##### 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, 2007
 Commission File Number: 001-13735
 MIDWEST BANC HOLDINGS, INC.
 (Exact name of Registrant as specified in its charter.)
 Delaware(State or other jurisdiction of 
incorporation or organization)
    
    36-3252484(I.R.S. Employer Identification Number)
 501 W. North Ave. 
Melrose Park, Illinois(Address of principal executive offices)
    
    60160(Zip code)
 
 (708) 865-1053
 (Registrants telephone number, including area code)
 þ o
  Large accelerated filer o
    
    Accelerated filer
þ
    
    Non-accelerated filer o
 o þ
  Class
    
    
    Outstanding at May 8, 2007Common, par value $0.01
    
    
    24,649,834




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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
    
    
    40Item 6.
    
    Exhibits
    
    
    40Form 10-Q
    
    Signature Page
    
    
    44LeaseRule 13a-14(a) Certification of Principal Executive OfficerRule 13a-14(a) Certification of Principal Financial OfficerCertification Pursuant to 18 U.S.C. Section 1350
  i




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands)
 March 31,
    
    
    December 31,2007
    
    
    2006ASSETSCash
    
    $
    64,153
    
    
    $
    91,630Federal funds sold and other short-term investments
    
    
    24,485
    
    
    
    8,902Total cash and cash equivalents
    
    
    88,638
    
    
    
    100,532Securities available-for-sale
    
    
    639,985
    
    
    
    589,981Securities held-to-maturity (fair value: $42,445 at March 31,
2007 and $44,687 at December 31, 2006)
    
    
    43,562
    
    
    
    45,931Federal Reserve and Federal Home Loan Bank stock, at cost
    
    
    23,592
    
    
    
    23,592Loans held for sale
    
    
    3,740
    
    
    
    2,672Loans
    
    
    1,950,613
    
    
    
    1,946,816Allowance for loan losses
    
    
    (24,028
    )
    
    
    (23,229
    )Net loans
    
    
    1,926,585
    
    
    
    1,923,587Cash surrender value of life insurance
    
    
    65,973
    
    
    
    65,220Premises and equipment, net
    
    
    22,282
    
    
    
    21,960Other real estate
    
    
    2,403
    
    
    
    2,640Core deposit and other intangibles, net
    
    
    10,163
    
    
    
    11,273Goodwill
    
    
    79,625
    
    
    
    79,488Other assets
    
    
    74,083
    
    
    
    75,170Total assets
    
    $
    2,980,631
    
    
    $
    2,942,046LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesDepositsNoninterest-bearing
    
    $
    247,548
    
    
    $
    276,381Interest-bearing
    
    
    1,759,452
    
    
    
    1,681,429Total deposits
    
    
    2,007,000
    
    
    
    1,957,810Federal funds purchased
    
    
    7,000
    
    
    
    66,000Securities sold under agreements to repurchase
    
    
    251,070
    
    
    
    201,079Advances from the Federal Home Loan Bank
    
    
    319,897
    
    
    
    319,883Junior subordinated debentures
    
    
    65,828
    
    
    
    65,812Other liabilities
    
    
    39,337
    
    
    
    44,220Total liabilities
    
    
    2,690,132
    
    
    
    2,654,804Commitments and contingencies (see note 10)Stockholders EquityPreferred stock, $0.01 par value, 1,000,000 shares authorized;
none issued
    
    
    
    
    
    
    Common
stock, $0.01 par value, 64,000,000 shares authorized; 25,514,248 shares issued and 24,704,834 outstanding at
March 31, 2007 and 25,504,095 shares issued and 24,663,417
outstanding at December 31, 2006
    
    
    255
    
    
    
    255Additional paid-in capital
    
    
    201,752
    
    
    
    200,797Retained earnings
    
    
    98,951
    
    
    
    97,807Accumulated other comprehensive loss
    
    
    (5,115
    )
    
    
    (6,273
    )Treasury stock, at cost (809,414 shares at March 31, 2007 and
840,678 shares at December 31, 2006)
    
    
    (5,344
    )
    
    
    (5,344
    )Total stockholders equity
    
    
    290,499
    
    
    
    287,242Total liabilities and stockholders equity
    
    $
    2,980,631
    
    
    $
    2,942,046
 See accompanying notes to unaudited consolidated financial statements.
 PAGE 1




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
For the three months ended March 31, 2007 and 2006
(In thousands, except per share data)
 2007
    
    
    2006Interest IncomeLoans
    
    $
    36,058
    
    
    $
    24,370Loans held for sale
    
    
    30
    
    
    
    17SecuritiesTaxable
    
    
    7,563
    
    
    
    7,922Exempt from federal income taxes
    
    
    700
    
    
    
    819Trading securities
    
    
    
    
    
    
    Dividend income from Federal Reserve and Federal Home Loan Bank stock
    
    
    228
    
    
    
    137Federal funds sold and other short-term investments
    
    
    187
    
    
    
    94Total interest income
    
    
    44,766
    
    
    
    33,359Interest ExpenseDeposits
    
    
    17,899
    
    
    
    10,737Federal funds purchased
    
    
    699
    
    
    
    248Securities sold under agreements to repurchase
    
    
    2,159
    
    
    
    2,671Advances from the Federal Home Loan Bank
    
    
    3,648
    
    
    
    1,539Junior subordinated debentures
    
    
    1,301
    
    
    
    1,003Total interest expense
    
    
    25,706
    
    
    
    16,198Net interest income
    
    
    19,060
    
    
    
    17,161Provision for loan losses
    
    
    645
    
    
    
    Net interest income after provision for loan losses
    
    
    18,415
    
    
    
    17,161Noninterest IncomeCustomer service fees
    
    
    1,634
    
    
    
    1,203Net losses on securities transactions
    
    
    (14
    )
    
    
    (195
    )Net trading profits
    
    
    
    
    
    
    Gains on sales of loans
    
    
    176
    
    
    
    91Insurance and brokerage commissions
    
    
    573
    
    
    
    512Trust
    
    
    393
    
    
    
    77Increase in cash surrender value of life insurance
    
    
    753
    
    
    
    490Gain on extinguishment of debt
    
    
    
    
    
    
    625Other
    
    
    205
    
    
    
    210Total noninterest income
    
    
    3,720
    
    
    
    3,013Noninterest ExpensesSalaries and employee benefits
    
    
    10,447
    
    
    
    7,482Occupancy and equipment
    
    
    2,190
    
    
    
    1,456Professional services
    
    
    1,208
    
    
    
    1,080Marketing
    
    
    679
    
    
    
    453Other real estate
    
    
    25
    
    
    
    (31
    )Other
    
    
    2,532
    
    
    
    1,445Total noninterest expenses
    
    
    17,081
    
    
    
    11,885Income before income taxes
    
    
    5,054
    
    
    
    8,289Provision for income taxes
    
    
    642
    
    
    
    2,348Net Income
    
    $
    4,412
    
    
    $
    5,941Basic earnings per share
    
    $
    0.18
    
    
    $
    0.27Diluted earnings per share
    
    $
    0.18
    
    
    $
    0.27Cash dividends declared per common share
    
    $
    0.13
    
    
    $
    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, 2007 and 2006
(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, December 31, 2005
    
    $
    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,
net of tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    334
    
    
    
    
    
    
    
    
    
    
    
    334Comprehensive lossNet 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
    )
    
    $
    219,187Balance, 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
    )
    
    $
    290,499
 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, 2007 and 2006
(In thousands)
 2007
    
    
    2006Cash flows from operating activitiesNet income
    
    $
    4,412
    
    
    $
    5,941Adjustments to reconcile net income to net cash provided by operating activitiesDepreciation
    
    
    760
    
    
    
    598Provision for loan losses
    
    
    645
    
    
    
    Amortization of core deposit and other intangibles
    
    
    339
    
    
    
    107Amortization of premiums and discounts on securities, net
    
    
    237
    
    
    
    239Realized loss on sale of available-for-sale securities, net
    
    
    14
    
    
    
    195Net gain on sales of loans held for sale
    
    
    (176
    )
    
    
    (91
    )Origination of loans held for sale
    
    
    (17,269
    )
    
    
    (9,487
    )Proceeds from sales of loans held for sale
    
    
    16,377
    
    
    
    9,802Increase in cash surrender value of life insurance
    
    
    (753
    )
    
    
    (490
    )Deferred income taxes
    
    
    4,384
    
    
    
    2,763Loss on sale of other real estate, net
    
    
    12
    
    
    
    Amortization of deferred stock based compensation
    
    
    753
    
    
    
    334Change in other assets
    
    
    (3,550
    )
    
    
    (948
    )Change in other liabilities
    
    
    (4,893
    )
    
