##### 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, 2006
 Commission File Number: 001-13735
 MIDWEST BANC HOLDINGS, INC.
 (Exact name of Registrant as specified in its charter.)
 Delaware(State or other jurisdiction of
incorporation or organization)
    
    36-3252484(I.R.S. Employer Identification Number)
 501 W. North Ave.
Melrose Park, Illinois
    
    60160(Address of principal executive offices)
    
    (Zip code)
 
 (708) 865-1053  (Registrants telephone number, including area code)
 þ o
  o þ o
 o þ
  Class
    
    Outstanding at May 9, 2006Common, par value $.01
    
    21,933,356




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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
    
    
    16Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    34Item 4. Controls and Procedures
    
    
    35PART IIItem 1. Legal Proceedings
    
    
    39Item 1A. Risk Factors
    
    
    39Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
    
    
    39Item 3. Defaults upon Senior Securities
    
    
    39Item 4. Submission of Matters to a Vote of Security Holders
    
    
    39Item 5. Other Information
    
    
    39Item 6. Exhibits
    
    
    39Form 10-Q Signature Page
    
    
    42Rule 13a-14(a) Certification of Principal Executive OfficerRule 13a-14(a) Certification of Principal Financial OfficerCertification Pursuant to Section 906 from CEO and CFO
  i




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MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
 (Unaudited)March 31,
    
    
    December 31,2006
    
    
    2005ASSETSCash
    
    $
    54,954
    
    
    $
    58,329Federal funds sold and other short-term investments
    
    
    14,965
    
    
    
    12,270Total cash and cash equivalents
    
    
    69,919
    
    
    
    70,599Securities available-for-sale
    
    
    638,273
    
    
    
    687,937Securities held-to-maturity (fair value: $53,742 at March
31, 2006 and $58,332 at December 31, 2005)
    
    
    55,401
    
    
    
    59,451Federal Reserve and Federal Home Loan Bank stock, at cost
    
    
    14,661
    
    
    
    14,661Loans held for sale
    
    
    1,688
    
    
    
    1,912Loans
    
    
    1,403,700
    
    
    
    1,349,996Allowance for loan losses
    
    
    (17,737
    )
    
    
    (17,760
    )Net loans
    
    
    1,385,963
    
    
    
    1,332,236Cash surrender value of life insurance
    
    
    49,922
    
    
    
    44,433Premises and equipment, net
    
    
    22,043
    
    
    
    22,247Other real estate
    
    
    11,036
    
    
    
    11,154Core deposit and other intangibles, net
    
    
    1,681
    
    
    
    1,788Goodwill
    
    
    891
    
    
    
    891Due from broker
    
    
    24,810
    
    
    
    Other assets
    
    
    60,160
    
    
    
    60,299Total assets
    
    $
    2,336,448
    
    
    $
    2,307,608LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesDepositsNoninterest-bearing
    
    $
    161,528
    
    
    $
    158,406Interest-bearing
    
    
    1,455,106
    
    
    
    1,364,978Total deposits
    
    
    1,616,634
    
    
    
    1,523,384Federal funds purchased
    
    
    
    
    
    
    68,000Securities sold under agreements to repurchase
    
    
    217,946
    
    
    
    264,808Advances from the Federal Home Loan Bank
    
    
    200,000
    
    
    
    150,000Junior subordinated debt owed to unconsolidated trusts
    
    
    55,672
    
    
    
    55,672Due to broker
    
    
    
    
    
    
    1,301Other liabilities
    
    
    27,009
    
    
    
    28,317Total liabilities
    
    
    2,117,261
    
    
    
    2,091,482Commitments
and contingencies (see note 11)Stockholders EquityPreferred stock, $.01 par value, 1,000,000 shares authorized;
none issued
    
    
    
    
    
    
    Common
stock, $.01 par value, 32,000,000 shares authorized; 22,257,483 shares issued at March 31, 2006 and
22,139,089 shares issued at December 31, 2005
    
    
    222
    
    
    
    221Additional paid-in capital
    
    
    137,001
    
    
    
    134,857Retained earnings
    
    
    95,431
    
    
    
    92,121Restricted stock
    
    
    (3,331
    )
    
    
    (3,013
    )Accumulated other comprehensive loss
    
    
    (9,682
    )
    
    
    (7,606
    )Treasury stock, at cost (324,627 shares at March 31, 2006
and 325,311 shares at December 31, 2005)
    
    
    (454
    )
    
    
    (454
    )Total stockholders equity
    
    
    219,187
    
    
    
    216,126Total liabilities and stockholders equity
    
    $
    2,336,448
    
    
    $
    2,307,608
 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, 2006 and 2005
(In thousands, except per share data)
 2006
    
    
    2005Interest IncomeLoans
    
    $
    24,387
    
    
    $
    17,242SecuritiesTaxable
    
    
    7,922
    
    
    
    6,714Exempt from federal income taxes
    
    
    819
    
    
    
    94Trading securities
    
    
    
    
    
    
    66Dividend income from Federal Reserve and Federal Home Loan Bank stock
    
    
    137
    
    
    
    195Federal funds sold and other short-term investments
    
    
    94
    
    
    
    221Total interest income
    
    
    33,359
    
    
    
    24,532Interest ExpenseDeposits
    
    
    10,737
    
    
    
    7,753Federal funds purchased
    
    
    248
    
    
    
    51Securities sold under agreements to repurchase
    
    
    2,671
    
    
    
    1,064Advances from the Federal Home Loan Bank
    
    
    1,539
    
    
    
    1,432Junior subordinated debt owed to unconsolidated trusts
    
    
    1,003
    
    
    
    985Note payable
    
    
    
    
    
    
    9Total interest expense
    
    
    16,198
    
    
    
    11,294Net interest income
    
    
    17,161
    
    
    
    13,238Provision for loan losses
    
    
    
    
    
    
    814Net interest income after provision for loan losses
    
    
    17,161
    
    
    
    12,424Noninterest IncomeCustomer service fees
    
    
    1,203
    
    
    
    1,226Net losses on securities transactions
    
    
    (195
    )
    
    
    (256
    )Net trading profits
    
    
    
    
    
    
    13Gains on sales of loans
    
    
    91
    
    
    
    62Insurance and brokerage commissions
    
    
    512
    
    
    
    385Trust
    
    
    77
    
    
    
    67Increase in cash surrender value of life insurance
    
    
    490
    
    
    
    346Gain on extinguishment of debt
    
    
    625
    
    
    
    Other
    
    
    210
    
    
    
    238Total noninterest income
    
    
    3,013
    
    
    
    2,081Noninterest ExpensesSalaries and employee benefits
    
    
    7,482
    
    
    
    6,511Occupancy and equipment
    
    
    1,456
    
    
    
    1,477Professional services
    
    
    1,080
    
    
    
    1,151Other
    
    
    1,867
    
    
    
    1,577Total noninterest expenses
    
    
    11,885
    
    
    
    10,716Income before income taxes and discontinued operations
    
    
    8,289
    
    
    
    3,789Provision for income taxes
    
    
    2,348
    
    
    
    812Income from continuing operations
    
    
    5,941
    
    
    
    2,977Discontinued operationsIncome from discontinued operations before income taxes
    
    
    
    
    
    
    1,632Provision for income taxes
    
    
    
    
    
    
    527Income from discontinued operations
    
    
    
    
    
    
    1,105Net Income
    
    $
    5,941
    
    
    $
    4,082Basic earnings per share from continuing operations
    
    $
    0.27
    
    
    $
    0.16Basic earnings per share from discontinued operations
    
    $
    
    
    
    $
    0.06Basic earnings per share
    
    $
    0.27
    
    
    $
    0.22Diluted earnings per share from continuing operations
    
    $
    0.27
    
    
    $
    0.16Diluted earnings per share from discontinued operations
    
    $
    
    
    
    $
    0.06Diluted earnings per share
    
    $
    0.27
    
    
    $
    0.22Cash dividends declared per common share
    
    $
    0.12
    
    
    $
    0.12
 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, 2006 and 2005
(In thousands, except share and per share data)
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    TotalCommon
    
    
    Paid in
    
    
    Retained
    
    
    Restricted
    
    
    Comprehensive
    
    
    Treasury
    
    
    StockholdersStock
    
    
    Capital
    
    
    Earnings
    
    
    Stock
    
    
    Loss
    
    
    Stock
    
    
    EquityBalance, January 1, 2005
    
    $
    187
    
    
    $
    65,781
    
    
    $
    95,829
    
    
    $
    (2,642
    )
    
    $
    (16,457
    )
    
    $
    (5,275
    )
    
    $
    137,423Cash dividends declared ($0.12 per share)
    
    
    
    
    
    
    
    
    
    
    (2,189
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,189
    )Issuance of common stock upon
exercise of 279,424 stock options,
net of tax benefit
    
    
    
    
    
    
    (35
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,141
    
    
    
    3,106Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    166
    
    
    
    
    
    
    
    
    
    
    
    166Comprehensive lossNet income
    
    
    
    
    
    
    
    
    
    
    4,082
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,082Net decrease in fair value of
securities classified as available-
for-sale, net of income taxes and
reclassification adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,796
    )
    
    
    
    
    
    
    (6,796
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,714
    )Balance, March 31, 2005
    
    $
    187
    
    
    $
    65,746
    
    
    $
    97,722
    
    
    $
    (2,476
    )
    
