equipment
    
    
    (2,047
    )
    
    
    (2,067
    )Net cash used in investing activities
    
    
    (25,524
    )
    
    
    (131,172
    )Cash flows from financing activitiesNet (decrease) increase in deposits
    
    
    (117,833
    )
    
    
    99,583Proceeds from borrowings
    
    
    158,600
    
    
    
    Repayments on borrowings
    
    
    (144,075
    )
    
    
    (50,000
    )Preferred cash dividends paid
    
    
    (1,671
    )
    
    
    Common cash dividends paid
    
    
    (7,373
    )
    
    
    (6,526
    )Change in federal funds purchased, FRB discount window advances, and securities sold under
agreements to repurchase
    
    
    131,250
    
    
    
    43,958Repurchase of common stock
    
    
    
    
    
    
    (2,976
    )Proceeds from issuance of common under stock and incentive plan
    
    
    175
    
    
    
    272Net cash provided by financing activities
    
    
    19,073
    
    
    
    84,311Increase (decrease) in cash and cash equivalents
    
    
    3,558
    
    
    
    (37,839
    )Cash and cash equivalents at beginning of period
    
    
    84,499
    
    
    
    100,532Cash and cash equivalents at end of period
    
    $
    88,057
    
    
    $
    62,693Supplemental disclosuresCash paid during period for:Interest
    
    $
    53,596
    
    
    $
    49,876Income taxes, net
    
    
    2,700
    
    
    
    3,934
 See accompanying notes to unaudited consolidated financial statements.
 PAGE 4




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##### Table of Contents



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




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 3  BUSINESS COMBINATIONS
    Three months ended
    
    Six months endedJune 30,
    
    June 30,2007
    
    2007Net interest income
    
    $
    24,919
    
    
    $
    48,873Net income
    
    
    6,710
    
    
    
    12,560Basic earnings per share
    
    
    0.24
    
    
    
    0.44Diluted earnings per share
    
    
    0.24
    
    
    
    0.44
 PAGE 6




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 4  SECURITIES
  June 30, 2008Held-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 and of
U.S. government-sponsored entities
    
    $
    
    
    
    $
    
    
    
    $
    291,268
    
    
    $
    291,307
    
    
    $
    291,268
    
    
    $
    291,307
    
    
    
    38.6
    %Obligations of states and political subdivisions
    
    
    1,252
    
    
    
    1,251
    
    
    
    60,415
    
    
    
    59,370
    
    
    
    61,667
    
    
    
    60,621
    
    
    
    8.2Mortgage-backed securities
    
    
    30,137
    
    
    
    29,227
    
    
    
    284,821
    
    
    
    281,385
    
    
    
    314,958
    
    
    
    310,612
    
    
    
    41.7Equity securities
    
    
    
    
    
    
    
    
    
    
    67,489
    
    
    
    62,013
    
    
    
    67,489
    
    
    
    62,013
    
    
    
    8.9Other bonds
    
    
    
    
    
    
    
    
    
    
    19,216
    
    
    
    16,728
    
    
    
    19,216
    
    
    
    16,728
    
    
    
    2.6Total
    
    $
    31,389
    
    
    $
    30,478
    
    
    $
    723,209
    
    
    $
    710,803
    
    
    $
    754,598
    
    
    $
    741,281
    
    
    
    100.0
    %
 December 31, 2007Held-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 and of
U.S. government-sponsored entities
    
    $
    
    
    
    $
    
    
    
    $
    181,983
    
    
    $
    183,613
    
    
    $
    181,983
    
    
    $
    183,613
    
    
    
    23.6
    %Obligations of states and political subdivisions
    
    
    1,254
    
    
    
    1,268
    
    
    
    60,985
    
    
    
    61,400
    
    
    
    62,239
    
    
    
    62,668
    
    
    
    8.1Mortgage-backed securities
    
    
    36,347
    
    
    
    35,644
    
    
    
    383,633
    
    
    
    379,040
    
    
    
    419,980
    
    
    
    414,684
    
    
    
    54.4Equity securities
    
    
    
    
    
    
    
    
    
    
    85,139
    
    
    
    65,979
    
    
    
    85,139
    
    
    
    65,979
    
    
    
    11.0Other bonds
    
    
    
    
    
    
    
    
    
    
    22,095
    
    
    
    20,849
    
    
    
    22,095
    
    
    
    20,849
    
    
    
    2.9Total
    
    $
    37,601
    
    
    $
    36,912
    
    
    $
    733,835
    
    
    $
    710,881
    
    
    $
    771,436
    
    
    $
    747,793
    
    
    
    100.0
    %
 PAGE 7




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  June 30, 2008Less 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 the U.S. Treasury and of U.S. government-sponsored
entities (1)
    
    $
    130,357
    
    
    $
    (949
    )
    
    $
    
    
    
    $
    
    
    
    $
    130,357
    
    
    $
    (949
    )Obligations of states and political subdivisions
    
    
    46,778
    
    
    
    (1,136
    )
    
    
    
    
    
    
    
    
    
    
    46,778
    
    
    
    (1,136
    )Mortgage-backed securities:U.S. government-sponsored entities (1)
    
    
    218,830
    
    
    
    (2,895
    )
    
    
    15,841
    
    
    
    (709
    )
    
    
    234,671
    
    
    
    (3,604
    )Equity securities (2)
    
    
    61,663
    
    
    
    (5,555
    )
    
    
    
    
    
    
    
    
    
    
    61,663
    
    
    
    (5,555
    )Corporate and other debt securities
    
    
    13,177
    
    
    
    (1,944
    )
    
    
    3,551
    
    
    
    (544
    )
    
    
    16,728
    
    
    
    (2,488
    )Total available-for-sale
    
    
    470,805
    
    
    
    (12,479
    )
    
    
    19,392
    
    
    
    (1,253
    )
    
    
    490,197
    
    
    
    (13,732
    )Securities held-to-maturity:Obligations of states and political subdivisions
    
    
    505
    
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    505
    
    
    
    (8
    )Mortgage-backed securities:U.S. government agencies (3)
    
    
    7,592
    
    
    
    (121
    )
    
    
    
    
    
    
    
    
    
    
    7,592
    
    
    
    (121
    )U.S. government-sponsored entities (1)
    
    
    1,242
    
    
    
    (16
    )
    
    
    20,393
    
    
    
    (772
    )
    
    
    21,635
    
    
    
    (788
    )Total held-to-maturity
    
    
    9,339
    
    
    
    (145
    )
    
    
    20,393
    
    
    
    (772
    )
    
    
    29,732
    
    
    
    (917
    )Total temporarily impaired securities
    
    $
    480,144
    
    
    $
    (12,624
    )
    
    $
    39,785
    
    
    $
    (2,025
    )
    
    $
    519,929
    
    
    $
    (14,649
    )
 
 (1)
    
    Includes obligations of the Federal Home Loan Mortgage Corporation (FHLMC) and Federal
National Mortgage Association (FNMA).(2)
    
    Includes issues from government-sponsored entities (FNMA and FHLMC).(3)
    
    Includes obligations of the Government National Mortgage Association (GNMA).  
    
    The unrealized loss for U.S. government-sponsored entities mortgage-backed securities
relate primarily to debt securities issued by FNMA and FHLMC and are
rated AAA by Moodys and  S&P as of June
30, 2008; each security has a stated maturity date. FNMA is rated Aa3, AA- and A+ by
Moodys, S&P and Fitch, respectively. FHLMC is rated Aa3 and AA- by Moodys and Fitch,
respectively. These mortgage-backed securities are notes with a weighted average maturity
of approximately 19 years and a weighted average interest rate of 4.74%.
    
    The unrealized losses on corporate and other debt securities relate to securities which
were rated A- or better by either Moodys or S&P as of June 30, 2008. These debt securities
have a weighted average maturity of approximately 25 years and a weighted average interest
rate of 5.13%.
  PAGE 8




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 5  LOANS
  June 30,
    
    
    December 31,2008
    
    
    2007(1)% of Gross
    
    
    
    
    
    
    % of GrossAmount
    
    
    Loans
    
    
    Amount
    
    
    Loans(Dollars in thousands)Commercial
    
    $
    1,090,004
    
    
    
    43.5
    %
    
    $
    1,079,631
    
    
    
    43.6
    %Construction
    
    
    421,729
    
    
    
    16.9
    
    
    
    464,583
    
    
    
    18.8Commercial real estate
    
    
    687,351
    
    
    
    27.5
    
    
    
    627,928
    
    
    
    25.4Home equity
    
    
    157,225
    
    
    
    6.3
    
    
    
    142,158
    
    
    
    5.8Other consumer
    
    
    8,469
    
    
    
    0.3
    
    
    
    10,689
    
    
    
    0.4Residential mortgage
    
    
    136,636
    
    
    
    5.5
    
    
    
    149,703
    
    
    
    6.0Total loans, gross
    
    
    2,501,414
    
    
    
    100.0
    %
    
    
    2,474,692
    
    
    
    100.0
    %Net deferred fees
    
    
    (332
    )
    
    
    
    
    
    
    (365
    )Total loans, net
    
    $
    2,501,082
    
    
    
    
    
    
    $
    2,474,327
 
 (1)
    
    Amounts have been reclassified to conform to current period presentation.  PAGE 9




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  June 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Commercial
    
    $
    710
    
    
    $
    726Construction
    
    
    223
    
    
    
    211Commercial real estate
    
    
    
    
    
    
    2,736Residential mortgage
    
    
    247
    
    
    
    260Total carrying value
    
    $
    1,180
    
    
    $
    3,933
  (In thousands)Balance at beginning of period
    
    $
    249Accretion
    
    
    (190
    )Balance at end of period
    
    $
    59
  NOTE 6  ALLOWANCE FOR LOAN LOSSES
  Six Months EndedJune 30,2008
    
    
    2007(In thousands)Balance at beginning of period
    
    $
    26,748
    
    
    $
    23,229Provision charged to operations
    
    
    9,815
    
    
    
    1,681Loans charged off
    
    
    (15,248
    )
    
    
    (2,024
    )Recoveries
    
    
    1,291
    
    
    
    838Net loans (charged off) recoveries
    
    
    (13,957
    )
    
    
    (1,186
    )Balance at end of period
    
    $
    22,606
    
    
    $
    23,724
  Six Months EndedJune 30,2008(In thousands)Impaired loans for which no allowance for loan losses is allocated
    
    $
    11,920Impaired loans with an allocation of the allowance for loan losses
    
    
    38,215Total impaired loans
    
    $
    50,135Allowance for loan losses allocated to impaired loans
    
    $
    5,754Average impaired loans
    
    $
    51,973Interest income recognized on impaired loans on a cash basis
    
    
    453
 PAGE 10




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 7  GOODWILL AND INTANGIBLES
  June 30, 2008
    
    December 31, 2007Gross Carrying
    
    Accumulated
    
    Net Carrying
    
    Gross Carrying
    
    Accumulated
    
    Net CarryingAmount
    
    Amortization
    
    Amount
    
    Amount
    
    Amortization
    
    AmountAmortized intangible assets:Core deposit and other intangibles
    
    $
    21,091
    
    
    $
    (5,227
    )
    
    $
    15,864
    
    
    $
    21,091
    
    
    $
    (4,047
    )
    
    $
    17,044
   Core Depositand OtherGoodwill
    
    
    IntangiblesBalance at beginning of period
    
    $
    160,407
    
    
    $
    17,044Amortization
    
    
    
    
    
    
    (1,180
    )Purchase price adjustment
    
    
    (1,324
    )
    
    
    Balance at end of period
    
    $
    159,083
    
    
    $
    15,864
  PAGE 11




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 8  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
    
    $
    160,943
    
    
    $
    19,587
    
    
    $
    6,766
    
    
    $
    142
    
    
    $
    187,438Home equity
    
    
    33,580
    
    
    
    28,582
    
    
    
    37,015
    
    
    
    50,471
    
    
    
    149,648Consumer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,158
    
    
    
    2,158Commercial
    
    
    236,500
    
    
    
    28,591
    
    
    
    907
    
    
    
    5,746
    
    
    
    271,744Letters of credit
    
    
    42,128
    
    
    
    15,592
    
    
    
    3,170
    
    
    
    2,722
    
    
    
    63,612Commitments to extend credit
    
    
    155,857
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    155,857Total commitments
    
    $
    629,008
    
    
    $
    92,352
    
    
    $
    47,858
    
    
    $
    61,239
    
    
    $
    830,457
   NOTE 9  FAIR VALUE
  
    
    Level 1:Quoted prices (unadjusted) or identical assets or liabilities in active
markets that the entity has the ability to access as of the measurement date.
    
    Level 2:Significant other observable inputs other than Level 1 prices, such as
quoted prices for similar assets or liabilities, quoted prices in markets that are not
active, and other inputs that are observable or can be corroborated by observable
market data.
    
    Level 3:Significant unobservable inputs that reflect a companys own assumptions
about the assumptions that market participants would use in pricing an asset or
liability.
 
