##### 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 March 31, 2008
 Commission File Number: 001-13735
 MIDWEST BANC HOLDINGS, INC.
 (Exact name of Registrant as specified in its charter.)
 Delaware
    
    36-3252484(State or other jurisdiction of
    
    (I.R.S. Employer Identification Number)incorporation or organization)501 W. North Ave.Melrose Park, Illinois
    
    60160(Address of principal executive offices)
    
    (Zip code)
 
 (708) 865-1053  (Registrants telephone number, including area code)
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ
  Class
    
    
    Outstanding at May 9, 2008Common, par value $0.01
    
    
    27,855,294




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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
    
    
    41Item 4. Controls and Procedures
    
    
    42PART IIItem 1. Legal Proceedings
    
    
    46Item 1A. Risk Factors
    
    
    46Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
    
    
    46Item 3. Defaults upon Senior Securities
    
    
    46Item 4. Submission of Matters to a Vote of Security Holders
    
    
    46Item 5. Other Information
    
    
    47Item 6. Exhibits
    
    
    47Signature Page
    
    
    51Second Amendment to Employment AgreementSecond Amendment to the Amended and Restated Employment AgreementAgreement of Purchase and SaleFirst Amendment to Real Estate Purchase AgreementPost-Closing Occupancy AgreementAmendment to Loan AgreementSecond Amendment of Loan AgreementManagement Incentive PlanRule 13a-14(a) Certification of Principal Executive OfficerRule 13a-14(a) Certification of Principal Financial OfficerCertification Pursuant to Section 906
  i




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except for share data)
 March 31,
    
    
    December 31,2008
    
    
    2007ASSETSCash
    
    $
    71,080
    
    
    $
    70,111Federal funds sold and other short-term investments
    
    
    31,415
    
    
    
    14,388Total cash and cash equivalents
    
    
    102,495
    
    
    
    84,499Securities
available-for-sale (securities pledged to creditors: $416,475 at
March 31, 2008 and $295,710 at December 31, 2007)
    
    
    737,089
    
    
    
    710,881Securities held-to-maturity (fair value: $32,406 at March
31, 2008 and $36,912 at December 31, 2007)
    
    
    32,674
    
    
    
    37,601Total securities
    
    
    769,763
    
    
    
    748,482Federal
Reserve Bank and Federal Home Loan Bank stock, at cost
    
    
    29,264
    
    
    
    29,264Loans
    
    
    2,467,701
    
    
    
    2,474,327Allowance for loan losses
    
    
    (20,344
    )
    
    
    (26,748
    )Net loans
    
    
    2,447,357
    
    
    
    2,447,579Cash surrender value of life insurance
    
    
    82,024
    
    
    
    81,166Premises and equipment, net
    
    
    38,232
    
    
    
    41,821Foreclosed properties
    
    
    2,527
    
    
    
    2,220Core deposit and other intangibles, net
    
    
    16,454
    
    
    
    17,044Goodwill
    
    
    160,407
    
    
    
    160,407Other assets
    
    
    81,923
    
    
    
    80,300Total assets
    
    $
    3,730,446
    
    
    $
    3,692,782LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesDepositsNoninterest-bearing
    
    $
    313,727
    
    
    $
    321,317Interest-bearing
    
    
    2,090,985
    
    
    
    2,136,831Total deposits
    
    
    2,404,712
    
    
    
    2,458,148Federal funds purchased
    
    
    184,500
    
    
    
    81,000Securities sold under agreements to repurchase
    
    
    394,764
    
    
    
    283,400Advances from the Federal Home Loan Bank
    
    
    190,000
    
    
    
    323,439Junior subordinated debentures
    
    
    60,741
    
    
    
    60,724Subordinated debt
    
    
    15,000
    
    
    
    Notes payable
    
    
    61,500
    
    
    
    72,500Due to broker
    
    
    
    
    
    
    1,539Other liabilities
    
    
    38,073
    
    
    
    36,868Total liabilities
    
    
    3,349,290
    
    
    
    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 March 31, 2008 and December 31, 2007
    
    
    
    
    
    
    Common stock, $0.01 par value, 64,000,000 shares authorized;
29,499,011 shares issued and 27,838,794 outstanding at
March 31, 2008 and 29,275,687 shares issued and 27,803,794
outstanding at December 31, 2007
    
    
    295
    
    
    
    293Additional paid-in capital
    
    
    301,633
    
    
    
    300,762Retained earnings
    
    
    92,810
    
    
    
    102,762Accumulated other comprehensive income (loss)
    
    
    1,154
    
    
    
    (13,917
    )Treasury stock, at cost (1,660,217 shares at March 31, 2008
and 1,471,893 shares at December 31, 2007)
    
    
    (14,736
    )
    
    
    (14,736
    )Total stockholders equity
    
    
    381,156
    
    
    
    375,164Total liabilities and stockholders equity
    
    $
    3,730,446
    
    
    $
    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)
For the three months ended March 31, 2008 and 2007
(In thousands, except per share data)
 2008
    
    
    2007Interest IncomeLoans
    
    $
    40,806
    
    
    $
    36,058Loans held for sale
    
    
    
    
    
    
    30SecuritiesTaxable
    
    
    9,060
    
    
    
    7,563Exempt from federal income taxes
    
    
    598
    
    
    
    700Dividend income from Federal Reserve Bank and Federal Home Loan Bank stock
    
    
    183
    
    
    
    228Federal funds sold and other short-term investments
    
    
    148
    
    
    
    187Total interest income
    
    
    50,795
    
    
    
    44,766Interest ExpenseDeposits
    
    
    19,089
    
    
    
    17,899Federal funds purchased
    
    
    815
    
    
    
    699Securities sold under agreements to repurchase
    
    
    3,178
    
    
    
    2,159Advances from the Federal Home Loan Bank
    
    
    3,482
    
    
    
    3,648Junior subordinated debentures
    
    
    1,045
    
    
    
    1,301Notes payable and subordinated debt
    
    
    970
    
    
    
    Total interest expense
    
    
    28,579
    
    
    
    25,706Net interest income
    
    
    22,216
    
    
    
    19,060Provision for loan losses
    
    
    5,400
    
    
    
    645Net interest income after provision for loan losses
    
    
    16,816
    
    
    
    18,415Noninterest IncomeService charges on deposit accounts
    
    
    1,963
    
    
    
    1,634Net gains (losses) on securities transactions
    
    
    12
    
    
    
    (14
    )Impairment loss on securities
    
    
    (17,586
    )
    
    
    Gains on sales of loans
    
    
    
    
    
    
    176Insurance and brokerage commissions
    
    
    560
    
    
    
    573Trust
    
    
    449
    
    
    
    393Increase in cash surrender value of life insurance
    
    
    858
    
    
    
    753Gain on sale of property
    
    
    15,196
    
    
    
    Other
    
    
    338
    
    
    
    205Total noninterest income
    
    
    1,790
    
    
    
    3,720Noninterest ExpensesSalaries and employee benefits
    
    
    13,040
    
    
    
    10,447Occupancy and equipment
    
    
    2,899
    
    
    
    2,190Professional services
    
    
    1,538
    
    
    
    1,208Loss on early extinguishment of debt
    
    
    7,121
    
    
    
    Marketing
    
    
    576
    
    
    
    679Foreclosed properties
    
    
    5
    
    
    
    25Amortization of intangible assets
    
    
    625
    
    
    
    456Merger related
    
    
    114
    
    
    
    Other
    
    
    2,691
    
    
    
    2,076Total noninterest expenses
    
    
    28,609
    
    
    
    17,081(Loss) income before income taxes
    
    
    (10,003
    )
    
    
    5,054(Benefit) provision for income taxes
    
    
    (4,587
    )
    
    
    642Net (Loss) Income
    
    
    (5,416
    )
    
    
    4,412Preferred stock dividends
    
    
    835
    
    
    
    Net (loss) income available to common stockholders
    
    $
    (6,251
    )
    
    $
    4,412Basic earnings per share
    
    $
    (0.22
    )
    
    $
    0.18Diluted earnings per share
    
    $
    (0.22
    )
    
    $
    0.18Cash dividends declared per common share
    
    $
    0.13
    
    
    $
    0.13
 See accompanying notes to unaudited consolidated financial statements.
 PAGE 2




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MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (Unaudited)
For the three months ended March 31, 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
    
    
    Income (Loss)
    
    
    Stock
    
    
    EquityBalance, December 31, 2006
    
    $
    
    
    
    $
    255
    
    
    $
    200,797
    
    
    $
    97,807
    
    
    $
    (6,273
    )
    
    $
    (5,344
    )
    
    $
    287,242Cash dividends declared ($0.13 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,268
    )
    
    
    
    
    
    
    
    
    
    
    (3,268
    )Issuance of common stock upon
exercise of 11,417 stock options,
net of tax benefit
    
    
    
    
    
    
    
    
    
    
    147
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    147Stock-based compensation,
net of tax benefit
    
    
    
    
    
    
    
    
    
    
    808
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    808Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,412
    
    
    
    
    
    
    
    
    
    
    
    4,412Net increase in fair value of
securities classified as available-
for-sale, net of income taxes and
reclassification adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,158
    
    
    
    
    
    
    
    1,158Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,570Balance, March 31, 2007
    
    $
    
    
    
    $
    255
    
    
    $
    201,752
    
    
    $
    98,951
    
    
    $
    (5,115
    )
    
    $
    (5,344
    )
    
    $
    290,499Balance, December 31, 2007
    
    $
    
    
    
    $
    293
    
    
    $
    300,762
    
    
    $
    102,762
    
    
    $
    (13,917
    )
    
    $
    (14,736
    )
    
    $
    375,164Cash dividends declared ($48.4375 per
share) on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (835
    )
    
    
    
    
    
    
    
    
    
    
    (835
    )Cash dividends declared ($0.13 per share)
on common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,701
    )
    
    
    
    
    
    
    
    
    
    
    (3,701
    )Issuance of 223,324 shares restricted stock
    
    
    
    
    
    
    2
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation,
net of tax benefit
    
    
    
    
    
    
    
    
    
    
    873
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    873Comprehensive incomeNet loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,416
    )
    
    
    
    
    
    
    
    
    
    
    (5,416
    )Net increase in fair value of
securities classified as available-
for-sale, net of income taxes and reclassification adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,071
    
    
    
    
    
    
    
    15,071Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,655Balance, March 31, 2008
    
    $
    
    
    
    $
    295
    
    
    $
    301,633
    
    
    $
    92,810
    
    
    $
    1,154
    
    
    $
    (14,736
    )
    
    $
    381,156
 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 three Months Ended March 31, 2008 and 2007
(In thousands)
 2008
    
    
    2007Cash flows from operating activitiesNet (loss) income
    
    $
    (5,416
    )
    
    $
    4,412Adjustments to reconcile net income to net cash provided by operating activitiesDepreciation
    
    
    1,026
    
    
    
    760Provision for loan losses
    
    
    5,400
    
    
    
    645Amortization of core deposit and other intangibles
    
    
    117
    
    
    
    339Amortization of premiums and discounts on securities, net
    
    
    195
    
    
    