    $
    (23,253
    )
    
    $
    (2,134
    )
    
    $
    135,792Balance, January 1, 2006
    
    $
    221
    
    
    $
    134,857
    
    
    $
    92,121
    
    
    $
    (3,013
    )
    
    $
    (7,606
    )
    
    $
    (454
    )
    
    $
    216,126Cash dividends declared ($0.12 per share)
    
    
    
    
    
    
    
    
    
    
    (2,631
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,631
    )Issuance of common stock upon
exercise of 89,078 stock options,
net of tax benefit
    
    
    1
    
    
    
    1,492
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,493Issuance of 29,316 shares of restricted
stock
    
    
    
    
    
    
    652
    
    
    
    
    
    
    
    (652
    )
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    334
    
    
    
    
    
    
    
    
    
    
    
    334Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    5,941
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,941Net decrease in fair value of
securities classified as available-
for-sale, net of income taxes and
reclassification adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,076
    )
    
    
    
    
    
    
    (2,076
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,865Balance, March 31, 2006
    
    $
    222
    
    
    $
    137,001
    
    
    $
    95,431
    
    
    $
    (3,331
    )
    
    $
    (9,682
    )
    
    $
    (454
    )
    
    $
    219,187
 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, 2006 and 2005
(In thousands)
 2006
    
    
    2005Cash flows from continuing operating activitiesNet income
    
    $
    5,941
    
    
    $
    4,082Income from discontinued operations
    
    
    
    
    
    
    (1,105
    )Adjustments to reconcile net income to net cash provided by continuing operating
activitiesDepreciation
    
    
    598
    
    
    
    599Provision for loan losses
    
    
    
    
    
    
    814Amortization of other intangibles
    
    
    107
    
    
    
    108Proceeds from sales of trading securities, net
    
    
    
    
    
    
    50Amortization of premiums and discounts on securities, net
    
    
    239
    
    
    
    618Realized loss on sale of available-for-sale securities, net
    
    
    195
    
    
    
    256Net gain on sales of trading securities, net
    
    
    
    
    
    
    (13
    )Net gain on
sales of loans held for sale
    
    
    (91
    )
    
    
    (62
    )Net change in loans held for sale
    
    
    315
    
    
    
    31Increase in cash surrender value of life insurance
    
    
    (490
    )
    
    
    (346
    )Deferred income taxes
    
    
    2,763
    
    
    
    (477
    )Gain on sale of other real estate, net
    
    
    
    
    
    
    (14
    )Amortization of deferred stock based compensation
    
    
    334
    
    
    
    166Change in other assets
    
    
    (948
    )
    
    
    (3,851
    )Change in other liabilities
    
    
    (1,301
    )
    
    
    401Net cash provided by continuing operating activities
    
    
    7,662
    
    
    
    1,257Cash flows from continuing investing activitiesSales of securities available-for-sale
    
    
    
    
    
    
    42,840Maturities of securities available-for-sale
    
    
    
    
    
    
    218Principal payments on securities
    
    
    25,175
    
    
    
    9,085Purchases of securities available-for-sale
    
    
    (2,688
    )
    
    
    (217,197
    )Maturities of securities held-to-maturity
    
    
    1,365
    
    
    
    710Loan originations and principal collections, net
    
    
    (53,930
    )
    
    
    (56,604
    )Proceeds from sale of other real estate
    
    
    321
    
    
    
    620Investment in life insurance
    
    
    (5,000
    )
    
    
    Additions to property and equipment
    
    
    (394
    )
    
    
    (165
    )Net cash used in continuing investing activities
    
    
    (35,151
    )
    
    
    (220,493
    )Cash flows from continuing financing activitiesNet increase (decrease) in deposits
    
    
    93,250
    
    
    
    (4,682
    )Proceeds from borrowings
    
    
    50,000
    
    
    
    2,000Repayments on borrowings
    
    
    
    
    
    
    (2,000
    )Cash dividends paid
    
    
    (2,638
    )
    
    
    (2,149
    )Change in federal funds purchased and securities sold under agreements to repurchase
    
    
    (114,862
    )
    
    
    50,910Proceeds from issuance of common or treasury stock under stock and incentive option
plan
    
    
    1,059
    
    
    
    3,098Net cash provided by continuing financing activities
    
    
    26,809
    
    
    
    47,177Cash flows from discontinued operationsNet cash provided by operating activities of discontinued operations
    
    
    
    
    
    
    3,263Net cash used in investing activities of discontinued operations
    
    
    
    
    
    
    (24,514
    )Net cash provided by financing activities of discontinued operations
    
    
    
    
    
    
    4,408Net cash used in discontinued operations
    
    
    
    
    
    
    (16,843
    )Decrease in cash and cash equivalents
    
    
    (680
    )
    
    
    (188,902
    )Cash and cash equivalents at beginning of period (1)
    
    
    70,599
    
    
    
    243,431Cash and cash equivalents at end of period (2)
    
    $
    69,919
    
    
    $
    54,529(1) Includes following balances from discontinued operations
    
    $
    
    
    
    $
    24,407(2) Includes following balances from discontinued operations
    
    
    
    
    
    
    6,459Supplemental disclosuresCash paid during year for:Interest
    
    $
    15,705
    
    
    $
    12,508Income Taxes
    
    
    
    
    
    
    758Dividends declared not paid
    
    $
    2,631
    
    
    $
    2,189
 See accompanying notes to unaudited consolidated financial statements.
 PAGE 4




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




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   NOTE 3  DISCONTINUED OPERATIONS
   2005Interest income
    
    $
    3,194Interest expense
    
    
    1,311Net interest income
    
    
    1,883Provision for loan losses
    
    
    (383
    )Net interest income after provision for loan losses
    
    
    2,266Noninterest income
    
    
    838Noninterest expense
    
    
    1,472Income before income taxes
    
    
    1,632Provision for income taxes
    
    
    527Income from discontinued operations
    
    $
    1,105
 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, 2006Held-to-Maturity
    
    
    Available-for-Sale
    
    
    TotalAmortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    % ofCost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Portfolio(Dollars in thousands)Obligations of states and
political subdivisions
    
    $
    4,768
    
    
    $
    4,791
    
    
    $
    80,860
    
    
    $
    79,525
    
    
    $
    85,628
    
    
    $
    84,316
    
    
    
    12.06
    %Mortgage-backed securities
    
    
    50,633
    
    
    
    48,951
    
    
    
    499,144
    
    
    
    485,101
    
    
    
    549,777
    
    
    
    534,052
    
    
    
    77.43Equity securities
    
    
    
    
    
    
    
    
    
    
    63,574
    
    
    
    63,386
    
    
    
    63,574
    
    
    
    63,386
    
    
    
    8.95Other bonds
    
    
    
    
    
    
    
    
    
    
    11,049
    
    
    
    10,261
    
    
    
    11,049
    
    
    
    10,261
    
    
    
    1.56Total
    
    $
    55,401
    
    
    $
    53,742
    
    
    $
    654,627
    
    
    $
    638,273
    
    
    $
    710,028
    
    
    $
    692,015
    
    
    
    100.00
    %
 December 31, 2005Held-to-Maturity
    
    
    Available-for-Sale
    
    
    TotalAmortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    % ofCost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Portfolio(Dollars in thousands)U.S. Treasury and obligations of
U.S. government-sponsored entities
    
    $
    
    
    
    $
    
    
    
    $
    24,866
    
    
    $
    24,719
    
    
    $
    24,866
    
    
    $
    24,719
    
    
    
    3.27
    %Obligations of states and
political subdivisions
    
    
    6,138
    
    
    
    6,182
    
    
    
    79,463
    
    
    
    78,350
    
    
    
    85,601
    
    
    
    84,532
    
    
    
    11.26Mortgage-backed securities
    
    
    53,313
    
    
    
    52,150
    
    
    
    521,896
    
    
    
    511,312
    
    
    
    575,209
    
    
    
    563,462
    
    
    
    75.66Equity securities
    
    
    
    
    
    
    
    
    
    
    63,574
    
    
    
    62,930
    
    
    
    63,574
    
    
    
    62,930
    
    
    
    8.36Other bonds
    
    
    
    
    
    
    
    
    
    
    11,054
    
    
    
    10,626
    
    
    
    11,054
    
    
    
    10,626
    
    
    
    1.45Total
    
    $
    59,451
    
    
    $
    58,332
    
    
    $
    700,853
    
    
    $
    687,937
    
    
    $
    760,304
    
    
    $
    746,269
    
    
    
    100.00
    %
 PAGE 7




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  March 31, 2006Less 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
    
    $
    78,360
    
    
    $
    (1,335
    )
    
    $
    
    
    
    $
    
    
    
    $
    78,360
    
    
    $
    (1,335
    )Mortgage-backed securities:U.S. government agencies (1)
    
    
    
    
    
    
    
    
    
    
    682
    
    
    
    (13
    )
    
    
    682
    
    
    
    (13
    )U.S. government-sponsored entities (2)
    
    
    387,388
    
    
    
    (10,452
    )
    
    
    96,442
    
    
    
    (3,594
    )
    
    
    483,830
    
    
    
    (14,046
    )Equity securities (3)
    
    
    53,252
    
    
    
    (322
    )
    
    
    
    
    
    
    
    
    
    
    53,252
    
    
    
