##### 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 September 30, 2006
 Commission File Number: 001-13735
 MIDWEST BANC HOLDINGS, INC.
 (Exact name of Registrant as specified in its charter.)
 Delaware
    
    36-3252484(State or other jurisdiction of 
incorporation or organization)
    
    (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
  o þ o
 o þ
  Class
    
    Outstanding at November 9, 2006Common, par value $.01
    
    24,725,227




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##### 



MIDWEST BANC HOLDINGS, INC.
 Form 10-Q
 Table of Contents
 Page NumberPART IItem 1. Financial Statements (Unaudited)
    
    
    1Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    43Item 4. Controls and Procedures
    
    
    44PART IIItem 1. Legal Proceedings
    
    
    48Item 1A. Risk Factors
    
    
    48Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
    
    
    48Item 3. Defaults upon Senior Securities
    
    
    48Item 4. Submission of Matters to a Vote of Security Holders
    
    
    48Item 5. Other Information
    
    
    48Item 6. Exhibits
    
    
    49Form 10-Q Signature Page
    
    
    52Lease dated April 1, 1993Lease dated April 19, 1993Sublease dated January 20, 2006Lease dated January 20, 2006Lease dated October 28, 1996Lease dated September 24, 1999Lease dated July 14, 2006Second Amendment to the Form of 2001 Supplemental Executive Retirement AgreementForm of 2006 Supplemental Executive Retirement AgreementFirst Amendment to the Form of 2005 Supplemental Executive Retirement AgreementLease dated November 9, 2005Rule 13a-14(a) Certification of Principal Executive OfficerRule 13a-14(a) Certification of Principal Financial OfficerCertification Pursuant to Section 1350 - CEO and CFO




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands)
 September 30,
    
    
    December 31,2006
    
    
    2005ASSETSCash
    
    $
    70,004
    
    
    $
    58,329Federal funds sold and other short-term investments
    
    
    2,647
    
    
    
    12,270Total cash and cash equivalents
    
    
    72,651
    
    
    
    70,599Securities available-for-sale
    
    
    642,188
    
    
    
    687,937Securities held-to-maturity (fair value: $49,403 at
September 30, 2006 and $58,332 at December 31, 2005)
    
    
    50,688
    
    
    
    59,451Federal Reserve and Federal Home Loan Bank stock, at cost
    
    
    20,977
    
    
    
    14,661Loans held for sale
    
    
    3,321
    
    
    
    1,912Loans
    
    
    1,909,026
    
    
    
    1,349,996Allowance for loan losses
    
    
    (25,542
    )
    
    
    (17,760
    )Net loans
    
    
    1,883,484
    
    
    
    1,332,236Cash surrender value of life insurance
    
    
    64,526
    
    
    
    44,433Premises and equipment, net
    
    
    20,993
    
    
    
    22,247Other real estate
    
    
    2,864
    
    
    
    11,154Core deposit and other intangibles, net
    
    
    11,677
    
    
    
    1,788Goodwill
    
    
    78,567
    
    
    
    891Due from broker
    
    
    15,109
    
    
    
    Other assets
    
    
    75,256
    
    
    
    60,299Total assets
    
    $
    2,942,301
    
    
    $
    2,307,608LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesDepositsNoninterest-bearing
    
    $
    272,442
    
    
    $
    158,406Interest-bearing
    
    
    1,754,394
    
    
    
    1,364,978Total deposits
    
    
    2,026,836
    
    
    
    1,523,384Federal funds purchased
    
    
    34,000
    
    
    
    68,000Securities sold under agreements to repurchase
    
    
    229,676
    
    
    
    264,808Advances from the Federal Home Loan Bank
    
    
    254,869
    
    
    
    150,000Junior subordinated debt owed to unconsolidated trusts
    
    
    65,800
    
    
    
    55,672Due to broker
    
    
    
    
    
    
    1,301Other liabilities
    
    
    41,643
    
    
    
    28,317Total liabilities
    
    
    2,652,824
    
    
    
    2,091,482Commitments and contingencies (see note 12)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;
25,423,982 shares issued and 24,795,987 shares outstanding
at September 30, 2006 and 22,139,089 shares issued and
21,813,778 shares outstanding at December 31, 2005
    
    
    254
    
    
    
    221Additional paid-in capital
    
    
    199,878
    
    
    
    134,857Retained earnings
    
    
    98,132
    
    
    
    92,121Restricted stock
    
    
    
    
    
    
    (3,013
    )Accumulated other comprehensive loss
    
    
    (6,561
    )
    
    
    (7,606
    )Treasury stock, at cost (627,995 shares at September 30, 2006
and 325,311 shares at December 31, 2005)
    
    
    (2,226
    )
    
    
    (454
    )Total stockholders equity
    
    
    289,477
    
    
    
    216,126Total liabilities and stockholders equity
    
    $
    2,942,301
    
    
    $
    2,307,608
 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)
(In thousands, except per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Interest IncomeLoans
    
    $
    36,918
    
    
    $
    20,825
    
    
    $
    87,968
    
    
    $
    56,964SecuritiesTaxable
    
    
    7,484
    
    
    
    7,192
    
    
    
    22,875
    
    
    
    21,255Exempt from federal income taxes
    
    
    956
    
    
    
    340
    
    
    
    2,608
    
    
    
    579Trading securities
    
    
    189
    
    
    
    198
    
    
    
    189
    
    
    
    388Dividend income from Federal Reserve and Federal Home Loan
Bank stock
    
    
    199
    
    
    
    183
    
    
    
    475
    
    
    
    570Federal funds sold and other short-term investments
    
    
    157
    
    
    
    142
    
    
    
    437
    
    
    
    387Total interest income
    
    
    45,903
    
    
    
    28,880
    
    
    
    114,552
    
    
    