    
    (1,301
    )Net cash provided by operating activities
    
    
    1,292
    
    
    
    7,662Cash flows from investing activitiesSales of securities available-for-sale
    
    
    64,310
    
    
    
    Maturities of securities available-for-sale
    
    
    6,025
    
    
    
    Principal payments on securities
    
    
    19,883
    
    
    
    25,175Purchases of securities available-for-sale
    
    
    (136,030
    )
    
    
    (2,688
    )Maturities of securities held-to-maturity
    
    
    
    
    
    
    1,365Loan originations and principal collections, net
    
    
    (3,311
    )
    
    
    (53,930
    )Proceeds from sale of other real estate
    
    
    225
    
    
    
    321Investment in life insurance
    
    
    
    
    
    
    (5,000
    )Additions to property and equipment
    
    
    (1,082
    )
    
    
    (394
    )Net cash used in investing activities
    
    
    (49,980
    )
    
    
    (35,151
    )Cash flows from financing activitiesNet increase in deposits
    
    
    48,947
    
    
    
    93,250Proceeds from borrowings
    
    
    
    
    
    
    50,000Cash dividends paid
    
    
    (3,258
    )
    
    
    (2,638
    )Change in federal funds purchased and securities sold under agreements to repurchase
    
    
    (9,009
    )
    
    
    (114,862
    )Proceeds from issuance of common or treasury stock under stock and incentive option
plan
    
    
    114
    
    
    
    1,059Net cash provided by financing activities
    
    
    36,794
    
    
    
    26,809Decrease in cash and cash equivalents
    
    
    (11,894
    )
    
    
    (680
    )Cash and cash equivalents at beginning of period
    
    
    100,532
    
    
    
    70,599Cash and cash equivalents at end of period
    
    $
    88,638
    
    
    $
    69,919Supplemental disclosuresCash paid during period for:Interest
    
    $
    25,390
    
    
    $
    15,705Income taxes, net
    
    
    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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##### Table of Contents



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




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 3  BUSINESS COMBINATIONS
 Royal American Corporation
    2006Net interest income
    
    $
    19,712Net income
    
    
    7,080Basic earnings per share
    
    
    0.29Diluted earnings per share
    
    
    0.28
  Northwest Suburban Bancorp, Inc.
  PAGE 7




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##### Table of Contents



NOTE 4  SECURITIES
  March 31, 2007TotalHeld-to-Maturity
    
    
    Available-for-Sale
    
    
    
    
    
    
    
    
    
    
    % 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
    
    $
    
    
    
    $
    
    
    
    $
    76,990
    
    
    $
    76,782
    
    
    $
    76,990
    
    
    $
    76,782
    
    
    
    11.12
    %Obligations of states and
political subdivisions
    
    
    1,685
    
    
    
    1,693
    
    
    
    46,085
    
    
    
    45,877
    
    
    
    47,770
    
    
    
    47,570
    
    
    
    6.90Mortgage-backed securities
    
    
    41,877
    
    
    
    40,752
    
    
    
    423,975
    
    
    
    415,772
    
    
    
    465,852
    
    
    
    456,524
    
    
    
    67.31Equity securities
    
    
    
    
    
    
    
    
    
    
    90,533
    
    
    
    91,067
    
    
    
    90,533
    
    
    
    91,067
    
    
    
    13.08Other bonds
    
    
    
    
    
    
    
    
    
    
    11,029
    
    
    
    10,487
    
    
    
    11,029
    
    
    
    10,487
    
    
    
    1.59Total
    
    $
    43,562
    
    
    $
    42,445
    
    
    $
    648,612
    
    
    $
    639,985
    
    
    $
    692,174
    
    
    $
    682,430
    
    
    
    100.00
    %
 December 31, 2006TotalHeld-to-Maturity
    
    
    Available-for-Sale
    
    
    
    
    
    
    
    
    
    
    % 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
    
    $
    
    
    
    $
    
    
    
    $
    6,958
    
    
    $
    6,958
    
    
    $
    6,958
    
    
    $
    6,958
    
    
    
    1.08
    %Obligations of states and
political subdivisions
    
    
    1,686
    
    
    
    1,697
    
    
    
    97,167
    
    
    
    96,987
    
    
    
    98,853
    
    
    
    98,684
    
    
    
    15.29Mortgage-backed securities
    
    
    44,245
    
    
    
    42,990
    
    
    
    444,392
    
    
    
    434,108
    
    
    
    488,637
    
    
    
    477,098
    
    
    
    75.56Equity securities
    
    
    
    
    
    
    
    
    
    
    41,131
    
    
    
    41,521
    
    
    
    41,131
    
    
    
    41,521
    
    
    
    6.36Other bonds
    
    
    
    
    
    
    
    
    
    
    11,034
    
    
    
    10,407
    
    
    
    11,034
    
    
    
    10,407
    
    
    
    1.71Total
    
    $
    45,931
    
    
    $
    44,687
    
    
    $
    600,682
    
    
    $
    589,981
    
    
    $
    646,613
    
    
    $
    634,668
    
    
    
    100.00
    %
 PAGE 8




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  March 31, 2007Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(In thousands)Securities available-for-sale:Obligations of U.S. government-sponsored entities (1)
    
    $
    74,793
    
    
    $
    (208
    )
    
    $
    
    
    
    $
    
    
    
    $
    74,793
    
    
    $
    (208
    )Obligations of states and political subdivisions
    
    
    27,842
    
    
    
    (175
    )
    
    
    10,466
    
    
    
    (146
    )
    
    
    38,308
    
    
    
    (321
    )Mortgage-backed securities:U.S. government-sponsored entities (1)
    
    
    
    
    
    
    
    
    
    
    404,775
    
    
    
    (8,212
    )
    
    
    404,775
    
    
    
    (8,212
    )Equity securities (2)
    
    
    24,173
    
    
    
    (154
    )
    
    
    
    
    
    
    
    
    
    
    24,173
    
    
    
    (154
    )Corporate and other debt securities
    
    
    
    
    
    
    
    
    
    
    10,487
    
    
    
    (542
    )
    
    
    10,487
    
    
    
    (542
    )Total available-for-sale
    
    
    126,808
    
    
    
    (537
    )
    
    
    425,728
    
    
    
    (8,900
    )
    
    
    552,536
    
    
    
    (9,437
    )Securities held-to-maturity:Obligations of states and political subdivisions
    
    
    515
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    515
    
    
    
    (2
    )Mortgage-backed securities:U.S. government agencies (3)
    
    
    2
    
    
    
    
    
    
    
    8,834
    
    
    
    (165
    )
    
    
    8,836
    
    
    
    (165
    )U.S. government-sponsored entities (1)
    
    
    10
    
    
    
    
    
    
    
    31,401
    
    
    
    (960
    )
    
    
    31,411
    
    
    
    (960
    )Total held-to-maturity
    
    
    527
    
    
    
    (2
    )
    
    
    40,235
    
    
    
    (1,125
    )
    
    
    40,762
    
    
    
    (1,127
    )Total temporarily impaired securities
    
    $
    127,335
    
    
    $
    (539
    )
    
    $
    465,963
    
    
    $
    (10,025
    )
    
    $
    593,298
    
    
    $
    (10,564
    )
 (1)
    
    Includes obligations of the Federal Home Loan Mortgage Corporation (FHLMC) and Federal National Mortgage Association (FNMA).(2)
    
    Includes issues from government-sponsored entities (FNMA and FHLMC).(3)
    
    Includes obligations of the Government National Mortgage Association (GNMA).
  
    
    The unrealized loss for U.S. government-sponsored entities mortgage-backed securities
relate primarily to debt securities issued by FNMA and FHLMC; 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 15 years and a weighted average
interest rate of 5.06%.
    