    (322
    )Corporate and other debt securities
    
    
    6,516
    
    
    
    (413
    )
    
    
    3,746
    
    
    
    (375
    )
    
    
    10,262
    
    
    
    (788
    )Total available-for-sale
    
    
    525,516
    
    
    
    (12,522
    )
    
    
    100,870
    
    
    
    (3,982
    )
    
    
    626,386
    
    
    
    (16,504
    )Securities held-to-maturity:Obligations of states and political subdivisions
    
    
    999
    
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    999
    
    
    
    (8
    )Mortgage-backed securities:U.S. government agencies (1)
    
    
    11,250
    
    
    
    (207
    )
    
    
    
    
    
    
    
    
    
    
    11,250
    
    
    
    (207
    )U.S. government-sponsored entities (2)
    
    
    7,006
    
    
    
    (83
    )
    
    
    30,682
    
    
    
    (1,393
    )
    
    
    37,688
    
    
    
    (1,476
    )Total held-to-maturity
    
    
    19,255
    
    
    
    (298
    )
    
    
    30,682
    
    
    
    (1,393
    )
    
    
    49,937
    
    
    
    (1,691
    )Total temporarily impaired securities
    
    $
    544,771
    
    
    $
    (12,820
    )
    
    $
    131,552
    
    
    $
    (5,375
    )
    
    $
    676,323
    
    
    $
    (18,195
    )
 
 (1)
    
    Includes obligations of the Government National Mortgage Association (GNMA).(2)
    
    Includes obligations of the Federal Home Loan Mortgage Corporation (FHLMC) and Federal
National Mortgage Association (FNMA).(3)
    
    Includes issues from government-sponsored entities (FNMA and FHLMC).  
    
    The unrealized loss for U.S. government-sponsored entities mortgage-backed
securities relate primarily to debt securities issued by FNMA and FHLMC; each security
has a stated maturity date. FNMA is rated Aa3, AA- and A+ by Moodys, S&P and Fitch,
respectively. FHLMC is rated Aa3 and AA- by Moodys and Fitch, respectively. The
mortgage-backed securities are notes with a weighted average maturity of approximately
23 years and a weighted average interest rate of 4.87%.
    
    The unrealized losses on corporate and other debt securities relate to securities
which were rated A- or better by either Moodys or S&P. These debt securities have a
weighted average maturity of approximately 8 years and a weighted average interest rate
of 4.73%.
  PAGE 8




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 5  LOANS
  March 31,
    
    
    December 31,2006
    
    
    2005% of
    
    
    
    
    
    
    % ofGross
    
    
    
    
    
    
    GrossAmount
    
    
    Loans
    
    
    Amount
    
    
    Loans(Dollars in thousands)Commercial
    
    $
    215,192
    
    
    
    15.3
    %
    
    $
    201,284
    
    
    
    14.9
    %Construction
    
    
    390,041
    
    
    
    27.8
    
    
    
    358,785
    
    
    
    26.6Commercial real estate
    
    
    500,260
    
    
    
    35.7
    
    
    
    496,819
    
    
    
    36.8ConsumerHome equity
    
    
    115,454
    
    
    
    8.2
    
    
    
    115,429
    
    
    
    8.5Other consumer
    
    
    4,546
    
    
    
    0.3
    
    
    
    4,273
    
    
    
    0.3Total consumer
    
    
    120,000
    
    
    
    8.5
    
    
    
    119,702
    
    
    
    8.8Residential mortgage
    
    
    178,918
    
    
    
    12.7
    
    
    
    174,184
    
    
    
    12.9Total loans, gross
    
    
    1,404,411
    
    
    
    100.0
    %
    
    
    1,350,774
    
    
    
    100.0
    %Net deferred fees
    
    
    (711
    )
    
    
    
    
    
    
    (778
    )Total loans, net
    
    $
    1,403,700
    
    
    
    
    
    
    $
    1,349,996Loans held for sale
    
    $
    1,688
    
    
    
    
    
    
    $
    1,912
 NOTE 6  ALLOWANCE FOR LOAN LOSSES
  2006
    
    
    2005(In thousands)Balance, January 1
    
    $
    17,760
    
    
    $
    16,217Provision charged to operations
    
    
    
    
    
    
    814Loans charged off
    
    
    (163
    )
    
    
    (212
    )Recoveries
    
    
    140
    
    
    
    183Balance, March 31
    
    $
    17,737
    
    
    $
    17,002
 PAGE 9




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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, 2006
    
    
    December 31, 2005Gross Carrying
    
    
    Accumulated
    
    
    Net Carrying
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountAmortized intangible assets:Core deposit and other intangibles
    
    $
    3,130
    
    
    $
    (1,449
    )
    
    $
    1,681
    
    
    $
    3,130
    
    
    $
    (1,342
    )
    
    $
    1,788
   Core Depositand OtherGoodwill
    
    
    IntangiblesBalance at beginning of period
    
    $
    891
    
    
    $
    1,788Amortization
    
    
    
    
    
    
    (107
    )Balance at end of period
    
    $
    891
    
    
    $
    1,681
 PAGE 10




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 8  EARNINGS PER SHARE
 March 31,2006
    
    
    2005(In thousands, except per share data)BasicIncome from continuing operations
    
    $
    5,941
    
    
    $
    2,977Income from discontinued operations
    
    
    
    
    
    
    1,105Net income
    
    $
    5,941
    
    
    $
    4,082Weighted average common shares outstanding
    
    
    21,871
    
    
    
    18,147Basic earnings per share from continuing operations
    
    $
    0.27
    
    
    $
    0.16Basic earnings per share from discontinued operations
    
    $
    
    
    
    $
    0.06Basic earnings per share
    
    $
    0.27
    
    
    $
    0.22DilutedIncome from continuing operations
    
    $
    5,941
    
    
    $
    2,977Income from discontinued operations
    
    
    
    
    
    
    1,105Net income
    
    $
    5,941
    
    
    $
    4,082Weighted average common shares outstanding
    
    
    21,871
    
    
    
    18,147Dilutive effect of stock options
    
    
    232
    
    
    
    292Dilutive effect of restricted stock
    
    
    33
    
    
    
    Diluted average common shares
    
    
    22,136
    
    
    
    18,439Diluted earnings per share from continuing operations
    
    $
    0.27
    
    
    $
    0.16Diluted earnings per share from discontinued operations
    
    $
    
    
    
    $
    0.06Diluted earnings per share
    
    $
    0.27
    
    
    $
    0.22
  PAGE 11




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 9  STOCK COMPENSATION AND RESTRICTED STOCK AWARDS
    Weighted Average
    
    
    Weighted AverageNumber of
    
    
    Exercise Price
    
    
    Grant-Date Fair ValueOptions
    
    
    Per Share
    
    
    Per ShareOutstanding at January 1, 2006
    
    
    687,942
    
    
    $
    13.83
    
    
    $
    4.57Granted
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (89,078
    )
    
    
    11.89
    
    
    
    3.66Forfeited
    
    
    (5,375
    )
    
    
    17.14
    
    
    
    6.44Outstanding at March 31, 2006
    
    
    593,489
    
    
    
    14.10
    
    
    
    4.46
  Outstanding
    
    
    ExercisableWeighted AverageRemaining
    
    
    
    
    
    
    Weighted AverageRange of Exercise Price
    
    Number
    
    
    Contractual Life
    
    
    Number
    
    
    Exercise Price$8.50-10.59
    
    
    235,427
    
    
    
    4.28
    
    
    
    235,427
    
    
    $
    9.64$10.75-14.90
    
    
    167,812
    
    
    
    4.00
    
    
    
    167,812
    
    
    
    13.44$18.34-22.03
    
    
    190,250
    
    
    
    7.99
    
    
    
    121,750
    
    
    
    20.97Outstanding at March 31, 2006
    
    
    593,489
    
    
    
    5.07
    
    
    
    524,989
    
    
    
    13.48
 PAGE 12




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   March 31,(In thousands, except per share data)
    
    2005Net income as reported
    
    $
    4,082Deduct: stock-based compensation expense
determined under fair value based method
    
    
    94Pro forma
net income
    
    $
    3,988Basic
earnings per share as reported
    
    $
    0.22Pro forma basic earnings per share
    
    
    0.22Diluted
earnings per share as reported
    
    $
    0.22Pro forma diluted earnings per share
    
    
    0.22
  PAGE 13




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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 January 1, 2006
    
    
    178,700
    
    
    $
    18.97Granted
    
    
    29,316
    
    
    
    22.25Vested
    
    
    (30,000
    )
    
    
    18.71Forfeited
    
    
    
    
    
    
    Outstanding at March 31, 2006
    
    
    178,016
    
    
    
    19.56
  NOTE 10  DERIVATIVE INSTRUMENTS
  PAGE 14




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 11  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
    
    $
    145,664
    
    
    $
    64,859
    
    
    $
    1,214
    
    
    $
    40
    
    
    $
    211,777Consumer real estate
    
    
    17,952
    
    
    
    5,403
    
    
    
    13,916
    
    
    
    38,102
    
    
    
    75,373Consumer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,957
    
    
    
    1,957Commercial
    
    
    65,196
    
    
    
    607
    
    
    
    489
    
    
    
    1,248
    
    
    
    67,540Letters of credit
    
    
    45,441
    
    
    
    10,396
    
    
    
    325
    
    
    
    375
    
    
    
    56,537Commitments to extend credit
    
    
    106,463
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106,463Total commercial commitments
    
    $
    380,716
    
    
    $
    81,265
    
    
    $
    15,944
    
    
    $
    41,722
    
    
    $
    519,647
   NOTE 12  BUSINESS COMBINATION
  PAGE 15




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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 16




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##### Table of Contents



Expand noninterest income.
  PAGE 17




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##### Table of Contents



Results of Operations  Three Months Ended
March 31, 2006 and 2005
  
    
    Basic and diluted earnings per share from continuing operations for the three months
ended March 31, 2006 were $0.27 compared to $0.16 for the comparable period in 2005.
    