    80,143Interest ExpenseDeposits
    
    
    16,963
    
    
    
    8,521
    
    
    
    40,023
    
    
    
    24,597Federal funds purchased
    
    
    352
    
    
    
    317
    
    
    
    750
    
    
    
    604Securities sold under agreements to repurchase
    
    
    2,857
    
    
    
    1,404
    
    
    
    7,736
    
    
    
    3,997Advances from the Federal Home Loan Bank
    
    
    3,001
    
    
    
    1,340
    
    
    
    6,522
    
    
    
    4,366Junior subordinated debt owed to unconsolidated trusts
    
    
    1,337
    
    
    
    875
    
    
    
    3,414
    
    
    
    2,839Note payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9Total interest expense
    
    
    24,510
    
    
    
    12,457
    
    
    
    58,445
    
    
    
    36,412Net interest income
    
    
    21,393
    
    
    
    16,423
    
    
    
    56,107
    
    
    
    43,731Provision for loan losses
    
    
    1,550
    
    
    
    813
    
    
    
    6,550
    
    
    
    2,440Net interest income after provision for loan losses
    
    
    19,843
    
    
    
    15,610
    
    
    
    49,557
    
    
    
    41,291Noninterest IncomeCustomer service fees
    
    
    1,543
    
    
    
    1,335
    
    
    
    4,161
    
    
    
    3,866Net losses on securities transactions
    
    
    
    
    
    
    
    
    
    
    (195
    )
    
    
    (17,440
    )Net trading profits
    
    
    624
    
    
    
    269
    
    
    
    624
    
    
    
    400Gains on sales of loans
    
    
    194
    
    
    
    116
    
    
    
    490
    
    
    
    254Insurance and brokerage commissions
    
    
    478
    
    
    
    414
    
    
    
    1,476
    
    
    
    1,180Trust
    
    
    357
    
    
    
    80
    
    
    
    520
    
    
    
    224Increase in cash surrender value of life insurance
    
    
    676
    
    
    
    399
    
    
    
    1,700
    
    
    
    1,287Life insurance benefit
    
    
    
    
    
    
    789
    
    
    
    
    
    
    
    789Gain on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    1,250
    
    
    
    Other
    
    
    275
    
    
    
    160
    
    
    
    735
    
    
    
    657Total noninterest income
    
    
    4,147
    
    
    
    3,562
    
    
    
    10,761
    
    
    
    (8,783
    )Noninterest ExpensesSalaries and employee benefits
    
    
    9,318
    
    
    
    6,889
    
    
    
    24,418
    
    
    
    20,246Occupancy and equipment
    
    
    1,885
    
    
    
    1,576
    
    
    
    4,988
    
    
    
    4,591Professional services
    
    
    3,047
    
    
    
    1,029
    
    
    
    5,394
    
    
    
    3,368Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,125Marketing
    
    
    418
    
    
    
    449
    
    
    
    1,459
    
    
    
    1,481Other real estate owned
    
    
    47
    
    
    
    9
    
    
    
    237
    
    
    
    2,544Other
    
    
    2,479
    
    
    
    1,325
    
    
    
    5,624
    
    
    
    4,308Total noninterest expenses
    
    
    17,194
    
    
    
    11,277
    
    
    
    42,120
    
    
    
    49,663Income (loss) before income taxes and discontinued operations
    
    
    6,796
    
    
    
    7,895
    
    
    
    18,198
    
    
    
    (17,155
    )Provision (benefit) for income taxes
    
    
    814
    
    
    
    1,982
    
    
    
    3,385
    
    
    
    (8,896
    )Income (loss) from continuing operations
    
    
    5,982
    
    
    
    5,913
    
    
    
    14,813
    
    
    
    (8,259
    )Discontinued operationsIncome from discontinued operations before income taxes
    
    
    
    
    
    
    6,554
    
    
    
    
    
    
    
    9,236Provision for income taxes
    
    
    
    
    
    
    925
    
    
    
    
    
    
    
    1,703Income from discontinued operations
    
    
    
    
    
    
    5,629
    
    
    
    
    
    
    
    7,533Net Income (Loss)
    
    $
    5,982
    
    
    $
    11,542
    
    
    $
    14,813
    
    
    $
    (726
    )Basic earnings per share from continuing operations
    
    $
    0.24
    
    
    $
    0.30
    
    
    $
    0.65
    
    
    $
    (0.44
    )Basic earnings per share from discontinued operations
    
    $
    
    
    
    $
    0.28
    
    
    $
    
    
    
    $
    0.40Basic earnings per share
    
    $
    0.24
    
    
    $
    0.58
    
    
    $
    0.65
    
    
    $
    (0.04
    )Diluted earnings per share from continuing operations
    
    $
    0.24
    
    
    $
    0.29
    
    
    $
    0.64
    
    
    $
    (0.44
    )Diluted earnings per share from discontinued operations
    
    $
    
    
    
    $
    0.28
    
    
    $
    
    
    
    $
    0.39Diluted earnings per share
    
    $
    0.24
    
    
    $
    0.57
    
    
    $
    0.64
    
    
    $
    (0.04
    )Cash dividends declared per common share
    
    $
    0.13
    
    
    $
    0.12
    
    
    $
    0.38
    
    
    $
    0.36
 See accompanying notes to unaudited consolidated financial statements.
 PAGE 2




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (Unaudited)
For the Nine Months Ended September 30, 2006 and 2005
(In thousands, except share and per share data)
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    TotalCommon
    
    
    Paid in
    
    
    Retained
    
    
    Restricted
    
    
    Comprehensive
    
    
    Treasury
    
    
    StockholdersStock
    
    
    Capital
    
    
    Earnings
    
    
    Stock
    
    
    Loss
    
    
    Stock
    
    
    EquityBalance, January 1, 2005
    
    $
    187
    
    
    $
    65,781
    
    
    $
    95,829
    
    
    $
    (2,642
    )
    