 PAGE 12




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Total
    
    Quoted Prices or
    
    Significant
    
    SignificantFair Value
    
    Identical Assets in
    
    Other Observable
    
    Unobservableat June 30,
    
    Active Markets
    
    Inputs
    
    Inputs2008
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)(In thousands)Assets:Available-for-sale securities
    
    $
    710,803
    
    
    $
    60,930
    
    
    $
    640,587
    
    
    $
    9,286
  Three Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30,
    
    
    June 30,2008
    
    
    2008(In thousands)Beginning balance
    
    $
    9,660
    
    
    $
    10,479Total gains or losses (realized/unrealized):Included in earnings
    
    
    
    
    
    
    Included in other comprehensive income
    
    
    (374
    )
    
    
    (1,193
    )Ending balance
    
    $
    9,286
    
    
    $
    9,286
   Quoted Prices or
    
    Significant
    
    SignificantIdentical Assets in
    
    Other Observable
    
    UnobservableJune 30,
    
    Active Markets
    
    Inputs
    
    Inputs2008
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)(In thousands)Assets:Impaired loans
    
    $
    30,158
    
    
    $
    
    
    
    $
    
    
    
    $
    30,158
  PAGE 13




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 10  STOCK COMPENSATION AND RESTRICTED STOCK AWARDS
    Weighted Average
    
    Weighted AverageNumber of
    
    Exercise Price
    
    Grant- Date FairOptions
    
    Per Share
    
    Value Per ShareOutstanding at December 31, 2007
    
    
    479,152
    
    
    $
    14.03
    
    
    $
    4.63Granted
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (16,500
    )
    
    
    10.61
    
    
    
    3.01Forfeited
    
    
    (36,580
    )
    
    
    14.13
    
    
    
    4.21Outstanding at June 30, 2008
    
    
    426,072
    
    
    
    14.16
    
    
    
    4.73
   PAGE 14




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   Number of
    
    Weighted AverageRestricted
    
    Grant-Date Fair ValueShares
    
    Per ShareOutstanding at December 31, 2007
    
    
    448,394
    
    
    $
    20.87Granted
    
    
    226,324
    
    
    
    10.91Vested
    
    
    (38,458
    )
    
    
    17.73Forfeited
    
    
    (12,567
    )
    
    
    17.67Outstanding at June 30, 2008
    
    
    623,693
    
    
    
    17.51
 NOTE 11  SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
    June 30,2008(In thousands)Beginning balance
    
    $
    3,477Service cost
    
    
    204Interest cost
    
    
    75Prior service cost
    
    
    776Pre-application of SFAS No. 87 expense
    
    
    742Ending balance
    
    $
    5,274
  PAGE 15




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 12  INCOME TAXES
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands)Income taxes computed at the statutory rate
    
    $
    831
    
    
    
    35.0
    %
    
    $
    2,165
    
    
    
    35.0
    %
    
    $
    (2,670
    )
    
    
    35.0
    %
    
    $
    3,934
    
    
    
    35.0
    %Tax-exempt interest income on securities and loans
    
    
    (207
    )
    
    
    (8.7
    )
    
    
    (158
    )
    
    
    (2.6
    )
    
    
    (404
    )
    
    
    5.3
    
    
    
    (384
    )
    
    
    (3.4
    )General business credits
    
    
    (148
    )
    
    
    (6.2
    )
    
    
    (110
    )
    
    
    (1.8
    )
    
    
    (278
    )
    
    
    3.6
    
    
    
    (220
    )
    
    
    (2.0
    )State income taxes, net of federal tax benefit
due to state operating loss
    
    
    (28
    )
    
    
    (1.2
    )
    
    
    (276
    )
    
    
    (4.4
    )
    
    
    (760
    )
    
    
    10.0
    
    
    
    (517
    )
    
    
    (4.6
    )Life insurance cash surrender value increase, net of premiums
    
    
    (303
    )
    
    
    (12.8
    )
    
    
    (246
    )
    
    
    (4.0
    )
    
    
    (603
    )
    
    
    7.9
    
    
    
    (510
    )
    
    
    (4.5
    )Dividends received deduction
    
    
    (301
    )
    
    
    (12.7
    )
    
    
    (302
    )
    
    
    (4.9
    )
    
    
    (602
    )
    
    
    7.9
    
    
    
    (612
    )
    
    
    (5.4
    )Nondeductible costs and other, net
    
    
    104
    
    
    
    4.4
    
    
    
    5
    
    
    
    0.1
    
    
    
    678
    
    
    
    (8.9
    )
    
    
    29
    
    
    
    0.2(Benefit) provision for income taxes
    
    $
    (52
    )
    
    
    (2.2
    )%
    
    $
    1,078
    
    
    
    17.4
    %
    
    $
    (4,639
    )
    
    
    60.8
    %
    
    $
    1,720
    
    
    
    15.3
    %
   PAGE 16




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  NOTE 13  SALE OF BRANCH PROPERTY
  NOTE 14  EARNINGS PER SHARE
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands, except per share data)Net income (loss)
    
    $
    2,428
    
    
    $
    5,107
    
    
    $
    (2,988
    )
    
    $
    9,519Preferred stock dividends
    
    
    836
    
    
    
    
    
    
    
    1,671
    
    
    
    Net income (loss) available to common stockholders
    
    $
    1,592
    
    
    $
    5,107
    
    
    $
    (4,659
    )
    
    $
    9,519BasicWeighted average common shares outstanding
    
    
    27,855
    
    
    
    24,638
    
    
    
    27,847
    
    
    
    24,665Basic earnings per share
    
    $
    0.06
    
    
    $
    0.21
    
    
    $
    (0.17
    )
    
    $
    0.39DilutedWeighted average common shares outstanding
    
    
    27,855
    
    
    
    24,638
    
    
    
    27,847
    
    
    
    24,665Dilutive effect of stock options (1)
    
    
    3
    
    
    
    109
    
    
    
    
    
    
    
    131Dilutive effect of restricted stock (1)
    
    
    100
    
    
    
    82
    
    
    
    
    
    
    
    85Diluted average common shares
    
    
    27,958
    
    
    
    24,829
    
    
    
    27,847
    
    
    
    24,881Diluted earnings per share
    
    $
    0.06
    
    
    $
    0.21
    
    
    $
    (0.17
    )
    
    $
    0.38
 
 (1)
    
    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 17




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##### Table of Contents



ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following discussion and analysis is intended as a review of significant factors affecting
the financial condition and results of operations of the Company for the periods indicated. The
discussion should be read in conjunction with the unaudited Consolidated Financial Statements and
the Notes thereto presented herein. In addition to historical information, the following
Managements Discussion and Analysis of Financial Condition and Results of Operations contains
forward-looking statements that involve risks and uncertainties. The Companys actual results
could differ significantly from those anticipated in these forward-looking statements as a result
of certain factors discussed in this report.
 Critical Accounting Policies and Estimates
  Strategy
  Expand and diversify loan portfolio.
 Expand deposit base.
 Expand footprint in Chicago market.
 PAGE 18




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##### Table of Contents




    
    Expanding the community banking market penetration;
    
    Adding experienced key executives;
    
    Expanding the size of the loan portfolio and diversifying its risk profile by
increasing the percentage of commercial and industrial loans and owner-occupied
commercial real estate loans, while decreasing the percentage of construction loans;
    
    Expanding the deposit base by adding a higher percentage of noninterest-bearing
and interest-bearing demand deposit, money market, and savings accounts; and
    
    Acquiring approximately $200.0 million in managed trust assets.
  Expand noninterest income.
   PAGE 19




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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 30,2008
    
    
    2007
    
    
    2008
    
    
    2008
    
    
    2007(Dollars in thousands, except per share data)Statement of Income Data:Total interest income
    
    $
    47,244
    
    
    $
    46,492
    
    
    $
    50,795
    
    
    $
    98,039
    
    
    $
    91,258Total interest expense
    
    
    24,479
    
    
    
    26,523
    
    
    
    28,579
    
    
    
    53,058
    
    
    
    52,229Net interest income
    
    
    22,765
    
    
    
    19,969
    
    
    
    22,216
    
    
    
    44,981
    
    
    
    39,029Provision for loan losses
    
    
    4,415
    
    
    
    1,036
    
    
    
    5,400
    
    
    
    9,815
    
    
    
    1,681Noninterest income
    
    
    4,394
    
    
    
    3,896
    
    
    
    1,790
    
    
    
    6,184
    
    
    
    7,616Noninterest expenses
    
    
    20,368
    
    
    
    16,644
    
    
    
    28,609
    
    
    
    48,977
    
    
    
    33,725Income before income taxes
    
    
    2,376
    
    
    
    6,185
    
    
    
    (10,003
    )
    
    
    (7,627
    )
    
    
    11,239Provision for income taxes
    
    
    (52
    )
    
    
    1,078
    
    
    
    (4,587
    )
    
    
    (4,639
    )
    
    
    1,720Net (loss) income
    
    
    2,428
    
    
    
    5,107
    
    
    
    (5,416
    )
    
    
    (2,988
    )
    
    
    9,519Preferred stock dividends
    
    
    (836
    )
    
    
    
    
    
    
    (835
    )
    
    
    (1,671
    )
    
    
    Net (loss) income available to common stockholders
    
    $
    1,592
    
    
    $
    5,107
    
    
    $
    (6,251
    )
    
    $
    (4,659
    )
    
    $
    9,519Per Share Data:Earnings per share (basic)
    
    $
    0.06
    
    
    $
    0.21
    
    
    $
    (0.22
    )
    
    $
    (0.17
    )
    
    $
    0.39Earnings per share (diluted)
    
    
    0.06
    
    
    
    0.21
    
    
    
    (0.22
    )
    
    
    (0.17
    )
    
    
    0.38Cash dividends declared on common stock
    
    
    0.13
    
    
    
    0.13
    
    
    
    0.13
    
    
    
    0.26
    
    
    
    0.26Book value
    
    
    11.76
    
    
    
    11.55
    
    
    
    12.14
    
    
    
    11.76
    
    
    
    11.55Tangible book value (non-GAAP measure) (9)
    
    
    5.48
    
    
    
    7.91
    
    
    
    5.79
    
    
    
    5.48
    
    
    
    7.91Selected Financial Ratios:Return on average assets (1)
    
    
    0.26
    %
    
    
    0.68
    %
    
    
    (0.59
    )%
    
    
    (0.16
    )%
    
    
    0.64
    %Return on average equity (2)
    
    
    2.57
    
    
    
    7.07
    
    
    
    (5.69
    )
    
    
    (1.58
    )
    
    
    6.64Dividend payout ratio
    
    
    232.60
    
    
    
    63.60
    
    
    
    N/M
    
    
    
    N/M
    
    
    
    68.45Average equity to average assets
    
    
    10.30
    
    
    
    9.62
    
    
    
    10.38
    
    
    
    10.34
    
    
    
    9.68Tier 1 risk-based capital
    
    
    9.09
    
    
    
    11.76
    
    
    
    9.33
    
    
    
    9.09
    
    
    
    11.76Total risk-based capital
    
    
    10.43
    
    
    
    12.81
    
    
    
    10.61
    
    
    
    10.43
    
    
    
    12.81Net interest margin (tax equivalent) (3)(4)
    
    
    2.89
    
    
    
    3.05
    
    
    
    2.82
    
    
    
    2.86
    
    
    
    3.03Loan to deposit ratio
    
    
    106.88
    
    
    
    96.35
    
    
    
    102.62
    
    
    
    106.88
    
    
    
    96.35Net overhead expense to average assets (5)
    
    
    1.75
    
    
    
    1.70
    
    
    
    1.01
    
    
    
    1.38
    
    
    
    1.76Efficiency ratio (6)
    
    
    69.60
    
    
    
    65.78
    
    
    
    65.88
    
    
    
    67.36
    
    
    
    67.77Loan Quality Ratios:Allowance for loan losses to total loans
    
    
    0.90
    
    
    
    1.20
    
    
    
    0.82
    
    
    
    0.90
    
    
    
    1.20Provision for loan losses to total loans
    
    
    0.71
    
    
    
    0.21
    
    
    
    0.88
    
    
    
    0.79
    
    
    
    0.17Net loans charged off to average total loans
    
    
    0.35
    
    
    
    0.27
    
    
    
    1.93
    
    
    
    1.14
    
    
    
    0.12Nonaccrual loans to total loans
    
    
    1.64
    
    
    
    2.20
    
    
    
    1.90
    
    
    
    1.64
    
    
    
    2.20Nonperforming assets to total assets (7)
    
    
    1.16
    
    
    
    1.52
    
    
    
    1.33
    
    
    
    1.16
    
    
    
    1.52Allowance for loan losses to nonaccrual loans
    
    
    0.55
    x
    
    
    0.54
    x
    
    
    0.43
    x
    
    
    0.55
    x
    
    
    0.54
    xBalance Sheet Data:Total assets
    
    $
    3,726,720
    
    
    $
    3,022,294
    
    
    $
    3,730,446
    
    
    $
    3,726,720
    
    
    $
    3,022,294Total earning assets
    
    
    3,275,580
    
    
    
    2,698,762
    
    
    
    3,298,143
    
    
    
    3,275,580
    
    
    
    2,698,762Average assets
    
    
    3,686,350
    
    
    
    3,013,039
    
    
    
    3,686,269
    
    
    
    3,686,309
    
    
    
    2,989,670Loans
    
    
    2,501,082
    
    
    
    1,982,672
    
    
    
    2,467,701
    
    
    
    2,501,082
    
    
    
    1,982,672Allowance for loan losses
    
    
    22,606
    
    
    
    23,724
    
    
    
    20,344
    
    
    
    22,606
    
    
    
    23,724Deposits
    
    
    2,340,043
    
    
    
    2,057,842
    
    
    
    2,404,712
    
    
    
    2,340,043
    
    
    
    2,057,842Borrowings
    
    
    974,007
    
    
    
    646,793
    
    
    
    906,505
    
    
    
    974,007
    
    
    
    646,793Stockholders equity
    
    
    370,698
    
    
    
    283,575
    
    
    
    381,156
    
    
    
    370,698
    
    
    
    283,575Tangible stockholders equity (non-GAAP measure) (8)
    195,751
    
    
    
    194,138
    
    
    
    204,295
    
    
    
    195,751
    
    
    
    194,138
 
 (1)
    
    Net income divided by average assets.(2)
    
    Net income divided by average equity.(3)
    
    Net interest income, on a fully tax-equivalent basis, divided by average earning assets.(4)
    
    The following table reconciles reported net interest income on a fully tax-equivalent basis for the periods presented: Three Months Ended
    
    
    Six Months EndedJune 30,
    
    

March 31,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2008
    
    
    2007Net interest income
    
    $
    22,765
    
    
    $
    19,969
    
    
    $
    22,216
    
    
    $
    44,981
    
    
    $
    39,029Tax-equivalent adjustment to net interest income
    
    
    909
    
    
    
    836
    
    
    
    892
    
    
    
    1,801
    
    
    
    1,815Net interest income, fully tax-equivalent basis
    
    $
    23,674
    
    
    $
    20,805
    
    
    $
    23,108
    
    
    $
    46,782
    
    
    $
    40,844
 PAGE 20




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##### Table of Contents



(5)
    
    Noninterest expense less noninterest income, excluding security gains or losses, divided by average assets.(6)
    
    Noninterest income, excluding security gains or losses, plus net interest income on a fully tax-equivalent
basis divided by noninterest expense excluding amortization and other real estate expense.(7)
    
    Includes total nonaccrual and foreclosed properties.(8)
    
    Stockholders equity less goodwill, core deposits and other intangible assets. The following table
reconciles reported stockholders equity to tangible stockholders equity for the periods presented: At June 30,
    
    

At March 31,2008
    
    
    2007
    
    
    2008Stockholders equity
    
    $
    370,698
    
    
    $
    283,575
    
    
    $
    381,156Core deposit intangible and other intangibles, net
    
    
    15,864
    
    
    
    9,812
    
    
    
    16,454Goodwill
    
    
    159,083
    
    
    
    79,625
    
    
    
    160,407Tangible stockholders equity
    
    $
    195,751
    
    
    $
    194,138
    
    
    $
    204,295
 Results
of Operations  Three and Six Months Ended
June 30, 2008 and 2007
  
    
    Basic and diluted earnings per share for the three months ended June 30, 2008 were
$0.06 compared to $0.21 for the comparable period in 2007 and a loss
of $0.22 for the first
quarter of 2008.
    