    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 7 years and a weighted average interest rate of 4.73%.
 PAGE 9




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MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 5  LOANS
  March 31,
    
    
    December 31,2007
    
    
    2006% of Gross
    
    
    
    
    
    
    % of GrossAmount
    
    
    Loans
    
    
    Amount
    
    
    Loans(Dollars in thousands)Commercial
    
    $
    394,964
    
    
    
    20.2
    %
    
    $
    376,944
    
    
    
    19.4
    %Construction
    
    
    406,763
    
    
    
    20.8
    
    
    
    424,181
    
    
    
    21.8Commercial real estate
    
    
    762,627
    
    
    
    39.2
    
    
    
    761,742
    
    
    
    39.0ConsumerHome equity
    
    
    142,820
    
    
    
    7.3
    
    
    
    147,366
    
    
    
    7.6Other consumer
    
    
    8,097
    
    
    
    0.4
    
    
    
    9,373
    
    
    
    0.5Total consumer
    
    
    150,917
    
    
    
    7.7
    
    
    
    156,739
    
    
    
    8.1Residential mortgage
    
    
    235,897
    
    
    
    12.1
    
    
    
    227,762
    
    
    
    11.7Total loans, gross
    
    
    1,951,168
    
    
    
    100.0
    %
    
    
    1,947,368
    
    
    
    100.0
    %Net deferred fees
    
    
    (555
    )
    
    
    
    
    
    
    (552
    )Total loans, net
    
    $
    1,950,613
    
    
    
    
    
    
    $
    1,946,816
 NOTE 6  ALLOWANCE FOR LOAN LOSSES
  2007
    
    
    2006(In thousands)Balance, January 1
    
    $
    23,229
    
    
    $
    17,760Provision charged to operations
    
    
    645
    
    
    
    Loans charged off
    
    
    (446
    )
    
    
    (163
    )Recoveries
    
    
    600
    
    
    
    140Net loans (charged off) recoveries
    
    
    154
    
    
    
    (23
    )Balance, March 31
    
    $
    24,028
    
    
    $
    17,737
 PAGE 10




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MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 7  GOODWILL AND INTANGIBLES
  March 31, 2007
    
    
    December 31, 2006Gross Carrying
    
    
    Accumulated
    
    
    Net Carrying
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountAmortized intangible assets:Core deposit and other intangibles
    
    $
    12,906
    
    
    $
    (2,743
    )
    
    $
    10,163
    
    
    $
    13,618
    
    
    $
    (2,345
    )
    
    $
    11,273
   Core Depositand OtherGoodwill
    
    
    IntangiblesBalance at beginning of period
    
    $
    79,488
    
    
    $
    11,273Amortization
    
    
    
    
    
    
    (398
    )Purchase price adjustment
    
    
    137
    
    
    
    Core deposit intangible retired (1)
    
    
    
    
    
    
    (712
    )Balance at end of period
    
    $
    79,625
    
    
    $
    10,163
 
  PAGE 11




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MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 8  EARNINGS PER SHARE
 March 31,2007
    
    
    2006(In thousands, except per share data)BasicNet income
    
    $
    4,412
    
    
    $
    5,941Weighted average common shares outstanding
    
    
    24,693
    
    
    
    21,871Basic earnings per share
    
    $
    0.18
    
    
    $
    0.27DilutedNet income
    
    $
    4,412
    
    
    $
    5,941Weighted average common shares outstanding
    
    
    24,693
    
    
    
    21,871Dilutive effect of stock options
    
    
    162
    
    
    
    232Dilutive effect of restricted stock
    
    
    95
    
    
    
    33Diluted average common shares
    
    
    24,950
    
    
    
    22,136Diluted earnings per share
    
    $
    0.18
    
    
    $
    0.27
  PAGE 12




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MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 9  STOCK COMPENSATION AND RESTRICTED STOCK AWARDS
      PAGE 13




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MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 10  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
    
    $
    190,180
    
    
    $
    38,291
    
    
    $
    374
    
    
    $
    607
    
    
    $
    229,452Consumer real estate
    
    
    39,019
    
    
    
    15,044
    
    
    
    27,633
    
    
    
    36,975
    
    
    
    118,671Consumer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,797
    
    
    
    1,797Commercial
    
    
    221,162
    
    
    
    14,475
    
    
    
    2,417
    
    
    
    2,740
    
    
    
    240,794Letters of credit
    
    
    33,771
    
    
    
    26,856
    
    
    
    7,155
    
    
    
    375
    
    
    
    68,157Commitments to extend credit
    
    
    87,413
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87,413Total commercial commitments
    
    $
    571,545
    
    
    $
    94,666
    
    
    $
    37,579
    
    
    $
    42,494
    
    
    $
    746,284
   NOTE 11  INCOME TAXES
  Three Months Ended March 31,2007
    
    
    2006(In thousands)Income taxes computed at the statutory rate
    
    $
    1,769
    
    
    
    35.0
    %
    
    $
    2,901
    
    
    
    35.0
    %Tax-exempt interest income on securities and loans
    
    
    (226
    )
    
    
    (4.5
    )
    
    
    (279
    )
    
    
    (3.4
    )General business credits
    
    
    (110
    )
    
    
    (2.2
    )
    
    
    (30
    )
    
    
    (0.4
    )State income taxes, net of federal tax benefit due to state operating loss
    
    
    (241
    )
    
    
    (4.8
    )
    
    
    162
    
    
    
    2.0Life insurance cash surrender value increase, net of premiums
    
    
    (263
    )
    
    
    (5.2
    )
    
    
    (172
    )
    
    
    (2.1
    )Dividends received deduction
    
    
    (311
    )
    
    
    (6.1
    )
    
    
    (220
    )
    
    
    (2.7
    )Nondeductible meals and entertainment
    
    
    9
    
    
    
    0.2
    
    
    
    4
    
    
    
    0.1Stock based compensation, net
    
    
    4
    
    
    
    0.1
    
    
    
    
    
    
    
    Other
    
    
    11
    
    
    
    0.2
    
    
    
    (18
    )
    
    
    (0.2
    )Total provision for income taxes
    
    $
    642
    
    
    
    12.7
    %
    
    $
    2,348
    
    
    
    28.3
    %
  PAGE 14




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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




    
    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.
   th
 Expand noninterest income.
  PAGE 17




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##### Table of Contents



Results of Operations  Three Months Ended
March 31, 2007 and 2006
  
    
    Basic and diluted earnings per share for the three months ended March 31, 2007 were
$0.18 compared to $0.27 for the comparable period in 2006.
 
    
    Net income for the first quarter of 2007 was $4.4 million, a 25.7% decrease when
compared to $5.9 million for the first quarter of 2006.
 
    
    Net interest income increased 11.1% to $19.1 million in the first quarter of 2007
compared to $17.2 million in the first quarter of 2006 as a result of the Royal
American acquisition and internal loan growth. The net interest margin was 3.01% for
the three months ended March 31, 2007 compared to 3.39% for the similar period of 2006.
 
    
    The inverted yield curve continues to negatively affect the net interest
margin. The one large problem credit (Large Problem Credit) that was first publicly
discussed on July 20, 2006 also adversely affected the net interest margin. The Large
Problem Credit accounted for $26.8 million of nonaccrual loans thereby reducing the net
interest margin by 10 basis points in the first quarter of 2007. Interest lost on
loans to this Large Problem Credit was approximately $768,000 in the first quarter of
2007.
 
    
    Interest income on loans increased 48.0% to $36.1 million in the first quarter
of 2007 compared to $24.4 million for the comparable period in 2006.
 
    
    The annualized return on average assets for the three months ended March 31, 2007
was 0.60% compared to 1.05% for the similar period in 2006.
 
    
    The annualized return on average equity for the three months ended March 31, 2007
was 6.20% compared to 11.06% for the similar period in 2006.
 
    
    There was no provision for loan losses in the first quarter of 2006 compared to
$645,000 for the comparable period in 2007.
 
    
    Noninterest income was $3.7 million in the first quarter of 2007 compared to $3.0
million in the first quarter of 2006. Noninterest income includes net securities
losses of $14,000 and $195,000 in the first quarter of 2007 and 2006, respectively, as
well as $625,000 gain on the extinguishment of debt in first quarter of 2006.
 
    
    Excluding losses on securities and the gain on extinguishment of debt, noninterest
income increased 44.6% to $3.7 million in the first quarter of 2007 compared to $2.6
million in the first quarter of 2006 partly as a result of increased trust
revenues from the Royal American acquisition and higher service charges on deposit
accounts. Management believes that noninterest income excluding losses on
securities and the gain on extinguishment of debt better reflects the trends in the
areas of noninterest income that the Company continues to focus its attention on.
 
    
    Noninterest expenses increased 43.7%, or $5.2 million, to $17.1 million in the first
quarter of 2007 compared to $11.9 million in the first quarter of 2006, mainly as
a result of the Royal American transaction.
 PAGE 18




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##### Table of Contents




    
    Basic and diluted earnings per share for the three months ended March 31, 2007 were
$0.18 compared to $0.12 for three months ended December 31, 2006.
    
    Net income for the first quarter of 2006 was $4.4 million, a 50.4% increase when
compared to the $2.9 million for the fourth quarter of 2006; the provision for loan
losses was $645,000 compared to $5.5 million in the fourth quarter of 2006.
    
    Net interest income slightly decreased by $115,000 to $19.1 million in the first
quarter of 2007 compared to $19.2 million in the fourth quarter of 2006.
    
    Interest income on loans increased slightly by $77,000 to $36.1 million in the first
quarter of 2007 compared to the fourth quarter of 2006.
    