    Income from continuing operations for the first quarter of 2006 was $5.9 million, a
99.6% increase when compared to $3.0 million for the first quarter of 2005. This
increase is mainly attributed to the increase in net interest income and noninterest
income.
    
    Net interest income increased 29.6% to $17.2 million in the first quarter of 2006
compared to $13.2 million in the first quarter of 2005 as a result of loan growth and
increased loan rates. The net interest margin was 3.39% for the three months ended
March 31, 2006 compared to 3.01% for the similar period of 2005.
    
    Interest income on loans increased 41.4% to $24.4 million in the first quarter of
2006 compared to $17.2 million for the comparable period in 2005.
    
    The annualized return on average assets from continuing operations for the three
months ended March 31, 2006 was 1.05% compared to 0.54% for the similar period in 2005.
    
    The annualized return on average equity from continuing operations for the three
months ended March 31, 2006 was 11.06% compared to 8.54% for the similar period in
2005.
    
    There was no provision for loan losses in the first quarter of 2006 compared to
$814,000 for the comparable period in 2005. Asset quality improved and the allowance
to nonaccruing loans ratio remained unchanged from December 31, 2005 at 225%.
    
    Excluding losses on securities, noninterest income increased 37.3% to $3.2 million
in the first quarter of 2006 compared to $2.3 million in the first quarter of 2005
primarily as a result of the gain on extinguishment of debt of $625,000 from the
prepayment of a $28.0 million repurchase agreement in the first quarter of 2006.
    
    Noninterest expenses increased 10.9% to $11.9 million in the first quarter of 2006
compared to $10.7 million in the first quarter of 2005.
 
 PAGE 18




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##### Table of Contents




    
    Earnings per share from continuing operations:
 
    
    Basic earnings per share from continuing operations for the three months ended
March 31, 2006 were $0.27 compared to $0.31 for the fourth quarter in 2005.
 
    
    Diluted earnings per share from continuing operations for the three months ended
March 31, 2006 were $0.27 compared to $0.30 for the fourth quarter in 2005.
 
    
    Income from continuing operations for the first quarter of 2006 was $5.9 million, a
10.9% decrease when compared to the $6.7 million for the fourth quarter of 2005.
 
    
    Net interest income slightly decreased by 3.1% to $17.2 million in the first quarter
of 2006 compared to $17.7 million in the fourth quarter of 2005.
    
    Interest income on loans increased 6.1% to $24.4 million in the first quarter of
2006 compared to $23.0 million in the fourth quarter of 2005 as a result of the
increase in rates as well as balances.
    
    The annualized return on average assets from continuing operations for the three
months ended March 31, 2006 was 1.05% compared to 1.18% for the fourth quarter of 2005.
    
    The annualized return on average equity from continuing operations for the three
months ended March 31, 2006 was 11.06% compared to 12.37% for the fourth quarter of
2005.
    
    There was no provision for loan losses in the first quarter of 2006 compared to
$149,000 for the fourth in 2005.
    
    Excluding losses on securities, noninterest income increased 26.4% to $3.2 million
in the first quarter of 2006 compared to $2.5 million in the fourth quarter of 2005
primarily as a result of the gain on extinguishment of debt in the first quarter of
2006.
    
    Noninterest expenses increased 9.4% to $11.9 million in the first quarter of 2006
compared to $10.9 million in the fourth quarter of 2005.
 Net Interest Income
  PAGE 19




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##### Table of Contents



For the Three Months EndedMarch 31, 2006
    
    
    March 31, 2005
    
    
    December 31, 2005Average
    
    
    
    
    
    
    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
    
    $
    9,939
    
    
    $
    94
    
    
    
    3.78
    %
    
    $
    42,645
    
    
    $
    221
    
    
    
    2.07
    %
    
    $
    13,879
    
    
    $
    118
    
    
    
    3.40
    %Securities:Taxable(1)
    
    
    652,066
    
    
    
    8,337
    
    
    
    5.11
    
    
    
    638,409
    
    
    
    7,170
    
    
    
    4.49
    
    
    
    682,325
    
    
    
    8,588
    
    
    
    5.03Exempt from federal income taxes(1)
    
    
    85,601
    
    
    
    1,260
    
    
    
    5.89
    
    
    
    8,481
    
    
    
    144
    
    
    
    6.79
    
    
    
    69,454
    
    
    
    1,029
    
    
    
    5.93Total securities
    
    
    737,667
    
    
    
    9,597
    
    
    
    5.20
    
    
    
    646,890
    
    
    
    7,314
    
    
    
    4.52
    
    
    
    751,779
    
    
    
    9,617
    
    
    
    5.12FRB and FHLB stock
    
    
    14,661
    
    
    
    137
    
    
    
    3.74
    
    
    
    13,830
    
    
    
    195
    
    
    
    5.64
    
    
    
    14,560
    
    
    
    157
    
    
    
    4.31Loans:Commercial loans(1)(3)(4)
    
    
    195,831
    
    
    
    3,704
    
    
    
    7.57
    
    
    
    185,204
    
    
    
    2,705
    
    
    
    5.84
    
    
    
    190,735
    
    
    
    3,492
    
    
    
    7.32Commercial real estate
loans(1)(3)(4)(6)
    
    
    946,846
    
    
    
    17,161
    
    
    
    7.25
    
    
    
    777,386
    
    
    
    12,342
    
    
    
    6.35
    
    
    
    904,757
    
    
    
    16,376
    
    
    
    7.24Agricultural loans(1)(3)(4)
    
    
    2,009
    
    
    
    37
    
    
    
    7.37
    
    
    
    1,237
    
    
    
    20
    
    
    
    6.47
    
    
    
    2,182
    
    
    
    41
    
    
    
    7.52Consumer real estate
loans(3)(4)(6)
    
    
    219,997
    
    
    
    3,475
    
    
    
    6.32
    
    
    
    157,904
    
    
    
    2,185
    
    
    
    5.54
    
    
    
    201,228
    
    
    
    3,079
    
    
    
    6.12Consumer installment
loans(3)(4)
    
    
    4,441
    
    
    
    83
    
    
    
    7.48
    
    
    
    3,738
    
    
    
    71
    
    
    
    7.60
    
    
    
    4,005
    
    
    
    79
    
    
    
    7.89Total loans
    
    
    1,369,124
    
    
    
    24,460
    
    
    
    7.16
    
    
    
    1,125,469
    
    
    
    17,323
    
    
    
    6.16
    
    
    
    1,302,907
    
    
    
    23,067
    
    
    
    7.08Total interest-earning assets
    
    $
    2,131,391
    
    
    $
    34,288
    
    
    
    6.44
    %
    
    $
    1,828,834
    
    
    $
    25,053
    
    
    
    5.48
    %
    
    $
    2,083,125
    
    
    $
    32,959
    
    
    
    6.32
    %Interest-Bearing Liabilities:Deposits:Interest-bearing demand deposits
    
    $
    144,609
    
    
    $
    280
    
    
    
    0.77
    %
    
    $
    195,529
    
    
    $
    727
    
    
    
    1.49
    %
    
    $
    153,319
    
    
    $
    322
    
    
    
    0.84
    %Money-market demand accounts
and savings accounts
    
    
    294,002
    
    
    
    1,215
    
    
    
    1.65
    
    
    
    367,484
    
    
    
    1,585
    
    
    
    1.73
    
    
    
    344,009
    
    
    
    1,455
    
    
    
    1.69Time deposits less than $100,000
    
    
    762,412
    
    
    
    7,075
    
    
    
    3.71
    
    
    
    702,667
    
    
    
    4,978
    
    
    
    2.83
    
    
    
    757,250
    
    
    
    6,639
    
    
    
    3.51Time deposits of $100,000 or more
    
    
    187,239
    
    
    
    2,019
    
    
    
    4.31
    
    
    
    69,971
    
    
    
    419
    
    
    
    2.40
    
    
    
    88,148
    
    
    
    872
    
    
    
    3.96Public funds
    
    
    13,866
    
    
    
    148
    
    
    
    4.27
    
    
    
    8,000
    
    
    
    44
    
    
    
    2.20
    
    
    
    19,018
    
    
    
    182
    
    
    
    3.83Total interest-bearing deposits
    
    
    1,402,128
    
    
    
    10,737
    
    
    
    3.08
    
    
    
    1,343,651
    
    
    
    7,753
    
    
    
    2.32
    
    
    
    1,361,744
    
    
    
    9,470
    
    
    
    2.80Borrowings:Federal funds purchased and
repurchase agreements
    
    
    284,390
    
    
    
    2,919
    
    
    
    4.11
    
    
    
    169,738
    
    
    
    1,115
    
    
    
    2.63
    
    
    