    $
    (16,457
    )
    
    $
    (5,275
    )
    
    $
    137,423Cash dividends declared ($0.36 per share)
    
    
    
    
    
    
    
    
    
    
    (7,015
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,015
    )Issuance of 3,450,000 shares of common
stock, pursuant to a secondary public offering
    
    
    34
    
    
    
    67,901
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,935Issuance of common stock upon
exercise of 376,102 stock options,
inclusive of tax benefit
    
    
    
    
    
    
    298
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,146
    
    
    
    4,444Issuance of 63,700 shares of restricted
stock , net of forfeiture
    
    
    
    
    
    
    569
    
    
    
    
    
    
    
    (1,244
    )
    
    
    
    
    
    
    675
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    605
    
    
    
    
    
    
    
    
    
    
    
    605Comprehensive incomeNet loss
    
    
    
    
    
    
    
    
    
    
    (726
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (726
    )Net increase in fair value of
securities classified as available-
for-sale, net of income taxes and
reclassification adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,520
    
    
    
    
    
    
    
    12,520Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,794Balance, September 30, 2005
    
    $
    221
    
    
    $
    134,549
    
    
    $
    88,088
    
    
    $
    (3,281
    )
    
    $
    (3,937
    )
    
    $
    (454
    )
    
    $
    215,186Balance, January 1, 2006
    
    $
    221
    
    
    $
    134,857
    
    
    $
    92,121
    
    
    $
    (3,013
    )
    
    $
    (7,606
    )
    
    $
    (454
    )
    
    $
    216,126Cash dividends declared ($0.38 per share)
    
    
    
    
    
    
    
    
    
    
    (8,802
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,802
    )Issuance of 2,865,933 of common shares
upon acquisition
    
    
    29
    
    
    
    63,738
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63,767Issuance of common stock upon
exercise of 150,644 stock options,
net of tax benefit
    
    
    2
    
    
    
    2,558
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,560Purchase of 70,368 of treasury shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,652
    )
    
    
    (1,652
    )Reclassification of restricted stock in
conjunction with the adoption of FAS 123 (R)
    
    
    
    
    
    
    (3,013
    )
    
    
    
    
    
    
    3,013
    
    
    
    
    
    
    
    
    
    
    
    Issuance of 263,316 shares of restricted stock
    
    
    2
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeiture of 7,400 shares of restricted stock
    
    
    
    
    
    
    120
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (120
    )
    
    
    Stock-based compensation
    
    
    
    
    
    
    1,620
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,620Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    14,813
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,813Net increase in fair value of
securities classified as available-
for-sale, net of income taxes and
reclassification adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,045
    
    
    
    
    
    
    
    1,045Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,858Balance, September 30, 2006
    
    $
    254
    
    
    $
    199,878
    
    
    $
    98,132
    
    
    $
    
    
    
    $
    (6,561
    )
    
    $
    (2,226
    )
    
    $
    289,477
 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 Nine Months Ended September 30, 2006 and 2005
(In thousands)
 Revised(1)2006
    
    
    2005Cash flows from continuing operating activitiesNet income (loss)
    
    $
    14,813
    
    
    $
    (726
    )Income from discontinued operations
    
    
    
    
    
    
    (7,533
    )Adjustments to reconcile net income to net cash provided by continuing operating activitiesDepreciation
    
    
    1,856
    
    
    
    1,752Provision for loan losses
    
    
    6,550
    
    
    
    2,440Amortization of other intangibles
    
    
    582
    
    
    
    322Proceeds
from sales (purchases) of trading securities, net
    
    
    (14,485
    )
    
    
    400Amortization of premiums and discounts on securities, net
    
    
    624
    
    
    
    1,640Realized loss on sale of available-for-sale securities, net
    
    
    195
    
    
    
    17,440Net gain on sales of trading securities, net
    
    
    (624
    )
    
    
    (400
    )Net gain on sales of loans held for sale
    
    
    (490
    )
    
    
    (254
    )Originations of loans held for sale
    
    
    (41,068
    )
    
    
    (18,172
    )Proceeds from sales of loans held for sale
    
    
    40,149
    
    
    
    17,459Increase in cash surrender value of life insurance
    
    
    (1,700
    )
    
    
    (1,287
    )Life insurance benefit
    
    
    
    
    
    
    (789
    )Deferred income taxes
    
    
    (1,109
    )
    
    
    (8,886
    )Gain on sale of other real estate, net
    
    
    
    
    
    
    (65
    )Amortization of deferred stock based compensation
    
    
    1,620
    
    
    
    605Change in other assets
    
    
    (8,478
    )
    
    
    (13,635
    )Change in other liabilities
    
    
    8,385
    
    
    
    3,546Net cash provided by (used in) continuing operating activities
    
    
    6,820
    
    
    
    (6,143
    )Cash flows from continuing investing activitiesSales of securities available-for-sale
    
    
    26,114
    
    
    
    451,864Maturities of securities available-for-sale
    
    
    16,500
    
    
    
    123,218Principal payments on securities
    
    
    64,230
    
    
    
    52,590Purchases of securities available-for-sale
    
    
    (43,309
    )
    
    
    (848,511
    )Purchases of securities held-to-maturity
    
    
    
    
    
    
    (1,010
    )Maturities of securities held-to-maturity
    
    
    2,190
    
    
    
    1,475Loan originations and principal collections, net
    
    
    (63,061
    )
    
    
    (182,935
    )Proceeds from sale/leaseback of branch property
    
    
    4,403
    
    
    
    Dispostion of subsidiary, net
    
    
    
    
    
    
    35,621Cash received, net of cash and cash equivalents in acquisition and stock issuance
    