    The annualized return on average assets for the three months ended March 31, 2007
was 0.60% compared to 0.39% for the fourth quarter of 2006.
    
    The annualized return on average equity for the three months ended March 31, 2007
was 6.20% compared to 4.01% for the fourth quarter of 2006.
    
    Noninterest income was $3.7 million in the first quarter of 2007 compared to $3.8
million in the fourth quarter of 2006. Noninterest income includes net securities
losses of $14,000 in the first quarter of 2007 and net securities gains of $42,000 in
the fourth quarter 2006.
    
    Excluding gains or losses on securities, noninterest income remained essentially the
same as the fourth quarter of 2006. Management believes that noninterest income
excluding gains or losses on securities better reflects the trends in the areas of
noninterest income that the Company continues to focus its attention
on. Service charges
on deposit accounts and insurance and brokerage commissions increased slightly by
$62,000 and $59,000, respectively, compared to the fourth quarter of 2006.
    
    Noninterest expenses increased by $586,000 to $17.1 million in the first quarter of
2007 compared to $16.5 million in the fourth quarter of 2006, mainly due to increased
salaries and benefits expense.
 
 PAGE 19




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##### Table of Contents



Net Interest Income
  For the Three Months EndedMarch 31, 2007
    
    
    March 31, 2006
    
    
    December 31, 2006Average
    
    
    
    
    
    
    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
    
    $
    15,987
    
    
    $
    187
    
    
    
    4.68
    %
    
    $
    9,939
    
    
    $
    94
    
    
    
    3.78
    %
    
    $
    5,223
    
    
    $
    69
    
    
    
    5.28
    %Securities:Taxable(1)
    
    
    603,622
    
    
    
    8,107
    
    
    
    5.37
    
    
    
    652,066
    
    
    
    8,337
    
    
    
    5.11
    
    
    
    597,167
    
    
    
    8,090
    
    
    
    5.42Exempt from federal income taxes(1)
    
    
    73,379
    
    
    
    1,077
    
    
    
    5.87
    
    
    
    85,601
    
    
    
    1,260
    
    
    
    5.89
    
    
    
    100,410
    
    
    
    1,480
    
    
    
    5.90Total securities
    
    
    677,001
    
    
    
    9,184
    
    
    
    5.44
    
    
    
    737,667
    
    
    
    9,597
    
    
    
    5.20
    
    
    
    697,577
    
    
    
    9,570
    
    
    
    5.48FRB and FHLB stock
    
    
    23,592
    
    
    
    228
    
    
    
    3.87
    
    
    
    14,661
    
    
    
    137
    
    
    
    3.74
    
    
    
    21,885
    
    
    
    218
    
    
    
    3.98Loans held for sale
    
    
    2,004
    
    
    
    30
    
    
    
    5.99
    
    
    
    1,153
    
    
    
    17
    
    
    
    5.90
    
    
    
    2,837
    
    
    
    41
    
    
    
    5.78Loans:Commercial loans(1)(3)(4)
    
    
    392,953
    
    
    
    7,677
    
    
    
    7.81
    
    
    
    195,831
    
    
    
    3,704
    
    
    
    7.57
    
    
    
    372,473
    
    
    
    7,101
    
    
    
    7.63Commercial real estate
loans(1)(3)(4)(6)
    
    
    1,263,819
    
    
    
    23,522
    
    
    
    7.44
    
    
    
    946,846
    
    
    
    17,161
    
    
    
    7.25
    
    
    
    1,270,500
    
    
    
    24,150
    
    
    
    7.60Agricultural loans(1)(3)(4)
    
    
    2,849
    
    
    
    56
    
    
    
    7.86
    
    
    
    2,009
    
    
    
    37
    
    
    
    7.37
    
    
    
    2,563
    
    
    
    51
    
    
    
    7.96Consumer real estate
loans(3)(4)(6)
    
    
    276,542
    
    
    
    4,674
    
    
    
    6.76
    
    
    
    218,844
    
    
    
    3,458
    
    
    
    6.32
    
    
    
    261,528
    
    
    
    4,519
    
    
    
    6.91Consumer installment
loans(3)(4)
    
    
    10,297
    
    
    
    187
    
    
    
    7.26
    
    
    
    4,441
    
    
    
    83
    
    
    
    7.48
    
    
    
    11,312
    
    
    
    211
    
    
    
    7.46Total loans
    
    
    1,946,460
    
    
    
    36,116
    
    
    
    7.44
    
    
    
    1,367,971
    
    
    
    24,443
    
    
    
    7.16
    
    
    
    1,918,376
    
    
    
    36,032
    
    
    
    7.52Total interest-earning assets
    
    $
    2,665,044
    
    
    $
    45,745
    
    
    
    6.88
    %
    
    $
    2,131,391
    
    
    $
    34,288
    
    
    
    6.44
    %
    
    $
    2,645,898
    
    
    $
    45,930
    
    
    
    6.96
    %Interest-Bearing Liabilities:Deposits:Interest-bearing demand deposits
    
    $
    163,108
    
    
    $
    730
    
    
    
    1.79
    %
    
    $
    144,609
    
    
    $
    280
    
    
    
    0.77
    %
    
    $
    155,351
    
    
    $
    642
    
    
    
    1.65
    %Money-market demand accounts
and savings accounts
    
    
    378,039
    
    
    
    2,446
    
    
    
    2.59
    
    
    
    294,002
    
    
    
    1,215
    
    
    
    1.65
    
    
    
    401,962
    
    
    
    2,609
    
    
    
    2.60Time deposits less than $100,000
    
    
    731,217
    
    
    
    8,639
    
    
    
    4.73
    
    
    
    762,412
    
    
    
    7,075
    
    
    
    3.71
    
    
    
    721,362
    
    
    
    8,492
    
    
    
    4.71Time deposits of $100,000 or more
    
    
    466,924
    
    
    
    6,084
    
    
    
    5.21
    
    
    
    187,239
    
    
    
    2,019
    
    
    
    4.31
    
    
    
    436,659
    
    
    
    5,739
    
    
    
    5.26Public funds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,866
    
    
    
    148
    
    
    
    4.27
    
    
    
    1,065
    
    
    
    13
    
    
    
    4.88Total interest-bearing deposits
    
    
    1,739,288
    
    
    
    17,899
    
    
    
    4.12
    
    
    
    1,402,128
    
    
    
    10,737
    
    
    
    3.08
    
    
    
    1,716,399
    
    
    
    17,495
    
    
    
    4.08Borrowings:Federal funds purchased and
repurchase agreements
    
    
    256,322
    
    
    
    2,858
    
    
    
    4.46
    
    
    
    284,390
    
    
    
    2,919
    
    
    
    4.11
    
    
    
    275,700
    
    
    
    3,427
    
    
    
    4.97FHLB advances
    
    
    319,890
    
    
    
    3,648
    
    
    
    4.56
    
    
    
    170,556
    
    
    
    1,539
    
    
    
    3.61
    
    
    
    281,724
    
    
    
    3,286
    
    
    
    4.67Notes payable and other borrowings
    
    
    65,820
    
    
    
    1,301
    
    
    
    7.91
    
    
    
    55,672
    
    
    
    1,003
    
    
    
    7.21
    
    
    
    65,806
    
    
    
    1,327
    
    
    
    8.07Total borrowings
    
    
    642,032
    
    
    
    7,807
    
    
    
    4.88
    
    
    
    510,618
    
    
    
    5,461
    
    
    
    4.28
    
    
    
    623,230
    
    
    
    8,040
    
    
    
    5.16Total interest-bearing liabilities
    
    $
    2,381,320
    
    
    $
    25,706
    
    
    
    4.32
    %
    
    $
    1,912,746
    
    
    $
    16,198
    
    
    
    3.40
    %
    
    $
    2,339,629
    
    
    $
    25,535
    
    
    
    4.36
    %Net interest income (tax
equivalent)(1)(5)
    
    
    
    
    
    $
    20,039
    
    
    
    2.56
    %
    
    
    
    
    
    $
    18,090
    
    
    
    3.04
    %
    
    
    
    
    
    $
    20,395
    
    
    
    2.60
    %Net interest margin (tax
equivalent)(1)
    
    
    
    
    
    
    
    
    
    
    3.01
    %
    
    
    
    
    
    
    
    
    
    
    3.39
    %
    
    
    
    
    
    
    
    
    
    
    3.08
    %Net interest income(2)(5)
    
    
    
    
    
    $
    19,060
    
    
    
    
    
    
    
    
    
    
    $
    17,161
    
    
    
    
    
    
    
    
    
    
    $
    19,175Net interest margin(2)
    
    
    
    
    
    
    
    
    
    
    2.86
    %
    
    
    
    
    
    
    
    
    