    The Companys performance during the first quarter of 2008 reflected several
significant transactions. The Company recognized a non-cash, non-operating,
other-than-temporary impairment charge of $17.6 million at March 31, 2008 on certain
FNMA and FHLMC preferred equity securities and a loss on the early extinguishment of
debt of $7.1 million from the prepayment of $130.0 million in FHLB advances, which were
partially offset by a $15.2 million gain recognized on the sale of real estate.
    
    Net income for the second quarter of 2008 was $2.4 million, a $7.8 million increase
when compared to the $5.4 million loss in the first quarter of 2008, but a $2.7 million
decrease when compared to $5.1 million for the second quarter of 2007.
    
    Net interest income increased 14.0% to $22.8 million in the second quarter of 2008
compared to $20.0 million in the second quarter of 2007 and was $549,000 higher than
the first quarter of 2008. The net interest margin increased to 2.89% in the second
quarter of 2008, compared to 2.82% in the first quarter of 2008. The net interest
margin was 3.05% in the second quarter of 2007.
    
    The annualized return on average assets for the three months ended June 30, 2008 was
0.26% compared to 0.68% for the similar period in 2007 and (0.59)% for the first
quarter of 2008.
    
    The annualized return on average equity for the three months ended June 30, 2008 was
2.57% compared to 7.07% for the similar period in 2007 and (5.69)% for the first
quarter of 2008.
    
    The provision for loan losses was $4.4 million in the second quarter of 2008
compared to $1.0 million for the comparable period in 2007 and $5.4 million in the
first quarter of 2008.
    
    Noninterest income increased 12.8% to $4.4 million in the second quarter of 2008
compared to $3.9 million in the second quarter of 2007. Excluding the first quarter
2008 gain on sale of real estate and impairment loss on securities, noninterest income
for the second quarter of 2008
 PAGE 21




---



##### Table of Contents



increased by $214,000 from the first quarter of 2008.
    
    Noninterest expenses increased 22.4% to $20.4 million in the second quarter of 2008
compared to $16.6 million in the second quarter of 2007, mainly as a result of the
Northwest Suburban acquisition. Excluding the loss on early extinguishment of debt,
noninterest expenses decreased $1.1 million when compared to the first quarter of 2008,
mainly due to a decrease in salaries and employee benefits expense.
    
    The tax benefit recorded in the second quarter is primarily attributed to decreases
in the Companys actual and projected income before tax for the calendar year below
what had been projected as of March 2008.
  
    
    Basic and diluted earnings per share for the six months ended June 30, 2008 were
$(0.17) compared to $0.39 and $0.38 for basic and diluted, respectively, for the same
period in 2007.
    
    Net interest income increased 15.3% to $45.0 million in the first half of 2008
compared to $39.0 million in the first half of 2007, as a result of the Northwest
Suburban acquisition and decrease in rates on deposits as balances increased. The net
interest margin was 2.86% for the six months ended June 30, 2008 compared to 3.03% for
the similar period of 2007.
    
    The annualized return on average assets for the six months ended June 30, 2008 was
(0.16)% compared to 0.64% for the similar period in 2007.
    
    The annualized return on average equity for the six months ended June 30, 2008 was
(1.58)% compared to 6.64% for the similar period in 2007.
    
    The provision for loan losses was $9.8 million in the first half of 2008 compared to
$1.7 million for the comparable period in 2007.
    
    Noninterest income decreased 18.8% to $6.2 million in the first six months of 2008
compared to $7.6 million in the same period of 2007. Excluding the first quarter 2008
gain on sale of real estate and impairment loss on securities, noninterest income for
the first half of 2008 increased by $958,000 compared to the same period in 2007.
    
    Noninterest expenses increased by 45.2% to $49.0 million in the first half of 2008
compared to $33.7 million in the first half of 2007, mainly as a result of the
Northwest Suburban acquisition as well as the loss on extinguishment of debt in the
first quarter of 2008. Excluding the loss on early extinguishment of debt, noninterest
expenses increased $8.1 million, or 24.1%, when compared to the first half of 2007.
 PAGE 22




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##### Table of Contents



Net Interest Income
  For the Three Months EndedJune 30, 2008
    
    
    June 30, 2007
    
    
    March 31, 2008Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)Interest-Earning Assets:Federal funds sold and interest-bearing
deposits due from banks
    
    $
    22,696
    
    
    
    98
    
    
    
    1.73
    %
    
    $
    16,857
    
    
    
    205
    
    
    
    4.86
    %
    
    $
    21,939
    
    
    $
    148
    
    
    
    2.70
    %Securities:Taxable(1)
    
    
    701,254
    
    
    
    9,512
    
    
    
    5.43
    
    
    
    678,766
    
    
    
    9,261
    
    
    
    5.46
    
    
    
    704,119
    
    
    
    9,566
    
    
    
    5.43Exempt from federal income taxes(1)
    
    
    61,635
    
    
    
    912
    
    
    
    5.92
    
    
    
    47,768
    
    
    
    711
    
    
    
    5.95
    
    
    
    61,847
    
    
    
    920
    
    
    
    5.95Total securities
    
    
    762,889
    
    
    
    10,424
    
    
    
    5.47
    
    
    
    726,534
    
    
    
    9,972
    
    
    
    5.49
    
    
    
    765,966
    
    
    
    10,486
    
    
    
    5.48FRB and FHLB stock
    
    
    29,264
    
    
    
    184
    
    
    
    2.52
    
    
    
    23,688
    
    
    
    226
    
    
    
    3.82
    
    
    
    29,230
    
    
    
    183
    
    
    
    2.50Loans held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,011
    
    
    
    48
    
    
    
    6.38
    
    
    
    
    
    
    
    
    
    
    
    Loans:Commercial loans(1)(3)(4)
    
    
    486,794
    
    
    
    7,360
    
    
    
    6.05
    
    
    
    413,416
    
    
    
    8,134
    
    
    
    7.87
    
    
    
    499,461
    
    
    
    8,777
    
    
    
    7.03Commercial real estate
loans(1)(3)(4)(6)
    
    
    1,642,838
    
    
    
    25,702
    
    
    
    6.26
    
    
    
    1,257,438
    
    
    
    23,757
    
    
    
    7.56
    
    
    
    1,632,063
    
    
    
    27,095
    
    
    
    6.64Agricultural loans(3)(4)
    
    
    6,139
    
    
    
    95
    
    
    
    6.19
    
    
    
    3,538
    
    
    
    72
    
    
    
    8.14
    
    
    
    5,412
    
    
    
    92
    
    
    
    6.80Consumer real estate loans(3)(4)(6)
    
    
    313,556
    
    
    
    4,120
    
    
    
    5.26
    
    
    
    277,562
    
    
    
    4,730
    
    
    
    6.82
    
    
    
    311,796
    
    
    
    4,711
    
    
    
    6.04Consumer installment loans(3)(4)
    
    
    10,159
    
    
    
    170
    
    
    
    6.69
    
    
    
    9,483
    
    
    
    184
    
    
    
    7.76
    
    
    
    11,098
    
    
    
    195
    
    
    
    7.03Total loans
    
    
    2,459,486
    
    
    
    37,447
    
    
    
    6.09
    
    
    
    1,961,437
    
    
    
    36,877
    
    
    
    7.52
    
    
    
    2,459,830
    
    
    
    40,870
    
    
    
    6.65Total interest-earning assets
    
    $
    3,274,335
    
    
    $
    48,153
    
    
    
    5.88
    %
    
    $
    2,731,527
    
    
    $
    47,328
    
    
    
    6.92
    %
    
    $
    3,276,965
    
    
    $
    51,687
    
    
    
    6.31
    %Noninterest-Earning Assets:Cash
    
    $
    52,693
    
    
    
    
    
    
    
    
    
    
    $
    49,301
    
    
    
    
    
    
    
    
    
    
    $
    55,634Premises and equipment, net
    
    
    38,144
    
    
    
    
    
    
    
    
    
    
    
    22,279
    
    
    
    
    
    
    
    
    
    
    
    41,325Allowance for loan losses
    
    
    (20,412
    )
    
    
    
    
    
    
    
    
    
    
    (23,807
    )
    
    
    
    
    
    
    
    
    
    
    (27,287
    )Other assets
    
    
    341,590
    
    
    
    
    
    
    
    
    
    
    
    233,739
    
    
    
    
    
    
    
    
    
    
    
    339,632Total noninterest-earning assets
    
    
    412,015
    
    
    
    
    
    
    
    
    
    
    
    281,512
    
    
    
    
    
    
    
    
    
    
    
    409,304Total assets
    
    $
    3,686,350
    
    
    
    
    
    
    
    
    
    
    $
    3,013,039
    
    
    
    
    
    
    
    
    
    
    $
    3,686,269Interest-Bearing Liabilities:Deposits:Interest-bearing demand deposits
    
    $
    215,076
    
    
    $
    492
    
    
    
    0.92
    %
    
    $
    171,671
    
    
    $
    792
    
    
    
    1.85
    %
    
    $
    217,515
    
    
    $
    746
    
    
    
    1.37
    %Money-market demand and savings accounts
    
    
    399,380
    
    
    
    1,197
    
    
    
    1.20
    
    
    
    362,692
    
    
    
    2,380
    
    
    
    2.62
    
    
    
    411,091
    
    
    
    1,828
    
    
    
    1.78Time deposits
    
    
    1,448,198
    
    
    
    14,422
    
    
    
    3.98
    
    
    
    1,232,214
    
    
    
    15,410
    
    
    
    5.00
    
    
    
    1,470,272
    
    
    
    16,515
    
    
    
    4.49Total interest-bearing deposits
    
    
    2,062,654
    
    
    
    16,111
    
    
    
    3.12
    
    
    
    1,766,577
    
    
    
    18,582
    
    
    
    4.21
    
    
    
    2,098,878
    
    
    
    19,089
    
    
    
    3.64Borrowings:Federal funds purchased, FRB discount
window advances, and repurchase agreements
    
    
    451,351
    
    
    
    4,154
    
    
    
    3.68
    
    
    
    283,571
    
    
    
    2,956
    
    
    
    4.17
    
    
    
    402,774
    
    
    
    3,993
    
    
    
    3.97FHLB advances
    
    
    296,044
    
    
    
    2,437
    
    
    
    3.29
    
    
    
    318,256
    
    
    
    3,670
    
    
    
    4.61
    
    
    
    315,158
    
    
    
    3,482
    
    
    
    4.42Junior subordinated debentures
    
    
    60,749
    
    
    
    876
    
    
    
    5.77
    
    
    
    65,837
    
    
    
    1,315
    
    
    
    7.99
    
    
    
    60,733
    
    
    
    1,045
    
    
    
    6.88Notes payable and subordinated debt
    
    
    78,896
    
    
    
    901
    
    
    
    4.57
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76,368
    
    
    
    970
    
    
    
    5.08Total borrowings
    
    
    887,040
    
    
    
    8,368
    
    
    
    3.77
    
    
    
    667,664
    
    
    
    7,941
    
    
    
    4.76
    
    
    
    855,033
    
    
    
    9,490
    
    
    
    4.44Total noninterest-bearing liabilities
    
    $
    2,949,694
    
    
    $
    24,479
    
    
    
    3.32
    %
    
    $
    2,434,241
    
    
    $
    26,523
    
    
    
    4.36
    %
    
    $
    2,953,911
    
    
    $
    28,579
    
    
    
    3.87
    %Noninterest-Bearing Liabilities:Noninterest-bearing demand deposits
    
    $
    322,110
    
    
    
    
    
    
    
    
    
    
    $
    254,679
    
    
    
    
    
    
    
    
    
    
    $
    316,507Other liabilities
    
    
    34,869
    
    
    
    
    
    
    
    
    
    
    
    34,359
    
    
    
    
    
    
    
    
    
    
    
    33,248Total interest-bearing liabilities
    
    
    356,979
    
    
    
    
    
    
    
    
    
    
    
    289,038
    
    
    
    
    
    
    
    
    
    
    
    349,755Stockholders equity
    
    
    379,677
    
    
    
    
    
    
    
    
    
    
    
    289,760
    
    
    
    
    
    
    
    
    
    
    
    382,603Total liabilities and stockholders equity
    
    $
    3,686,350
    
    
    
    
    
    
    
    
    
    
    $
    3,013,039
    
    
    
    
    
    
    
    
    
    
    $
    3,686,269Net interest income (tax
equivalent)(1)(5)
    
    
    
    
    
    $
    23,674
    
    
    
    2.56
    %
    
    
    
    
    
    $
    20,805
    
    
    
    2.56
    %
    
    
    
    
    
    $
    23,108
    
    
    
    2.44
    %Net interest margin (tax
    
    
    
    
    
    
    
    
    
    
    2.89
    %
    
    
    
    
    
    
    
    
    
    
    3.05
    %
    
    
    
    
    
    
    
    
    
    
    2.82
    %equivalent)(1)Net interest income(2)(5)
    
    
    
    
    
    $
    22,765
    
    
    
    
    
    
    
    
    
    
    $
    19,969
    
    
    
    
    
    
    
    
    
    
    $
    22,216Net interest margin(2)
    
    
    
    
    
    
    
    
    
    
    2.78
    %
    
    
    
    
    
    
    
    
    
    
    2.92
    %
    
    
    
    
    
    
    
    
    
    
    2.71
    %
 
 (1)
    
    Adjusted for 35% tax rate and adjusted for the dividends-received deduction where applicable.(2)
    
    Not adjusted for 35% tax rate or for the dividends-received deduction.(3)
    
    Nonaccrual loans are included in the average balance; however, these loans are not earning
any interest.(4)
    
    Includes loan fees of $773, $670, and $615 for the three months ended June 30, 2008, June 30,
2007, and March 31, 2008, respectively. PAGE 23




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##### Table of Contents



(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 31,2008
    
    
    2007
    
    
    2008Net interest income
    
    $
    22,765
    
    
    $
    19,969
    
    
    $
    22,216Tax equivalent adjustment to net interest income
    
    
    909
    
    
    
    836
    
    
    
    892Net interest income, tax equivalent basis
    
    $
    23,674
    
    
    $
    20,805
    
    
    $
    23,108
 (6)
    