    
    (41,044
    )
    
    
    Proceeds from sale of other real estate
    
    
    8,555
    
    
    
    647Investment in life insurance
    
    
    (5,926
    )
    
    
    Return of life insurance premium and benefit
    
    
    
    
    
    
    1,351Additions to property and equipment
    
    
    (3,521
    )
    
    
    (620
    )Net cash used in continuing investing activities
    
    
    (34,869
    )
    
    
    (366,310
    )Cash flows from continuing financing activitiesNet increase in deposits
    
    
    37,095
    
    
    
    31,579Issuance of junior subordinated debt owed to unconsolidated trusts, net of debt issuance costs
    
    
    
    
    
    
    20,619Payments of junior subordinated debt owed to unconsolidated trusts
    
    
    
    
    
    
    (20,619
    )Proceeds from borrowings
    
    
    200,000
    
    
    
    152,000Repayments on borrowings
    
    
    (100,000
    )
    
    
    (123,500
    )Cash dividends paid
    
    
    (8,165
    )
    
    
    (6,528
    )Change in federal funds purchased and securities sold under agreements to repurchase
    
    
    (99,132
    )
    
    
    89,698Issuance of common stock
    
    
    
    
    
    
    68,453Repurchase of common stock
    
    
    (1,652
    )
    
    
    Proceeds from issuance of common or treasury stock under stock and incentive option plan
    
    
    1,955
    
    
    
    4,150Net cash provided by continuing financing activities
    
    
    30,101
    
    
    
    215,852Cash flows from discontinued operationsNet cash provided by operating activities of discontinued operations
    
    
    
    
    
    
    4,641Net cash used in investing activities of discontinued operations
    
    
    
    
    
    
    (29,161
    )Net cash provided by financing activities of discontinued operations
    
    
    
    
    
    
    113Net cash used in discontinued operations
    
    
    
    
    
    
    (24,407
    )
 See accompanying notes to unaudited consolidated financial statements.
 PAGE 4




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)  (Continued)
 2006
    
    
    2005Increase (decrease) in cash and cash equivalents
    
    $
    2,052
    
    
    $
    (181,008
    )Cash and cash equivalents at beginning of period (2)
    
    
    70,599
    
    
    
    243,431Cash and cash equivalents at end of period (3)
    
    $
    72,651
    
    
    $
    62,423Supplemental disclosuresCash paid during period for:Interest
    
    $
    55,942
    
    
    $
    36,521Income taxes
    
    
    2,811
    
    
    
    3,219Dividends declared not paid
    
    $
    3,273
    
    
    $
    2,636AcquisitionNoncash assets acquired:Securities available-for-sale
    
    $
    16,487
    
    
    $
    Federal Reserve and Federal Home Loan Bank stock
    
    
    1,427
    
    
    
    Loans, net
    
    
    494,540
    
    
    
    Cash value of life insurance
    
    
    12,467
    
    
    
    Premises and equipment, net
    
    
    1,295
    
    
    
    Core deposit intangible, net
    
    
    10,488
    
    
    
    Goodwill
    
    
    77,676
    
    
    
    Other assets
    
    
    5,455
    
    
    
    Total noncash assets acquired
    
    $
    619,835
    
    
    $
    Liabilities assumed:Deposits
    
    $
    466,011
    
    
    $
    Federal Funds Purchased
    
    
    30,000
    
    
    
    Advances from the Federal Home Loan Bank
    
    
    4,854
    
    
    
    Junior subordinated debt owed to unconsolidated trust
    
    
    10,106
    
    
    
    Other liabilities
    
    
    4,053
    
    
    
    Total liabilities assumed
    
    
    515,024
    
    
    $
    Net noncash assets acquired
    
    $
    104,811
    
    
    $
    Cash and cash equivalents acquired
    
    $
    24,363
    
    
    $
    
 
 (1)
    The Unaudited Consolidated Statement of Cash Flows for the nine months ended
September 30, 2005 has been revised to separately disclose the operating, investing, and
financing portions of the cash flows attributable to discontinued operations. The previous
statement filed in the Companys September 30, 2005 Quarterly Report on Form 10-Q did not
include discontinued operations. 2006
    
    2005(2)   Includes following balances from discontinued operations
    
    $
    
    
    
    $
    24,407(3)   Includes following balances from discontinued operations
    
    
    
    
    
    
    
 See accompanying notes to unaudited consolidated financial statements.
 PAGE 5




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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 6




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
      PAGE 7




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 3  BUSINESS COMBINATION
    (In thousands, except per share data)Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Net interest income
    
    $
    21,393
    
    
    $
    20,368
    
    
    $
    65,384
    
    
    $
    54,832Income (loss) from continuing operations
    
    
    5,982
    
    
    
    6,570
    
    
    
    10,457
    
    
    
    (6,498
    )Net income
    
    
    5,982
    
    
    
    12,199
    
    
    
    10,457
    
    
    
    (1,035
    )Basic earnings per share from
continuing operations
    
    
    0.24
    
    
    
    0.29
    
    
    
    0.43
    
    
    
    (0.30
    )Basic earnings per share
    
    
    0.24
    
    
    
    0.53
    
    
    
    0.43
    
    
    
    0.05Diluted earnings per share from
continuing operations
    
    
    0.24
    
    
    
    0.28
    
    
    
    0.42
    
    
    
    (0.30
    )Diluted earnings per share
    
    
    0.24
    
    
    
    0.53
    
    
    
    0.42
    
    
    
    0.05
  PAGE 8




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 4  DISCONTINUED OPERATIONS
   Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2005
    
    
    2005Interest income
    
    $
    3,640
    
    
    $
    10,386Interest expense
    
    
    1,642
    
    
    
    4,427Net interest income
    
    
    1,998
    
    
    