    
    3.22
    %
    
    
    
    
    
    
    
    
    
    
    2.90
    %
 
 (1)
    
    Adjusted for 35.0% tax rate and adjusted for the dividends-received deduction where
applicable.(2)
    
    Not adjusted for 35.0% tax rate or for the dividends-received deduction.(3)
    
    Nonaccrual loans are included in the average balance; however, these loans are not earning
any interest.(4)
    
    Includes loan fees.(5)
    
    The following table reconciles reported net interest income on a tax equivalent basis for the
periods presented: For the three months ended,March 31,
    
    
    March 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2006Net interest income
    
    $
    19,060
    
    
    $
    17,161
    
    
    $
    19,175Tax equivalent adjustment to net interest income
    
    
    979
    
    
    
    929
    
    
    
    1,220Net interest income, tax equivalent basis
    
    $
    20,039
    
    
    $
    18,090
    
    
    $
    20,395
   (6)
    
    Includes construction loans. PAGE 20




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##### Table of Contents




    
    Yields on average earning assets increased 44 basis points in the first
quarter of 2007 compared to the first quarter of 2006, while average balances on
earning assets increased by $533.7 million. Yields on average earning assets
decreased slightly by 8 basis points compared to the fourth quarter of 2006, while
average balances on earning assets increased by $19.1 million. The Large Problem
Credit reduced yields on average earning assets by 8 basis points during the first
quarter of 2007.
    
    Yields on average loans increased 28 basis points in the first quarter of
2007 compared to the year-earlier period. Average loans increased by $578.5 million
in the quarter ended March 31, 2007 compared to the same period in 2006. Compared to
the fourth quarter of 2006, yields on average loans decreased slightly by 8 basis
points, while average balances increased $28.1 million compared to the fourth quarter
of 2006.
    
    Yields on average securities increased 24 basis points while balances
decreased by $60.7 million in the first quarter of 2007 compared to the similar
period in 2006. Yields on average securities decreased slightly by 4 basis points
compared to the fourth quarter of 2006 and average balances decreased by $20.6
million.
  
    
    Yields on average interest-bearing liabilities increased by 92 basis
points and the average balances increased $468.6 million in the first quarter of 2007
compared to the similar period in 2006. Compared to the fourth quarter of 2006,
yields on interest-bearing liabilities decreased by 4 basis points while the average
balances increased $41.7 million.
    
    Average interest-bearing deposits increased by $337.2 million and yields
increased 104 basis points compared to the similar period of 2007. Average
interest-bearing deposits increased by $22.9 million compared to the prior quarter,
as yields increased by 4 basis points; most of this increase was in certificates of
deposit.
    
    Interest-bearing demand deposit, money market, and savings accounts
increased by $102.5 million compared to March 31, 2006 but decreased by $16.2 million
compared to December 31, 2006. The Company continues to focus its marketing efforts
to increase core deposits to alleviate margin pressure.
 PAGE 21




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##### Table of Contents




    
    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.
    
    Total average borrowings increased by $131.4 million in the first quarter
of 2007 while yields increased by 60 basis points compared to the first quarter of
2006. Compared to the fourth quarter of 2006, total average borrowings increased by
$18.8 million while yields decreased by 28 basis points.
    
    Active management of the borrowings and of the securities portfolio has
resulted in wider margins on the wholesale side of the business despite the
securities portfolio being flat on a year to year comparable basis. Yields on
average securities were 5.44% for the first quarter of 2007 compared
to 5.48% for the
fourth quarter of 2006. Yields on average borrowings were 4.88% for the first
quarter of 2007 compared to 5.16% for the fourth quarter of 2006. The spread between
yields on average securities and average borrowings increased to 56 basis points
during the first quarter of 2007 compared to 32 basis points during the fourth
quarter of 2006.
 Noninterest Income
  
    
    Noninterest income was $3.7 million for the three months ended March 31,
2007, an increase of $707,000, or 23.5%, over the comparable period in 2006, but was
$70,000 lower than the fourth quarter of 2006.
    
    Trust income increased by $316,000 in the first quarter of 2007 compared
to the same period in 2006 but remained essentially the same as the fourth quarter of
2006.
    
    Excluding losses on securities and the gain on extinguishment of debt,
noninterest income increased 44.6% to $3.7 million in the first quarter of 2007
compared to $2.6 million in the first quarter of 2006 partly as a result of increased
trust revenues from the Royal American acquisition and higher service charges on
deposit accounts.
    
    The annualized noninterest income to average assets ratio was 0.51% for
the three months ended March 31, 2007 compared to 0.53% for the same period in 2006
and 0.51% for the three months ended December 31, 2006.
    
    Customer service fees increased by $431,000 to $1.6 million in the first
quarter of 2007 compared to the first quarter of 2006 and increased by $62,000
compared to the fourth quarter of 2006.
    
    Insurance and brokerage commissions increased by $61,000 in the three
months ended March 31, 2007 compared to the similar period in 2006 and by $59,000
compared to the fourth quarter of 2006. Management anticipates an increase in
insurance and brokerage commissions as a result of the acquisition of Royal American.
    
    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.
    
    Gains on sales of loans increased during the first quarter of 2007 by
93.4% or $85,000 to $176,000
 PAGE 22




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##### Table of Contents



compared to the first quarter of 2006 but decreased by $94,000 or 34.8% when compared to the fourth quarter of 2006.
    
    The cash surrender value of life insurance increased by $263,000 to
$753,000 during the three months ended March 31, 2007 compared to the similar period
in 2006, and was $59,000 higher compared to the fourth quarter of 2006.
 Noninterest Expenses
  
    
    Total noninterest expenses increased 43.7%, or $5.2 million, to $17.1
million during the first quarter of 2007 compared to $11.9 million for the similar
period in 2006. In comparison to the fourth quarter of 2006, total noninterest
expenses increased $586,000.
    
    The annualized noninterest expenses to average assets ratio was 2.34% for
the three months ended March 31, 2007 compared to 2.09% for the same period in 2006
and 2.22% for the three months ended December 31, 2006.
    
    The efficiency ratio was 69.83% for the three months ended March 31, 2007
compared to 55.20% for the same period in 2006 and 66.10% for the fourth quarter of
2006. The efficiency ratio is equal to noninterest expenses less amortization and
other real estate expenses divided by the sum of net interest income on a fully
tax-equivalent basis plus noninterest income excluding security gains or losses.
    
    The efficiency ratio rose in the first quarter of 2007 when compared to
the fourth quarter of 2006 mainly due to the increase in noninterest expenses,
including salaries and employee benefits.
    
    Salaries and benefits expense increased by $3.0 million, or 39.6%, during
the first quarter of 2007 compared to the first quarter of 2006, reflecting additions
to management and the addition of 50 full-time equivalent employees from the Royal
American acquisition. Salaries and benefits expense increased by $389,000, or 3.9%,
compared to the fourth quarter of 2006, reflecting the annual merit increases.
    
    Occupancy and equipment expense increased by $734,000 during the first
quarter of 2007 to $2.2 million compared to the similar period in 2006 and $102,000
compared to the fourth quarter of 2006. Part of the increase compared to the fourth
quarter of 2006 was attributed to the Company converting its Bloomingdale branch into
a full service retail branch as well as increases in utility expenses.
    
    Professional services expense rose by $128,000, or 11.9%, to $1.2 million
in the first quarter of 2007 compared to the first quarter of 2006 and $36,000
compared to the fourth quarter of 2006.
    
    Marketing expenses in the first quarter of 2007 were $226,000 higher than
in the first quarter of 2006, and $88,000 higher compared to the fourth quarter of
2006. The Company continues to focus its branding marketing efforts.
 
 PAGE 23




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##### Table of Contents



Income Taxes
   Three Months Ended March 31,2007
    
    
    2006(In thousands)Income taxes computed at the statutory rate
    
    $
    1,769
    
    
    
    35.0
    %
    
    $
    2,901
    
    
    
    35.0
    %Tax-exempt interest income on securities and loans
    
    
    (226
    )
    
    
    (4.5
    )
    
    
    (279
    )
    
    
    (3.4
    )General business credits
    
    
    (110
    )
    
    
    (2.2
    )
    
    
    (30
    )
    
    
    (0.4
    )State income taxes, net of federal tax benefit due to state operating loss
    
    
    (241
    )
    
    
    (4.8
    )
    
    
    162
    
    
    
    2.0Life insurance cash surrender value increase, net of premiums
    
    
    (263
    )
    
    
    (5.2
    )
    
    
    (172
    )
    
    
    (2.1
    )Dividends received deduction
    
    
    (311
    )
    
    
    (6.1
    )
    
    
    (220
    )
    
    
    (2.7
    )Nondeductible meals and entertainment
    
    
    9
    
    
    
    0.2
    
    
    
    4
    
    
    
    0.1Stock based compensation, net
    
    
    4
    
    
    
    0.1
    
    
    
    
    
    
    
    Other
    
    
    11
    
    
    
    0.2
    
    
    
    (18
    )
    
    
    (0.2
    )Total provision for income taxes
    
    $
    642
    
    
    
    12.7
    %
    
    $
    2,348
    
    
    
    28.3
    %
 Financial Condition
  
    
    Total assets increased $38.6 million to $3.0 billion at March 31, 2007 compared to year
end 2006 and up $644.2 million compared to March 31, 2006. The Company consummated the
acquisition of Royal American effective July 1, 2006, which increased total assets by
$578.8 million.
    