    237Realized loss on sale of available-for-sale securities, net
    
    
    (12
    )
    
    
    14Impairment loss on securities
    
    
    17,586
    
    
    
    Net gain on sales of loans held for sale
    
    
    
    
    
    
    (176
    )Origination of loans held for sale
    
    
    
    
    
    
    (17,269
    )Proceeds from sales of loans held for sale
    
    
    
    
    
    
    16,377Gain on sale of property
    
    
    (15,196
    )
    
    
    Loss on early extinguishment of debt
    
    
    7,121
    
    
    
    Increase in cash surrender value of life insurance
    
    
    (858
    )
    
    
    (753
    )Deferred income taxes
    
    
    (4,688
    )
    
    
    4,384Loss on sale of other real estate, net
    
    
    
    
    
    
    12Amortization of deferred stock based compensation
    
    
    873
    
    
    
    753Change in other assets
    
    
    (5,667
    )
    
    
    (3,550
    )Change in other liabilities
    
    
    169
    
    
    
    (4,893
    )Net cash provided by operating activities
    
    
    650
    
    
    
    1,292Cash flows from investing activitiesSales of securities available-for-sale
    
    
    83,936
    
    
    
    64,310Sales of securities held-to-maturity
    
    
    4,443
    
    
    
    Maturities of securities available-for-sale
    
    
    25,585
    
    
    
    6,025Principal payments on securities available-for-sale
    
    
    17,961
    
    
    
    19,883Principal payments on securities held-to-maturity
    
    
    619
    
    
    
    Purchases of securities available-for-sale
    
    
    (148,300
    )
    
    
    (136,030
    )Loan originations and principal collections, net
    
    
    (5,168
    )
    
    
    (3,311
    )Proceeds from sale of property
    
    
    18,259
    
    
    
    Proceeds
from sale of foreclosed properties
    
    
    
    
    
    
    225Additions to property and equipment
    
    
    (499
    )
    
    
    (1,082
    )Net cash used in investing activities
    
    
    (3,164
    )
    
    
    (49,980
    )Cash flows from financing activitiesNet increase in deposits
    
    
    (53,272
    )
    
    
    48,947Proceeds from borrowings
    
    
    4,000
    
    
    
    Repayment of borrowings
    
    
    (140,575
    )
    
    
    Preferred cash dividends paid
    
    
    (835
    )
    
    
    Common cash dividends paid
    
    
    (3,673
    )
    
    
    (3,258
    )Change in federal funds purchased and securities sold under agreements to repurchase
    
    
    214,865
    
    
    
    (9,009
    )Proceeds from issuance of common or treasury stock under stock and incentive option
plan
    
    
    
    
    
    
    114Net cash provided by financing activities
    
    
    20,510
    
    
    
    36,794Increase (decrease) in cash and cash equivalents
    
    
    17,996
    
    
    
    (11,894
    )Cash and cash equivalents at beginning of period
    
    
    84,499
    
    
    
    100,532Cash and cash equivalents at end of period
    
    $
    102,495
    
    
    $
    88,638Supplemental disclosuresCash paid during period for:Interest
    
    $
    29,297
    
    
    $
    25,390Income taxes, net
    
    
    1,000
    
    
    
    2,727
 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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MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 3  BUSINESS COMBINATIONS
    2007Net interest income
    
    $
    23,954Net income
    
    
    5,850Basic earnings per share
    
    
    0.21Diluted earnings per share
    
    
    0.21
 PAGE 6




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 4  SECURITIES
  March 31, 2008Held-to-Maturity
    
    
    Available-for-Sale
    
    
    Total% ofAmortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    AmortizedCost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Cost(Dollars in thousands)U.S. Treasury and obligations of
U.S. government-sponsored entities
    
    $
    
    
    
    $
    
    
    
    $
    288,953
    
    
    $
    293,216
    
    
    $
    288,953
    
    
    $
    293,216
    
    
    
    37.63
    %Obligations of states and political subdivisions
    
    
    1,253
    
    
    
    1,274
    
    
    
    60,386
    
    
    
    61,098
    
    
    
    61,639
    
    
    
    62,372
    
    
    
    8.03Mortgage-backed securities
    
    
    31,421
    
    
    
    31,132
    
    
    
    299,163
    
    
    
    297,856
    
    
    
    330,584
    
    
    
    328,988
    
    
    
    43.05Equity securities (1)
    
    
    
    
    
    
    
    
    
    
    67,489
    
    
    
    67,489
    
    
    
    67,489
    
    
    
    67,489
    
    
    
    8.79Other bonds
    
    
    
    
    
    
    
    
    
    
    19,219
    
    
    
    17,430
    
    
    
    19,219
    
    
    
    17,430
    
    
    
    2.50Total
    
    $
    32,674
    
    
    $
    32,406
    
    
    $
    735,210
    
    
    $
    737,089
    
    
    $
    767,884
    
    
    $
    769,495
    
    
    
    100.00
    %
 
 (1)
    
    An impairment charge was recognized on March 31, 2008, as a result the fair value
as of that date became the new cost basis in these securities. 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)U.S. Treasury and obligations of
U.S. government-sponsored entities
    
    $
    
    
    
    $
    
    
    
    $
    181,983
    
    
    $
    183,613
    
    
    $
    181,983
    
    
    $
    183,613
    
    
    
    23.59
    %Obligations of states and political subdivisions
    
    
    1,254
    
    
    
    1,268
    
    
    
    60,985
    
    
    
    61,400
    
    
    
    62,239
    
    
    
    62,668
    
    
    
    8.07Mortgage-backed securities
    
    
    36,347
    
    
    
    35,644
    
    
    
    383,633
    
    
    
    379,040
    
    
    
    419,980
    
    
    
    414,684
    
    
    
    54.44Equity securities
    
    
    
    
    
    
    
    
    
    
    85,139
    
    
    
    65,979
    
    
    
    85,139
    
    
    
    65,979
    
    
    
    11.04Other bonds
    
    
    
    
    
    
    
    
    
    
    22,095
    
    
    
    20,849
    
    
    
    22,095
    
    
    
    20,849
    
    
    
    2.86Total
    
    $
    37,601
    
    
    $
    36,912
    
    
    $
    733,835
    
    
    $
    710,881
    
    
    $
    771,436
    
    
    $
    747,793
    
    
    
    100.00
    %
 PAGE 7




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  March 31, 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 states and political subdivisions
    
    $
    13,063
    
    
    $
    (218
    )
    
    $
    
    
    
    $
    
    
    
    $
    13,063
    
    
    $
    (218
    )Mortgage-backed securities:U.S. government-sponsored entities (1)
    
    
    97,640
    
    
    
    (1,533
    )
    
    
    28,476
    
    
    
    (611
    )
    
    
    126,116
    
    
    
    (2,144
    )Corporate and other debt securities
    
    
    9,660
    
    
    
    (1,423
    )
    
    
    3,725
    
    
    
    (373
    )
    
    
    13,385
    
    
    
    (1,796
    )Total available-for-sale
    
    
    120,363
    
    
    
    (3,174
    )
    
    
    32,201
    
    
    
    (984
    )
    
    
    152,564
    
    
    
    (4,158
    )Securities held-to-maturity:Mortgage-backed securities:U.S. government-sponsored entities (1)
    
    
    
    
    
    
    
    
    
    
    21,731
    
    
    
    (350
    )
    
    
    21,731
    
    
    
    (350
    )Total held-to-maturity
    
    
    
    
    
    
    
    
    
    
    21,731
    
    
    
    (350
    )
    
    
    21,731
    
    
    
    (350
    )Total temporarily impaired securities
    
    $
    120,363
    
    
    $
    (3,174
    )
    
    $
    53,932
    
    
    $
    (1,334
    )
    
    $
    174,295
    
    
    $
    (4,508
    )
 
 (1)
    
    Includes obligations of the Federal Home Loan Mortgage Corporation (FHLMC) and Federal
National Mortgage Association (FNMA).  
    
    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; each
security has a stated maturity date. FNMA is rated Aa3, AA- and A+ by Moodys, S&P and
Fitch, respectively. FHLMC is rated Aa3 and AA- by Moodys and Fitch, respectively. The
mortgage-backed securities are notes with a weighted average maturity of approximately
26 years and a weighted average interest rate of 4.62%.
    
    The unrealized losses on corporate and other debt securities relate to securities which
were rated A- or better by either Moodys or S&P. These debt securities have a weighted
average maturity of approximately 24 years and a weighted average interest rate of 5.67%.
  PAGE 8




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MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 5  LOANS
  March 31,
    
    
    December 31,2008
    
    
    2007(1)% of Gross
    
    
    
    
    
    
    % of GrossAmount
    
    
    Loans
    
    
    Amount
    
    
    Loans(Dollars in thousands)Commercial
    
    $
    1,060,316
    
    
    
    43.0
    %
    
    $
    1,079,631
    
    
    
    43.6
    %Construction
    
    
    447,798
    
    
    
    18.1
    
    
    
    464,583
    
    
    
    18.8Commercial real estate
    
    
    658,123
    
    
    
    26.7
    
    
    
    627,928
    
    
    
    25.4Home equity
    
    
    146,381
    
    
    
    5.9
    
    
    
    142,158
    
    
    
    5.8Other consumer
    
    
    10,837
    
    
    
    0.4
    
    
    
    10,689
    
    
    
    0.4Residential mortgage
    
    
    144,553
    
    
    
    5.9
    
    
    
    149,703
    
    
    
    6.0Total loans, gross
    
    
    2,468,008
    
    
    
    100.0
    %
    
    
    2,474,692
    
    
    
    100.0
    %Net deferred fees
    
    
    (307
    )
    
    
    
    
    
    
    (365
    )Total loans, net
    
    $
    2,467,701
    
    
    
    
    
    
    $
    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)
  March 31,
    
    
    December 31,2008
    
    
    2007(In thousands)Commercial
    
    $
    718
    
    
    $
    726Construction
    
    
    217
    
    
    
    211Commercial real estate
    
    
    2,767
    
    
    
    2,736Home equity
    
    
    
    
    
    
    Residential mortgage
    
    
    248
    
    
    
    260Total carrying value
    
    $
    3,950
    
    
    $
    3,933
  (In thousands)Balance at beginning of period
    
    $
    249Accretion
    
    
    (157
    )Balance at end of period
    
    $
    92
 NOTE 6  ALLOWANCE FOR LOAN LOSSES
  Three Months EndedMarch 31,2008
    
    
    2007(In thousands)Balance at beginning of period
    
    $
    26,748
    
    
    $
    23,229Provision charged to operations
    
    
    5,400
    
    
    
    645Loans charged off
    
    
    (12,250
    )
    
    
    (446
    )Recoveries
    
    
    446
    
    
    
    600Net loans (charged off) recoveries
    
    
    (11,804
    )
    
    
    154Balance at end of period
    
    $
    20,344
    
    
    $
    24,028
  Three Months EndedMarch 31,2008(In thousands)Impaired loans for which no allowance for loan losses is allocated
    