    5,959Provision for loan losses
    
    
    100
    
    
    
    (183
    )Net interest income after provision for loan losses
    
    
    1,898
    
    
    
    6,142Noninterest income
    
    
    (2,624
    )
    
    
    (1,301
    )Noninterest expense
    
    
    1,461
    
    
    
    4,345Income before income taxes
    
    
    (2,187
    )
    
    
    496Provision for income taxes
    
    
    (935
    )
    
    
    (156
    )Operating income from discontinued operations
    
    
    (1,252
    )
    
    
    652Gain on sale of discontinued operations
    
    
    6,881
    
    
    
    6,881Income from discontinued operations
    
    $
    5,629
    
    
    $
    7,533
 PAGE 9




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 5  SECURITIES
  September 30, 2006Held-to-Maturity
    
    
    Available-for-Sale
    
    
    TotalAmortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    % ofCost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Portfolio(Dollars in thousands)U.S. Treasury and obligations of
U.S. government-sponsored entities
    
    $
    
    
    
    $
    
    
    
    $
    1,971
    
    
    $
    1,972
    
    
    $
    1,971
    
    
    $
    1,972
    
    
    
    0.28
    %Obligations of states and
political subdivisions
    
    
    3,934
    
    
    
    3,959
    
    
    
    97,185
    
    
    
    98,026
    
    
    
    101,119
    
    
    
    101,985
    
    
    
    14.36Mortgage-backed securities
    
    
    46,754
    
    
    
    45,444
    
    
    
    463,846
    
    
    
    452,194
    
    
    
    510,600
    
    
    
    497,638
    
    
    
    72.52Equity securities
    
    
    
    
    
    
    
    
    
    
    79,326
    
    
    
    79,562
    
    
    
    79,326
    
    
    
    79,562
    
    
    
    11.27Other bonds
    
    
    
    
    
    
    
    
    
    
    11,039
    
    
    
    10,434
    
    
    
    11,039
    
    
    
    10,434
    
    
    
    1.57Total
    
    $
    50,688
    
    
    $
    49,403
    
    
    $
    653,367
    
    
    $
    642,188
    
    
    $
    704,055
    
    
    $
    691,591
    
    
    
    100.00
    %
 December 31, 2005Held-to-Maturity
    
    
    Available-for-Sale
    
    
    TotalAmortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    % ofCost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Portfolio(Dollars in thousands)U.S. Treasury and obligations of
U.S. government-sponsored entities
    
    $
    
    
    
    $
    
    
    
    $
    24,866
    
    
    $
    24,719
    
    
    $
    24,866
    
    
    $
    24,719
    
    
    
    3.27
    %Obligations of states and
political subdivisions
    
    
    6,138
    
    
    
    6,182
    
    
    
    79,463
    
    
    
    78,350
    
    
    
    85,601
    
    
    
    84,532
    
    
    
    11.26Mortgage-backed securities
    
    
    53,313
    
    
    
    52,150
    
    
    
    521,896
    
    
    
    511,312
    
    
    
    575,209
    
    
    
    563,462
    
    
    
    75.66Equity securities
    
    
    
    
    
    
    
    
    
    
    63,574
    
    
    
    62,930
    
    
    
    63,574
    
    
    
    62,930
    
    
    
    8.36Other bonds
    
    
    
    
    
    
    
    
    
    
    11,054
    
    
    
    10,626
    
    
    
    11,054
    
    
    
    10,626
    
    
    
    1.45Total
    
    $
    59,451
    
    
    $
    58,332
    
    
    $
    700,853
    
    
    $
    687,937
    
    
    $
    760,304
    
    
    $
    746,269
    
    
    
    100.00
    %
 PAGE 10




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  September 30, 2006Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(In thousands)Securities available-for-sale:Obligations of states and political subdivisions
    
    $
    1,003
    
    
    $
    (2
    )
    
    $
    12,520
    
    
    $
    (89
    )
    
    $
    13,523
    
    
    $
    (91
    )Mortgage-backed securities:U.S. government agencies (1)
    
    
    
    
    
    
    
    
    
    
    602
    
    
    
    (10
    )
    
    
    602
    
    
    
    (10
    )U.S. government-sponsored entities (2)
    
    
    32
    
    
    
    
    
    
    
    450,771
    
    
    
    (11,661
    )
    
    
    450,803
    
    
    
    (11,661
    )Equity securities (3)
    
    
    53,352
    
    
    
    (222
    )
    
    
    
    
    
    
    
    
    
    
    53,352
    
    
    
    (222
    )Corporate and other debt securities
    
    
    
    
    
    
    
    
    
    
    10,434
    
    
    
    (605
    )
    
    
    10,434
    
    
    
    (605
    )Total available-for-sale
    
    
    54,387
    
    
    
    (224
    )
    
    
    474,327
    
    
    
    (12,365
    )
    
    
    528,714
    
    
    
    (12,589
    )Securities held-to-maturity:Mortgage-backed securities:U.S. government agencies (1)
    
    
    953
    
    
    
    (12
    )
    
    
    9,265
    
    
    
    (165
    )
    
    
    10,218
    
    
    
    (177
    )U.S. government-sponsored entities (2)
    
    
    964
    
    
    
    (10
    )
    
    
    34,262
    
    
    
    (1,123
    )
    
    
    35,226
    
    
    
    (1,133
    )Total held-to-maturity
    
    
    1,917
    
    
    
    (22
    )
    
    
    43,527
    
    
    
    (1,288
    )
    
    
    45,444
    
    
    
    (1,310
    )Total temporarily impaired securities
    
    $
    56,304
    
    
    $
    (246
    )
    
    $
    517,854
    
    
    $
    (13,653
    )
    
    $
    574,158
    
    
    $
    (13,899
    )
 
 (1)
    
    Includes obligations of the Government National Mortgage Association (GNMA).(2)
    
    Includes obligations of the Federal Home Loan Mortgage Corporation (FHLMC) and Federal
National Mortgage Association (FNMA).(3)
    
    Includes issues from government-sponsored entities (FNMA and FHLMC).  
    