    Total loans increased $3.8 million to $2.0 billion at March 31, 2007 compared to year
end 2006 and increased 39.0%, or $546.9 million, over the first quarter of 2006; $497.8
million were acquired through Royal American.
    
    The loan to deposit ratio decreased to 97.19% from 99.44% at December 31, 2006, but was
higher than the 86.83% figure recorded at March 31, 2006.
    
    Deposits increased by $49.2 million, or 2.5%, to $2.0 billion in the first quarter of
2007 compared to year end 2006 and increased by 24.2% when compared to the quarter ended
March 31, 2006. Deposit growth was centered in certificates of deposit. Total deposits
increased by $466.0 million as a result of the Royal American acquisition.
 
 PAGE 24




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##### Table of Contents



Excluding
    
    
    ExcludingRoyal
    
    
    RoyalMarch 31,
    
    
    
    
    
    
    Royal
    
    
    American
    
    
    AmericanAmerican
    
    
    Acquisition
    
    
    Acquisition2007
    
    
    2006
    
    
    $ Change
    
    
    Acquisition(1)
    
    
    $ Change
    
    
    % Change(Dollars in thousands)Assets:Cash and cash equivalents(2)
    
    $
    88,638
    
    
    $
    69,919
    
    
    $
    18,719
    
    
    $
    (41,044
    )
    
    $
    59,763
    
    
    
    85.5
    %Securities available-for-sale, at fair value
    
    
    639,985
    
    
    
    638,273
    
    
    
    1,712
    
    
    
    16,487
    
    
    
    (14,775
    )
    
    
    (2.3
    )Securities held-to-maturity, at amortized cost
    
    
    43,562
    
    
    
    55,401
    
    
    
    (11,839
    )
    
    
    
    
    
    
    (11,839
    )
    
    
    (21.4
    )Federal Reserve and Federal Home Loan Bank
stock
    
    
    23,592
    
    
    
    14,661
    
    
    
    8,931
    
    
    
    1,427
    
    
    
    7,504
    
    
    
    51.2Loans held for sale
    
    
    3,740
    
    
    
    1,688
    
    
    
    2,052
    
    
    
    
    
    
    
    2,052
    
    
    
    121.6Loans
    
    
    1,950,613
    
    
    
    1,403,700
    
    
    
    546,913
    
    
    
    497,783
    
    
    
    49,130
    
    
    
    3.5Allowance for loan loss
    
    
    (24,028
    )
    
    
    (17,737
    )
    
    
    (6,291
    )
    
    
    (3,244
    )
    
    
    (3,047
    )
    
    
    17.2Net loans
    
    
    1,926,585
    
    
    
    1,385,963
    
    
    
    540,622
    
    
    
    494,539
    
    
    
    46,083
    
    
    
    3.3Cash surrender value of life insurance
    
    
    65,973
    
    
    
    49,922
    
    
    
    16,051
    
    
    
    12,467
    
    
    
    3,584
    
    
    
    7.2Premises and equipment, net
    
    
    22,282
    
    
    
    22,043
    
    
    
    239
    
    
    
    1,295
    
    
    
    (1,056
    )
    
    
    (4.8
    )Other real estate
    
    
    2,403
    
    
    
    11,036
    
    
    
    (8,633
    )
    
    
    
    
    
    
    (8,633
    )
    
    
    (78.2
    )Core deposit and other intangibles, net
    
    
    10,163
    
    
    
    1,681
    
    
    
    8,482
    
    
    
    10,488
    
    
    
    (2,006
    )
    
    
    (119.3
    )Goodwill
    
    
    79,625
    
    
    
    891
    
    
    
    78,734
    
    
    
    78,597
    
    
    
    137
    
    
    
    15.4Due from broker
    
    
    
    
    
    
    24,810
    
    
    
    (24,810
    )
    
    
    
    
    
    
    (24,810
    )
    
    
    (100.0
    )Other assets
    
    
    74,083
    
    
    
    60,160
    
    
    
    13,923
    
    
    
    4,535
    
    
    
    9,388
    
    
    
    15.6Total assets
    
    $
    2,980,631
    
    
    $
    2,336,448
    
    
    $
    644,183
    
    
    $
    578,791
    
    
    $
    65,392
    
    
    
    2.8
    %Liabilities and stockholders equity:Noninterest-bearing
    
    $
    247,548
    
    
    $
    161,528
    
    
    $
    86,020
    
    
    $
    125,506
    
    
    $
    (39,486
    )
    
    
    (24.4
    )%Interest-bearing
    
    
    1,759,452
    
    
    
    1,455,106
    
    
    
    304,346
    
    
    
    340,505
    
    
    
    (36,159
    )
    
    
    (2.5
    )Total deposits
    
    
    2,007,000
    
    
    
    1,616,634
    
    
    
    390,366
    
    
    
    466,011
    
    
    
    (75,645
    )
    
    
    (4.7
    )Federal funds purchased
    
    
    7,000
    
    
    
    
    
    
    
    7,000
    
    
    
    30,000
    
    
    
    (23,000
    )
    
    
    (100.0
    )Securities sold under agreements to repurchase
    
    
    251,070
    
    
    
    217,946
    
    
    
    33,124
    
    
    
    
    
    
    
    33,124
    
    
    
    15.2Advances from the Federal Home Loan Bank
    
    
    319,897
    
    
    
    200,000
    
    
    
    119,897
    
    
    
    4,854
    
    
    
    115,043
    
    
    
    57.5Junior subordinated debentures
    
    
    65,828
    
    
    
    55,672
    
    
    
    10,156
    
    
    
    10,106
    
    
    
    50
    
    
    
    0.1Other liabilities
    
    
    39,337
    
    
    
    27,009
    
    
    
    12,328
    
    
    
    4,053
    
    
    
    8,275
    
    
    
    30.6Total liabilities
    
    
    2,690,132
    
    
    
    2,117,261
    
    
    
    572,871
    
    
    
    515,024
    
    
    
    57,847
    
    
    
    2.7Total stockholders equity
    
    
    290,499
    
    
    
    219,187
    
    
    
    71,312
    
    
    
    63,767
    
    
    
    7,545
    
    
    
    3.4Total liabilities and stockholders equity
    
    $
    2,980,631
    
    
    $
    2,336,448
    
    
    $
    644,183
    
    
    $
    578,791
    
    
    $
    65,392
    
    
    
    2.8
    %
 
 (1)
    
    Includes fair value adjustments.(2)
    
    Royal American Acquisition column includes cash and cash equivalents
acquired through Royal American of $24,363 less cash paid for
acquisition of $64,612 and capitalized costs of $795.  
    
    The Companys loan quality statistics are adversely affected by the Large Problem Credit
that was previously disclosed. At March 31, 2007, the remaining total loan exposure is
$28.9 million, of which $26.8 million is on nonaccrual.
    
    The allowance for loan losses was 1.23% of total loans, versus 1.19% at year end 2006
and 1.26% at March 31, 2006.
 PAGE 25




---



##### Table of Contents




    
    The allowance for loan losses increased to 0.58 times nonaccrual loans compared to 0.54
times nonaccrual loans at year end, but was lower compared to the 2.25 times nonaccrual
loans at March 31, 2006 as a result of the Large Problem Credit.
    
    Nonaccrual loans were reduced to 2.14% of total loans from 2.20% at year end but were
higher than the 0.56% at March 31, 2006 as a result of the Large Problem Credit.
    