    $
    7,962Impaired loans with an allocation of the allowance for loan losses
    
    
    47,797Total impaired loans
    
    $
    55,759Allowance for loan losses allocated to impaired loans
    
    $
    6,051
 Three Months EndedMarch 31,2008(In thousands)Average impaired loans
    
    $
    52,892Interest income recognized on impaired loans on a cash basis
    
    
    194
 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
  March 31, 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
    
    
    $
    (4,637
    )
    
    $
    16,454
    
    
    $
    21,091
    
    
    $
    (4,047
    )
    
    $
    17,044
   Core Depositand OtherGoodwill
    
    
    IntangiblesBalance at beginning of period
    
    $
    160,407
    
    
    $
    17,044Amortization
    
    
    
    
    
    
    (590
    )Balance at end of period
    
    $
    160,407
    
    
    $
    16,454
  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
    
    $
    155,990
    
    
    $
    28,294
    
    
    $
    12,059
    
    
    $
    
    
    
    $
    196,343Home equity
    
    
    33,960
    
    
    
    32,189
    
    
    
    40,846
    
    
    
    48,291
    
    
    
    155,286Consumer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,180
    
    
    
    2,180Commercial
    
    
    249,556
    
    
    
    22,716
    
    
    
    2,745
    
    
    
    1,513
    
    
    
    276,530Letters of credit
    
    
    36,647
    
    
    
    24,115
    
    
    
    4,102
    
    
    
    
    
    
    
    64,864Commitments to extend credit
    
    
    80,616
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,616Total commitments
    
    $
    556,769
    
    
    $
    107,314
    
    
    $
    59,752
    
    
    $
    51,984
    
    
    $
    775,819
   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 March 31,
    
    Active Markets
    
    Inputs
    
    Inputs2008
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)(In thousands)Assets:Available-for-sale securities
    
    $
    737,089
    
    
    $
    66,338
    
    
    $
    661,091
    
    
    $
    9,660
  March 31,2008(In thousands)Beginning balance
    
    $
    10,479Total gains or losses (realized/unrealized):Included in earnings
    
    
    Included in other comprehensive income
    
    
    (819
    )Ending balance
    
    $
    9,660
   Quoted Prices or
    
    Significant
    
    SignificantIdentical Assets in
    
    Other Observable
    
    UnobservableMarch 31,
    
    Active Markets
    
    Inputs
    
    Inputs2008
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)(In thousands)Assets:Impaired loans
    
    $
    39,122
    
    
    $
    
    
    
    $
    
    
    
    $
    39,122
  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
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    
    
    
    
    Outstanding at March 31, 2008
    
    
    479,152
    
    
    
    14.03
    
    
    
    4.63
   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
    
    
    223,324
    
    
    
    10.93Vested
    
    
    (35,000
    )
    
    
    17.75Forfeited
    
    
    
    
    
    
    Outstanding at March 31, 2008
    
    
    636,718
    
    
    
    17.55
 NOTE 11  INCOME TAXES
  Three Months Ended March 31,2008
    
    
    2007(In thousands)Income taxes computed at the statutory rate
    
    $
    (3,501
    )
    
    
    35.0
    %
    
    $
    1,769
    
    
    
    35.0
    %Tax-exempt interest income on securities and loans
    
    
    (197
    )
    
    
    2.0
    
    
    
    (226
    )
    
    
    (4.5
    )General business credits
    
    
    (130
    )
    
    
    1.3
    
    
    
    (110
    )
    
    
    (2.2
    )State income taxes, net of federal tax benefit due to state operating loss
    
    
    (732
    )
    
    
    7.3
    
    
    
    (241
    )
    
    
    (4.8
    )Life insurance cash surrender value increase, net of premiums
    
    
    (300
    )
    
    
    3.0
    
    
    
    (263
    )
    
    
    (5.2
    )Dividends received deduction
    
    
    (301
    )
    
    
    3.0
    
    
    
    (311
    )
    
    
    (6.1
    )Nondeductible
costs and other, net
    
    
    574
    
    
    
    (5.7
    )
    
    
    24
    
    
    
    0.5(Benefit) provision for income taxes
    
    $
    (4,587
    )
    
    
    45.9
    %
    
    $
    642
    
    
    
    12.7
    %
   PAGE 15




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  NOTE
12  SALE OF BRANCH PROPERTY
  PAGE 16




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 13  EARNINGS PER SHARE
 Three Months EndedMarch 31,2008
    
    
    2007(In thousands, except per share data)BasicNet (loss) income
    
    $
    (5,416
    )
    
    $
    4,412Preferred stock dividends
    
    
    835
    
    
    
    Net (loss) income available to common stockholders
    
    $
    (6,251
    )
    
    $
    4,412Weighted average common shares outstanding
    
    
    27,838
    
    
    
    24,693Basic earnings per share
    
    $
    (0.22
    )
    
    $
    0.18DilutedNet (loss) income
    
    $
    (5,416
    )
    
    $
    4,412Preferred stock dividends
    
    
    835
    
    
    
    Net (loss) income available to common stockholders
    
    $
    (6,251
    )
    
    $
    4,412Weighted average common shares outstanding
    
    
    27,838
    
    
    
    24,693Dilutive effect of stock options (1)
    
    
    
    
    
    
    162Dilutive effect of restricted stock (1)
    
    
    
    
    
    
    95Diluted average common shares
    
    
    27,838
    
    
    
    24,950Diluted earnings per share
    
    $
    (0.22
    )
    
    $
    0.18
 
 (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.  NOTE
14  SUBSEQUENT EVENT
  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 EndedMarch 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2007(Dollars in thousands, except per share data)Statement of Income Data:Total interest income
    
    $
    50,795
    
    
    $
    44,766
    
    
    $
    55,437Total interest expense
    
    
    28,579
    
    
    
    25,706
    
    
    
    32,181Net interest income
    
    
    22,216
    
    
    
    19,060
    
    
    
    23,256Provision for loan losses
    
    
    5,400
    
    
    
    645
    
    
    
    1,410Noninterest income
    
    
    1,790
    
    
    
    3,720
    
    
    
    4,161Noninterest expenses
    
    
    28,609
    
    
    
    17,081
    
    
    
    21,425(Loss) income before income taxes
    
    
    (10,003
    )
    
    
    5,054
    
    
    
    4,582Provision for income taxes
    
    
    (4,587
    )
    
    
    642
    
    
    
    360Net (loss) income
    
    $
    (5,416
    )
    
    $
    4,412
    
    
    $
    4,222Preferred stock dividends
    
    
    (835
    )
    
    
    
    
    
    
    Net (loss) income available to common stockholders
    
    $
    (6,251
    )
    
    $
    4,412
    
    
    $
    4,222Per Share Data:Earnings per share (basic)
    
    $
    (0.22
    )
    
    $
    0.18
    
    
    $
    0.14Earnings per share (diluted)
    
    
    (0.22
    )
    
    
    0.18
    
    
    
    0.14Cash dividends declared on common stock
    
    
    0.13
    
    
    
    0.13
    
    
    
    0.13Book value
    
    
    12.14
    
    
    
    11.76
    
    
    
    11.94Tangible book value (non-GAAP measure) (9)
    
    
    5.79
    
    
    
    8.12
    
    
    
    5.56Selected Financial Ratios:Return on average assets (1)
    
    
    (0.59
    )%
    
    
    0.60
    %
    
    
    0.45
    %Return on average equity (2)
    
    
    (5.69
    )
    
    
    6.20
    
    
    
    4.80Dividend payout ratio
    
    
    N/M
    
    
    
    74.07
    
    
    
    91.39Average equity to average assets
    
    
    10.38
    
    
    
    9.74
    
    
    
    9.37Tier 1 risk-based capital
    
    
    9.33
    
    
    
    12.02
    
    
    
    9.21Total risk-based capital
    
    
    10.61
    
    
    
    13.10
    
    
    
    10.17Net interest margin (tax equivalent) (3)(4)
    
    
    2.82
    
    
    
    3.01
    
    
    
    2.93Loan to deposit ratio
    
    
    102.62
    
    
    
    97.19
    
    
    
    100.66Net overhead expense to average assets (5)
    
    
    1.01
    
    
    
    1.82
    
    
    
    1.84Efficiency ratio (6)
    
    
    65.88
    
    
    
    69.83
    
    
    
    73.27Loan Quality Ratios:Allowance for loan losses to total loans
    
    
    0.82
    
    
    
    1.23
    
    
    
    1.08Provision for loan losses to total loans
    
    
    0.88
    
    
    
    0.13
    
    
    
    0.23Net loans charged off to average total loans
    
    
    1.93
    
    
    
    (0.03
    )
    
    
    0.37Nonaccrual loans to total loans (7)
    
    
    1.90
    
    
    
    2.14
    
    
    
    1.99Nonperforming assets to total assets (8)
    
    
    1.33
    
    
    
    1.48
    
    
    
    1.39Allowance for loan losses to nonaccrual loans
    
    
    0.43
    x
    
    
    0.58
    x
    
    
    0.54
    xBalance Sheet Data:Total assets
    
    $
    3,730,446
    
    
    $
    2,980,631
    
    
    $
    3,692,782Total earning assets
    
    
    3,298,143
    
    
    
    2,685,977
    
    
    
    3,266,461Average assets
    
    
    3,686,269
    
    
    
    2,966,039
    
    
    
    3,721,444Loans
    
    
    2,467,701
    
    
    
    1,950,613
    
    
    
    2,474,327Allowance for loan losses
    
    
    20,344
    
    
    
    24,028
    
    
    
    26,748Deposits
    
    
    2,404,712
    
    
    
    2,007,000
    
    
    
    2,458,148Borrowings
    
    
    906,505
    
    
    
    643,795
    
    
    
    821,063Stockholders equity
    
    
    381,156
    
    
    
    290,499
    
    
    
    375,164Tangible stockholders equity (non-GAAP measure)(9)
    
    
    204,295
    
    
    
    200,711
    
    
    
    197,713
 
 (1)
    
    Net income divided by average assets.(2)
    
    Net income divided by average equity.(3)
    
    Net interest income, on a fully tax-equivalent basis, divided by average earning assets.(4)
    
    The following table reconciles reported net interest income on a fully tax-equivalent
basis for the periods presented (in thousands): Three Months EndedMarch 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2007Net interest income
    
    $
    22,216
    
    
    $
    19,060
    
    
    $
    23,256Tax-equivalent adjustment to net interest income
    
    
    892
    
    
    
    979
    
    
    
    960Net interest income, fully tax-equivalent basis
    
    $
    23,108
    
    
    $
    20,039
    
    
    $
    24,216
 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 expense excluding amortization and foreclosed properties expense divided by noninterest
income, excluding security gains or losses, plus net interest income on a fully tax-equivalent basis.(7)
    
    Includes total nonaccrual loans.(8)
    
    Includes total nonaccrual and foreclosed properties.(9)
    
    Stockholders equity less goodwill, core deposit and other intangible assets. Management believes that
tangible stockholders equity (non-GAAP measure) is a more useful measure since it excludes the balances
of intangible assets. The following table reconciles reported stockholders equity to tangible
stockholders equity for the periods presented (in thousands): At March 31,
    
    
    At December 31,2008
    
    
    2007
    
    
    2007Stockholders equity
    
    $
    381,156
    
    
    $
    290,499
    
    
    $
    375,164Core deposit intangible and other intangibles, net
    
    
    16,454
    
    
    
    10,163
    
    
    
    17,044Goodwill
    
    
    160,407
    
    
    
    79,625
    
    
    
    160,407Tangible stockholders equity
    
    $
    204,295
    
    
    $
    200,711
    
    
    $
    197,713
 Results of Operations  Three Months Ended
March 31, 2008 and 2007
    
    
    Basic and diluted earnings per share for the three months
ended March 31, 2008 was ($0.22)
compared to $0.18 for the comparable period in
2007.
    