    The unrealized loss for U.S. government-sponsored entities mortgage-backed
securities relate primarily to debt securities issued by FNMA and FHLMC; each security
has a stated maturity date. FNMA is rated Aa3, AA- and A+ by Moodys, S&P and Fitch,
respectively. FHLMC is rated Aa3 and AA- by Moodys and Fitch, respectively. The
mortgage-backed securities are notes with a weighted average maturity of approximately
23 years and a weighted average interest rate of 4.96%.
    
    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 11




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 6  LOANS
  September 30,
    
    
    December 31,2006
    
    
    2005% of
    
    
    
    
    
    
    % ofGross
    
    
    
    
    
    
    GrossAmount
    
    
    Loans
    
    
    Amount
    
    
    Loans(Dollars in thousands)Commercial
    
    $
    354,900
    
    
    
    18.6
    %
    
    $
    201,284
    
    
    
    14.9
    %Construction
    
    
    420,627
    
    
    
    22.0
    
    
    
    358,785
    
    
    
    26.6Commercial real estate
    
    
    762,125
    
    
    
    39.9
    
    
    
    496,819
    
    
    
    36.8ConsumerHome equity
    
    
    147,573
    
    
    
    7.7
    
    
    
    115,429
    
    
    
    8.5Other consumer
    
    
    9,520
    
    
    
    0.5
    
    
    
    4,273
    
    
    
    0.3Total consumer
    
    
    157,093
    
    
    
    8.2
    
    
    
    119,702
    
    
    
    8.8Residential mortgage
    
    
    214,967
    
    
    
    11.3
    
    
    
    174,184
    
    
    
    12.9Total loans, gross
    
    
    1,909,712
    
    
    
    100.0
    %
    
    
    1,350,774
    
    
    
    100.0
    %Net deferred fees
    
    
    (686
    )
    
    
    
    
    
    
    (778
    )Total loans, net
    
    $
    1,909,026
    
    
    
    
    
    
    $
    1,349,996Loans held for sale
    
    $
    3,321
    
    
    
    
    
    
    $
    1,912
 NOTE 7  ALLOWANCE FOR LOAN LOSSES
  2006
    
    
    2005(In thousands)Balance, January 1
    
    $
    17,760
    
    
    $
    16,217Addition resulting from acquisition
    
    
    3,244
    
    
    
    Provision charged to operations
    
    
    6,550
    
    
    
    2,440Loans charged off
    
    
    (2,601
    )
    
    
    (1,013
    )Recoveries
    
    
    589
    
    
    
    349Balance, September 30
    
    $
    25,542
    
    
    $
    17,993
 PAGE 12




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 8  GOODWILL AND INTANGIBLES
  September 30, 2006
    
    December 31, 2005Gross Carrying
    
    Accumulated
    
    Net Carrying
    
    Gross Carrying
    
    Accumulated
    
    Net CarryingAmount
    
    Amortization
    
    Amount
    
    Amount
    
    Amortization
    
    AmountAmortized intangible assets:Core deposit and other intangibles
    
    $
    13,618
    
    
    $
    (1,941
    )
    
    $
    11,677
    
    
    $
    3,130
    
    
    $
    (1,342
    )
    
    $
    1,788
   Core Depositand OtherGoodwill
    
    
    IntangiblesBalance, January 1
    
    $
    891
    
    
    $
    1,788Addition resulting from acquisition
    
    
    77,676
    
    
    
    10,488Amortization
    
    
    
    
    
    
    (599
    )Balance, September 30
    
    $
    78,567
    
    
    $
    11,677
 PAGE 13




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 9  EARNINGS PER SHARE
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(In thousands, except per share data)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005BasicIncome (loss) from continuing operations
    
    $
    5,982
    
    
    $
    5,913
    
    
    $
    14,813
    
    
    $
    (8,259
    )Income from discontinued operations
    
    
    
    
    
    
    5,629
    
    
    
    
    
    
    
    7,533Net income (loss)
    
    $
    5,982
    
    
    $
    11,542
    
    
    $
    14,813
    
    
    $
    (726
    )Weighted average common shares outstanding
    
    
    24,811
    
    
    
    20,060
    
    
    
    22,886
    
    
    
    18,824Basic earnings per share from continuing operations
    
    $
    0.24
    
    
    $
    0.30
    
    
    $
    0.65
    
    
    $
    (0.44
    )Basic earnings per share from discontinued operations
    
    $
    
    
    
    $
    0.28
    
    
    $
    
    
    
    $
    0.40Basic earnings per share
    
    $
    0.24
    
    
    $
    0.58
    
    
    $
    0.65
    
    
    $
    (0.04
    )DilutedIncome (loss) from continuing operations
    
    $
    5,982
    
    
    $
    5,913
    
    
    $
    14,813
    
    
    $
    (8,259
    )Income from discontinued operations
    
    
    
    
    
    
    5,629
    
    
    
    
    
    
    
    7,533Net income (loss)
    
    $
    5,982
    
    
    $
    11,542
    
    
    $
    14,813
    
    
    $
    (726
    )Weighted average common shares outstanding
    
    
    24,811
    
    
    
    20,060
    
    
    
    22,886
    
    
    
    18,824Dilutive effect of stock options (1)
    
    
    196
    
    
    
    259
    
    
    
    199
    
    
    
    Dilutive effect of restricted stock (1)
    
    
    169
    
    
    
    35
    
    
    
    194
    
    
    
    Diluted average common shares
    
    
    25,176
    
    
    
    20,354
    
    
    