    Nonperforming assets declined to 1.48% of total assets from 1.55% at year end and
increased from the 0.81% recorded at March 31, 2006.
 Loans
  March 31,
    
    
    December 31,2007
    
    
    2006% of Gross
    
    
    
    
    
    
    % of GrossAmount
    
    
    Loans
    
    
    Amount
    
    
    Loans(Dollars in thousands)Commercial
    
    $
    394,964
    
    
    
    20.2
    %
    
    $
    376,944
    
    
    
    19.4
    %Construction
    
    
    406,763
    
    
    
    20.8
    
    
    
    424,181
    
    
    
    21.8Commercial real estate
    
    
    762,627
    
    
    
    39.2
    
    
    
    761,742
    
    
    
    39.0ConsumerHome equity
    
    
    142,820
    
    
    
    7.3
    
    
    
    147,366
    
    
    
    7.6Other consumer
    
    
    8,097
    
    
    
    0.4
    
    
    
    9,373
    
    
    
    0.5Total consumer
    
    
    150,917
    
    
    
    7.7
    
    
    
    156,739
    
    
    
    8.1Residential mortgage
    
    
    235,897
    
    
    
    12.1
    
    
    
    227,762
    
    
    
    11.7Total loans, gross
    
    
    1,951,168
    
    
    
    100.0
    %
    
    
    1,947,368
    
    
    
    100.0
    %Net deferred fees
    
    
    (555
    )
    
    
    
    
    
    
    (552
    )Total loans, net
    
    $
    1,950,613
    
    
    
    
    
    
    $
    1,946,816Loans held for sale
    
    $
    3,740
    
    
    
    
    
    
    $
    2,672
  
    
    Commercial loans increased $18.0 million to $395.0 million as of March 31, 2007 from
$376.9 million as of December 31, 2006.
    
    Construction loans decreased by $17.4 million to $406.8 million as of March 31, 2007
from $424.2 million at December 31, 2006.
    
    Consumer loans decreased $5.8 million to $150.9 million as of March 31, 2007 compared to
$156.7 million December 31, 2006.
    
    Residential mortgage loans increased $8.1 million to $235.9 million as of March 31, 2007
from $227.8 million as of December 31, 2006.
  PAGE 26




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Allowance for Loan Losses
   2007
    
    
    2006(In thousands)Balance, January 1
    
    $
    23,229
    
    
    $
    17,760Provision charged to operations
    
    
    645
    
    
    
    Loans charged off
    
    
    (446
    )
    
    
    (163
    )Recoveries
    
    
    600
    
    
    
    140Net loans (charged off) recoveries
    
    
    154
    
    
    
    (23
    )Balance, March 31
    
    $
    24,028
    
    
    $
    17,737
  March 31,
    
    
    December 31,
    
    
    March 31,2006
    
    
    2006
    
    
    2006Net loans charged off to average loans during quarter
    
    
    (0.03
    )%
    
    
    1.62
    %
    
    
    0.01
    %Provision for loan losses to total loans
    
    
    0.13
    
    
    
    1.12
    
    
    
    0.00Allowance for loan losses to total loans
    
    
    1.23
    
    
    
    1.19
    
    
    
    1.26Allowance to nonaccrual loans
    
    
    0.58
    x
    
    
    0.54
    x
    
    
    2.25
    x
   PAGE 27




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##### Table of Contents



Nonaccrual Loans and Nonperforming Assets
   PAGE 28




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##### Table of Contents



March 31,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Impaired and other loans 90 days past due
and accruing
    
    $
    25
    
    
    $
    34Nonaccrual and impaired loans not accruing
    
    $
    41,679
    
    
    $
    42,826Other real estate
    
    
    2,403
    
    
    
    2,640Total nonperforming assets
    
    $
    44,082
    
    
    $
    45,466Total nonaccrual loans to total loans
    
    
    2.14
    %
    
    
    2.20
    %Total nonperforming assets to total loans
and other real estate
    
    
    2.26
    
    
    
    2.33Total nonperforming assets to total assets
    
    
    1.48
    
    
    
    1.55
 Securities
   March 31, 2007TotalHeld-to-Maturity
    
    

Available-for-Sale
    
    
    
    
    
    
    
    
    
    
    % 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
    
    $
    
    
    
    $
    
    
    
    $
    76,990
    
    
    $
    76,782
    
    
    $
    76,990
    
    
    $
    76,782
    
    
    
    11.12
    %Obligations of states and
political subdivisions
    
    
    1,685
    
    
    
    1,693
    
    
    
    46,085
    
    
    
    45,877
    
    
    
    47,770
    
    
    
    47,570
    
    
    
    6.90Mortgage-backed securities
    
    
    41,877
    
    
    
    40,752
    
    
    
    423,975
    
    
    
    415,772
    
    
    
    465,852
    
    
    
    456,524
    
    
    
    67.31Equity securities
    
    
    
    
    
    
    
    
    
    
    90,533
    
    
    
    91,067
    
    
    
    90,533
    
    
    
    91,067
    
    
    
    13.08Other bonds
    
    
    
    
    
    
    
    
    
    
    11,029
    
    
    
    10,487
    
    
    
    11,029
    
    
    
    10,487
    
    
    
    1.59Total
    
    $
    43,562
    
    
    $
    42,445
    
    
    $
    648,612
    
    
    $
    639,985
    
    
    $
    692,174
    
    
    $
    682,430
    
    
    
    100.00
    %
   
    
    U.S. Treasury and obligations of U.S. government-sponsored entities increased by $69.8
million to $76.8
 PAGE 29




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##### Table of Contents



million at March 31, 2007 compared to $7.0 million at year end.
    
    U.S. government agency and government-sponsored entity mortgage-backed securities
decreased 4.2%, or $18.3 million, from $434.1 million at December 31, 2006 to $415.8
million at March 31, 2007.
    
    Equity securities increased $49.5 million to $91.1 million at March 31, 2007 from
December 31, 2006. Equity securities included capital securities of U.S.
government-sponsored entities.
    
    Obligations of state and political subdivisions decreased $51.1 million to $45.9 million
at March 31, 2007 from December 31, 2006.
   Cash Surrender Value of Life Insurance
  Deposits and Borrowed Funds
  
    
    Noninterest-bearing deposits were $247.5 million at March 31, 2007, $28.8
million less than the $276.4 million level at December 31, 2006.
    
    Over the same period, interest-bearing deposits increased 4.6%, or $78.0
million to $1.8 billion at March 31, 2007 compared to December 31, 2006.
    
    Core deposits, which include demand deposit, interest-bearing demand
deposit, money market, and savings accounts, decreased $26.5 million to $789.4
million at March 31, 2007 from $815.9 million at December 31, 2006.
    
    Certificates of deposit under $100,000 increased $18.1 million from
December 31, 2006 to $739.7 million at March 31, 2007.
    
    Certificates of deposit over $100,000 and public funds increased $57.6
million from December 31, 2006 to $477.9 million at March 31, 2007. 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. At times, brokered certificates of deposit are less costly
than customer certificates of deposits.
 PAGE 30
    Table of Contents  March 31,
    
    
    December 31,2007
    
    
    2006(In thousands)Federal funds purchased
    
    $
    7,000
    
    
    $
    66,000Securities sold under agreements to
repurchase
    
    
    251,070
    
    
    
    201,079Federal Home Loan Bank advances
    
    
    319,897
    
    
    
    319,883Junior subordinated debentures
    
    
    65,828
    
    
    
    65,812Total
    
    $
    643,795
    
    
    $
    652,774
   Capital Resources
   PAGE 31
    Table of Contents  At March 31, 2007Minimum Required
    
    
    Minimum RequiredActual
    
    
    for Capital Adequacy
    
    
    to be Well CapitalizedAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(Dollars in thousands)Total capital to risk-weighted assetsCompany
    
    $
    294,095
    
    
    
    13.1
    %
    
    $
    179,547
    
    
    
    8.0
    %
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    280,918
    
    
    
    12.6
    
    
    
    178,717
    
    
    
    8.0
    
    
    $
    223,396
    
    
    
    10.0
    %Tier I capital to risk-weighted assetsCompany
    
    
    269,826
    
    
    
    12.0
    
    
    
    89,773
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    256,649
    
    
    
    11.5
    
    
    
    89,358
    
    
    
    4.0
    
    
    
    134,038
    
    
    
    6.0Tier I capital to average assetsCompany
    
    
    269,826
    
    
    
    9.1
    
    
    
    118,642
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    256,649
    
    
    
    8.7
    
    
    
    118,155
    
    
    
    4.0
    
    
    
    147,693
    
    
    
    5.0
 At December 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 assetsCompany
    
    $
    290,158
    
    
    
    13.0
    %
    
    $
    178,984
    
    
    
    8.0
    %
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    272,619
    
    
    
    12.2
    
    
    
    178,113
    
    
    
    8.0
    
    
    $
    222,641
    
    
    
    10.0
    %Tier I capital to risk-weighted assetsCompany
    
    
    266,753
    
    
    
    11.9
    
    
    
    89,492
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    249,214
    
    
    
    11.2
    
    
    
    89,056
    
    
    
    4.0
    
    
    
    133,584
    
    
    
    6.0Tier I capital to average assetsCompany
    
    
    266,753
    
    
    