    Net loss for the first quarter of 2008 was $5.4 million compared to net income of
$4.4 million for the first quarter of 2007, primarily as a result of the significant
transactions noted above, as well as a significant increase in the
first quarter of 2008 in the provision
for loan losses.
    
    Net interest income increased 16.6% to $22.2 million in the first quarter of 2008
compared to $19.1 million in the first quarter of 2007, primarily as a result of the
Northwest Suburban acquisition in October 2007.
    
    The net interest margin continues to be under pressure at 2.82% for the three months
ended March 31, 2008 compared to 3.01% for the similar period of 2007.
    
    The annualized return on average assets for the three months ended March 31, 2008
was (0.59)% compared to 0.60% for the similar period in 2007.
    
    The annualized return on average equity for the three months ended March 31, 2008
was (5.69)% compared to 6.20% for the similar period in 2007.
 PAGE 21




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##### Table of Contents




    
    The provision for loan losses was $5.4 million in the first quarter of 2008 compared
to $645,000 for the comparable period in 2007, reflecting managements current updated
assessments of impaired loans and concerns about the continued deterioration of
economic conditions.
    
    Noninterest income was $1.8 million for the three months ended March 31, 2008
compared to $3.7 million over the comparable period in 2007. Excluding the impairment
charge on securities and the gain on the sale of real estate, noninterest income was
$4.2 million for the first quarter of 2008, an increase of $460,000, or 12.4%, over the
comparable period in 2007.
    
    Noninterest expenses were $28.6 million during the first quarter of 2008 compared to
$17.1 million for the similar period in 2007. Excluding the loss on the early
extinguishment of debt and merger related charges, noninterest expense increased by
$4.3 million, or 25.1%, compared to the first quarter of 2007, mainly as a result of
the acquisition of Northwest Suburban.
  
    
    Basic and diluted earnings per share for the three months ended March 31, 2008 were
($0.22) compared to $0.14 for three months ended December 31,
2007.
    
    Net loss for the first quarter of 2008 was $5.4 million compared to net income of
$4.2 million for the fourth quarter of 2007, as a result of the significant
transactions noted above.
    
    Net interest income decreased by $1.0 million to $22.2 million in the first quarter
of 2008 compared to $23.3 million in the fourth quarter of 2007.
    
    The net interest margin was 2.82% for the three months ended March 31, 2008 compared
to 2.93% for the fourth quarter of 2007.
    
    The annualized return on average assets for the three months ended March 31, 2008
was (0.59)% compared to 0.45% for the fourth quarter of 2007.
    
    The annualized return on average equity for the three months ended March 31, 2008
was (5.69)% compared to 4.80% for the fourth quarter of 2007.
    
    The provision for loan losses was $5.4 million in the first quarter of 2008 compared
to $1.4 million for the fourth quarter of 2007, reflecting managements updated
assessments of impaired loans and concerns about the continued deterioration of
economic conditions.
    
    Noninterest income was $1.8 million for the three months ended March 31, 2008 and
$4.2 million in the fourth quarter of 2007. Excluding the impairment charge on
securities and the gain on the sale of property, noninterest income was $4.2 million
for the first quarter of 2008, essentially at the fourth quarter 2007 level.
    
    Noninterest expenses were $28.6 million during the first quarter of 2008 compared to
$21.4 million in the fourth quarter of 2007. Excluding the loss on the early
extinguishment of debt and merger related charges, noninterest expense increased by
$1.3 million, or 6.4%, compared to the fourth quarter of 2007.
 PAGE 22




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##### Table of Contents



Net Interest Income
  For the Three Months EndedMarch 31, 2008
    
    
    March 31, 2007
    
    
    December 31, 2007Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)Interest-Earning Assets:Federal funds sold and interest-bearing
deposits due from banks
    
    $
    21,939
    
    
    $
    148
    
    
    
    2.70
    %
    
    $
    15,987
    
    
    $
    187
    
    
    
    4.68
    %
    
    $
    11,627
    
    
    $
    151
    
    
    
    5.19
    %Securities:Taxable(1)
    
    
    704,119
    
    
    
    9,566
    
    
    
    5.43
    
    
    
    603,622
    
    
    
    8,107
    
    
    
    5.37
    
    
    
    742,114
    
    
    
    10,404
    
    
    
    5.61Exempt from federal income taxes(1)
    
    
    61,847
    
    
    
    920
    
    
    
    5.95
    
    
    
    73,379
    
    
    
    1,077
    
    
    
    5.87
    
    
    
    66,660
    
    
    
    993
    
    
    
    5.96Total securities
    
    
    765,966
    
    
    
    10,486
    
    
    
    5.48
    
    
    
    677,001
    
    
    
    9,184
    
    
    
    5.44
    
    
    
    808,774
    
    
    
    11,397
    
    
    
    5.64FRB and FHLB stock
    
    
    29,230
    
    
    
    183
    
    
    
    2.50
    
    
    
    23,592
    
    
    
    228
    
    
    
    3.87
    
    
    
    27,808
    
    
    
    158
    
    
    
    2.27Loans held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,004
    
    
    
    30
    
    
    
    5.99
    
    
    
    
    
    
    
    
    
    
    
    Loans (collateral-based classification):Commercial loans(1)(3)(4)
    
    
    499,461
    
    
    
    8,777
    
    
    
    7.03
    
    
    
    392,953
    
    
    
    7,677
    
    
    
    7.81
    
    
    
    575,301
    
    
    
    9,834
    
    
    
    6.84Commercial real estate
loans(1)(3)(4)(6)
    
    
    1,632,063
    
    
    
    27,095
    
    
    
    6.64
    
    
    
    1,263,819
    
    
    
    23,522
    
    
    
    7.44
    
    
    
    1,549,216
    
    
    
    29,381
    
    
    
    7.59Agricultural loans(1)(3)(4)
    
    
    5,412
    
    
    
    92
    
    
    
    6.80
    
    
    
    2,849
    
    
    
    56
    
    
    
    7.86
    
    
    
    4,053
    
    
    
    76
    
    
    
    7.50Consumer real estate loans(3)(4)(6)
    
    
    311,796
    
    
    
    4,711
    
    
    
    6.04
    
    
    
    276,542
    
    
    
    4,674
    
    
    
    6.76
    
    
    
    312,435
    
    
    
    5,170
    
    
    
    6.62Consumer installment loans(3)(4)
    
    
    11,098
    
    
    
    195
    
    
    
    7.03
    
    
    
    10,297
    
    
    
    187
    
    
    
    7.26
    
    
    
    12,287
    
    
    
    230
    
    
    
    7.49Total loans
    
    
    2,459,830
    
    
    
    40,870
    
    
    
    6.65
    
    
    
    1,946,460
    
    
    
    36,116
    
    
    
    7.44
    
    
    
    2,453,292
    
    
    
    44,691
    
    
    
    7.29Total interest-earning assets
    
    $
    3,276,965
    
    
    $
    51,687
    
    
    
    6.31
    %
    
    $
    2,665,044
    
    
    $
    45,745
    
    
    
    6.88
    %
    
    $
    3,301,501
    
    
    $
    56,397
    
    
    
    6.84
    %Noninterest-Earning Assets:Cash
    
    $
    55,634
    
    
    
    
    
    
    
    
    
    
    $
    71,088
    
    
    
    
    
    
    
    
    
    
    $
    57,080Premises and equipment, net
    
    
    41,325
    
    
    
    
    
    
    
    
    
    
    
    22,004
    
    
    
    
    
    
    
    
    
    
    
    41,521Allowance for loan losses
    
    
    (27,287
    )
    
    
    
    
    
    
    
    
    
    
    (24,907
    )
    
    
    
    
    
    
    
    
    
    
    (26,924
    )Other assets
    
    
    339,632
    
    
    
    
    
    
    
    
    
    
    
    232,810
    
    
    
    
    
    
    
    
    
    
    
    348,266Total noninterest-earning assets
    
    
    409,304
    
    
    
    
    
    
    
    
    
    
    
    300,995
    
    
    
    
    
    
    
    
    
    
    
    419,943Total assets
    
    $
    3,686,269
    
    
    
    
    
    
    
    
    
    
    $
    2,966,039
    
    
    
    
    
    
    
    
    
    
    $
    3,721,444Interest-Bearing Liabilities:Deposits:Demand deposits
    
    $
    217,515
    
    
    $
    746
    
    
    
    1.37
    %
    
    $
    163,108
    
    
    $
    730
    
    
    
    1.79
    %
    
    $
    218,213
    
    
    $
    983
    
    
    
    1.80
    %Money-market demand and savings accounts
    
    
    411,091
    
    
    
    1,828
    
    
    
    1.78
    
    
    
    378,039
    
    
    
    2,446
    
    
    
    2.59
    
    
    
    439,720
    
    
    
    2,729
    
    
    
    2.48Time deposits less than $100,000
    
    
    847,467
    
    
    
    9,230
    
    
    
    4.36
    
    
    
    731,217
    
    
    
    8,639
    
    
    
    4.73
    
    
    
    827,332
    
    
    
    10,435
    
    
    
    5.05Time deposits of $100,000 or more
    
    
    622,805
    
    
    
    7,285
    
    
    
    4.68
    
    
    
    466,924
    
    
    
    6,084
    
    
    
    5.21
    
    
    
    664,327
    
    
    
    7,430
    
    
    
    4.47Total interest-bearing deposits
    
    
    2,098,878
    
    
    
    19,089
    
    
    
    3.64
    
    
    
    1,739,288
    
    
    
    17,899
    
    
    
    4.12
    
    
    
    2,149,592
    
    
    
    21,577
    
    
    
    4.02Borrowings:Federal funds purchased and repurchase
agreements
    
    
    402,774
    
    
    
    3,993
    
    
    
    3.97
    
    
    
    256,322
    
    
    
    2,858
    
    
    
    4.46
    
    
    
    368,073
    
    
    
    4,116
    
    
    
    4.47FHLB advances
    
    
    315,158
    
    
    
    3,482
    
    
    
    4.42
    
    
    
    319,890
    
    
    
    3,648
    
    
    
    4.56
    
    
    
    323,433
    
    
    
    3,811
    
    
    
    4.71Junior subordinated debentures
    
    
    60,733
    
    
    
    1,045
    
    
    
    6.88
    
    
    