    23,279
    
    
    
    18,824Diluted average common shares  continuing operations
    
    
    25,176
    
    
    
    20,354
    
    
    
    23,279
    
    
    
    18,824Diluted average common shares  discontinued operations
    
    
    25,176
    
    
    
    20,354
    
    
    
    23,279
    
    
    
    19,104Diluted earnings per share from continuing operations
    
    $
    0.24
    
    
    $
    0.29
    
    
    $
    0.64
    
    
    $
    (0.44
    )Diluted earnings per share from discontinued operations
    
    $
    
    
    
    $
    0.28
    
    
    $
    
    
    
    $
    0.39Diluted earnings per share
    
    $
    0.24
    
    
    $
    0.57
    
    
    $
    0.64
    
    
    $
    (0.04
    )
 
 (1)
    
    No dilutive shares from stock options or restricted stock were included in the
computation of earnings per share if there was a resulting loss from continuing operations or net loss.  PAGE 14




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 10  STOCK COMPENSATION AND RESTRICTED STOCK AWARDS
    Weighted Average
    
    Weighted AverageNumber of
    
    Exercise Price
    
    Grant-Date Fair ValueOptions
    
    Per Share
    
    Per ShareOutstanding at January 1, 2006
    
    
    687,942
    
    
    $
    13.83
    
    
    $
    4.57Granted
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (150,644
    )
    
    
    12.98
    
    
    
    4.23Forfeited
    
    
    (13,875
    )
    
    
    18.24
    
    
    
    6.60Outstanding at September 30, 2006
    
    
    523,423
    
    
    
    13.97
    
    
    
    4.48
  Outstanding
    
    ExercisableWeighted AverageRemaining
    
    
    
    
    
    Weighted AverageRange of Exercise Price
    
    Number
    
    Contractual Life
    
    Number
    
    Exercise Price$8.50-10.59
    
    
    208,548
    
    
    3.78
    years
    
    
    208,548
    
    
    $
    9.63$10.75-14.90
    
    
    156,000
    
    
    
    3.87
    
    
    
    156,000
    
    
    
    13.35$18.34-22.03
    
    
    158,875
    
    
    
    7.53
    
    
    
    115,500
    
    
    
    20.73Outstanding at September 30, 2006
    
    
    523,423
    
    
    
    4.51
    
    
    
    480,048
    
    
    
    13.51
 PAGE 15




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  2005
    
    
    2003Fair value
    
    $
    5.50
    
    
    $
    7.31Risk-free interest rate
    
    
    4.05
    %
    
    
    3.40
    %Expected option life
    
    5 years
    
    
    7.6 yearsExpected stock price volatility
    
    
    22.06
    %
    
    
    28.53
    %
   Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,(In thousands, except per share data)
    
    2005
    
    
    2005Net income (loss) as reported
    
    $
    11,542
    
    
    $
    (726
    )Deduct: stock-based compensation expense
determined under fair value based method
    
    
    94
    
    
    
    282Pro forma net income (loss)
    
    $
    11,448
    
    
    $
    (1,008
    )Basic earnings per share as reported
    
    $
    0.58
    
    
    $
    (0.04
    )Pro forma basic earnings per share
    
    
    0.57
    
    
    
    (0.05
    )Diluted earnings per share as reported
    
    $
    0.57
    
    
    $
    (0.04
    )Pro forma diluted earnings per share
    
    
    0.56
    
    
    
    (0.05
    )
  PAGE 16




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   Number of
    
    Weighted AverageRestricted
    
    Grant-Date Fair ValueShares
    
    Per ShareOutstanding at January 1, 2006
    
    
    178,700
    
    
    $
    18.97Granted
    
    
    263,316
    
    
    
    22.25Vested
    
    
    (36,000
    )
    
    
    18.97Forfeited
    
    
    (7,400
    )
    
    
    19.43Outstanding at September 30, 2006
    
    
    398,616
    
    
    
    21.13
  NOTE 11  DERIVATIVE INSTRUMENTS
  PAGE 17




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 NOTE 12  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
    
    $
    178,470
    
    
    $
    47,000
    
    
    $
    3,195
    
    
    $
    1,196
    
    
    $
    229,861Consumer real estate
    
    
    32,642
    
    
    
    13,577
    
    
    
    29,392
    
    
    
    39,275
    
    
    
    114,886Consumer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,213
    
    
    
    3,213Commercial
    
    
    169,204
    
    
    
    16,270
    
    
    
    1,864
    
    
    
    3,430
    
    
    
    190,768Letters of credit
    
    
    38,904
    
    
    
    12,837
    
    
    
    12,212
    
    
    
    375
    
    
    
    64,328Commitments to extend credit
    
    
    132,603
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    132,603Total commercial commitments
    
    $
    551,823
    
    
    $
    89,684
    
    
    $
    46,663
    
    
    $
    47,489
    
    
    $
    735,659
   PAGE 18




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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
      PAGE 19




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##### Table of Contents



Strategy
  Expand and diversify loan portfolio.
 Expand deposit base.
 Expand footprint in Chicago market.
  
    
    Expanding the community banking market penetration;
 PAGE 20




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##### Table of Contents




    
    Retaining key executives: Jay Fritz, Kelly OKeeffe, and Brogan Ptacin;
    
    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
    
    Attaining $200.0 million in managed trust assets.
 Expand noninterest income.
  Results of Operations  Three and Nine Months Ended
September 30, 2006 and 2005
  
    
    Basic earnings per share from continuing operations for the three months ended
September 30, 2006 were $0.24 compared to $0.30 for the comparable period in 2005 and
$0.13 for the second quarter of 2006.
    
    Diluted earnings per share from continuing operations for the three months ended
September 30, 2006 were $0.24 compared to $0.29 for the comparable period in 2005 and
$0.13 for the second quarter of 2006.
    