    Includes construction loans. For the Six Months EndedJune 30, 2008
    
    
    June 30, 2007Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)Interest-Earning Assets:Federal funds sold and interest-bearing
deposits due from banks
    
    $
    22,317
    
    
    $
    246
    
    
    
    2.20
    %
    
    $
    16,425
    
    
    $
    392
    
    
    
    4.77
    %Securities:Taxable(1)
    
    
    702,687
    
    
    
    19,078
    
    
    
    5.43
    
    
    
    641,112
    
    
    
    17,368
    
    
    
    5.42Exempt from federal income taxes(1)
    
    
    61,741
    
    
    
    1,832
    
    
    
    5.93
    
    
    
    60,803
    
    
    
    1,788
    
    
    
    5.88Total securities
    
    
    764,428
    
    
    
    20,910
    
    
    
    5.47
    
    
    
    701,915
    
    
    
    19,156
    
    
    
    5.46FRB and FHLB stock
    
    
    29,247
    
    
    
    367
    
    
    
    2.51
    
    
    
    23,630
    
    
    
    454
    
    
    
    3.84Loans held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,510
    
    
    
    78
    
    
    
    6.22Loans:Commercial loans(1)(3)(4)
    
    
    493,127
    
    
    
    16,137
    
    
    
    6.54
    
    
    
    403,241
    
    
    
    15,811
    
    
    
    7.84Commercial
real estate loans(1)(3)(4)(6)
    
    
    1,637,451
    
    
    
    52,797
    
    
    
    6.45
    
    
    
    1,260,611
    
    
    
    47,279
    
    
    
    7.50Agricultural loans(3)(4)
    
    
    5,775
    
    
    
    187
    
    
    
    6.48
    
    
    
    3,195
    
    
    
    128
    
    
    
    8.01Consumer
real estate loans(3)(4)(6)
    
    
    312,677
    
    
    
    8,831
    
    
    
    5.65
    
    
    
    277,055
    
    
    
    9,404
    
    
    
    6.79Consumer installment loans(3)(4)
    
    
    10,628
    
    
    
    365
    
    
    
    6.87
    
    
    
    9,888
    
    
    
    371
    
    
    
    7.50Total loans
    
    
    2,459,658
    
    
    
    78,317
    
    
    
    6.37
    
    
    
    1,953,990
    
    
    
    72,993
    
    
    
    7.48Total interest-earning assets
    
    $
    3,275,650
    
    
    $
    99,840
    
    
    
    6.10
    %
    
    $
    2,698,470
    
    
    $
    93,073
    
    
    
    6.90
    %Noninterest-Earning Assets:Cash
    
    $
    54,164
    
    
    
    
    
    
    
    
    
    
    $
    60,134Premises and equipment, net
    
    
    39,735
    
    
    
    
    
    
    
    
    
    
    
    22,142Allowance for loan losses
    
    
    (23,850
    )
    
    
    
    
    
    
    
    
    
    
    (24,354
    )Other assets
    
    
    340,610
    
    
    
    
    
    
    
    
    
    
    
    233,278Total noninterest-earning assets
    
    
    410,659
    
    
    
    
    
    
    
    
    
    
    
    291,200Total assets
    
    $
    3,686,309
    
    
    
    
    
    
    
    
    
    
    $
    2,989,670Interest-Bearing Liabilities:Deposits:Interest-bearing demand deposits
    
    $
    216,296
    
    
    $
    1,238
    
    
    
    1.14
    %
    
    $
    167,413
    
    
    $
    1,522
    
    
    
    1.82
    %Money-market demand and savings accounts
    
    
    405,235
    
    
    
    3,025
    
    
    
    1.49
    
    
    
    370,323
    
    
    
    4,826
    
    
    
    2.61Time deposits
    
    
    1,459,235
    
    
    
    30,937
    
    
    
    4.24
    
    
    
    1,215,272
    
    
    
    30,133
    
    
    
    4.96Total interest-bearing deposits
    
    
    2,080,766
    
    
    
    35,200
    
    
    
    3.38
    
    
    
    1,753,008
    
    
    
    36,481
    
    
    
    4.16Borrowings:Federal funds purchased, FRB discount
window advances and repurchase agreements
    
    
    427,063
    
    
    
    8,147
    
    
    
    3.82
    
    
    
    270,023
    
    
    
    5,814
    
    
    
    4.31FHLB advances
    
    
    305,601
    
    
    
    5,919
    
    
    
    3.87
    
    
    
    319,068
    
    
    
    7,318
    
    
    
    4.59Junior subordinated debentures
    
    
    60,741
    
    
    
    1,921
    
    
    
    6.33
    
    
    
    65,828
    
    
    
    2,616
    
    
    
    7.95Notes payable and subordinated debt
    
    
    77,631
    
    
    
    1,871
    
    
    
    4.82
    
    
    
    
    
    
    
    
    
    
    
    Total borrowings
    
    
    871,036
    
    
    
    17,858
    
    
    
    4.10
    
    
    
    654,919
    
    
    
    15,748
    
    
    
    4.80Total interest-bearing liabilities
    
    $
    2,951,802
    
    
    $
    53,058
    
    
    
    3.59
    %
    
    $
    2,407,927
    
    
    $
    52,229
    
    
    
    4.34
    %Noninterest-Bearing Liabilities:Noninterest-bearing demand deposits
    
    $
    319,309
    
    
    
    
    
    
    
    
    
    
    $
    255,551Other liabilities
    
    
    34,058
    
    
    
    
    
    
    
    
    
    
    
    36,918Total noninterest-bearing liabilities
    
    
    353,367
    
    
    
    
    
    
    
    
    
    
    
    292,469Stockholders equity
    
    
    381,140
    
    
    
    
    
    
    
    
    
    
    
    289,274Total liabilities and stockholders equity
    
    $
    3,686,309
    
    
    
    
    
    
    
    
    
    
    $
    2,989,670Net interest income (tax
equivalent)(1)(5)
    
    
    
    
    
    $
    46,782
    
    
    
    2.51
    %
    
    
    
    
    
    $
    40,844
    
    
    
    2.56
    %Net interest margin (tax
equivalent)(1)
    
    
    
    
    
    
    
    
    
    
    2.86
    %
    
    
    
    
    
    
    
    
    
    
    3.03
    %Net interest income(2)(5)
    
    
    
    
    
    $
    44,981
    
    
    
    
    
    
    
    
    
    
    $
    39,029Net interest margin(2)
    
    
    
    
    
    
    
    
    
    
    2.75
    %
    
    
    
    
    
    
    
    
    
    
    2.89
    %
 
 (1)
    
    Adjusted for 35% tax rate and adjusted for the dividends-received deduction where applicable. PAGE 24




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##### Table of Contents



(2)
    
    Not adjusted for 35% tax rate or for the dividends-received deduction.(3)
    
    Nonaccrual loans are included in the average balance; however, these loans are not earning
any interest.(4)
    
    Includes loan fees of $ 1,387 and $1,200 for the six months ended June 30, 2008 and 2007,
respectively.(5)
    
    The following table reconciles reported net interest income on a tax equivalent basis for the
periods presented: For the six months ended,June 30,2008
    
    
    2007Net interest income
    
    $
    44,981
    
    
    $
    39,029Tax equivalent adjustment to net interest income
    
    
    1,801
    
    
    
    1,815Net interest income, tax equivalent basis
    
    $
    46,782
    
    
    $
    40,844
      
    
    Yields on average earning assets decreased by 104 basis points in the second
quarter of 2008 compared to the second quarter of 2007, while average balances on
earning assets increased by $542.8 million. Yields on average earning assets
decreased by 43 basis points compared to the first quarter of 2008. Yields on
average earning assets decreased 80 basis points in the first six months of 2008
compared to the similar period in 2007, while average balances increased by $577.2
million.
    
    Average yields on loans for the second quarter of 2008 decreased by 56 basis
points to 6.09% compared to the first quarter of 2008 and were 143 basis points
lower compared to the same period in 2007. For the first six months of 2008,
average yields earned on loans decreased by 111 basis points to 6.37% compared to
the first half of 2007. This decline in yields was primarily due to the re-pricing
of the variable rate loans resulting from decreases in the prime rate. Average
loans increased by $498.0 million in the quarter ended June 30, 2008 compared to the
same period in 2007. Average loan balances remained flat compared to the first
quarter
of 2008. Average loans increased by $505.7 million in the first half of 2008 compared
to the same period in 2007.
 PAGE 25




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##### Table of Contents




    
    Yields on average securities remained flat in the second quarter of 2008 compared
to the prior quarter and the same period in 2007. Average securities increased by
$36.4 million in the second quarter of 2008 compared to the similar period in 2007
and decreased by $3.1 million compared to the first quarter of 2008. Yields on
average securities were flat in the first six months of 2008 compared to the similar
period in 2007, while average balances increased by $62.5 million.
  
    
    The Companys cost of funds decreased by 55 basis points on a linked-quarter
basis as a result of decreased rates paid on interest-bearing deposits. Average
interest-bearing liabilities decreased by $4.2 million during the second quarter of
2008 compared to the prior quarter. Yields on average interest-bearing liabilities
decreased by 104 basis points, while average balances increased $515.5 million in
the second quarter of 2008 compared to the similar period in 2007. When compared to
the first half of 2007, the cost of funds decreased by 75 basis points to 3.59% for
the first half of 2008, while average interest-bearing liabilities increased $543.9
million.
    
    Average interest-bearing deposits increased by $296.1 million, while average
rates decreased 109 basis points in the second quarter of 2008 compared to the
similar period of 2007. Average rates paid on interest-bearing deposits decreased
by 52 basis points to 3.12% for the second quarter of 2008 compared to the first
quarter of 2008, and average balances decreased by $36.2 million. Yields on average
interest-bearing deposits decreased by 78 basis points in the first six months of
2008 compared to the similar period in 2007, and average balances increased by
$327.8 million. Most of this 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 $80.1 million for the second quarter of 2008 compared to June 30, 2007
but decreased by $14.2 million compared to March 31, 2008. On a year-to-date basis,
average interest-bearing demand deposit, money market, and savings accounts
increased by $83.8 million compared to 2007. The Company continues to focus its
marketing efforts on increasing core deposits to alleviate margin pressure.
    
    The decrease in average rates paid on interest-bearing deposits was complemented
by the decrease in costs of average borrowings of 67 basis points in the second
quarter of 2008 compared to the first quarter of 2008, as a result of the drop in
LIBOR and pre-payment of FHLB advances in the first quarter of 2008, while average
balances increased by $32.0 million. The Company had the full benefit of a 239 basis
point decrease in the FHLB advances in the second quarter of 2008. Average
borrowings increased by $219.4 million in the second quarter of 2008 while average
rates decreased by 99 basis points to 3.77% compared to the second quarter of 2007.
On a year-to-date basis, average borrowings increased by $216.1 million compared to
June 30, 2007 and average rates paid decreased by 70 basis points.
 PAGE 26




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##### Table of Contents



Noninterest Income
  
    
    Noninterest income was $4.4 million for the three months ended June 30, 2008, an
increase of $498,000, or 12.8%, over the comparable period in 2007, and was $2.6
million higher than the first quarter 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 in the first quarter of 2008. Excluding the impairment charge on securities
and the gain on the sale of property, noninterest income increased by $214,000, or
5.1%, from $4.2 million for the first quarter of 2008.
    
    The annualized noninterest income to average assets ratio was 0.48% for the three
months ended June 30, 2008 compared to 0.52% for the same period in 2007 and 0.20%
for the three months ended March 31, 2008. Excluding the impairment charge on
securities and the gain on the sale of property, the annualized noninterest income
to average assets ratio was 0.46% for the first quarter of 2008.
    
    Service charges on deposits increased by $378,000, or 24.0%, to $2.0 million in
the second quarter of 2008 compared to the second quarter of 2007, mainly as a
result of the increased deposit base from the Northwest Suburban acquisition, but
remained flat compared to the first quarter of 2008.
    
    Insurance and brokerage commissions for the three months ended June 30, 2008
increased by $142,000 and $123,000 when compared to the second quarter of 2007 and
first quarter of 2008, respectively, mainly as a result of increased sales of
variable annuities.
    
    Trust income increased by $33,000 in the second quarter of 2008 compared to the
first quarter of 2008 but decreased by $21,000 compared to the second quarter of
2007.
    
    Income from the increase in the cash surrender value of life insurance increased
by $162,000 to $865,000 during the three months ended June 30, 2008 compared to the
similar period in 2007, reflecting the addition of $12.9 million of such insurance
acquired from Northwest Suburban, and was at the same level as the first quarter of
2008.
    
    As a result of outsourcing the residential mortgage origination operations, there
were no gains on sales of loans during the second quarter of 2008 compared with
$225,000 in the second quarter of 2007.
  
    
    Noninterest income was $6.2 million for the six months ended June 30, 2008, a
decrease of $1.4 million, or 18.8%, over the comparable period in 2007.
 PAGE 27




---



##### Table of Contents




    
    Excluding the impairment charge on securities and the gain on the sale of
property, noninterest income increased by $958,000, or 12.6%, to $8.6 million in the
first half of 2008 compared to the same period in 2007.
    
    The annualized noninterest income to average assets ratio was 0.34% for the six
months ended June 30, 2008 compared to 0.51% for the same period in 2007. Excluding
the impairment charge on securities and the gain on the sale of property, the
annualized noninterest income to average assets ratio was 0.47% for the first half
of 2008.
    
    Insurance and brokerage commissions for the six months ended June 30, 2008
increased by $129,000 when compared to the first half of 2007, mainly as a result of
increased sales of variable annuities.
    
    Trust income increased by $35,000 in the first half of 2008 compared to the same
period in 2007.
    
    Income from the increase in the cash surrender value of life insurance increased
by $267,000 to $1.7 million during the six months ended June 30, 2008 compared to
the similar period in 2007, reflecting the addition of $12.9 million of such
insurance acquired from Northwest Suburban.
    
    There were no gains on sales of loans during the first half of 2008 compared with
$401,000 in the same period in 2007, as a result of outsourcing the residential
mortgage origination operations.
 Noninterest Expenses
  
    
    Total noninterest expenses increased 22.4%, or $3.7 million, to $20.4 million
during the second quarter of 2008 compared to $16.6 million for the similar period
in 2007. In comparison to the first quarter of 2008, total noninterest expenses
decreased by $8.2 million. 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. Excluding this loss
on the extinguishment of debt, total noninterest expense decreased by $1.1 million
compared to the first quarter of 2008 mainly from the decrease in salaries and
benefits expense.
    