    65,820
    
    
    
    1,301
    
    
    
    7.91
    
    
    
    66,935
    
    
    
    1,325
    
    
    
    7.92Notes payable and subordinated debt
    
    
    76,368
    
    
    
    970
    
    
    
    5.08
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82,717
    
    
    
    1,352
    
    
    
    6.54Total borrowings
    
    
    855,033
    
    
    
    9,490
    
    
    
    4.44
    
    
    
    642,032
    
    
    
    7,807
    
    
    
    4.88
    
    
    
    841,158
    
    
    
    10,604
    
    
    
    5.04Total interest-bearing liabilities
    
    $
    2,953,911
    
    
    $
    28,579
    
    
    
    3.87
    %
    
    $
    2,381,320
    
    
    $
    25,706
    
    
    
    4.32
    %
    
    $
    2,990,750
    
    
    $
    32,181
    
    
    
    4.32
    %Noninterest-Bearing Liabilities:Demand deposits
    
    $
    316,507
    
    
    
    
    
    
    
    
    
    
    $
    256,433
    
    
    
    
    
    
    
    
    
    
    $
    331,239Other liabilities
    
    
    33,248
    
    
    
    
    
    
    
    
    
    
    
    39,503
    
    
    
    
    
    
    
    
    
    
    
    50,816Total noninterest-bearing liabilities
    
    
    349,755
    
    
    
    
    
    
    
    
    
    
    
    295,936
    
    
    
    
    
    
    
    
    
    
    
    382,055Stockholders equity
    
    
    382,603
    
    
    
    
    
    
    
    
    
    
    
    288,783
    
    
    
    
    
    
    
    
    
    
    
    348,639Total liabilities and stockholders equity
    
    $
    3,686,269
    
    
    
    
    
    
    
    
    
    
    $
    2,966,039
    
    
    
    
    
    
    
    
    
    
    $
    3,721,444Net interest income (tax
equivalent)(1)(5)
    
    
    
    
    
    $
    23,108
    
    
    
    2.44
    %
    
    
    
    
    
    $
    20,039
    
    
    
    2.56
    %
    
    
    
    
    
    $
    24,216
    
    
    
    2.52
    %Net interest margin (tax
equivalent)(1)
    
    
    
    
    
    
    
    
    
    
    2.82
    %
    
    
    
    
    
    
    
    
    
    
    3.01
    %
    
    
    
    
    
    
    
    
    
    
    2.93
    %Net interest income(2)(5)
    
    
    
    
    
    $
    22,216
    
    
    
    
    
    
    
    
    
    
    $
    19,060
    
    
    
    
    
    
    
    
    
    
    $
    23,256Net interest margin(2)
    
    
    
    
    
    
    
    
    
    
    2.71
    %
    
    
    
    
    
    
    
    
    
    
    2.86
    %
    
    
    
    
    
    
    
    
    
    
    2.82
    %
 
 (1)
    
    Adjusted for 35% tax rate and the dividends-received deduction where applicable.(2)
    
    Not adjusted for 35% tax rate or for the dividends-received deduction. PAGE 23




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##### Table of Contents



(3)
    
    Nonaccrual loans are included in the average balance; however, these loans are not earning
any interest.(4)
    
    Includes loan fees of $615, $531, and $781 for the three months ended March 31, 2008, March
31, 2007, and December 31, 2007, respectively.(5)
    
    The following table reconciles reported net interest income on a tax equivalent basis for the
periods presented (in thousands): For the three months ended,March 31,
    
    
    March 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2007Net interest income
    
    $
    22,216
    
    
    $
    19,060
    
    
    $
    23,256Tax equivalent adjustment to net interest income
    
    
    892
    
    
    
    979
    
    
    
    960Net interest income, tax equivalent basis
    
    $
    23,108
    
    
    $
    20,039
    
    
    $
    24,216
 
 (6)
    
    Includes construction loans.     
    
    Yields on average earning assets decreased by 57 basis points in the first
quarter of 2008 compared to the first quarter of 2007, but average balances of
earning assets increased by $611.9 million. Yields on average earning assets
decreased by 53 basis points compared to the fourth quarter of 2007, and average
balances decreased by $24.5 million.
    
    Average yields on loans for the first quarter of 2008 decreased by 79 basis
points to 6.65% compared to the same period in 2007 and decreased by 64 basis points
compared to the prior quarter, mainly as a result of the decrease in the prime rate.
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 were $513.4 million
higher in the quarter ended March 31, 2008 than the same period in 2007. Compared
to the fourth quarter of 2007, average loan balances increased $6.5 million.
    
    Yields on average securities increased 4 basis points while balances increased by
$89.0 million in the first quarter of 2008 compared to the similar period in 2007.
Yields on average securities decreased by 16 basis points compared to the fourth
quarter of 2007, and average balances decreased by $42.8 million.
 PAGE 24




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##### Table of Contents




    
    The Companys cost of funds decreased by 45 basis points compared to both the
prior quarter
and same period of 2007, mainly due to the drop in prime and LIBOR rates. Average
interest-bearing liabilities increased by $572.6 million for the first quarter of 2008
compared to the first quarter of 2007 but decreased by $36.8 million compared to the
prior quarter.
    
    Average interest-bearing deposits increased by $359.6 million while average rates
decreased 48 basis points for the first quarter of 2008 compared to the similar
period of 2007. Average rates paid on interest-bearing deposits decreased by 38
basis points and average balances decreased by $50.7 million compared to the fourth
quarter of 2007.
    
    Average interest-bearing demand deposit, money market, and savings accounts
increased by $87.5 million compared to the first quarter of 2007 but decreased by
$29.3 million for the first quarter of 2008 compared to the last quarter of 2007.
The Company continues to focus its marketing efforts to increase core deposits to
alleviate margin pressure.
    
    The costs of average borrowings decreased by 44 basis points in the first quarter
of 2008 compared to the same period in 2007, while average balances increased by
$213.0 million. Average borrowings increased by $13.9 million in the first quarter
of 2008, while yields decreased by 60 basis points to 4.44% compared to the fourth
quarter of 2007.
    
    At the end of the first quarter of 2008, the Company prepaid $130.0 million in
FHLB advances at a weighted average rate of 4.94% and recognized a loss on the early
extinguishment of debt of $7.1 million. The Company replaced these borrowings at a
weighted average rate of approximately 2.57% which will improve the margin in the future.
 Noninterest Income
  
    
    Noninterest income was $1.8 million for the three months ended March 31, 2008, a
decrease of $1.9, or 51.9%, over the comparable period in 2007, and was $2.4 million
lower than the fourth quarter of 2007.
    
    The Company recognized an impairment charge on securities of $17.6 million and a
gain on the sale of property of $15.2 million in the first quarter of 2008.
Excluding the impairment charge on securities and the gain on the sale of property,
noninterest income was $4.2 million for the first quarter of 2008, an increase of
$460,000, or 12.4%, over the comparable period in 2007, and was essentially the same
as at the fourth quarter 2007.
    
    The annualized noninterest income to average assets ratio was 0.20% for the three
months ended March 31, 2008 compared to 0.51% for the same period in 2007 and 0.44%
for the three months ended December 31, 2007. Excluding the impairment charge on
securities and the gain on the sale of property, the annualized noninterest income
to average assets ratio was 0.46% for the first quarter of 2008.
 PAGE 25




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##### Table of Contents




    
    Service charges on deposits increased by $329,000, or 20.1%, to $2.0 million in the
first quarter of 2008 compared to the first quarter of 2007 as a result of the
increased deposit base from the Northwest Suburban acquisition but remained flat
compared to the fourth quarter of 2007.
    
    Trust income increased by $56,000 in the first quarter of 2008 compared to the
same period in 2007 but decreased by $59,000 compared to the fourth quarter of 2007.
    
    Insurance and brokerage commissions for the three months ended March 31, 2008
were basically at the same level as the similar period in 2007 but increased by
$72,000 when compared to the fourth quarter of 2007.
    
    Income from the increase in the cash surrender value of life insurance increased
by $105,000 to $858,000 during the three months ended March 31, 2008 compared to the
similar period in 2007, reflecting the addition of $12.9 million of such insurance
acquired from Northwest Suburban, and was mainly at the same level as the fourth
quarter of 2007.
    
    There were no gains on sales of loans during the first quarter of 2008 compared
with $176,000 in the first quarter of 2007 as a result of outsourcing the
residential mortgage origination operations.
 Noninterest Expenses
  
    
    Total noninterest expenses increased 67.5%, or $11.5 million, to $28.6 million
during the first quarter of 2008 compared to $17.1 million for the similar period in
2007. In comparison to the fourth quarter of 2007, total noninterest expenses
increased $7.2 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 early extinguishment of debt and
merger related charges, total noninterest expense increased by $4.3 million compared
to the first quarter of 2007 and by $1.3 million compared to the fourth quarter of
2008.
    
    The annualized noninterest expenses to average assets ratio was 3.12% for the
three months ended March 31, 2008 compared to 2.34% for the same period in 2007 and
2.28% for the three months ended December 31, 2007. Excluding the loss on the early
extinguishment of debt and merger related charges, the annualized noninterest
expenses to average assets ratio was 2.33% for the first quarter of 2008 and 2.14%
for the fourth quarter of 2007.
    
    Salaries and benefits expense increased by $2.6 million, or 24.8%, during the
first quarter of 2008 compared to the first quarter of 2007, reflecting mostly
additions from the Northwest Suburban acquisition. Salaries and benefits expense
increased by $1.4 million, or 11.8%, compared to the fourth quarter of 2007,
reflecting the annual merit increases, the cyclical first quarter increase in
payroll taxes, and severance accruals.
    
    Occupancy and equipment expense increased by $709,000, or 32.4%, during the first
quarter of 2008 to $2.9 million compared to the similar period in 2007, reflecting
the additional
 PAGE 26




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##### Table of Contents



branch properties acquired from the Northwest Suburban acquisition,
and by $159,000, or 5.8%,
compared to the fourth quarter of 2007, mainly due to building maintenance and
depreciation as well as real estate taxes.
    
    Professional services expense rose by $330,000, or 27.3%, to $1.5 million in the
first quarter of 2008 compared to the first quarter of 2007. Professional services
expense decreased by $319,000, or 17.2%, compared to the fourth quarter of 2007
mainly as a result of lower legal fees related to loan workouts.
    