    289,409
    
    
    
    2,628
    
    
    
    3.63FHLB advances
    
    
    170,556
    
    
    
    1,539
    
    
    
    3.61
    
    
    
    118,055
    
    
    
    1,432
    
    
    
    4.85
    
    
    
    150,000
    
    
    
    1,335
    
    
    
    3.56Notes payable and other borrowings
    
    
    55,672
    
    
    
    1,003
    
    
    
    7.21
    
    
    
    56,494
    
    
    
    994
    
    
    
    7.04
    
    
    
    55,672
    
    
    
    952
    
    
    
    6.84Total borrowings
    
    
    510,618
    
    
    
    5,461
    
    
    
    4.28
    
    
    
    344,287
    
    
    
    3,541
    
    
    
    4.12
    
    
    
    495,081
    
    
    
    4,915
    
    
    
    3.96Total interest-bearing liabilities
    
    $
    1,912,746
    
    
    $
    16,198
    
    
    
    3.40
    %
    
    $
    1,687,938
    
    
    $
    11,294
    
    
    
    2.68
    %
    
    $
    1,856,825
    
    
    $
    14,385
    
    
    
    3.08
    %Net interest income (tax
equivalent)(1)(5)
    
    
    
    
    
    $
    18,090
    
    
    
    3.04
    %
    
    
    
    
    
    $
    13,759
    
    
    
    2.80
    %
    
    
    
    
    
    $
    18,574
    
    
    
    3.24
    %Net interest margin (tax
equivalent)(1)
    
    
    
    
    
    
    
    
    
    
    3.39
    %
    
    
    
    
    
    
    
    
    
    
    3.01
    %
    
    
    
    
    
    
    
    
    
    
    3.57
    %Net interest income(2)(5)
    
    
    
    
    
    $
    17,161
    
    
    
    
    
    
    
    
    
    
    $
    13,238
    
    
    
    
    
    
    
    
    
    
    $
    17,716Net interest margin(2)
    
    
    
    
    
    
    
    
    
    
    3.22
    %
    
    
    
    
    
    
    
    
    
    
    2.90
    %
    
    
    
    
    
    
    
    
    
    
    3.40
    %
 
 (1)
    
    Adjusted for 35.0% tax rate in 2006 and 2005 and adjusted for the dividends-received
deduction where applicable.(2)
    
    Not adjusted for 35.0% tax rate in 2006 and 2005 or for the dividends-received deduction.(3)
    
    Nonaccrual loans are included in the average balance; however, these loans are not earning
any interest.(4)
    
    Includes loan fees which are immaterial.(5)
    
    The following table reconciles reported net interest income on a tax equivalent basis for the
periods presented: 1Q06
    
    
    1Q05
    
    
    4Q05Net interest income
    
    $
    17,161
    
    
    $
    13,238
    
    
    $
    17,716Tax equivalent adjustment to net interest income
    
    
    929
    
    
    
    521
    
    
    
    858Net interest income, tax equivalent basis
    
    $
    18,090
    
    
    $
    13,759
    
    
    $
    18,574
 (6)
    
    Includes construction loans.
 PAGE 20




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##### Table of Contents




    
    Yields on average earning assets increased 96 basis points in the first
quarter of 2006 compared to the first quarter of 2005, while average balances on
earning assets increased by $302.6 million. Yields on average earning assets
increased by 12 basis points compared to the fourth quarter of 2005.
    
    Average cash equivalents decreased by $32.7 million compared to March
31, 2005 and by $3.9 million compared to the fourth quarter of 2005, due to more
proactive funds management.
    
    Yields on average loans increased 100 basis points as a result of eight
rate increases from March 31, 2005. Average loans increased by $243.7 million in
the quarter ended March 31, 2006 compared to the same period in 2005. Compared to
the fourth quarter of 2005, yields on average loans increased slightly by 8 basis
points, while average balances increased $66.2 million compared to the fourth
quarter of 2005.
    
    Yields on average securities increased 68 basis points and balances
increased by $90.8 million in the first quarter of 2006 compared to the similar
period in 2005 as a result of investing the cash resulting from the balance sheet
repositioning. Yields on average securities increased slightly by 8 basis points
compared to the fourth quarter of 2005 while average balances decreased by $14.1
million. The securities portfolio will continue to be a source of cash flow for
loan growth.
  
    
    Yields on average interest-bearing liabilities increased by 72 basis points and
the average balances increased $224.8 million in the first quarter of 2006 compared
to the similar period in 2005. Compared to the fourth quarter of 2005, yields on
interest-bearing liabilities increased by 32 basis points and the average balances
increased $55.9 million.
    
    Average interest-bearing deposits increased by $58.5 million while
yields increased 76 basis points compared to the similar period of 2005. Most of
this increase was in certificates of deposit.
    
    Average interest-bearing deposits increased by $40.4 million compared
to the prior quarter, as yields increased by 28 basis points.
 PAGE 21




---



##### Table of Contents




    
    Interest-bearing demand deposit, money market, and savings accounts
decreased by
$124.4 million compared to March 31, 2005 and by $58.7 million compared to December
31, 2005. The Company continues to focus its marketing efforts to
increase core
deposits to alleviate margin pressure.
    
    The migration of demand deposit, interest-bearing demand
deposit, money market and
savings accounts into certificates of deposit and the reliance on more expensive
borrowed funds contributed to the decrease in net interest income and the net
interest margin. Additional modest net interest margin compression might occur in
the second quarter.
    
    Total average borrowings increased by $166.3 million in the first
quarter of 2006 while yields increased by 16 basis points to 4.28% compared to the
first quarter of 2005. The Company increased its FHLB borrowings by $50.0 million
in the first quarter of 2006. Average rates paid on FHLB borrowings declined by
124 basis points to 3.61% compared to the first quarter of 2005. Average Federal
funds and repurchase agreements increased by $114.7 million and yields increased
148 basis points compared to the first quarter of 2005.
    
    Compared to the fourth quarter of 2005, total average borrowings
increased by $15.5 million while yields increased by 32 basis points to 4.28%.
 Noninterest Income
  
    
    The Company recognized a gain on the extinguishment of debt of $625,000
in the first quarter of 2006 as a result of the prepayment of a $28.0 million
repurchase agreement.
    
    Insurance and brokerage commissions increased by $127,000 in the three
months ended March 31, 2006 compared to the similar period in
2005 as a result of
increased brokerage activity. For similar reasons, insurance and brokerage
commission increased by $173,000 compared to the fourth quarter of 2005.
    
    Customer service fees decreased slightly by $23,000 to $1.2 million in
the first quarter of 2006 compared to the first quarter of 2005 and decreased by
$70,000 compared to the fourth quarter of 2005.
    
    Gains on sales of loans increased during the first quarter of 2006 by
46.8% or $29,000 to $91,000 compared to the first quarter of 2005. Compared to the
preceding quarter, gains on sales of loans decreased by $12,000 due to a lower
level of mortgage refinancing volume and the retention of variable rate mortgages
in the portfolio.
    
    Increase in the cash surrender value of life insurance increased by
$144,000 to $490,000 during the three months ended March 31, 2006 compared to the
similar
 PAGE 22




---



##### Table of Contents



period in 2005 as a result of an increase in crediting rates. The increase
was only $12,000 compared to the fourth quarter of 2005. The Company made an
additional purchase of bank owned life insurance of $5.0 million in the first quarter of 2006.
    
    Net losses on securities transactions decreased by $61,000 to $195,000
during the first quarter of 2006 compared to the similar period in 2005; there were
no losses in the fourth quarter of 2005.
 Noninterest Expenses
   
    
    Salaries and benefits expense increased by $971,000, or 14.9%, during
the first quarter of 2006 compared to the first quarter of 2005 reflecting the
additions to management, with the number of full-time equivalent employees
increasing by 32 over the past year. Similarly, salaries and benefits expense
increased by $1.0 million, or 16.1%, compared to the fourth quarter of 2005
reflecting the merit increases in 2006 and the incentive accrual adjustments in
2005.
    
    Occupancy and equipment expense decreased slightly by $21,000 during
the first quarter of 2006 to $1.5 million compared to the similar period in 2005.
Occupancy and equipment expense increased by $463,000 compared to the fourth
quarter of 2005 which included an accrual adjustment for reduced real estate taxes.
    
    Professional services expense declined $71,000, or 6.2%, to $1.1
million in the first quarter of 2006 compared to the first quarter of 2005.
Compared to the three months ended December 31, 2005, professional services expense
decreased by $275,000 reflecting decreases in legal fees related to loan workouts,
consulting fees related to recruiting, and audit expense.
    
    Marketing expenses in the first quarter of 2006 were $61,000 lower than
in the first quarter of 2005, but increased by $180,000 compared to the fourth
quarter of 2005 as a result of increased marketing efforts and a more consistent
marketing strategy.
 PAGE 23




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##### Table of Contents



Income Taxes
  Three Months EndedMarch 31,2006
    
    
    2005(In thousands)Income taxes computed at the statutory rate
    
    $
    2,901
    
    
    $
    1,326Tax-exempt interest income on securities and loans
    
    
    (279
    )
    
    
    (78
    )General business credits
    
    
    (30
    )
    
    
    (30
    )State income taxes, net of federal tax benefit
    
    
    162
    
    
    
    (89
    )Cash surrender value increase, net of premiums
    
    
    (172
    )
    
    
    (121
    )Dividends received deduction
    
    
    (220
    )
    
    
    (186
    )Other
    
    
    (14
    )
    
    
    (10
    )Total provision for income taxes
    
    $
    2,348
    
    
    $
    812
 Financial Condition
  
    
    Total assets increased $28.8 million to $2.3 billion at March 31, 2006 compared to year
end and up $48.7 million compared to March 31, 2005.
    