    The annualized noninterest expenses to average assets ratio was 2.22% for the
three months ended June 30, 2008 and the same period in 2007 compared to 3.12% for
the three months ended March 31, 2008. Excluding the loss on the extinguishment of
debt, the annualized noninterest expenses to average assets ratio was 2.34% for the
first quarter of 2008.
 PAGE 28




---



##### Table of Contents




    
    Salaries and benefits expense increased by $652,000, or 6.3%, during the second
quarter of 2008 compared to the second quarter of 2007, mostly reflecting  additions
from the Northwest Suburban acquisition. Salaries and benefits expense decreased by
$2.0 million, or 15.5%, compared to the first quarter of 2008, reflecting a $1.3
million decrease in incentive accruals based upon financial results,
a $293,000
decrease in payroll taxes due to annual withholding caps being
reached, and a
$458,000 decrease in retirement benefits of which $224,000 of expense in the first
quarter 2008 was an one-time adjustment.
    
    Effective April 1, 2008, the Supplemental Executive Retirement Plan agreements
with employees constituted a pension plan under SFAS No. 87. Through application of
this standard, the Company reduced its expense for this retirement benefit by
approximately $226,000 for the second quarter of 2008 compared to the first quarter
of 2008.
    
    Occupancy and equipment expense increased by $903,000, or 41.2%, during the
second quarter of 2008 to $3.1 million compared to the similar period in 2007,
reflecting the costs associated with the additional five branch properties acquired in the Northwest Suburban
acquisition, and by $194,000, or 6.7%, compared to the first quarter of 2008, mainly
due to the rental expense associated with the bank branch property sold in the first
quarter of 2008 but still being utilized.
    
    Professional services expense rose by $688,000, or 62.1%, to $1.8 million in the
second quarter of 2008 compared to the second quarter of 2007. Professional
services expense increased by $258,000, or 16.8%, compared to the first quarter of
2008. Both increases were mainly due to higher legal fees related to
problem loan workouts.
    
    Marketing expenses in the second quarter of 2008 were $235,000 and $137,000
higher than in the second quarter of 2007 and first quarter of 2008, respectively,
due to increased media campaigns including an enhanced web site
re-design.
    
    Foreclosed properties expense increased in the second quarter of 2008 by $230,000
and $232,000 compared to the second quarter of 2007 and first quarter of 2008, respectively.
    
    Amortization expense was $216,000 higher in the second quarter of 2008 compared
to the same period of 2007 as a result of the core deposit intangible asset acquired
through the Northwest Suburban acquisition and flat compared to the
first quarter of 2008.
    
    The Company was granted a one-time credit to offset FDIC premiums as a result of
the Federal Deposit Insurance Reform Act of 2005 (Reform Act). This one-time
credit maintained the Companys 2007 FDIC insurance expense close to its 2006 level.
The Company had utilized most of this credit by the end of the first quarter of
2008. As a result, the Companys FDIC insurance expense increased by approximately
$315,000 in the second quarter of 2008 to $474,000 and is expected to be at this
higher rate through the remainder of 2008.
 PAGE 29




---



##### Table of Contents




    
    Total noninterest expenses increased 45.2%, or $15.3 million, to $49.0 million
during the first half of 2008 compared to $33.7 million for the similar period in
2007 mainly attributable to the Northwest Suburban acquisition and the loss on early
extinguishment of debt. Excluding the loss on the early extinguishment of debt,
total noninterest expense increased $8.1 million, or 24.1%, to $41.9 million
compared to the first half of 2007.
    
    The annualized noninterest expenses to average assets ratio was 2.67% for the six
months ended June 30, 2008 compared to 2.27% for the same period in 2007. 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 increased by $3.2 million,
or 15.6%, during the
first half of 2008 compared to the first half of 2007, reflecting additions to
management and the addition of employees from Northwest Suburban. The Company
closely monitors its personnel costs, adding employees only when the proof of need
is clearly delineated or expected revenue increases warrant. Full time equivalent
employees at June 30, 2008 are down 5.9%, or 34 less than the combined full time
equivalent employees of the Company and Northwest Suburban as of March 31, 2007, the
period closest to the merger announcement date. Using the same data, assets per
full time equivalent employee have increased by 12.8% over that time frame.
    
    Occupancy and equipment expense increased by $1.6 million, or 36.8%, during the
six months ended June 30, 2008 to $6.0 million compared to the similar period in
2007 mostly reflecting the costs associated with the five additional
branch properties
acquired from Northwest Suburban.
    
    Professional services expense rose by $1.0 million, or
44.0%, to $3.3 million in
the first half of 2008 compared to the first half of 2007 due to higher legal,
including legal expenses related to problem loan workouts, and consulting expenses.
    
    Marketing expenses for the six months ended June 30, 2008 were $1.3 million, or
11.4% higher than in the same period in 2007.
    
    Foreclosed properties expense increased in the first half of 2008 by $210,000
compared to the same period in 2007.
    
    Amortization expense was $385,000 higher in the first half of 2008 compared to
the same period of 2007 as a result of the core deposit intangible asset acquired
through the Northwest Suburban acquisition.
 PAGE 30




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##### Table of Contents



Income Taxes
    Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands)Income taxes computed at the statutory rate
    
    $
    831
    
    
    
    35.0
    %
    
    $
    2,165
    
    
    
    35.0
    %
    
    $
    (2,670
    )
    
    
    35.0
    %
    
    $
    3,934
    
    
    
    35.0
    %Tax-exempt interest income on securities and loans
    
    
    (207
    )
    
    
    (8.7
    )
    
    
    (158
    )
    
    
    (2.6
    )
    
    
    (404
    )
    
    
    5.3
    
    
    
    (384
    )
    
    
    (3.4
    )General business credits
    
    
    (148
    )
    
    
    (6.2
    )
    
    
    (110
    )
    
    
    (1.8
    )
    
    
    (278
    )
    
    
    3.6
    
    
    
    (220
    )
    
    
    (2.0
    )State income taxes, net of federal tax benefit
due to state operating loss
    
    
    (28
    )
    
    
    (1.2
    )
    
    
    (276
    )
    
    
    (4.4
    )
    
    
    (760
    )
    
    
    10.0
    
    
    
    (517
    )
    
    
    (4.6
    )Life insurance cash surrender value increase, net of premiums
    
    
    (303
    )
    
    
    (12.8
    )
    
    
    (246
    )
    
    
    (4.0
    )
    
    
    (603
    )
    
    
    7.9
    
    
    
    (510
    )
    
    
    (4.5
    )Dividends received deduction
    
    
    (301
    )
    
    
    (12.7
    )
    
    
    (302
    )
    
    
    (4.9
    )
    
    
    (602
    )
    
    
    7.9
    
    
    
    (612
    )
    
    
    (5.4
    )Nondeductible costs and other, net
    
    
    104
    
    
    
    4.4
    
    
    
    5
    
    
    
    0.1
    
    
    
    678
    
    
    
    (8.9
    )
    
    
    29
    
    
    
    0.2(Benefit) provision for income taxes
    
    $
    (52
    )
    
    
    (2.2
    )%
    
    $
    1,078
    
    
    
    17.4
    %
    
    $
    (4,639
    )
    
    
    60.8
    %
    
    $
    1,720
    
    
    
    15.3
    %
  PAGE 31




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##### Table of Contents



Financial Condition
  June 30,
    
    
    
    
    
    
    Northwest
    
    
    Excluding NorthwestSuburban
    
    
    Suburban Acquisition2008
    
    
    2007
    
    
    $ Change
    
    
    Acquisition(1)
    
    
    $ Change
    
    
    % Change(Dollars in thousands)AssetsCash and cash equivalents(2)
    
    $
    88,057
    
    
    $
    62,693
    
    
    $
    25,364
    
    
    $
    3,342
    
    
    $
    22,022
    
    
    
    35
    %Securities available-for-sale
    
    
    710,803
    
    
    
    639,087
    
    
    
    71,716
    
    
    
    57,597
    
    
    
    14,119
    
    
    
    2Securities held-to-maturity
    
    
    31,389
    
    
    
    42,110
    
    
    
    (10,721
    )
    
    
    
    
    
    
    (10,721
    )
    
    
    (26
    )Total securities
    
    
    742,192
    
    
    
    681,197
    
    
    
    60,995
    
    
    
    57,597
    
    
    
    3,398
    
    
    
    1FRB and FHLB stock, at cost
    
    
    29,264
    
    
    
    23,683
    
    
    
    5,581
    
    
    
    1,503
    
    
    
    4,078
    
    
    
    17Loans held for sale
    
    
    
    
    
    
    2,349
    
    
    
    (2,349
    )
    
    
    
    
    
    
    (2,349
    )
    
    
    (100
    )Loans
    
    
    2,501,082
    
    
    
    1,982,672
    
    
    
    518,410
    
    
    
    439,249
    
    
    
    79,161
    
    
    
    4Allowance for loan loss
    
    
    (22,606
    )
    
    
    (23,724
    )
    
    
    1,118
    
    
    
    (2,767
    )
    
    
    3,885
    
    
    
    (16
    )Net loans
    
    
    2,478,476
    
    
    
    1,958,948
    
    
    
    519,528
    
    
    
    436,482
    
    
    
    83,046
    
    
    
    4Cash surrender value of life insurance
    
    
    82,889
    
    
    
    66,676
    
    
    
    16,213
    
    
    
    12,884
    
    
    
    3,329
    
    
    
    5Premises and equipment
    
    
    38,739
    
    
    
    22,489
    
    
    
    16,250
    
    
    
    19,279
    
    
    
    (3,029
    )
    
    
    (14
    )Foreclosed properties
    
    
    2,375
    
    
    
    2,312
    
    
    
    63
    
    
    
    
    
    
    
    63
    
    
    
    3Core deposit and other intangibles, net
    
    
    15,864
    
    
    
    9,812
    
    
    
    6,052
    
    
    
    8,061
    
    
    
    (2,009
    )
    
    
    (21
    )Goodwill
    
    
    159,083
    
    
    
    79,625
    
    
    
    79,458
    
    
    
    80,550
    
    
    
    (1,092
    )
    
    
    (1
    )Other
    
    
    89,781
    
    
    
    112,510
    
    
    
    (22,729
    )
    
    
    7,914
    
    
    
    (30,643
    )
    
    
    (27
    )Total assets
    
    $
    3,726,720
    
    
    $
    3,022,294
    
    
    $
    704,426
    
    
    $
    627,612
    
    
    $
    76,814
    
    
    
    3
    %Liabilities and Stockholders EquityLiabilitiesNoninterest-bearing
    
    $
    334,813
    
    
    $
    256,152
    
    
    $
    78,661
    
    
    $
    65,299
    
    
    $
    13,362
    
    
    
    5
    %Interest-bearing
    
    
    2,005,230
    
    
    
    1,801,690
    
    
    
    203,540
    
    
    
    405,361
    
    
    
    (201,821
    )
    
    
    (11
    )Total deposits
    
    
    2,340,043
    
    
    
    2,057,842
    
    
    
    282,201
    
    
    
    470,660
    
    
    
    (188,459
    )
    
    
    (9
    )Federal funds purchased and FRB discount
window advances
    
    
    198,000
    
    
    
    29,000
    
    
    
    169,000
    
    
    
    6,170
    
    
    
    162,830
    
    
    
    562Securities sold under agreements to repurchase
    
    
    297,650
    
    
    
    282,037
    
    
    
    15,613
    
    
    
    
    
    
    
    15,613
    
    
    
    6FHLB advances
    
    
    340,000
    
    
    
    269,911
    
    
    
    70,089
    
    
    
    3,500
    
    
    
    66,589
    
    
    
    25Junior subordinated debentures
    
    
    60,757
    
    
    
    65,845
    
    
    
    (5,088
    )
    
    
    10,310
    
    
    
    (15,398
    )
    
    
    (24
    )Subordinated debt
    
    
    15,000
    
    
    
    
    
    
    
    15,000
    
    
    
    
    
    
    
    15,000
    
    
    
    100Notes payable
    
    
    62,600
    
    
    
    
    
    
    
    62,600
    
    
    
    75,000
    
    
    
    (12,400
    )
    
    
    (100
    )Other
    
    
    41,972
    
    
    
    34,084
    
    
    
    7,888
    
    
    
    6,982
    
    
    
    906
    
    
    
    (3
    )Total liabilities
    
    
    3,356,022
    
    
    
    2,738,719
    
    
    
    617,303
    
    
    
    572,622
    
    
    
    44,681
    
    
    
    2Stockholders EquityTotal stockholders equity
    
    
    370,698
    
    
    
    283,575
    
    
    
    87,123
    
    
    
    54,990
    
    
    
    32,133
    
    
    
    11Total liabilities and
stockholders equity
    
    $
    3,726,720
    
    
    $
    3,022,294
    
    
    $
    704,426
    
    
    $
    627,612
    
    
    $
    76,814
    
    
    
    3
    %
 
 (1)
    
    Includes fair value adjustments.(2)
    
    The Northwest Suburban Acquisition column includes cash and cash
equivalents acquired through Northwest Suburban of $10,066 less cash
paid for the acquisition of $81,163, capitalized costs of $414, costs
relating to the registration statement of $147, and $75,000 borrowing.  
    
    Total assets increased $33.9 million to
$3.7 billion, or 1.8% on an annualized basis, at
June 30, 2008 compared to year end 2007 and were up $704.4 million compared to June 30,
2007.
 PAGE 32




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##### Table of Contents




    
    Total loans increased $26.8 million to $2.5 billion at June 30, 2008 compared to year
end 2007 and increased $518.4 million over the second quarter of 2007.
    
    The loan to deposit ratio increased to 106.9% from 100.7% at December 31, 2007, and was
higher than the 96.4% figure recorded at June 30, 2007.
    
    Deposits decreased by $118.1 million to $2.3 billion at June 30, 2008 compared to year
end 2007 but increased by $282.2 million when compared to June 30, 2007. Noninterest
bearing deposits increased by $13.5 million to $334.8 million at June 30, 2008 when
compared to year end 2007.
  
    
    Following a charge off of $10.8 million in the first quarter, the balances related to
the Large Problem Credit decreased by a net $5.7 million in the second quarter of 2008
through the sale of assets. In July 2008, the Company took title of a substantial
piece of real estate. The remaining balance outstanding on the Large Problem Credit was
$12.5 million as of June 30, 2008 down from $28.9 million a year ago.
    