    Merger related expenses were $114,000 in the first quarter of 2008 and $1.3
million in the fourth quarter of 2007. No merger related expenses were recorded in
the first quarter of 2007
    
    Marketing expenses in the first quarter of 2008 were $103,000 and $38,000 lower
than in the first and fourth quarters of 2007, respectively.
 Income Taxes
    Three Months Ended March 31,2008
    
    
    2007(In thousands)Income taxes computed at the statutory rate
    
    $
    (3,501
    )
    
    
    35.0
    %
    
    $
    1,769
    
    
    
    35.0
    %Tax-exempt interest income on securities and loans
    
    
    (197
    )
    
    
    2.0
    
    
    
    (226
    )
    
    
    (4.5
    )General business credits
    
    
    (130
    )
    
    
    1.3
    
    
    
    (110
    )
    
    
    (2.2
    )State income taxes, net of federal tax benefit due to state operating loss
    
    
    (732
    )
    
    
    7.3
    
    
    
    (241
    )
    
    
    (4.8
    )Life insurance cash surrender value increase, net of premiums
    
    
    (300
    )
    
    
    3.0
    
    
    
    (263
    )
    
    
    (5.2
    )Dividends received deduction
    
    
    (301
    )
    
    
    3.0
    
    
    
    (311
    )
    
    
    (6.1
    )Nondeductible
costs and other, net
    
    
    574
    
    
    
    (5.7
    )
    
    
    24
    
    
    
    0.5(Benefit) provision for income taxes
    
    $
    (4,587
    )
    
    
    45.9
    %
    
    $
    642
    
    
    
    12.7
    %
 PAGE 27




---



##### Table of Contents



Recent Developments
   PAGE 28




---



##### Table of Contents



Financial Condition
  Northwest
    
    
    Excluding NorthwestMarch 31,
    
    
    
    
    
    
    Suburban
    
    
    Suburban Acquisition2008
    
    
    2007
    
    
    $ Change
    
    
    Acquisition(1)
    
    
    $ Change
    
    
    % Change(Dollars in thousands)AssetsCash and cash equivalents(2)
    
    $
    102,495
    
    
    $
    88,638
    
    
    $
    13,857
    
    
    $
    3,342
    
    
    $
    10,515
    
    
    
    12
    %Securities available-for-sale
    
    
    737,089
    
    
    
    639,985
    
    
    
    97,104
    
    
    
    57,597
    
    
    
    39,507
    
    
    
    6Securities held-to-maturity
    
    
    32,674
    
    
    
    43,562
    
    
    
    (10,888
    )
    
    
    
    
    
    
    (10,888
    )
    
    
    (25
    )Total securities
    
    
    769,763
    
    
    
    683,547
    
    
    
    82,216
    
    
    
    57,597
    
    
    
    28,619
    
    
    
    4FRB and FHLB stock, at cost
    
    
    29,264
    
    
    
    23,592
    
    
    
    5,672
    
    
    
    1,503
    
    
    
    4,169
    
    
    
    18Loans held for sale
    
    
    
    
    
    
    3,740
    
    
    
    (3,740
    )
    
    
    
    
    
    
    (3,740
    )
    
    
    (100
    )Loans
    
    
    2,467,701
    
    
    
    1,950,613
    
    
    
    517,088
    
    
    
    439,249
    
    
    
    77,839
    
    
    
    4Allowance for loan loss
    
    
    (20,344
    )
    
    
    (24,028
    )
    
    
    3,684
    
    
    
    (2,767
    )
    
    
    6,451
    
    
    
    (27
    )Net loans
    
    
    2,447,357
    
    
    
    1,926,585
    
    
    
    520,772
    
    
    
    436,482
    
    
    
    84,290
    
    
    
    4Cash surrender value of life insurance
    
    
    82,024
    
    
    
    65,973
    
    
    
    16,051
    
    
    
    12,884
    
    
    
    3,167
    
    
    
    5Premises and equipment
    
    
    38,232
    
    
    
    22,282
    
    
    
    15,950
    
    
    
    19,279
    
    
    
    (3,329
    )
    
    
    (15
    )Foreclosed properties
    
    
    2,527
    
    
    
    2,403
    
    
    
    124
    
    
    
    
    
    
    
    124
    
    
    
    5Core deposit and other intangibles, net
    
    
    16,454
    
    
    
    10,163
    
    
    
    6,291
    
    
    
    8,061
    
    
    
    (1,770
    )
    
    
    (17
    )Goodwill
    
    
    160,407
    
    
    
    79,625
    
    
    
    80,782
    
    
    
    80,550
    
    
    
    232
    
    
    
    Other
    
    
    81,923
    
    
    
    74,083
    
    
    
    7,840
    
    
    
    7,914
    
    
    
    (74
    )
    
    
    Total assets
    
    $
    3,730,446
    
    
    $
    2,980,631
    
    
    $
    749,815
    
    
    $
    627,612
    
    
    $
    122,203
    
    
    
    4
    %Liabilities and Stockholders EquityLiabilitiesNoninterest-bearing
    
    $
    313,727
    
    
    $
    247,548
    
    
    $
    66,179
    
    
    $
    65,299
    
    
    $
    880
    
    
    
    
    %Interest-bearing
    
    
    2,090,985
    
    
    
    1,759,452
    
    
    
    331,533
    
    
    
    405,361
    
    
    
    (73,828
    )
    
    
    (4
    )Total deposits
    
    
    2,404,712
    
    
    
    2,007,000
    
    
    
    397,712
    
    
    
    470,660
    
    
    
    (72,948
    )
    
    
    (4
    )Federal funds purchased
    
    
    184,500
    
    
    
    7,000
    
    
    
    177,500
    
    
    
    6,170
    
    
    
    171,330
    
    
    
    2,448Securities sold under agreements to repurchase
    
    
    394,764
    
    
    
    251,070
    
    
    
    143,694
    
    
    
    
    
    
    
    143,694
    
    
    
    57FHLB advances
    
    
    190,000
    
    
    
    319,897
    
    
    
    (129,897
    )
    
    
    3,500
    
    
    
    (133,397
    )
    
    
    (42
    )Junior subordinated debentures
    
    
    60,741
    
    
    
    65,828
    
    
    
    (5,087
    )
    
    
    10,310
    
    
    
    (15,397
    )
    
    
    (23
    )Notes payable and subordinated debt
    
    
    76,500
    
    
    
    
    
    
    
    76,500
    
    
    
    75,000
    
    
    
    1,500
    
    
    
    100Other
    
    
    38,073
    
    
    
    39,337
    
    
    
    (1,264
    )
    
    
    6,982
    
    
    
    (8,246
    )
    
    
    (21
    )Total liabilities
    
    
    3,349,290
    
    
    
    2,690,132
    
    
    
    659,158
    
    
    
    572,622
    
    
    
    86,536
    
    
    
    3Stockholders EquityPreferred equity
    
    
    43,125
    
    
    
    
    
    
    
    43,125
    
    
    
    
    
    
    
    43,125
    
    
    
    100Common equity
    
    
    336,877
    
    
    
    295,614
    
    
    
    41,263
    
    
    
    54,990
    
    
    
    (13,727
    )
    
    
    (5
    )Accumulated other comprehensive income (loss)
    
    
    1,154
    
    
    
    (5,115
    )
    
    
    6,269
    
    
    
    
    
    
    
    6,269
    
    
    
    123Total stockholders equity
    
    
    381,156
    
    
    
    290,499
    
    
    
    90,657
    
    
    
    54,990
    
    
    
    35,667
    
    
    
    12Total liabilities and
stockholders equity
    
    $
    3,730,446
    
    
    $
    2,980,631
    
    
    $
    749,815
    
    
    $
    627,612
    
    
    $
    122,203
    
    
    
    4
    %
 
 (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. PAGE 29




---



##### Table of Contents




    
    Total assets increased $37.7 million to $3.7 billion, or 1.0%, at March 31, 2008
compared to year end 2007 and up $749.8 million compared to March 31, 2007.
    
    Total loans decreased $6.6 million to $2.5 billion at March 31, 2008 compared to year
end 2007 and increased $517.1 million over the first quarter of 2007. Average loans
increased by $6.5 million during the first quarter of 2008 when compared to the fourth
quarter of 2007. The Companys period ended totals were down
partly due to the sale of $18.0 million of commercial real
estate loan participations related to the Companys largest
borrowers during the first quarter of 2008 and the charge off of
$10.8 million relating to the Large Problem Credit.
    
    The loan to deposit ratio increased to 103% from 101% at December 31, 2007, and was
higher than the 97% figure recorded at March 31, 2007.
    
    Deposits decreased by $53.4 million to $2.4 billion at March 31, 2008 compared to year
end 2007 but increased by $397.7 million when compared to March 31, 2007.
  
    
    The Companys loan quality statistics continue to be adversely affected by the Large
Problem Credit. At March 31, 2008, the Company charged off $10.8 million relating to the
Large Problem Credit, and the remaining total loan exposure was $18.2 million, all of which
is on nonaccrual status.
    
    Nonaccrual loans were 1.90% of total loans at March 31, 2008, down from 1.99% of total
loans at year end and 2.14% at March 31, 2007.
    
    There were no loans over 90 days past due and accruing at March 31, 2008 or December 31,
2007 and $25,000 as of March 31, 2007.
    
    Foreclosed properties increased slightly from $2.2 million at year end to $2.5 million.
    
    Loan delinquencies 30-89 days were 0.82% of loans at March 31, 2008, up from 0.48% at
March 31 and December 31, 2007.
    
    Nonperforming assets were 1.33% of total assets at March 31, 2008, down from 1.39% at
year end and 1.48% at. March 31, 2007
    
    The Company recorded a $5.4 million provision for loan losses for the first quarter of
2008 compared to $645,000 and $1.4 million for the first and fourth quarters of 2007,
respectively.
    
    The allowance for loan losses was 0.82% of total loans as of March 31, 2008, versus
1.08% at year end 2007 and 1.23% at March 31, 2007.
    
    The allowance for loan losses was 0.43 times nonaccrual loans at March 31, 2008, 0.54 at
year end, and 0.58 at March 31, 2007.
 PAGE 30




---



##### Table of Contents



Loans
  March 31,
    
    
    December 31,2008
    
    
    2007(1)% of Gross
    
    
    
    
    
    
    % of GrossAmount
    
    
    Loans
    
    
    Amount
    
    
    Loans(Dollars in thousands)Commercial
    
    $
    1,060,316
    
    
    
    43.0
    %
    
    $
    1,079,631
    
    
    
    43.6
    %Construction
    
    
    447,798
    
    
    
    18.1
    
    
    
    464,583
    
    
    
    18.8Commercial real estate
    
    
    658,123
    
    
    
    26.7
    
    
    
    627,928
    
    
    
    25.4Home equity
    
    
    146,381
    
    
    
    5.9
    
    
    
    142,158
    
    
    
    5.8Other consumer
    
    
    10,837
    
    
    
    0.4
    
    
    
    10,689
    
    
    
    0.4Residential mortgage
    
    
    144,553
    
    
    
    5.9
    
    
    
    149,703
    
    
    
    6.0Total loans, gross
    
    
    2,468,008
    
    
    
    100.0
    %
    
    
    2,474,692
    
    
    
    100.0
    %Net deferred fees
    
    
    (307
    )
    
    
    
    
    
    
    (365
    )Total loans, net
    
    $
    2,467,701
    
    
    
    
    
    
    $
    2,474,327
 
 (1)
    
    Amounts have been reclassified to conform to current period presentation.   
    
    Commercial loans decreased $19.3 million to $1.1 billion, or 43.0% of the loan
portfolio, as of March 31, 2008 from December 31, 2007.
    
    Construction loans decreased by $16.8 million to $447.8 million, or 18.1% of the loan
portfolio, as of March 31, 2008 from $464.6 million at December 31, 2007.
    