    Total loans increased 4.0% to $1.4 billion at March 31, 2006 compared to year end 2005
and increased 21.8% over the first quarter of 2005.
    
    Loan to deposit ratio decreased to 86.83% from 88.62% at December 31, 2005, but was
higher than the 77.00% figure recorded at March 31, 2005.
    
    Deposits increased by 6.1% to $1.6 billion in the first quarter of 2006 compared to year
end and increased by 8.0% when compared to the quarter ended March 31, 2005. Deposit growth
was centered in certificates of deposit.
  
    
    The allowance for loan losses was 1.26% of total loans, versus 1.32% at year end and
1.48% at March 31, 2005.
    
    The allowance for loan losses remained constant at 2.25 times nonaccruing loans compared
to year end, but was higher compared to the 1.93 times nonaccruing loans at March 31, 2005.
    
    Nonaccruing loans were reduced to 0.56% of total loans from 0.59% at year end and 0.77%
at March 31, 2005.
 PAGE 24




---



##### Table of Contents




    
    Nonperforming assets declined to 0.81% of total assets from 0.83% at year end and
increased slightly from the 0.76% recorded at March 31, 2005.
 Loans
  March 31,
    
    
    December 31,2006
    
    
    2005% of
    
    
    
    
    
    
    % ofGross
    
    
    
    
    
    
    GrossAmount
    
    
    Loans
    
    
    Amount
    
    
    Loans(Dollars in thousands)Commercial
    
    $
    215,192
    
    
    
    15.3
    %
    
    $
    201,284
    
    
    
    14.9
    %Construction
    
    
    390,041
    
    
    
    27.8
    
    
    
    358,785
    
    
    
    26.6Commercial real estate
    
    
    500,260
    
    
    
    35.7
    
    
    
    496,819
    
    
    
    36.8ConsumerHome equity
    
    
    115,454
    
    
    
    8.2
    
    
    
    115,429
    
    
    
    8.5Other consumer
    
    
    4,546
    
    
    
    0.3
    
    
    
    4,273
    
    
    
    0.3Total consumer
    
    
    120,000
    
    
    
    8.5
    
    
    
    119,702
    
    
    
    8.8Residential mortgage
    
    
    178,918
    
    
    
    12.7
    
    
    
    174,184
    
    
    
    12.9Total loans, gross
    
    
    1,404,411
    
    
    
    100.0
    %
    
    
    1,350,774
    
    
    
    100.0
    %Net deferred fees
    
    
    (711
    )
    
    
    
    
    
    
    (778
    )Total loans, net
    
    $
    1,403,700
    
    
    
    
    
    
    $
    1,349,996Loans held for sale
    
    $
    1,688
    
    
    
    
    
    
    $
    1,912
  
    
    Commercial loans increased $13.9 million to $215.2 million as of March 31, 2006 from
$201.3 million as of December 31, 2005.
    
    Construction loans increased by $31.3 million to $390.0 million as of March 31, 2006
from $358.8 million at December 31, 2005.
    
    Commercial real estate loans rose to $500.3 million at March 31, 2006 compared to $496.8
million at December 31, 2005.
    
    Consumer loans remained flat at $120.0 million as of March 31, 2006 compared to December
31, 2005.
    
    Residential mortgage loans increased $4.7 million to $178.9 million as of March 31, 2006
from $174.2 million as of December 31, 2005, as conforming adjustable-rate and hybrid
mortgages are retained rather than sold in secondary market.
  PAGE 25




---



##### Table of Contents




    
    The primary risks associated with commercial loans are the quality of the borrowers
management, financial strength and cash flow resources, and the impact of local economic
factors.
    
    Risks associated with real estate loans include concentrations of loans in a certain
loan type, such as commercial or residential, and fluctuating land and property values.
    
    Consumer loans also have risks associated with concentrations of loans in a single type
of loan, as well as the risk a borrower may become unemployed as a result of deteriorating
economic conditions.
 Allowance for Loan Losses
   2006
    
    
    2005(In thousands)Balance, January 1
    
    $
    17,760
    
    
    $
    16,217Provision charged to operations
    
    
    
    
    
    
    814Loans charged off
    
    
    (163
    )
    
    
    (212
    )Recoveries
    
    
    140
    
    
    
    183Balance, March 31
    
    $
    17,737
    
    
    $
    17,002
   PAGE 26




---



##### Table of Contents



March 31,
    
    December 31,
    
    March 31,2006
    
    2005
    

2005Net loans charged off to average loans during quarter
    
    
    0.01
    %
    
    
    0.12
    %
    
    
    0.01
    %Provision for loan losses to total loans
    
    
    0.00
    
    
    
    0.04
    
    
    
    0.29Allowance for loan losses to total loans
    
    
    1.26
    
    
    
    1.32
    
    
    
    1.48Allowance to
nonaccruing loans
    
    
    2.25
    x
    
    
    2.25
    x
    
    
    1.93
    x
 PAGE 27




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##### Table of Contents



Nonaccruing Loans and Nonperforming Assets
    March 31,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Impaired and other loans 90 days past due
and accruing
    
    $
    15
    
    
    $
    4Nonaccrual and impaired loans not accruing
    
    $
    7,888
    
    
    $
    7,905Other real estate
    
    
    11,036
    
    
    
    11,154Total nonperforming assets
    
    $
    18,924
    
    
    $
    19,059Total nonaccruing loans to total loans
    
    
    0.56
    %
    
    
    0.59
    %Total nonperforming assets to total loans
and other real estate
    
    
    1.34
    
    
    
    1.40Total nonperforming assets to total assets
    
    
    0.81
    
    
    
    0.83
 Securities
  PAGE 28




---



##### Table of Contents



March 31, 2006Held-to-Maturity
    
    
    Available-for-Sale
    
    
    TotalAmortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    % ofCost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Portfolio(Dollars in thousands)Obligations of states and
political subdivisions
    
    $
    4,768
    
    
    $
    4,791
    
    
    $
    80,860
    
    
    $
    79,525
    
    
    $
    85,628
    
    
    $
    84,316
    
    
    
    12.06
    %Mortgage-backed securities
    
    
    50,633
    
    
    
    48,951
    
    
    
    499,144
    
    
    
    485,101
    
    
    
    549,777
    
    
    
    534,052
    
    
    
    77.43Equity securities
    
    
    
    
    
    
    
    
    
    
    63,574
    
    
    
    63,386
    
    
    
    63,574
    
    
    
    63,386
    
    
    
    8.95Other bonds
    
    
    
    
    
    
    
    
    
    
    11,049
    
    
    
    10,261
    
    
    
    11,049
    
    
    
    10,261
    
    
    
    1.56Total
    
    $
    55,401
    
    
    $
    53,742
    
    
    $
    654,627
    
    
    $
    638,273
    
    
    $
    710,028
    
    
    $
    692,015
    
    
    
    100.00
    %
   
    
    The Company has changed the mix of its securities portfolio through the sale of U.S.
government-sponsored entity notes in the fourth quarter of 2004 and the first half of 2005
and the investment in mortgage-backed securities to increase liquidity to fund loans. The
Company has established a limit on the duration of all purchases to a maximum of 7 years
and on the premium paid to a maximum of 1% of the underlying principal (price of $101) for
mortgage-backed securities. These limits were set to reduce the prepayment risk in a
declining interest rate environment.
    
    Cash flow from principal payments of $25.2 million received on mortgage-backed
securities in the available-for-sale and held-to-maturity portfolios were used to fund loan
growth during the first quarter of 2006.
    
    U.S. government agency and government-sponsored entity mortgage-backed securities
decreased 5.1%, or $26.2 million, from $511.3 million at December 31, 2005 to $485.1
million at March 31, 2006.
    
    Equity securities increased $456,000 to $63.4 million at March 31, 2006 from December
31, 2005 as a result of the increase in fair value. Equity securities included capital
securities of U.S. government-sponsored entities.
    
    Obligations of state and political subdivisions increased $1.2 million to $79.5 million
at March 31, 2006 from December 31, 2005.
    
    Other bonds decreased $365,000 to $10.3 million at March 31, 2006 compared to $10.6
million at December 31, 2005. Other bonds include high grade corporate bonds primarily
issued by financial institutions.
   PAGE 29




---



##### Table of Contents



Other Assets
  Deposits and Borrowed Funds
  
    
    Noninterest-bearing deposits were $161.5 million at March 31, 2006,
approximately $3.1 million more than the $158.4 million level at December 31, 2005.
    
    Over the same period, interest-bearing deposits increased 6.6%, or
$90.1 million to $1.5 billion at March 31, 2006 compared to December 31, 2005.
    
    Core deposits, which include demand deposit, interest-bearing demand
deposit, money market, and savings accounts, decreased $23.4 million to $597.6
million at March 31, 2006 from $621.0 million at December 31, 2005.
    
    Certificates of deposit under $100,000 increased $7.7 million from
December 31, 2005 to $759.7 million at March 31, 2006.
    