    Nonaccrual loans were 1.64% of total loans at June 30, 2008, down from 1.99% of total
loans at year end and 2.20% at June 30, 2007.
    
    There was one loan relationship of $4.3 million in loans over 90 days past due and
accruing at June 30, 2008 compared to none at December 31,
2007 and one loan of  $608,000 as
of June 30, 2007. A payment for this $4.3 million
relationship was received on July 1, 2008.
    
    Foreclosed properties were $2.4 million as of June 30, 2008 compared to $2.2 million at
year end. Foreclosed properties should increase in the third quarter of 2008 with the
addition of the real estate acquired in connection with the Large Problem Credit.
    
    Loan delinquencies 30-89 days were 0.35% of loans at June 30, 2008, down from 0.48% at
December 31, 2007 and 0.63% at June 30, 2007, and were at the lowest level in the previous
five quarters.
    
    Nonperforming assets were 1.16% of total assets at June 30, 2008, down from 1.39% at
year end and 1.52% at June 30, 2007.
    
    The Company recorded a $9.8 million provision for loan losses for the first half of 2008
compared to $1.7 million for the first half of 2007, reflecting managements updated
assessments of impaired loans and concerns about the continued deterioration of economic
conditions.
    
    The allowance for loan losses was 0.90% of total loans as of June 30, 2008, versus 1.08%
at year end 2007 and 1.20% at June 30, 2007.
    
    The allowance for loan losses was 0.55 times nonaccrual loans at June 30, 2008, 0.54 at
year end and June 30, 2007.
 
 PAGE 33




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##### Table of Contents



Loans
  June 30,
    
    
    December 31,2008
    
    
    2007(1)% of Gross
    
    
    
    
    
    
    % of GrossAmount
    
    
    Loans
    
    
    Amount
    
    
    Loans(Dollars in thousands)Commercial
    
    $
    1,090,004
    
    
    
    43.5
    %
    
    $
    1,079,631
    
    
    
    43.6
    %Construction
    
    
    421,729
    
    
    
    16.9
    
    
    
    464,583
    
    
    
    18.8Commercial real estate
    
    
    687,351
    
    
    
    27.5
    
    
    
    627,928
    
    
    
    25.4Home equity
    
    
    157,225
    
    
    
    6.3
    
    
    
    142,158
    
    
    
    5.8Other consumer
    
    
    8,469
    
    
    
    0.3
    
    
    
    10,689
    
    
    
    0.4Residential mortgage
    
    
    136,636
    
    
    
    5.5
    
    
    
    149,703
    
    
    
    6.0Total loans, gross
    
    
    2,501,414
    
    
    
    100.0
    %
    
    
    2,474,692
    
    
    
    100.0
    %Net deferred fees
    
    
    (332
    )
    
    
    
    
    
    
    (365
    )Total loans, net
    
    $
    2,501,082
    
    
    
    
    
    
    $
    2,474,327
 
 (1)
    
    Amounts have been reclassified to conform to current period presentation.   
    
    Commercial loans increased $10.4 million from December 31, 2007 to $1.1 billion, or
43.5% of the loan portfolio, as of June 30, 2008.
    
    Construction loans decreased by $42.9 million from $464.6 million at December 31, 2007
to $421.7 million, or 16.9% of the loan portfolio, as of June 30, 2008.
    
    Commercial real estate loans increased by $59.4 million from $627.9 million at year end
to $687.4 million, or 27.5% of the loan portfolio, as of June 30, 2008.
    
    Home equity loans increased by $15.1 million to $157.2 million as of June 30, 2008 from
$142.2 million at year end.
    
    Residential mortgage loans decreased $13.1 million to $136.6 million as of June 30, 2008
from $149.7 million as of December 31, 2007.
    
    The Company does not hold any sub-prime loans in its portfolio.
 
 PAGE 34




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##### Table of Contents



Allowance for Loan Losses
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands)Balance, at beginning of period
    
    $
    20,344
    
    
    $
    24,028
    
    
    $
    26,748
    
    
    $
    23,229Provision charged to operations
    
    
    4,415
    
    
    
    1,036
    
    
    
    9,815
    
    
    
    1,681Loans charged off
    
    
    (2,998
    )
    
    
    (1,578
    )
    
    
    (15,248
    )
    
    
    (2,024
    )Recoveries
    
    
    845
    
    
    
    238
    
    
    
    1,291
    
    
    
    838Net loans charged off
    
    
    (2,153
    )
    
    
    (1,340
    )
    
    
    (13,957
    )
    
    
    (1,186
    )Balance, at end of period
    
    $
    22,606
    
    
    $
    23,724
    
    
    $
    22,606
    
    
    $
    23,724
   PAGE 35




---



##### Table of Contents



June 30,
    
    December 31,
    
    June 30,2008
    
    2007
    
    2007Net loans charged off to average loans during quarter
    
    
    0.35
    %
    
    
    0.37
    %
    
    
    0.27
    %Provision for loan losses to total loans
    
    
    0.71
    
    
    
    0.23
    
    
    
    0.21Allowance for loan losses to total loans
    
    
    0.90
    
    
    
    1.08
    
    
    
    1.20Allowance to nonaccrual loans
    
    
    0.55
    x
    
    
    0.54
    x
    
    
    0.54
    x
      PAGE 36




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##### Table of Contents



Nonaccrual Loans and Nonperforming Assets
     June 30,
    
    
    December 31,
    
    
    June 30,2008
    
    
    2007
    
    
    2007(Dollars in thousands)Impaired and other loans 90 days past due
and accruing
    
    $
    4,320
    
    
    $
    
    
    
    $
    608Nonaccrual loans
    
    $
    40,956
    
    
    $
    49,173
    
    
    $
    43,588Foreclosed properties
    
    
    2,375
    
    
    
    2,220
    
    
    
    2,312Total nonperforming assets
    
    $
    43,331
    
    
    $
    51,393
    
    
    
    45,900Nonaccrual loans to loans
    
    
    1.64
    %
    
    
    1.99
    %
    
    
    2.20
    %Nonperforming assets to loans
and foreclosed properties
    
    
    1.73
    
    
    
    2.08
    
    
    
    2.31Nonperforming assets to assets
    
    
    1.16
    
    
    
    1.39
    
    
    
    1.52
 PAGE 37




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##### Table of Contents



Securities
  June 30, 2008Held-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 and of
U.S. government-sponsored entities
    
    $
    
    
    
    $
    
    
    
    $
    291,268
    
    
    $
    291,307
    
    
    $
    291,268
    
    
    $
    291,307
    
    
    
    38.6
    %Obligations of states and political subdivisions
    
    
    1,252
    
    
    
    1,251
    
    
    
    60,415
    
    
    
    59,370
    
    
    
    61,667
    
    
    
    60,621
    
    
    
    8.2Mortgage-backed securities
    
    
    30,137
    
    
    
    29,227
    
    
    
    284,821
    
    
    
    281,385
    
    
    
    314,958
    
    
    
    310,612
    
    
    
    41.7Equity securities
    
    
    
    
    
    
    
    
    
    
    67,489
    
    
    
    62,013
    
    
    
    67,489
    
    
    
    62,013
    
    
    
    8.9Other bonds
    
    
    
    
    
    
    
    
    
    
    19,216
    
    
    
    16,728
    
    
    
    19,216
    
    
    
    16,728
    
    
    
    2.6Total
    
    $
    31,389
    
    
    $
    30,478
    
    
    $
    723,209
    
    
    $
    710,803
    
    
    $
    754,598
    
    
    $
    741,281
    
    
    
    100.0
    %
    
    
    U.S. Treasury and obligations of U.S. government-sponsored entities increased by $107.7
million to $291.3 million, or 38.6% of the portfolio, at June 30, 2008 compared to $183.6
million at year end. At June 30, 2008, obligations of U.S. government-sponsored entities
included $289.3 million of callable debentures with maturities ranging from approximately
five to ten years and call dates ranging from two to eleven months.
    
    U.S. government agency and government-sponsored entity mortgage-backed securities
decreased 25.8%, or $97.7 million, from $379.0 million at December 31, 2007 to
$281.4 million, or 41.7% of the portfolio, at June 30, 2008.
    
    Equity securities decreased by $4.0 million to $62.0 million, or 8.9% of the portfolio,
at June 30, 2008 from December 31, 2007. As noted above, the Company recognized an
impairment charge of $17.6 million on these equities in the first quarter of 2008. Equity
securities included preferred equity securities of U.S. government-sponsored entities.
  PAGE 38




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##### Table of Contents



Federal Home Loan Bank Stock
  Cash Surrender Value of Life Insurance
  Deposits and Borrowed Funds
  June 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Noninterest-bearing demand
    
    $
    334,813
    
    
    $
    321,317Interest-bearing demand
    
    
    201,674
    
    
    
    226,225Money-market
    
    
    259,874
    
    
    
    291,501Savings
    
    
    139,809
    
    
    
    129,476Time deposits less than $100,000
    
    
    542,417
    
    
    
    633,022Time deposits of $100,000 or more
    
    
    861,456
    
    
    
    856,607Total interest-bearing deposits
    
    
    2,005,230
    
    
    
    2,136,831Total
    
    $
    2,340,043
    
    
    $
    2,458,148Total core deposits (1)
    
    $
    936,170
    
    
    $
    968,519
 
 (1)
    
    Includes noninterest-bearing and interest-bearing demand, money market, and savings.  
    
    Noninterest-bearing deposits were $334.8 million at June 30, 2008, $13.5 million
more than the $321.3 million level at December 31, 2007.
    
    Over the same period, interest-bearing deposits decreased 6.2%, or $131.6 million
to $2.0
 PAGE 39




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##### Table of Contents



billion at June 30, 2008 compared to December 31, 2007.
    
    Total core deposits, which include demand deposit, interest-bearing demand
deposit, money market, and savings accounts, decreased $32.3 million to $936.2
million at June 30, 2008 from $968.5 million at December 31, 2007.
    
    Certificates of deposit under $100,000 decreased $90.6 million from December 31,
2007 to $542.4 million at June 30, 2008.
    
    Certificates of deposit over $100,000 increased by $4.8 million from December 31,
2007 to $861.5 million at June 30, 2008.
    
    The Companys new retail certificates of deposit promotion has produced
approximately $128.7 million in new money from the end of June 2008 through the end
of July 2008.
    June 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Federal funds purchased and FRB discount window advances
    
    $
    198,000
    
    
    $
    81,000Securities sold under agreements to repurchase
    
    
    297,650
    
    
    
    283,400Federal Home Loan Bank advances
    
    
    340,000
    
    
    
    323,439Junior subordinated debentures
    
    
    60,757
    
    
    
    60,724Subordinated debt
    
    
    15,000
    
    
    
    Notes payable
    
    
    62,600
    
    
    
    72,500Total
    
    $
    974,007
    
    
    $
    821,063
   PAGE 40




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Capital Resources
     PAGE 41




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##### Table of Contents



June 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Risk-weighted assets
    
    $
    2,850,113
    
    
    $
    2,811,423Average assets
    
    
    3,686,350
    
    
    
    3,721,444Capital components:Stockholders equity
    
    $
    370,698
    
    
    $
    375,164Plus: Guaranteed trust preferred securities
    
    
    59,000
    
    
    
    59,000Less: Core deposit and other intangibles, net
    
    
    (15,864
    )
    
    
    (17,044
    )Less: Goodwill
    
    
    (159,083
    )
    
    
    (160,407
    )Less: Unrealized (gains) losses on securities, net of tax
    
    
    7,620
    
    
    
    13,917Plus: Unrealized losses on equity securities, net of tax
    
    
    (3,363
    )
    
    
    (11,768
    )Tier I capital
    
    
    259,008
    
    
    
    258,862Allowance for loan losses
    
    
    22,606
    
    
    
    26,748Reserve for unfunded commitments
    
    
    586
    
    
    
    233Qualifying subordinated debt
    
    
    15,000
    
    
    
    Total risk-based capital
    
    $
    297,200
    
    
    $
    285,843
  At June 30, 2008Minimum Required
    
    Minimum RequiredActual
    
    for Capital Adequacy
    
    to be Well CapitalizedAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in thousands)Total capital to risk-weighted assetsCompany
    
    $
    297,200
    
    
    
    10.4
    %
    
    $
    228,009
    
    
    
    8.0
    %
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    353,413
    
    
    
    12.5
    
    
    
    226,984
    
    
    
    8.0
    
    
    $
    283,730
    
    
    
    10.0
    %Tier I capital to risk-weighted assetsCompany
    
    
    259,008
    
    
    
    9.1
    
    
    
    114,005
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    330,221
    
    
    
    11.6
    
    
    
    113,492
    
    
    
    4.0
    
    
    
    170,238
    
    
    
    6.0Tier I capital to average assetsCompany
    
    
    259,008
    
    
    
    7.0
    
    
    
    147,454
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    330,211
    
    
    
    9.0
    
    
    
    146,959
    
    
    
    4.0
    
    
    
    183,699
    
    
    
    5.0
 At December 31, 2007Minimum Required
    
    Minimum RequiredActual
    
    for Capital Adequacy
    
    to be Well CapitalizedAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in thousands)Total capital to risk-weighted assetsCompany
    
    $
    285,843
    
    
    
    10.2
    %
    
    $
    224,814
    
    
    
    8.0
    %
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    351,352
    
    
    
    12.6
    
    
    
    223,959
    
    
    
    8.0
    
    
    $
    279,949
    
    
    
    10.0
    %Tier I capital to risk-weighted assetsCompany
    
    
    258,862
    
    
    
    9.2
    
    
    
    112,457
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    324,370
    
    
    
    11.6
    
    
    
    111,980
    
    
    
    4.0
    
    
    
    167,969
    
    
    
    6.0Tier I capital to average assetsCompany
    
    
    258,862
    
    
    
    7.0
    
    
    
    148,858
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    324,370
    
    
    
    8.7
    
    
    
    148,407
    
    
    
    4.0
    
    
    
    185,508
    
    
    
    5.0
 Liquidity
 PAGE 42




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PAGE 43




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ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
 Interest Rate Sensitivity Analysis
  Change in Net Interest Income Over One Year HorizonGuidelineJune 30, 2008
    
    December 31, 2007
    
    MaximumDollar
    
    %
    
    Dollar
    
    %
    
    %Change
    
    Change
    
    Change
    
    Change
    
    Change(Dollars in thousands)+200 bp
    
    $
    3,333
    
    
    
    3.56
    %
    
    $
    (2,161
    )
    