    Commercial real estate loans increased by $30.2 million to $658.1 million, or 26.7% of
the loan portfolio, as of March 31, 2008 from $627.9 million at year end.
 
 PAGE 31




---



##### Table of Contents




    
    Home equity loans increased by $4.2 million to $146.4 million as of March 31, 2008 from
$142.2 million at year end.
    
    Residential mortgage loans decreased $5.2 million to $144.6 million as of March 31, 2008
from $149.7 million as of December 31, 2007.
    
    The Company does not hold any sub-prime loans in its portfolio.
  Allowance for Loan Losses
   Three Months EndedMarch 31,2008
    
    
    2007(In thousands)Balance at beginning of period
    
    $
    26,748
    
    
    $
    23,229Provision charged to operations
    
    
    5,400
    
    
    
    645Loans charged off
    
    
    (12,250
    )
    
    
    (446
    )Recoveries
    
    
    446
    
    
    
    600Net loans (charged off) recoveries
    
    
    (11,804
    )
    
    
    154Balance at end of period
    
    $
    20,344
    
    
    $
    24,028
   PAGE 32




---



##### Table of Contents



March 31,
    
    December 31,
    
    March 31,2008
    
    2007
    
    2007Net loans charged off to average loans during quarter
    
    
    1.93
    %
    
    
    0.37
    %
    
    
    (0.03
    )%Provision for loan losses to total loans
    
    
    0.88
    
    
    
    0.23
    
    
    
    0.13Allowance for loan losses to total loans
    
    
    0.82
    
    
    
    1.08
    
    
    
    1.23Allowance to nonaccrual loans
    
    
    0.43
    x
    
    
    0.54
    x
    
    
    0.58
    x
      PAGE 33




---



##### Table of Contents



Nonaccrual Loans and Nonperforming Assets
    March 31,
    
    
    December 31,
    
    
    March 31,2008
    
    
    2007
    
    
    2007(Dollars in thousands)Impaired and other loans 90 days past due
and accruing
    
    $
    
    
    
    $
    
    
    
    $
    25Nonaccrual loans
    
    $
    46,916
    
    
    $
    49,173
    
    
    $
    41,679Foreclosed properties
    
    
    2,527
    
    
    
    2,220
    
    
    
    2,403Total nonperforming assets
    
    $
    49,443
    
    
    $
    51,393
    
    
    $
    44,082Nonaccrual loans to loans
    
    
    1.90
    %
    
    
    1.99
    %
    
    
    2.14
    %Nonperforming assets to loans
and foreclosed properties
    
    
    2.00
    
    
    
    2.08
    
    
    
    2.26Nonperforming assets to assets
    
    
    1.33
    
    
    
    1.39
    
    
    
    1.48
 Securities
  PAGE 34




---



##### Table of Contents



March 31, 2008Held-to-Maturity
    
    
    Available-for-Sale
    
    
    Total% ofAmortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    AmortizedCost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Cost(Dollars in thousands)U.S. Treasury and obligations of
U.S. government-sponsored entities
    
    $
    
    
    
    $
    
    
    
    $
    288,953
    
    
    $
    293,216
    
    
    $
    288,953
    
    
    $
    293,216
    
    
    
    37.63
    %Obligations of states and political subdivisions
    
    
    1,253
    
    
    
    1,274
    
    
    
    60,386
    
    
    
    61,098
    
    
    
    61,639
    
    
    
    62,372
    
    
    
    8.03Mortgage-backed securities
    
    
    31,421
    
    
    
    31,132
    
    
    
    299,163
    
    
    
    297,856
    
    
    
    330,584
    
    
    
    328,988
    
    
    
    43.05Equity securities (1)
    
    
    
    
    
    
    
    
    
    
    67,489
    
    
    
    67,489
    
    
    
    67,489
    
    
    
    67,489
    
    
    
    8.79Other bonds
    
    
    
    
    
    
    
    
    
    
    19,219
    
    
    
    17,430
    
    
    
    19,219
    
    
    
    17,430
    
    
    
    2.50Total
    
    $
    32,674
    
    
    $
    32,406
    
    
    $
    735,210
    
    
    $
    737,089
    
    
    $
    767,884
    
    
    $
    769,495
    
    
    
    100.00
    %
 
 (1)
    
    An impairment charge was recognized on March 31, 2008, as a result the fair value
as of that date became the new cost basis in these securities.    
    
    U.S. Treasury and obligations of U.S. government-sponsored entities increased by $109.6
million to $293.2 million at March 31, 2008 compared to $183.6 million at year end.
    
    U.S. government agency and government-sponsored entity mortgage-backed securities
decreased 21.4%, or $81.2 million, from $379.0 million at December 31, 2007 to $297.9
million at March 31, 2008.
    
    Equity securities increased $1.5 million to $67.5 million at March 31, 2008 from
December 31, 2007. As noted above, the Company recognized an impairment charge of $17.6
million on these equities. Equity securities included capital securities of U.S.
government-sponsored entities.
  PAGE 35




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##### Table of Contents



Cash Surrender Value of Life Insurance
  Deposits and Borrowed Funds
  March 31,
    
    
    December 31,2008
    
    
    2007(In thousands)Noninterest-bearing demand
    
    $
    313,727
    
    
    $
    321,317Interest-bearing demand
    
    
    220,429
    
    
    
    226,225Money-market
    
    
    272,883
    
    
    
    291,501Savings
    
    
    138,246
    
    
    
    129,476Time deposits less than $100,000
    
    
    835,684
    
    
    
    866,770Time deposits of $100,000 or more
    
    
    623,743
    
    
    
    622,859Total interest-bearing deposits
    
    
    2,090,985
    
    
    
    2,136,831Total
    
    $
    2,404,712
    
    
    $
    2,458,148Total core deposits (1).
    
    $
    945,285
    
    
    $
    968,519
 
   
    
    Noninterest-bearing deposits were $313.7 million at March 31, 2008, $7.6 million
less than the $321.3 million level at December 31, 2007.
    
    Over the same period, interest-bearing deposits decreased 2.2%, or $45.8 million
to $2.1 billion at March 31, 2008 compared to December 31, 2007.
    
    Core deposits, which include demand deposit, interest-bearing demand deposit,
money market, and savings accounts, decreased $23.2 million to $945.3 million at
March 31, 2008 from $968.5 million at December 31, 2007.
    
    Certificates of deposit under $100,000 decreased $31.1 million from December 31,
2007 to $835.7 million at March 31, 2008.
    
    Certificates of deposit over $100,000 increased slightly by $884,000 from
December 31, 2007 to $623.7 million at March 31, 2008.
  PAGE 36




---



##### Table of Contents



March 31,
    
    
    December 31,2008
    
    
    2007(In thousands)Federal funds purchased
    
    $
    184,500
    
    
    $
    81,000Securities sold under agreements to repurchase
    
    
    394,764
    
    
    
    283,400Federal Home Loan Bank advances
    
    
    190,000
    
    
    
    323,439Junior subordinated debentures
    
    
    60,741
    
    
    
    60,724Subordinated debt
    
    
    15,000
    
    
    
    Notes payable
    
    
    61,500
    
    
    
    72,500Total
    
    $
    906,505
    
    
    $
    821,063
      PAGE 37




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##### Table of Contents



Capital Resources
      March 31,
    
    
    December 31,2008
    
    
    2007(In thousands)Risk-weighted assets
    
    $
    2,809,173
    
    
    $
    2,811,423Average assets
    
    
    3,686,269
    
    
    
    3,721,444Capital components:Stockholders equity
    
    $
    381,156
    
    
    $
    375,164Plus: Guaranteed trust preferred securities
    
    
    59,000
    
    
    
    59,000Less: Core deposit and other intangibles, net
    
    
    (16,454
    )
    
    
    (17,044
    )Less: Goodwill
    
    
    (160,407
    )
    
    
    (160,407
    )Less: Unrealized (gains) losses on securities, net of tax
    
    
    (1,154
    )
    
    
    13,917Plus: Unrealized losses on equity securities, net of tax
    
    
    
    
    
    
    (11,768
    )Tier I capital
    
    
    262,141
    
    
    
    258,862Allowance for loan losses
    
    
    20,344
    
    
    
    26,748Reserve for unfunded commitments
    
    
    585
    
    
    
    233Qualifying subordinated debt
    
    
    15,000
    
    
    
    Total risk-based capital
    
    $
    298,070
    
    
    $
    285,843
 PAGE 38




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##### Table of Contents



At March 31, 2008Minimum Required
    
    Minimum RequiredActual
    
    for Capital Adequacy
    
    to be Well CapitalizedAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in thousands)Total capital to risk-weighted assets
Company
    
    $
    298,070
    
    
    
    10.6
    %
    
    $
    224,734
    
    
    
    8.0
    %
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    355,272
    
    
    
    12.7
    
    
    
    223,825
    
    
    
    8.0
    
    
    $
    279,782
    
    
    
    10.0
    %Tier I capital to risk-weighted assets
Company
    
    
    262,141
    
    
    
    9.3
    
    
    
    112,367
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    334,342
    
    
    
    12.0
    
    
    
    111,913
    
    
    
    4.0
    
    
    
    167,869
    
    
    
    6.0Tier I capital to average assets
Company
    
    
    262,141
    
    
    
    7.1
    
    
    
    147,451
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    334,342
    
    
    
    9.1
    
    
    
    146,922
    
    
    
    4.0
    
    
    
    183,652
    
    
    
    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 assets
Company
    
    $
    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 assets
Company
    
    
    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 assets
Company
    
    
    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 39




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PAGE 40




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ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
 Interest Rate Sensitivity Analysis
  Change in Net Interest Income Over One Year HorizonGuidelineMarch 31, 2008
    
    December 31, 2007
    
    MaximumDollar
    
    %
    
    Dollar
    
    %
    
    %Change
    
    Change
    
    Change
    
    Change
    
    Change(Dollars in thousands)+200 bp
    
    $
    4,251
    
    
    
    4.62
    %
    
    $
    (2,161
    )
    
    
    (2.36
    )%
    
    
    (10.0
    )%+100 bp
    
    
    2,805
    
    
    
    3.05
    
    
    
    694
    
    
    
    0.76
    
    
    
    -100 bp
    
    
    (1,433
    )
    
    
    (1.56
    )
    
    
    (225
    )
    
    
    (0.25
    )
    
    
    -200 bp
    
    
    (5,610
    )
    
    
    (6.09
    )
    
    
    (3,507
    )
    
    
    (3.83
    )
    
    
    (10.0
    )
   PAGE 41




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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 42




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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 43




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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;
    
    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;
    
    Changes in accounting principles, policies, or guidelines affecting the business
conducted by the Company;
    
    Acts of war or terrorism; and
 PAGE 44




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##### Table of Contents




    
    Other economic, competitive, governmental, regulatory, and technical factors affecting
the Companys operations, products, services, and prices.
   PAGE 45




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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
  PAGE 46