    Certificates of deposit over $100,000 and public funds increased $109.0
million from December 31, 2005 to $259.3 million at March 31, 2006. The majority
of the increase was a result of increased brokered certificates of deposit coupled
with the migration of balances in core deposits to certificates of
deposits as a result of the increase in rates.
  PAGE 30




---



##### Table of Contents



2006
    
    
    2005(In thousands)Federal funds purchased
    
    $
    
    
    
    $
    68,000Securities sold under agreements to
repurchase
    
    
    217,946
    
    
    
    264,808Federal Home Loan Bank advances
    
    
    200,000
    
    
    
    150,000Junior subordinated debt owed to
unconsolidated trusts
    
    
    55,672
    
    
    
    55,672Total
    
    $
    473,618
    
    
    $
    538,480
    Capital Resources
    PAGE 31




---



##### Table of Contents



At March 31, 2006Minimum 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
    
    $
    297,846
    
    
    
    17.5
    %
    
    $
    135,914
    
    
    
    8.0
    %
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    213,816
    
    
    
    12.7
    
    
    
    135,099
    
    
    
    8.0
    
    
    $
    168,874
    
    
    
    10.0
    %Tier I capital to risk-weighted assets
Company
    
    
    280,109
    
    
    
    16.5
    
    
    
    67,957
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    196,079
    
    
    
    11.6
    
    
    
    67,549
    
    
    
    4.0
    
    
    
    101,324
    
    
    
    6.0Tier I capital to average assets
Company
    
    
    280,109
    
    
    
    12.2
    
    
    
    92,137
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    196,079
    
    
    
    8.6
    
    
    
    91,663
    
    
    
    4.0
    
    
    
    114,579
    
    
    
    5.0
 At December 31, 2005Minimum 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
    
    $
    292,168
    
    
    
    18.1
    %
    
    $
    129,381
    
    
    
    8.0
    %
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    205,866
    
    
    
    12.8
    
    
    
    128,844
    
    
    
    8.0
    
    
    $
    161,055
    
    
    
    10.0
    %Tier I capital to risk-weighted assets
Company
    
    
    274,408
    
    
    
    17.0
    
    
    
    64,691
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    188,106
    
    
    
    11.7
    
    
    
    64,422
    
    
    
    4.0
    
    
    
    96,633
    
    
    
    6.0Tier I capital to average assets
Company
    
    
    274,408
    
    
    
    12.2
    
    
    
    90,083
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    188,106
    
    
    
    8.4
    
    
    
    89,635
    
    
    
    4.0
    
    
    
    112,044
    
    
    
    5.0
 PAGE 32




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##### Table of Contents



Liquidity
      PAGE 33




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##### Table of Contents



ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
 Interest Rate Sensitivity Analysis
  Change in Net Interest Income Over One Year HorizonMarch 31, 2006
    
    December 31, 2005
    
    GuidelineMaximumDollar
    
    %
    
    Dollar
    
    %
    
    %Change
    
    Change
    
    Change
    
    Change
    
    Change(Dollars in thousands)+200 bp
    
    $
    87
    
    
    
    0.13
    %
    
    $
    167
    
    
    
    0.26
    %
    
    
    (15.0
    )%+100 bp
    
    
    97
    
    
    
    0.15
    
    
    
    99
    
    
    
    0.15
    
    
    
    (15.0
    )-100 bp
    
    
    1,121
    
    
    
    1.72
    
    
    
    696
    
    
    
    1.09
    
    
    
    (15.0
    )-200 bp
    
    
    (1,858
    )
    
    
    (2.85
    )
    
    
    (3,481
    )
    
    
    (5.44
    )
    
    
    (15.0
    )
    PAGE 34




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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 35




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##### Table of Contents



SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
     
    
    Managements ability to reduce and effectively manage interest rate risk and the impact
of interest rates in general on the volatility of the Companys net interest income;
    
    Fluctuations in the value of the Companys investment securities;
    
    The ability to attract and retain senior management experienced in banking and
financial services;
    
    The sufficiency of allowances for loan losses to absorb the amount of actual losses
inherent in the existing portfolio of loans;
    
    The Companys ability to adapt successfully to technological changes to compete
effectively in the marketplace;
    
    Credit risks and risks from concentrations (by geographic area and by industry) within
the
 PAGE 36




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##### Table of Contents



Banks loan portfolio and individual large loans;
    
    The effects of competition from other commercial banks, thrifts, mortgage banking
firms, consumer finance companies, credit unions, securities brokerage firms, insurance
companies, money market and other mutual funds, and other financial institutions operating
in the Companys market or elsewhere or providing similar services;
    
    The failure of assumptions underlying the establishment of allowances for loan losses
and estimation of values of collateral and various financial assets and liabilities;
    
    Volatility of rate sensitive deposits;
    
    Operational risks, including data processing system failures or fraud;
    
    Asset/liability matching risks and liquidity risks;
    
    The ability to successfully acquire low cost deposits or funding;
    
    The ability to successfully execute strategies to increase noninterest income;
    
    The ability to successfully to grow non-commercial real estate loans;
    
    The ability of the Company to consummate the acquisition of Royal American Corporation
and to successfully integrate the Royal American Corporation acquisition once closed;
    
    The ability of the Company to fully realize expected cost savings and revenues in
connection with the Royal American Corporation acquisition, or the ability to realize them
on a timely basis;
    
    The risk of borrower, depositor, and other customer attrition after the Royal American
Corporation acquisition is 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 liabilities arising from legal or administrative proceedings on the
financial condition of the Company;
    
    Possible administrative or enforcement actions of banking regulators in connection with
any material failure of the Bank to comply with banking laws, rules or regulations;
    
    Possible administrative or enforcement actions of the Securities and Exchange
Commission (the SEC) in connection with the SEC inquiry of the restatement of the
Companys September 30, 2002 financial statements;
    
    Governmental monetary and fiscal policies, as well as legislative and regulatory
changes, that may result in the imposition of costs and constraints on the Company through
higher FDIC insurance premiums, significant fluctuations in market interest rates,
increases in capital
 PAGE 37




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##### Table of Contents



requirements, and operational limitations;
    
    Changes in general economic or industry conditions, nationally or in the communities in
which the Company conducts business;
    
    Changes in accounting principles, policies, or guidelines affecting the businesses
conducted by the Company;
    
    Acts of war or terrorism; and
    
    Other economic, competitive, governmental, regulatory, and technical factors affecting
the Companys operations, products, services, and prices.
   PAGE 38




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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
  
 Item 5. Other Information
  
 Item 6. Exhibits
  2.1
    
    Stock Purchase Agreement between Western Illinois Bancshares, Inc. and
Midwest Banc Holdings, Inc. (incorporated by reference to Registrants
Report on Form 8-K filed June 1, 2005, File No. 001-13735).2.2
    
    Amendment to Stock Purchase Agreement between Western Illinois
Bancshares, Inc. and Midwest Banc Holdings, Inc. (incorporated by
reference to Registrants Form 10-Q for the quarter ended June 30,
2005, File No. 001-13735).2.3
    
    Second Amendment to Stock Purchase Agreement between Western Illinois
Bancshares, Inc. and Midwest Banc Holdings, Inc. (incorporated by
reference to Registrants Report on Form 8-K filed August 29, 2005,
File No. 001-13735).2.4
    
    Third Amendment to Stock Purchase Agreement between Western Illinois
Bancshares, Inc. and Midwest Banc Holdings, Inc. (incorporated by
reference to Registrants Report on Form 8-K filed October 5, 2005,
File No. 001-13735).
 PAGE 39




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##### Table of Contents



2.5
    
    Fourth Amendment to Stock Purchase Agreement between Western
Illinois Bancshares, Inc. and Midwest Banc Holdings, Inc.
(incorporated by reference to Registrants Report on Form 8-K filed
November 3, 2005, File No. 001-13735).2.6
    
    Agreement and Plan of Merger, dated as of February 8, 2006, by and
between Midwest Banc Holdings, Inc. and Royal American Corporation
(incorporated by reference to Registrants Report on Form 8-K filed
February 8, 2006, File No. 001-13735).2.7
    
    Form of Stockholder Voting Agreement, dated as of February 8, 2006,
by and among Midwest Banc Holdings, Inc. and certain stockholders
of Royal American Corporation (incorporated by reference to
Registrants Report on Form 8-K filed February 8, 2006, File No.
001-13735).3.1
    
    Amended and Restated Certificate of Incorporation, as amended
(incorporated by reference to Registrants Form 10-Q for the
quarter ended June 30, 2005, File No. 001-13735).3.2
    
    Amended and Restated By-laws, filed September 27, 2005
(incorporated by reference to Registrants Report on Form 8-K filed
September 27, 2005, File No. 001-13735).4.1
    
    Specimen Common Stock Certificate (incorporated by reference to
Registrants Registration Statement on Form S-1, Registration No.
333-42827).4.2
    
    Certain instruments defining the rights of the holders of long-term
debt of the Company and certain of its subsidiaries, none of which
authorize a total amount of indebtedness in excess of 10% of the
total assets of the Company and its subsidiaries on a consolidated
basis, have not been filed as Exhibits. The Company hereby agrees
to furnish a copy of any of these agreements to the SEC upon
request.*10.1
    