    
    (2.36
    )%
    
    
    (10.0
    )%+100 bp
    
    
    1,862
    
    
    
    1.99
    
    
    
    694
    
    
    
    0.76
    
    
    
    -100 bp
    
    
    (1,837
    )
    
    
    (1.96
    )
    
    
    (225
    )
    
    
    (0.25
    )
    
    
    -200 bp
    
    
    (6,798
    )
    
    
    (7.26
    )
    
    
    (3,507
    )
    
    
    (3.83
    )
    
    
    (10.0
    )
   PAGE 44




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##### Table of Contents



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




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##### Table of Contents



SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
     
    
    Managements ability to effectively manage interest rate risk and the impact of interest
rates in general on the volatility of the Companys net interest income;
    
    Fluctuations in the value of the Companys investment securities;
    
    The ability to attract and retain senior management experienced in banking and financial
services;
    
    The sufficiency of the allowance for loan losses to absorb the amount of actual losses
inherent in the existing portfolio of loans;
    
    The ability to ultimately collect on the Large Problem Credit;
    
    The Companys ability to adapt successfully to technological changes to compete
effectively in the marketplace;
    
    Credit risks and risks from concentrations (by geographic area and by industry) within
the Banks loan portfolio and individual large loans;
 PAGE 46




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##### Table of Contents




    
    The effects of competition from other commercial banks, thrifts, mortgage banking firms,
consumer finance companies, credit unions, securities brokerage firms, insurance companies,
money market and other mutual funds, and other financial institutions operating in the
Companys market or elsewhere or providing similar services;
    
    The failure of assumptions underlying the establishment of the allowance for loan losses
and estimation of values of collateral or cash flow projections and various financial assets
and liabilities;
    
    Volatility of rate sensitive deposits;
    
    Operational risks, including data processing system failures or fraud;
    
    Liquidity risks;
    
    The ability to successfully acquire low cost deposits or funding;
    
    The ability to successfully execute strategies to increase noninterest income;
    
    The ability of the Company to fully realize expected cost savings and revenues in
connection with acquisitions, or the ability to realize them on a timely basis;
    
    The risk of borrower, depositor, and other customer attrition after acquisitions are
completed;
    
    Changes in the economic environment, competition, or other factors that may influence the
anticipated growth rate of loans and deposits, the quality of the loan portfolio and loan
and deposit pricing, and the Companys ability to successfully pursue acquisition and
expansion strategies and integrate any acquired companies;
    
    Possible recognition of further losses related to the Companys holdings of Federal
National Mortgage Association and Federal Home Loan Mortgage Corporation preferred stock;
    
    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;
    
    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;
 PAGE 47




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##### Table of Contents




    
    Changes in accounting principles, policies, or guidelines affecting the business
conducted by the Company;
    
    Acts of war or terrorism; and
    
    Other economic, competitive, governmental, regulatory, and technical factors affecting
the Companys operations, products, services, and prices.
   PAGE 48




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##### Table of Contents



PART II
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  1.
    
    To elect thirteen members to serve on the Companys Board of Directors for
a term of one year:
 Nominee
    
    For
    
    WithheldHomer J. Livingston, Jr
    
    
    23,676,886
    
    
    
    723,416James J. Giancola
    
    
    23,146,581
    
    
    
    1,253,721J. J Fritz
    
    
    23,489,564
    
    
    
    910,738Percy L. Berger, CPA
    
    
    23,348,335
    
    
    
    1,051,967Angelo DiPaolo
    
    
    23,390,559
    
    
    
    1,009,743Barry I. Forrester, CFA
    
    
    23,359,304
    
    
    
    1,040,998Robert J. Genetski, PhD
    
    
    23,576,835
    
    
    
    823,467Gerald F. Hartley, CPA
    
    
    23,683,683
    
    
    
    716,619Dennis M. OHara
    
    
    23,482,209
    
    
    
    918,093Joseph Rizza
    
    
    23,348,163
    
    
    
    1,052,139Thomas A. Rosenquist
    
    
    23,395,543
    
    
    
    1,004,759E.V. Silveri
    
    
    23,311,404
    
    
    
    1,088,898Monsignor Kenneth Velo
    
    
    23,627,035
    
    
    
    773,267
 2.
    
    To ratify the appointment of PricewaterhouseCoopers LLP:
 Votes For:
    
    
    24,258,554Against:
    
    
    73,990Abstain:
    
    
    67,758
 PAGE 49




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##### Table of Contents



3.
    
    To approve the Midwest Employee Stock Purchase Plan:
 Votes For:
    
    
    15,565,974Against:
    
    
    955,813Abstain:
    
    
    316,573
 
 Item 5. Other Information
  
 Item 6. Exhibits
  2.1
    
    Agreement and Plan of Merger, dated as of March 22, 2007, by and between Midwest Banc
Holdings, Inc. and Northwest Suburban Bancorp., Inc. (incorporated by reference to
Registrants Report on Form 8-K filed March 23, 2007, File No. 001-13735).3.1
    
    Amended and Restated Certificate of Incorporation, as amended (incorporated by
reference to Registrants Form 10-Q for the quarter ended September 30, 2007, File
No. 001-13735).3.1.1
    
    Certificate of Designation for the Series A Preferred Stock (incorporated by
reference to Registrants Report on Form 8-K filed December 7, 2007, File
No. 001-13735).3.1.2
    
    Deposit Agreement, dated December 5, 2007, among the Registrant, Illinois Stock
Transfer Company and the holders from time to time of the Depositary Receipts issued
pursuant to the Deposit Agreement (incorporated by reference to Registrants Report
on Form 8-K filed December 7, 2007, File No. 001-13735).3.2
    
    Amended and Restated By-laws, filed September 27, 2005 (incorporated by reference to
Registrants Report on Form 8-K filed December 14, 2007, File No. 001-13735).4.1
    
    Specimen Common Stock Certificate (incorporated by reference to Registrants
Registration Statement on Form S-1, Registration No. 333-42827).4.1.1
    
    Form of Certificate for the Preferred Stock (incorporated by reference to
Registrants Report on Form 8-K filed December 7, 2007, File No. 001-13735).4.1.2
    
    Form of Depositary Receipt for the Depositary Shares (incorporated by reference to
Registrants Report on Form 8-K filed December 7, 2007, File No. 001-13735).4.2
    
    Certain instruments defining the rights of the holders of long-term debt of the
Company and certain of its subsidiaries, none of which authorize a total amount of
indebtedness in excess of 10% of the total assets of the Company and its subsidiaries
on a consolidated basis, have not been filed as Exhibits. The Company hereby agrees
to furnish a copy of any of these agreements to the SEC upon request.*10.1
    
    Midwest Banc Holdings, Inc. Stock and Incentive Plan (incorporated by reference to
Registrants Form 10-K for the year ended December 31, 2006, File No. 001-13735).*10.4
    
    Form of Transitional Employment Agreements (incorporated by reference to Registrants
Registration Statement on Form S-1, Registration No. 333-42827).10.5
    
    Lease dated as of December 24, 1958, between Western National Bank of Cicero and
Midwest Bank and Trust Company, as amended (incorporated by reference to Registrants
Registration Statement on Form S-1, Registration No. 333-42827).10.6
    
    Britannica Centre Lease, dated as of May 1, 1994, between Chicago Title and
Trust Company, as Trustee under Trust Agreement dated November 2, 1977 and known as
Trust No. 1070932 and Midwest Bank and Trust Company (incorporated by reference to
Registrants Registration Statement on Form S-1, Registration No. 333-42827).
 PAGE 50




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##### Table of Contents



10.7
    
    Lease dated as of March 20, 1996 between Grove Lodge No. 824 Ancient Free and
Accepted Masons and Midwest Bank of Hinsdale (incorporated by reference to
Registrants Registration Statement on Form S-1, Registration No. 333-42827)10.8
    
    Office Lease, undated, between Grove Lodge No. 824 Ancient Free and Accepted Masons
and Midwest Bank of Hinsdale (incorporated by reference to Registrants Registration
Statement on Form S-1, Registration No. 333-42827).*10.15
    
    Form of 2008 Supplemental Executive Retirement Agreement.*10.16
    
    Form of Transitional Employment Agreement (Executive Officer Group) (incorporated by
reference to Registrants Form 10-Q for the quarter ended September 30, 2001, File
No. 001-13735).*10.17
    
    Form of Restricted Stock Award Agreement for Officers, Restricted Stock Grant Notice
for Officers, Incentive and Nonqualified Stock Options Award Agreements, and Stock
Option Grant Notice for Officers (incorporated by reference to Registrants Report on
Form 8-K filed August 29, 2005, File No. 001-13735).*10.19
    
    Form of Restricted Stock Award Agreement for Non-employee Directors and Restricted
Stock Grant Notice for Non-employee Directors (incorporated by reference to
Registrants Report on Form 8-K filed October 28, 2005, File No. 001-13735).10.21
    
    Lease dated as of April 29, 1976, between Joseph C. and Grace Ann Sanfilippo and
Fairfield Savings and Loan Association, as amended (incorporated by reference to
Registrants Form 10-K for the year ended December 31, 2003, File No. 001-13735).10.22
    
    Lease dated as of August 28, 2002 between Glen Oak Plaza and Midwest Bank and
Trust Company (incorporated by reference to Registrants Form 10-K for the year ended
December 31, 2003, File No. 001-13735).10.24
    
    Loan Agreement as of April 4, 2007, between the Company and M&I Marshall & Ilsley
Bank (incorporated by reference to Registrants Report on Form 8-K filed April 6,
2007, File No. 001-13735).*10.25
    
    Employment Agreement as of September 28, 2004 between the Company and the Chief
Executive Officer (incorporated by reference to Registrants Form 10-Q for the
quarter ended September 30, 2004, File No. 001-13735).*10.27
    
    Midwest Banc Holdings, Inc. Severance Policy Amended and Restated as of June 24, 2008.10.29
    
    Midwest Banc Holdings, Inc. Directors Deferred Compensation Plan (incorporated by
reference to Registrants Report on Form 8-K filed December 16, 2005, File
No. 001-13735).*10.30
    
    Amendment to Employment Agreement as of September 28, 2004 between the Company and
the Chief Executive Officer (incorporated by reference to Registrants Report on
Form 8-K filed March 24, 2006, File No. 001-13735).*10.31
    
    Amended and Restated Employment Agreement dated February 8, 2006 by and between Royal
American Bank and Jay Fritz, assumed by the Company as of July 1, 2006 (incorporated
by reference to Registrants Report on Form 8-K filed July 7, 2006, File
No. 001-13735).10.32
    
    Lease dated April 1, 1993, by and between Royal American Bank and LaSalle National
Trust, N.A., as amended, assumed by the Company as of July 1, 2006 (incorporated by
reference to Registrants Form 10-Q for the quarter ended September 30, 2006, File
No. 001-13735).10.33
    
    Lease dated April 19, 1993 by and between Royal American Bank and Hamilton Forsythe
1000 Tower Lane LLC, successor-in-interest to Bensenville Office Venture, as amended,
assumed by the Company as of July 1, 2006 (incorporated by reference to Registrants
Form 10-Q for the quarter ended September 30, 2006, File No. 001-13735).
 PAGE 51




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##### Table of Contents



10.34
    
    Sublease dated January 31, 2006 by and between Royal American Bank and JPMorgan Chase
Bank, National Association, assumed by the Company as of July 1, 2006 (incorporated
by reference to Registrants Form 10-Q for the quarter ended September 30, 2006, File
No. 001-13735).10.35
    
    Lease dated January 20, 2006 by and between Royal American Bank and MEG Associates
Limited Partnership, assumed by the Company as of July 1, 2006 (incorporated by
reference to Registrants Form 10-Q for the quarter ended September 30, 2006, File
No. 001-13735).10.36
    
    Lease dated October 28, 1996 by and between Royal American Bank and Tiffany Pointe,
Inc./Marquette Bank, as amended, assumed by the Company as of July 1, 2006
(incorporated by reference to Registrants Form 10-Q for the quarter ended
September 30, 2006, File No. 001-13735).10.37
    
    Lease dated September 24, 1999, by and between Royal American Bank and Moats Office
Properties, Inc., as amended, assumed by the Company as of July 1, 2006 (incorporated
by reference to Registrants Form 10-Q for the quarter ended September 30, 2006, File
No. 001-13735).10.38
    
    Lease dated July 14, 2006 by and between Midwest Bank and Trust Company and William
C. Moran (incorporated by reference to Registrants Form 10-Q for the quarter ended
September 30, 2006, File No. 001-13735).10.43
    
    Lease dated November 9, 2005 by and between Midwest Bank and Trust Company and
Crossings Commercial, LLC (incorporated by reference to Registrants Form 10-Q for
the quarter ended September 30, 2006, File No. 001-13735).10.44
    
    Lease dated August 17, 2005 by and between Royal American Bank and L.F.A.J.J.
Partners, LLC, assumed by the Company as of July 1, 2006 (incorporated by reference
to Registrants Form 10-Q for the quarter ended March 31, 2007, File No. 001-13735).10.45
    
    Loan Agreement dated as of September 28, 2007 and amendment of loan agreement dated
April 4, 2007, between the Company and M&I Marshall & Ilsley Bank (incorporated by
reference to Registrants Report on Form 8-K filed October 1, 2007, File
No. 001-13735).*10.46
    
    Form of 2007 Transitional Employment Agreement (incorporated by reference to
Registrants Report on Form 8-K filed October 1, 2007, File No. 001-13735).*10.48
    
    First Amendment to the Midwest Banc Holdings, Inc. Stock and Incentive Plan
(incorporated by reference to Registrants Report on Form 8-K filed October 1, 2007,
File No. 001-13735).10.49
    
    Lease dated December 27, 2007 by and between Midwest Bank and Trust Company and
George Garner and Barbara Garner (incorporated by reference to Registrants Form 10-K
for the year ended December 31, 2007, File No. 001-13735).*10.50
    
    Mutual Agreement RE Severance and Retirement dated January 14, 2008 between the
Company and John Eilering (incorporated by reference to Registrants Form 10-K for
the year ended December 31, 2007, File No. 001-13735).*10.51
    
    Second amendment to Employment Agreement as of September 28, 2004 between the Company
and the Chief Executive Officer (incorporated by reference to
Registrants Form 10-Q for the quarter ended March 31, 2008,
File No. 001-13735).*10.52
    
    Second amendment to the Amended and Restated Employment Agreement dated February 8,
2006 by and between Royal American Bank and Jay Fritz, assumed by the Company as of
July 1, 2006 (incorporated by reference to
Registrants Form 10-Q for the quarter ended March 31, 2008,
File No. 001-13735).10.53
    
    Agreement of Purchase and Sale as
of March 10, 2008 between the Company and PGG, LLC  (incorporated by reference to
Registrants Form 10-Q for the quarter ended March 31, 2008,
File No. 001-13735).10.54
    
    First Amendment to Real Estate Purchase Agreement as of March 26, 2008 between the
Company and PGG, LLC  (incorporated by reference to
Registrants Form 10-Q for the quarter ended March 31, 2008,
File No. 001-13735).10.55
    
    Post-closing Occupancy Agreement as of March 28, 2008 between the Company and NMD
Investments, LLC  (incorporated by reference to
Registrants Form 10-Q for the quarter ended March 31, 2008,
File No. 001-13735).10.56
    
    Amendment to Loan Agreement dated as of September 28, 2007 and Loan Agreement dated
March 31, 2008, between the Company and M&I Marshall &
Ilsley Bank  (incorporated by reference to
Registrants Form 10-Q for the quarter ended March 31, 2008,
File No. 001-13735).
 PAGE 52




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##### Table of Contents



10.57
    
    Second Amendment of Loan Agreement dated April 4, 2007, between the Company and M&I
Marshall & Ilsley Bank  (incorporated by reference to
Registrants Form 10-Q for the quarter ended March 31, 2008,
File No. 001-13735).*10.58
    
    Midwest Banc Holdings, Inc.
Management Incentive Plan  (incorporated by reference to
Registrants Form 10-Q for the quarter ended March 31, 2008,
File No. 001-13735).*10.59
    
    Midwest Banc Holdings, Inc. Employee Stock Purchase Plan (incorporated by reference
to Registrants Proxy Statement filed April 7, 2008, File No. 001-13735).31.1
    
    Rule 13a-14(a) Certification of Principal Executive Officer.31.2
    
    Rule 13a-14(a) Certification of Principal Financial Officer.32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, from the Companys Chief Executive Officer and
Chief Accounting Officer.
 