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##### Table of Contents



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 47




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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 2001 Supplemental Executive Retirement Agreement (incorporated by reference
to Registrants Form 10-Q for the quarter ended September 30, 2001, File
No. 001-13735).*10.16
    
    Form of Transitional Employment Agreement (Executive Officer Group) (incorporated by
reference to Registrants Form 10-Q for the quarter ended September 30, 2001, File
No. 001-13735).*10.17
    
    Form of Restricted Stock Award Agreement for Officers, Restricted Stock Grant Notice
for Officers, Incentive and Nonqualified Stock Options Award Agreements, and Stock
Option Grant Notice for Officers (incorporated by reference to Registrants Report
on Form 8-K filed August 29, 2005, File No. 001-13735).*10.18
    
    Form of 2005 Supplemental Executive Retirement Agreement (incorporated by reference
to Registrants Report on Form 8-K filed October 28, 2005, File No. 001-13735).*10.19
    
    Form of Restricted Stock Award Agreement for Non-employee Directors and Restricted
Stock Grant Notice for Non-employee Directors (incorporated by reference to
Registrants Report on Form 8-K filed October 28, 2005, File No. 001-13735).10.21
    
    Lease dated as of April 29, 1976, between 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 as of June 28, 2005 (incorporated by
reference to Registrants Form 8-K dated June 28, 2005, File No. 001-13735).10.29
    
    Midwest Banc Holdings, Inc. Directors Deferred Compensation Plan (incorporated by
reference to Registrants Report on Form 8-K filed December 16, 2005, File
No. 001-13735).*10.30
    
    Amendment to Employment Agreement as of September 28, 2004 between the Company and
the Chief Executive Officer (incorporated by reference to Registrants Report on
Form 8-K filed March 24, 2006, File No. 001-13735).*10.31
    
    Amended and Restated Employment Agreement dated February 8, 2006 by and between
Royal American Bank and Jay Fritz, assumed by the Company as of July 1, 2006
(incorporated by reference to Registrants Report on Form 8-K filed July 7, 2006,
File No. 001-13735).10.32
    
    Lease dated April 1, 1993, by and between Royal American Bank and LaSalle National
Trust, N.A., as amended, assumed by the Company as of July 1, 2006 (incorporated by
reference to Registrants Form 10-Q for the quarter ended September 30, 2006, File
No. 001-13735).
 PAGE 48




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##### Table of Contents



10.33
    
    Lease dated April 19, 1993 by and between Royal American Bank and Hamilton Forsythe
1000 Tower Lane LLC, successor-in-interest to Bensenville Office Venture, as
amended, assumed by the Company as of July 1, 2006 (incorporated by reference to
Registrants Form 10-Q for the quarter ended September 30, 2006, File
No. 001-13735).10.34
    
    Sublease dated January 31, 2006 by and between Royal American Bank and JPMorgan
Chase Bank, National Association, assumed by the Company as of July 1, 2006
(incorporated by reference to Registrants Form 10-Q for the quarter ended
September 30, 2006, File No. 001-13735).10.35
    
    Lease dated January 20, 2006 by and between Royal American Bank and MEG Associates
Limited Partnership, assumed by the Company as of July 1, 2006 (incorporated by
reference to Registrants Form 10-Q for the quarter ended September 30, 2006, File
No. 001-13735).10.36
    
    Lease dated October 28, 1996 by and between Royal American Bank and Tiffany Pointe,
Inc./Marquette Bank, as amended, assumed by the Company as of July 1, 2006
(incorporated by reference to Registrants Form 10-Q for the quarter ended
September 30, 2006, File No. 001-13735).10.37
    
    Lease dated September 24, 1999, by and between Royal American Bank and Moats Office
Properties, Inc., as amended, assumed by the Company as of July 1, 2006
(incorporated by reference to Registrants Form 10-Q for the quarter ended
September 30, 2006, File No. 001-13735).10.38
    
    Lease dated July 14, 2006 by and between Midwest Bank and Trust Company and William
C. Moran (incorporated by reference to Registrants Form 10-Q for the quarter ended
September 30, 2006, File No. 001-13735).*10.39
    
    First Amendment to the Form of 2001 Supplemental Executive Retirement Agreement
(incorporated by reference to Registrants Report on Form 8-K filed October 28,
2005, File No. 001-13735).*10.40
    
    Second Amendment to the Form of 2001 Supplemental Executive Retirement Agreement
(incorporated by reference to Registrants Form 10-Q for the quarter ended
September 30, 2006, File No. 001-13735).*10.41
    
    Form of 2006 Supplemental Executive Retirement Agreement (incorporated by reference
to Registrants Form 10-Q for the quarter ended September 30, 2006, File
No. 001-13735).*10.42
    
    First Amendment to the Form of 2005 Supplemental Executive Retirement Agreement
(incorporated by reference to Registrants Form 10-Q for the quarter ended
September 30, 2006, File No. 001-13735).10.43
    
    Lease dated November 9, 2005 by and between Midwest Bank and Trust Company and
Crossings Commercial, LLC (incorporated by reference to Registrants Form 10-Q for
the quarter ended September 30, 2006, File No. 001-13735).10.44
    
    Lease dated August 17, 2005 by and between Royal American Bank and L.F.A.J.J.
Partners, LLC, assumed by the Company as of July 1, 2006 (incorporated by reference
to Registrants Form 10-Q for the quarter ended March 31, 2007, File No. 001-13735).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).*10.47
    
    Form of 2007 Supplemental Executive Retirement 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).
 PAGE 49




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##### Table of Contents



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.*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, 2006.10.53
    
    Agreement of Purchase and Sale as of March 10, 2008 between the Company and PGG, LLC.10.54
    
    First Amendment to Real Estate Purchase Agreement as of March 26, 2008 between the
Company and PGG, LLC.10.55
    
    Post-closing Occupancy Agreement as of March 28, 2008 between the Company and NMD
Investments, LLC.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.10.57
    
    Second Amendment of Loan Agreement dated April 4, 2007, between the Company and M&I
Marshall & Ilsley Bank.*10.58
    
    Midwest Banc Holdings, Inc. Management Incentive Plan.*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 50




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##### Table of Contents



SIGNATURES
   MIDWEST BANC HOLDINGS, INC.
(Registrant)By:
    /s/ James J. GiancolaJames J. Giancola,President and Chief Executive Officer By:
    /s/ JoAnn Sannasardo LilekJoAnn Sannasardo Lilek,Executive Vice President and
Chief Financial Officer PAGE 51




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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).*10.15
    
    Form of 2001 Supplemental Executive Retirement Agreement
(incorporated by reference to Registrants Form 10-Q for the
quarter ended September 30, 2001, File No. 001-13735).




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##### Table of Contents



*10.16
    
    Form of Transitional Employment Agreement (Executive Officer Group)
(incorporated by reference to Registrants Form 10-Q for the
quarter ended September 30, 2001, File No. 001-13735).*10.17
    
    Form of Restricted Stock Award Agreement for Officers, Restricted
Stock Grant Notice for Officers, Incentive and Nonqualified Stock
Options Award Agreements, and Stock Option Grant Notice for
Officers (incorporated by reference to Registrants Report on
Form 8-K filed August 29, 2005, File No. 001-13735).*10.18
    
    Form of 2005 Supplemental Executive Retirement Agreement
(incorporated by reference to Registrants Report on Form 8-K filed
October 28, 2005, File No. 001-13735).*10.19
    
    Form of Restricted Stock Award Agreement for Non-employee Directors
and Restricted Stock Grant Notice for Non-employee Directors
(incorporated by reference to Registrants Report on Form 8-K filed
October 28, 2005, File No. 001-13735).10.21
    
    Lease dated as of April 29, 1976, between 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 as of June 28, 2005
(incorporated by reference to Registrants Form 8-K dated June 28,
2005, File No. 001-13735).10.29
    
    Midwest Banc Holdings, Inc. Directors Deferred Compensation Plan
(incorporated by reference to Registrants Report on Form 8-K filed
December 16, 2005, File No. 001-13735).*10.30
    
    Amendment to Employment Agreement as of September 28, 2004 between
the Company and the Chief Executive Officer (incorporated by
reference to Registrants Report on Form 8-K filed March 24, 2006,
File No. 001-13735).*10.31
    
    Amended and Restated Employment Agreement dated February 8, 2006 by
and between Royal American Bank and Jay Fritz, assumed by the
Company as of July 1, 2006 (incorporated by reference to
Registrants Report on Form 8-K filed July 7, 2006, File
No. 001-13735).10.32
    
    Lease dated April 1, 1993, by and between Royal American Bank and
LaSalle National Trust, N.A., as amended, assumed by the Company as
of July 1, 2006 (incorporated by reference to Registrants
Form 10-Q for the quarter ended September 30, 2006, File
No. 001-13735).10.33
    
    Lease dated April 19, 1993 by and between Royal American Bank and
Hamilton Forsythe 1000 Tower Lane LLC, successor-in-interest to
Bensenville Office Venture, as amended, assumed by the Company as
of July 1, 2006 (incorporated by reference to Registrants
Form 10-Q for the quarter ended September 30, 2006, File
No. 001-13735).




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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).*10.39
    
    First Amendment to the Form of 2001 Supplemental Executive
Retirement Agreement (incorporated by reference to Registrants
Report on Form 8-K filed October 28, 2005, File No. 001-13735).*10.40
    
    Second Amendment to the Form of 2001 Supplemental Executive
Retirement Agreement (incorporated by reference to Registrants
Form 10-Q for the quarter ended September 30, 2006, File
No. 001-13735).*10.41
    
    Form of 2006 Supplemental Executive Retirement Agreement
(incorporated by reference to Registrants Form 10-Q for the
quarter ended September 30, 2006, File No. 001-13735).*10.42
    
    First Amendment to the Form of 2005 Supplemental Executive
Retirement Agreement (incorporated by reference to Registrants
Form 10-Q for the quarter ended September 30, 2006, File
No. 001-13735).10.43
    
    Lease dated November 9, 2005 by and between Midwest Bank and
Trust Company and Crossings Commercial, LLC (incorporated by
reference to Registrants Form 10-Q for the quarter ended
September 30, 2006, File No. 001-13735).10.44
    
    Lease dated August 17, 2005 by and between Royal American Bank and
L.F.A.J.J. Partners, LLC, assumed by the Company as of July 1, 2006
(incorporated by reference to Registrants Form 10-Q for the
quarter ended March 31, 2007, File No. 001-13735).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).*10.47
    
    Form of 2007 Supplemental Executive Retirement 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).




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##### Table of Contents



*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.*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, 2006.10.53
    
    Agreement of Purchase and Sale as of March 10, 2008 between the
Company and PGG, LLC.10.54
    
    First Amendment to Real Estate Purchase Agreement as of March 26,
2008 between the Company and PGG, LLC.10.55
    
    Post-closing Occupancy Agreement as of March 28, 2008 between the
Company and NMD Investments, LLC.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.10.57
    
    Second Amendment of Loan Agreement dated April 4, 2007, between the
Company and M&I Marshall & Ilsley Bank.*10.58
    
    Midwest Banc Holdings, Inc. Management Incentive Plan.*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.