    9.1
    
    
    
    117,855
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    249,214
    
    
    
    8.5
    
    
    
    117,140
    
    
    
    4.0
    
    
    
    146,425
    
    
    
    5.0
 PAGE 32
    Table of Contents  Liquidity
     PAGE 33
    Table of Contents  ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
 Interest Rate Sensitivity Analysis
  Change in Net Interest Income Over One Year HorizonGuidelineMarch 31, 2007
    
    

December
31, 2006
    
    
    MaximumDollar
    
    
    %
    
    
    Dollar
    
    
    %
    
    
    %Change
    
    
    Change
    
    
    Change
    
    
    Change
    
    
    Change(Dollars in thousands)+200 bp
    
    $
    (2,329
    )
    
    
    (2.84
    )%
    
    $
    (3,172
    )
    
    
    (4.00
    )%
    
    
    (15.0
    )%+100 bp
    
    
    (1,204
    )
    
    
    (1.47
    )
    
    
    (1,683
    )
    
    
    (2.12
    )
    
    
    (15.0
    )-100 bp
    
    
    (336
    )
    
    
    (0.41
    )
    
    
    1,410
    
    
    
    1.78
    
    
    
    (15.0
    )-200 bp
    
    
    (4,269
    )
    
    
    (5.21
    )
    
    
    (1,511
    )
    
    
    (1.90
    )
    
    
    (15.0
    )
    PAGE 34
    Table of Contents  ITEM 4  CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls Over Financial Reporting
  PAGE 35
    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 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 36
    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 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 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 ability of the Company to consummate the acquisition of Northwest
Suburban Bancorp, Inc. and to successfully integrate the Northwest Suburban Bancorp,
Inc. acquisition once closed;
    
    The ability of the Company to fully realize expected cost savings and revenues
in connection with the Northwest Suburban Bancorp, Inc. acquisition, or the ability to
realize them on a timely basis;
    
    The risk of borrower, depositor, and other customer attrition after the
Northwest Suburban Bancorp, Inc. 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 Company or the Bank to comply with banking
laws, rules or regulations;
    
    Possible administrative or enforcement actions of the Securities and Exchange
Commission (the SEC) in connection with the SEC inquiry of the restatement of the
Companys September 30, 2002 financial statements;
    
    Governmental monetary and fiscal policies, as well as legislative and
regulatory changes, that may result in the imposition of costs and constraints on the
Company through higher FDIC insurance premiums, significant fluctuations in market
interest rates, increases in capital requirements, and operational limitations;
 PAGE 37
    Table of Contents  
    
    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
    
    Other economic, competitive, governmental, regulatory, and technical factors
affecting the Companys operations, products, services, and prices.
   PAGE 38
    Table of Contents  PART II
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  TotalNumberof Shares
    
    
    Maximum NumberTotal
    
    
    
    
    
    
    Purchased as Part
    
    
    of Shares thatNumber
    
    
    Average
    
    
    of Publicly
    
    
    May Yet Beof Shares
    
    
    Price Paid
    
    
    Announced Plans
    
    
    Purchased UnderPeriod
    
    Purchased
    
    
    per Share
    
    
    or Programs
    
    
    the Plans or Programs1/1/07 - 1/31/07
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    1,035,6112/1/07 - 2/28/07
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,035,6113/1/06 - 3/31/07
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,035,611Total
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    1,035,611
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  PAGE 39
    Table of Contents  1.
    
    To elect twelve members to serve on the Companys Board of Directors for a
term of one year:
 Nominee
    
    For
    
    
    WithheldE.V. Silveri
    
    
    20,695,729
    
    
    
    406,920James J. Giancola
    
    
    20,077,284
    
    
    
    1,025,365J. J Fritz
    
    
    20,790,692
    
    
    
    311,957Angelo DiPaolo
    
    
    20,106,379
    
    
    
    996,270Barry I. Forrester, CFA
    
    
    20,845,632
    
    
    
    257,017Robert J. Genetski, PhD
    
    
    20,761,425
    
    
    
    341,224Gerald F. Hartley, CPA
    
    
    20,843,229
    
    
    
    259,420Homer J. Livingston, Jr.
    
    
    20,854,640
    
    
    
    248,009Joseph Rizza
    
    
    20,750,057
    
    
    
    352,592Thomas A. Rosenquist
    
    
    20,849,648
    
    
    
    253,001Kenneth Velo
    
    
    20,759,923
    
    
    
    342,726Leon Wolin
    
    
    20,778,153
    
    
    
    324,496
 2.
    
    To ratify the appointment of PricewaterhouseCoopers LLP:
 Votes For:
    
    
    21,051,898Against:
    
    
    35,696Abstain:
    
    
    15,055
 
 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).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
 PAGE 40
    Table of Contents  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).2.8
    
    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).2.9
    
    Form of Stockholder Voting Agreement, dated as of March 22, 2006,
by and among Midwest Banc Holdings, Inc. and certain stockholders
of Northwest Suburban Bancorp., Inc. (incorporated by reference to
Registrants Report on Form 8-K filed March 23, 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, 2006, File No. 001-1375).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 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).*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
 PAGE 41
    Table of Contents  October 28, 2005, File No. 001-13735).10.21
    
    Lease dated as of April 29, 1976, between Sanfilippo, Joseph C. and
Grace Ann and Fairfield Savings and Loan Association, as amended
(incorporated by reference to Registrants Form 10-K for the year
ended December 31, 2003, File No. 001-13735).10.22
    
    Lease dated as of August 28, 2002 between Glen Oak Plaza and
Midwest Bank and Trust Company (incorporated by reference to
Registrants Form 10-K for the year ended December 31, 2003, File
No. 001-13735).10.24
    
    Loan Agreement as of April 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).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).
 PAGE 42
    Table of Contents  *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,
2006.31.1
    
    Rule 13a-14(a) Certification of Principal Executive Officer.31.2
    
    Rule 13a-14(a) Certification of Principal Financial Officer.32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, from the
Companys Chief Executive Officer and Chief Financial Officer.
 
 *
    
    Indicates management contracts or compensatory plans or arrangements required to be filed as an exhibit. PAGE 43
    Table of Contents  SIGNATURES
   MIDWEST BANC HOLDINGS, INC.
(Registrant)By:
    
    /s/ James J. GiancolaJames J. Giancola,
President and Chief Executive OfficerBy:
    
    /s/ Daniel R. KadolphDaniel R. Kadolph,
Executive Vice President and
Chief Financial Officer
 PAGE 44
    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).2.8
    
    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 22, 2007, File No. 001-13735).2.9
    
    Form of Stockholder Voting Agreement, dated as of March 22, 2006,
by and among Midwest Banc Holdings, Inc. and certain stockholders
of Northwest Suburban Bancorp., Inc. (incorporated by reference to
Registrants Report on Form 8-K filed March 23, 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, 2006, File No. 001-1375).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).
    Table of Contents  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 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).*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 Sanfilippo, Joseph C. and
Grace Ann and Fairfield Savings and Loan Association, as amended
(incorporated by reference to Registrants Form 10-K for the year
ended December 31, 2003, File No. 001-13735).10.22
    
    Lease dated as of August 28, 2002 between Glen Oak Plaza and
Midwest Bank and Trust Company (incorporated by reference to
Registrants Form 10-K for the year ended December 31, 2003, File
No. 001-13735).10.24
    
    Loan Agreement as of April 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).
    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).*10.31
    
    Amended and Restated Employment Agreement dated February 8, 2006 by
and between Royal American Bank and Jay Fritz, assumed by the
Company as of July 1, 2006 (incorporated by reference to
Registrants Report on Form 8-K filed July 7, 2006, File No.
001-13735).10.32
    
    Lease dated April 1, 1993, by and between Royal American Bank and
LaSalle National Trust, N.A., as amended, assumed by the Company as
of July 1, 2006 (incorporated by reference to Registrants Form
10-Q for the quarter ended September 30, 2006, File No. 001-13735).10.33
    
    Lease dated April 19, 1993 by and between Royal American Bank and
Hamilton Forsythe 1000 Tower Lane LLC, successor-in-interest to
Bensenville Office Venture, as amended, assumed by the Company as
of July 1, 2006 (incorporated by reference to Registrants Form
10-Q for the quarter ended September 30, 2006, File No. 001-13735).10.34
    
    Sublease dated January 31, 2006 by and between Royal American Bank
and JPMorgan Chase Bank, National Association, assumed by the
Company as of July 1, 2006 (incorporated by reference to
Registrants Form 10-Q for the quarter ended September 30, 2006,
File No. 001-13735).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,
    Table of Contents  assumed by the Company as of July 1, 2006.31.1
    
    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.