 *
    
    Indicates management contracts or compensatory plans or arrangements
required to be filed as an exhibit. PAGE 53




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##### Table of Contents



SIGNATURES
   MIDWEST BANC HOLDINGS, INC.
(Registrant)By:
    /s/ James J. GiancolaJames J. Giancola,President and Chief Executive OfficerBy:
    /s/ JoAnn Sannasardo LilekJoAnn Sannasardo Lilek,Executive Vice President and
Chief Financial Officer PAGE 54




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##### Table of Contents



2.1
    
    Agreement and Plan of Merger, dated as of March 22, 2007, by and
between Midwest Banc Holdings, Inc. and Northwest Suburban
Bancorp., Inc. (incorporated by reference to Registrants Report on
Form 8-K filed March 23, 2007, File No. 001-13735).3.1
    
    Amended and Restated Certificate of Incorporation, as amended
(incorporated by reference to Registrants Form 10-Q for the
quarter ended September 30, 2007, File No. 001-13735).3.1.1
    
    Certificate of Designation for the Series A Preferred Stock
(incorporated by reference to Registrants Report on Form 8-K filed
December 7, 2007, File No. 001-13735).3.1.2
    
    Deposit Agreement, dated December 5, 2007, among the Registrant,
Illinois Stock Transfer Company and the holders from time to time
of the Depositary Receipts issued pursuant to the Deposit Agreement
(incorporated by reference to Registrants Report on Form 8-K filed
December 7, 2007, File No. 001-13735).3.2
    
    Amended and Restated By-laws, filed September 27, 2005
(incorporated by reference to Registrants Report on Form 8-K filed
December 14, 2007, File No. 001-13735).4.1
    
    Specimen Common Stock Certificate (incorporated by reference to
Registrants Registration Statement on Form S-1, Registration
No. 333-42827).4.1.1
    
    Form of Certificate for the Preferred Stock (incorporated by
reference to Registrants Report on Form 8-K filed December 7,
2007, File No. 001-13735).4.1.2
    
    Form of Depositary Receipt for the Depositary Shares (incorporated
by reference to Registrants Report on Form 8-K filed December 7,
2007, File No. 001-13735).4.2
    
    Certain instruments defining the rights of the holders of long-term
debt of the Company and certain of its subsidiaries, none of which
authorize a total amount of indebtedness in excess of 10% of the
total assets of the Company and its subsidiaries on a consolidated
basis, have not been filed as Exhibits. The Company hereby agrees
to furnish a copy of any of these agreements to the SEC upon
request.*10.1
    
    Midwest Banc Holdings, Inc. Stock and Incentive Plan (incorporated
by reference to Registrants Form 10-K for the year ended
December 31, 2006, File No. 001-13735).*10.4
    
    Form of Transitional Employment Agreements (incorporated by
reference to Registrants Registration Statement on Form S-1,
Registration No. 333-42827).10.5
    
    Lease dated as of December 24, 1958, between Western National Bank
of Cicero and Midwest Bank and Trust Company, as amended
(incorporated by reference to Registrants Registration Statement
on Form S-1, Registration No. 333-42827).10.6
    
    Britannica Centre Lease, dated as of May 1, 1994, between Chicago
Title and Trust Company, as Trustee under Trust Agreement dated
November 2, 1977 and known as Trust No. 1070932 and Midwest Bank
and Trust Company (incorporated by reference to Registrants
Registration Statement on Form S-1, Registration No. 333-42827).10.7
    
    Lease dated as of March 20, 1996 between Grove Lodge No. 824
Ancient Free and Accepted Masons and Midwest Bank of Hinsdale
(incorporated by reference to Registrants Registration Statement
on Form S-1, Registration No. 333-42827)10.8
    
    Office Lease, undated, between Grove Lodge No. 824 Ancient Free and
Accepted Masons and Midwest Bank of Hinsdale (incorporated by
reference to Registrants Registration Statement on Form S-1,
Registration No. 333-42827).




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##### Table of Contents



*10.15
    
    Form of 2008 Supplemental Executive Retirement Agreement.*10.16
    
    Form of Transitional Employment Agreement (Executive Officer Group)
(incorporated by reference to Registrants Form 10-Q for the
quarter ended September 30, 2001, File No. 001-13735).*10.17
    
    Form of Restricted Stock Award Agreement for Officers, Restricted
Stock Grant Notice for Officers, Incentive and Nonqualified Stock
Options Award Agreements, and Stock Option Grant Notice for
Officers (incorporated by reference to Registrants Report on
Form 8-K filed August 29, 2005, File No. 001-13735).*10.19
    
    Form of Restricted Stock Award Agreement for Non-employee Directors
and Restricted Stock Grant Notice for Non-employee Directors
(incorporated by reference to Registrants Report on Form 8-K filed
October 28, 2005, File No. 001-13735).10.21
    
    Lease dated as of April 29, 1976, between Joseph C. and Grace Ann
Sanfilippo and Fairfield Savings and Loan Association, as amended
(incorporated by reference to Registrants Form 10-K for the year
ended December 31, 2003, File No. 001-13735).10.22
    
    Lease dated as of August 28, 2002 between Glen Oak Plaza and
Midwest Bank and Trust Company (incorporated by reference to
Registrants Form 10-K for the year ended December 31, 2003, File
No. 001-13735).10.24
    
    Loan Agreement as of April 4, 2007, between the Company and M&I
Marshall & Ilsley Bank (incorporated by reference to Registrants
Report on Form 8-K filed April 6, 2007, File No. 001-13735).*10.25
    
    Employment Agreement as of September 28, 2004 between the Company
and the Chief Executive Officer (incorporated by reference to
Registrants Form 10-Q for the quarter ended September 30, 2004,
File No. 001-13735).*10.27
    
    Midwest Banc Holdings, Inc. Severance Policy Amended and Restated
as of June 24, 2008.10.29
    
    Midwest Banc Holdings, Inc. Directors Deferred Compensation Plan
(incorporated by reference to Registrants Report on Form 8-K filed
December 16, 2005, File No. 001-13735).*10.30
    
    Amendment to Employment Agreement as of September 28, 2004 between
the Company and the Chief Executive Officer (incorporated by
reference to Registrants Report on Form 8-K filed March 24, 2006,
File No. 001-13735).*10.31
    
    Amended and Restated Employment Agreement dated February 8, 2006 by
and between Royal American Bank and Jay Fritz, assumed by the
Company as of July 1, 2006 (incorporated by reference to
Registrants Report on Form 8-K filed July 7, 2006, File
No. 001-13735).10.32
    
    Lease dated April 1, 1993, by and between Royal American Bank and
LaSalle National Trust, N.A., as amended, assumed by the Company as
of July 1, 2006 (incorporated by reference to Registrants
Form 10-Q for the quarter ended September 30, 2006, File
No. 001-13735).10.33
    
    Lease dated April 19, 1993 by and between Royal American Bank and
Hamilton Forsythe 1000 Tower Lane LLC, successor-in-interest to
Bensenville Office Venture, as amended, assumed by the Company as
of July 1, 2006 (incorporated by reference to Registrants
Form 10-Q for the quarter ended September 30, 2006, File
No. 001-13735).10.34
    
    Sublease dated January 31, 2006 by and between Royal American Bank
and JPMorgan Chase Bank, National Association, assumed by the
Company as of July 1, 2006 (incorporated by reference to
Registrants Form 10-Q for the quarter ended September 30, 2006,
File No. 001-13735).




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##### Table of Contents



10.35
    
    Lease dated January 20, 2006 by and between Royal American Bank and
MEG Associates Limited Partnership, assumed by the Company as of
July 1, 2006 (incorporated by reference to Registrants Form 10-Q
for the quarter ended September 30, 2006, File No. 001-13735).10.36
    
    Lease dated October 28, 1996 by and between Royal American Bank and
Tiffany Pointe, Inc./Marquette Bank, as amended, assumed by the
Company as of July 1, 2006 (incorporated by reference to
Registrants Form 10-Q for the quarter ended September 30, 2006,
File No. 001-13735).10.37
    
    Lease dated September 24, 1999, by and between Royal American Bank
and Moats Office Properties, Inc., as amended, assumed by the
Company as of July 1, 2006 (incorporated by reference to
Registrants Form 10-Q for the quarter ended September 30, 2006,
File No. 001-13735).10.38
    
    Lease dated July 14, 2006 by and between Midwest Bank and
Trust Company and William C. Moran (incorporated by reference to
Registrants Form 10-Q for the quarter ended September 30, 2006,
File No. 001-13735).10.43
    
    Lease dated November 9, 2005 by and between Midwest Bank and
Trust Company and Crossings Commercial, LLC (incorporated by
reference to Registrants Form 10-Q for the quarter ended
September 30, 2006, File No. 001-13735).10.44
    
    Lease dated August 17, 2005 by and between Royal American Bank and
L.F.A.J.J. Partners, LLC, assumed by the Company as of July 1, 2006
(incorporated by reference to Registrants Form 10-Q for the
quarter ended March 31, 2007, File No. 001-13735).10.45
    
    Loan Agreement dated as of September 28, 2007 and amendment of loan
agreement dated April 4, 2007, between the Company and M&I
Marshall & Ilsley Bank (incorporated by reference to Registrants
Report on Form 8-K filed October 1, 2007, File No. 001-13735).*10.46
    
    Form of 2007 Transitional Employment Agreement (incorporated by
reference to Registrants Report on Form 8-K filed October 1, 2007,
File No. 001-13735).*10.48
    
    First Amendment to the Midwest Banc Holdings, Inc. Stock and
Incentive Plan (incorporated by reference to Registrants Report on
Form 8-K filed October 1, 2007, File No. 001-13735).10.49
    
    Lease dated December 27, 2007 by and between Midwest Bank and
Trust Company and George Garner and Barbara Garner (incorporated by
reference to Registrants Form 10-K for the year ended December 31,
2007, File No. 001-13735).*10.50
    
    Mutual Agreement RE Severance and Retirement dated January 14, 2008
between the Company and John Eilering (incorporated by reference to
Registrants Form 10-K for the year ended December 31, 2007, File
No. 001-13735).*10.51
    
    Second amendment to Employment Agreement as of September 28, 2004
between the Company and the Chief Executive Officer (incorporated by reference to
Registrants Form 10-Q for the quarter ended March 31, 2008,
File No. 001-13735).*10.52
    
    Second amendment to the Amended and Restated Employment Agreement
dated February 8, 2006 by and between Royal American Bank and Jay
Fritz, assumed by the Company as of July 1, 2006  (incorporated by reference to
Registrants Form 10-Q for the quarter ended March 31, 2008,
File No. 001-13735).10.53
    
    Agreement of Purchase and Sale as of March 10, 2008 between the
Company and PGG, LLC  (incorporated by reference to
Registrants Form 10-Q for the quarter ended March 31, 2008,
File No. 001-13735).10.54
    
    First Amendment to Real Estate Purchase Agreement as of March 26,
2008 between the Company and PGG, LLC  (incorporated by reference to
Registrants Form 10-Q for the quarter ended March 31, 2008,
File No. 001-13735).10.55
    
    Post-closing Occupancy Agreement as of March 28, 2008 between the
Company and NMD Investments, LLC  (incorporated by reference to
Registrants Form 10-Q for the quarter ended March 31, 2008,
File No. 001-13735).




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##### Table of Contents



10.56
    
    Amendment to Loan Agreement dated as of September 28, 2007 and Loan
Agreement dated March 31, 2008, between the Company and M&I
Marshall & Ilsley Bank (incorporated by reference to
Registrants Form 10-Q for the quarter ended March 31, 2008,
File No. 001-13735).10.57
    
    Second Amendment of Loan Agreement dated April 4, 2007, between the
Company and M&I Marshall & Ilsley Bank (incorporated by reference to
Registrants Form 10-Q for the quarter ended March 31, 2008,
File No. 001-13735).*10.58
    
    Midwest Banc Holdings, Inc.
Management Incentive Plan (incorporated by reference to
Registrants Form 10-Q for the quarter ended March 31, 2008,
File No. 001-13735).*10.59
    
    Midwest Banc Holdings, Inc. Employee Stock Purchase Plan
(incorporated by reference to Registrants Proxy Statement filed
April 7, 2008, File No. 001-13735).31.1
    
    Rule 13a-14(a) Certification of Principal Executive Officer.31.2
    
    Rule 13a-14(a) Certification of Principal Financial Officer.32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, from the
Companys Chief Executive Officer and Chief Accounting Officer.
 
 *
    
    Indicates management contracts or compensatory plans or arrangements
required to be filed as an exhibit.