    Midwest Banc Holdings, Inc. Stock and Incentive Plan (incorporated
by reference to Registrants Proxy Statement filed April 13, 2005,
Registration No. 001-13735).*10.4
    
    Form of Transitional Employment Agreements (incorporated by
reference to Registrants Registration Statement on Form S-1,
Registration No. 333-42827).10.5
    
    Lease dated as of December 24, 1958, between Western National Bank
of Cicero and Midwest Bank and Trust Company, as amended
(incorporated by reference to Registrants Registration Statement
on Form S-1, Registration No. 333-42827).10.6
    
    Britannica Centre Lease, dated as of May 1, 1994, between Chicago
Title and Trust Company, as Trustee under Trust Agreement dated
November 2, 1977 and known as Trust No. 1070932 and Midwest Bank
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 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
 PAGE 40




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##### Table of Contents



Notice for Officers, Incentive and Nonqualified Stock
Options Award Agreements, and Stock Option Grant Notice for
Officers (incorporated by reference to Registrants Report on Form
8-K filed August 29, 2005, File No. 001-13735).*10.18
    
    Form of Supplemental Executive Retirement Agreement and First
Amendment to the Form of Supplemental Executive Retirement
Agreement (incorporated by reference to Registrants Report on Form
8-K filed October 28, 2005, File No. 001-13735).10.19
    
    Form of Restricted Stock Award Agreement for Non-employee Directors
and Restricted Stock Grant Notice for Non-employee Directors
(incorporated by reference to Registrants Report on Form 8-K filed
October 28, 2005, File No. 001-13735).10.21
    
    Lease dated as of April 29, 1976, between Sanfilippo, Joseph C. and
Grace Ann and Fairfield Savings and Loan Association, as amended
(incorporated by reference to Registrants Form 10-K for the year
ended December 31, 2003, File No. 001-13735).10.22
    
    Lease dated as of August 28, 2002 between Glen Oak Plaza and
Midwest Bank and Trust Company (incorporated by reference to
Registrants Form 10-K for the year ended December 31, 2003, File
No. 001-13735).10.24
    
    Loan Agreement as of March 24, 2006, between the Company and M&I
Marshall & Ilsley Bank (incorporated by reference to Registrants
Report on Form 8-K filed March 24, 2006, File No. 001-13735).10.25
    
    Employment Agreement as of September 28, 2004 between the Company
and the Chief Executive Officer (incorporated by reference to
Registrants Form 10-Q for the quarter ended September 30, 2004,
File No. 001-13735).10.26
    
    Retirement Agreement as of September 28, 2004 between the Company
and retiring Chief Executive Officer (incorporated by reference to
Registrants Form 10-Q for the quarter ended September 30, 2004,
File No. 001-13735).10.27
    
    Midwest Banc Holdings, Inc. Severance Policy as of June 28, 2005
(incorporated by reference to Registrants Report on 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).31.1
    
    Rule 13a-14(a) Certification of Principal Executive Officer.31.2
    
    Rule 13a-14(a) Certification of Principal Financial Officer.32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, from the
Companys Chief Executive Officer and Chief Financial Officer.
 
 *
    
    Indicates management contracts or compensatory plans or arrangements required to be filed as
an exhibit. PAGE 41




---



##### Table of Contents



SIGNATURES
   MIDWEST BANC HOLDINGS, INC.(Registrant)By:
    
    /s/ James J. GiancolaJames J. Giancola,President and Chief Executive OfficerBy:
    
    /s/ Daniel R. KadolphDaniel R. Kadolph,Senior Vice President
and Chief Financial Officer
 PAGE 42




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##### Table of Contents



2.1
    
    Stock Purchase Agreement between Western Illinois Bancshares, Inc.
and Midwest Banc Holdings, Inc. (incorporated by reference to
Registrants Report on Form 8-K filed June 1, 2005, File No.
001-13735).2.2
    
    Amendment to Stock Purchase Agreement between Western Illinois
Bancshares, Inc. and Midwest Banc Holdings, Inc. (incorporated by
reference to Registrants Form 10-Q for the quarter ended June 30,
2005, File No. 001-13735).2.3
    
    Second Amendment to Stock Purchase Agreement between Western
Illinois Bancshares, Inc. and Midwest Banc Holdings, Inc.
(incorporated by reference to Registrants Report on Form 8-K filed
August 29, 2005, File No. 001-13735).2.4
    
    Third Amendment to Stock Purchase Agreement between Western
Illinois Bancshares, Inc. and Midwest Banc Holdings, Inc.
(incorporated by reference to Registrants Report on Form 8-K filed
October 5, 2005, File No. 001-13735).2.5
    
    Fourth Amendment to Stock Purchase Agreement between Western
Illinois Bancshares, Inc. and Midwest Banc Holdings, Inc.
(incorporated by reference to Registrants Report on Form 8-K filed
November 3, 2005, File No. 001-13735).2.6
    
    Agreement and Plan of Merger, dated as of February 8, 2006, by and
between Midwest Banc Holdings, Inc. and Royal American Corporation
(incorporated by reference to Registrants Report on Form 8-K filed
February 8, 2006, File No. 001-13735).2.7
    
    Form of Stockholder Voting Agreement, dated as of February 8, 2006,
by and among Midwest Banc Holdings, Inc. and certain stockholders
of Royal American Corporation (incorporated by reference to
Registrants Report on Form 8-K filed February 8, 2006, File No.
001-13735).3.1
    
    Amended and Restated Certificate of Incorporation, as amended
(incorporated by reference to Registrants Form 10-Q for the
quarter ended June 30, 2005, File No. 001-13735).3.2
    
    Amended and Restated By-laws, filed September 27, 2005
(incorporated by reference to Registrants Report on Form 8-K filed
September 27, 2005, File No. 001-13735).4.1
    
    Specimen Common Stock Certificate (incorporated by reference to
Registrants Registration Statement on Form S-1, Registration No.
333-42827).4.2
    
    Certain instruments defining the rights of the holders of long-term
debt of the Company and certain of its subsidiaries, none of which
authorize a total amount of indebtedness in excess of 10% of the
total assets of the Company and its subsidiaries on a consolidated
basis, have not been filed as Exhibits. The Company hereby agrees
to furnish a copy of any of these agreements to the SEC upon
request.*10.1
    
    Midwest Banc Holdings, Inc. Stock and Incentive Plan (incorporated
by reference to Registrants Proxy Statement filed April 13, 2005,
Registration No. 001-13735).*10.4
    
    Form of Transitional Employment Agreements (incorporated by
reference to Registrants Registration Statement on Form S-1,
Registration No. 333-42827).10.5
    
    Lease dated as of December 24, 1958, between Western National Bank
of Cicero and Midwest Bank and Trust Company, as amended
(incorporated by reference to




---



##### Table of Contents



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 Supplemental Executive Retirement Agreement (incorporated
by reference to Registrants Form 10-Q for the quarter ended
September 30, 2001, File No. 001-13735).*10.16
    
    Form of Transitional Employment Agreement (Executive Officer Group)
(incorporated by reference to Registrants Form 10-Q for the
quarter ended September 30, 2001, File No. 001-13735).10.17
    
    Form of Restricted Stock Award Agreement for Officers, Restricted
Stock Grant Notice for Officers, Incentive and Nonqualified Stock
Options Award Agreements, and Stock Option Grant Notice for
Officers (incorporated by reference to Registrants Report on Form
8-K filed August 29, 2005, File No. 001-13735).*10.18
    
    Form of Supplemental Executive Retirement Agreement and First
Amendment to the Form of Supplemental Executive Retirement
Agreement (incorporated by reference to Registrants Report on Form
8-K filed October 28, 2005, File No. 001-13735).10.19
    
    Form of Restricted Stock Award Agreement for Non-employee Directors
and Restricted Stock Grant Notice for Non-employee Directors
(incorporated by reference to Registrants Report on Form 8-K filed
October 28, 2005, File No. 001-13735).10.21
    
    Lease dated as of April 29, 1976, between Sanfilippo, Joseph C. and
Grace Ann and Fairfield Savings and Loan Association, as amended
(incorporated by reference to Registrants Form 10-K for the year
ended December 31, 2003, File No. 001-13735).10.22
    
    Lease dated as of August 28, 2002 between Glen Oak Plaza and
Midwest Bank and Trust Company (incorporated by reference to
Registrants Form 10-K for the year ended December 31, 2003, File
No. 001-13735).10.24
    
    Loan Agreement as of March 24, 2006, between the Company and M&I
Marshall & Ilsley Bank (incorporated by reference to Registrants
Report on Form 8-K filed March 24, 2006, File No. 001-13735).10.25
    
    Employment Agreement as of September 28, 2004 between the Company
and the Chief Executive Officer (incorporated by reference to
Registrants Form 10-Q for the quarter ended September 30, 2004,
File No. 001-13735).10.26
    
    Retirement Agreement as of September 28, 2004 between the Company
and retiring Chief Executive Officer (incorporated by reference to
Registrants Form 10-Q for the quarter ended September 30, 2004,
File No. 001-13735).




---



##### Table of Contents



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).31.1
    
    Rule 13a-14(a) Certification of Principal Executive Officer.31.2
    
    Rule 13a-14(a) Certification of Principal Financial Officer.32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, from the
Companys Chief Executive Officer and Chief Financial Officer.
 
 *
    
    Indicates management contracts or compensatory plans or arrangements required to be filed as
an exhibit.