    Excluding one-time merger costs, core basic and diluted earnings per share were
$0.28 for the three months ended September 30, 2006.
    
    Core income from continuing operations, core diluted earnings per share from
continuing operations, core annualized return on average assets,
and core annualized return on average equity are non-GAAP terms defined under
Supplemental Information. Management believes core income from continuing operations
and core diluted earnings per share from continuing operations are meaningful
presentations of the Companys operating results.
    
    Income from continuing operations for the third quarter of 2006 was $6.0 million, a
1.2% increase when compared to $5.9 million for the third quarter of 2005, and a 107.0%
increase when compared to the second quarter of 2006. Core income from continuing
operations was $6.9 million for the third quarter of 2006.
    
    Net interest income increased 30.3% to $21.4 million in the third quarter of 2006
compared to $16.4 million in the third quarter of 2005 as a result of the Royal
American acquisition as well as
 PAGE 21




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##### Table of Contents



loan growth and increased loan rates. The net interest
margin was 3.40% for the three months ended September 30, 2006 compared to 3.53% for
the similar period of 2005 and 3.46% for the three
months ended June 30, 2006.
    
    Interest income on loans increased 77.3% to $36.9 million in the third quarter of
2006 compared to $20.8 million for the comparable period in 2005; $9.8 million, or
30.1%, was attributable to the Royal American acquisition. Interest income on loans
increased 38.5% when compared to the second quarter of 2006.
    
    The annualized return on average assets from continuing operations for the three
months ended September 30, 2006 was 0.80% compared to 0.98% for the similar period in
2005 and 0.50% for the second quarter of 2006. Core annualized return on average
assets from continuing operations for the third quarter of 2006 was 0.93%.
    
    The annualized return on average equity from continuing operations for the three
months ended September 30, 2006 was 8.43% compared to 13.49% for the similar period in
2005 and 5.31% for the second quarter of 2006. Core annualized return on average
equity from continuing operations was 9.79%.
    
    The provision for loan losses was $1.6 million in the third quarter of 2006 compared
to $813,000 for the comparable period in 2005 and $5.0 in the second quarter of 2006.
    
    Noninterest income increased 16.4% to $4.1 million in the third quarter of 2006
compared to $3.6 million in the third quarter of 2005 and increased by 15.2% when
compared to $3.6 million in the second quarter of 2006. Of this increase in the third
quarter of 2006, $737,000 was attributable to the Royal American acquisition.
    
    Noninterest expenses increased 52.5% to $17.2 million in the third quarter of 2006
compared to $11.3 million in the third quarter of 2005. Noninterest expenses increased
31.9% when compared to the second quarter of 2006. Since September 30, 2005, there
have been 110 new full-time equivalent employees added to revenue production, support,
and risk management; 50 of these new employees were from Royal American. One-time
merger costs of $1.6 million were reflected in the third quarter of 2006.
 PAGE 22




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##### Table of Contents




    
    Basic earnings per share from continuing operations for the nine months ended
September 30, 2006 were $0.65 compared to a loss of $0.44 for the same period in 2005.
    
    Diluted earnings per share from continuing operations for the nine months ended
September 30, 2006 were $0.64 compared to a loss of $0.44 for the same period in 2005.
    
    Income from continuing operations for the first nine months of 2006 was $14.8
million, a 279.4% increase when compared to the $8.3 million loss for the first nine
months of 2005. Core income from continuing operations for the nine months ended
September 30, 2006 was $15.8 million or $0.68 per diluted share compared to $10.7
million or $0.57 per diluted share for the similar period in 2005.
    
    Net interest income increased by 28.3% to $56.1 million in the first nine months of
2006 compared to $43.7 million in the first nine months of 2005.
    
    Interest income on loans increased 54.4% to $88.0 million in the first nine months
of 2006 compared to $57.0 million for the same period in 2005 as a result of the Royal
American acquisition as well as increases in rates and balances; $9.8 million was
attributable to the acquisition. The Company has also increased its holdings in
tax-exempt municipal bonds.
    
    The annualized return on average assets from continuing operations for the nine
months ended September 30, 2006 was 0.78% compared to a negative 0.48% for the same
period in 2005; core annualized return on average assets from continuing operations was
0.83% and 0.62% for the nine months ended September 30, 2006 and 2005, respectivley.
    
    The annualized return on average equity from continuing operations for the nine
months ended September 30, 2006 was 8.27% compared to a negative 7.24% for the same
period 2005; core annualized return on average equity from continuing operations was
8.81% and 9.42% for the nine months ended September 30, 2006 and 2005, respectively.
    
    The provision for loan losses rose to $6.6 million in the first nine months of 2006
compared to $2.4 million for the comparable period in 2005, as a result of downgrading
a large loan relationship in the second quarter of 2006.
    
    Excluding losses on securities, noninterest income increased 26.6% to $11.0 million
in the first nine months of 2006 compared to $8.7 million in the same period of 2005;
$737,000, or 8.5%, was attributable to the Royal American acquistion.
    
    Noninterest expenses decreased 15.2% to $42.1 million in the first nine months of
2006 compared to $49.7 million in the same period of 2005.
 PAGE 23




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Supplemental Information
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Income (loss) from continuing operations
    
    $
    5,982
    
    
    $
    5,913
    
    
    $
    14,813
    
    
    $
    (8,259
    )Loss on U.S. Agency debt securities, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,595Charge from prepayment of FHLB advances,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,886Charge from unwinding swaps, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,206Charge from redemption of trust preferred
securities, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    318One-time merger costs, net of tax
    
    
    961
    
    
    
    
    
    
    
    961
    
    
    
    Core income from continuing operations
    
    $
    6,943
    
    
    $
    5,913
    
    
    $
    15,774
    
    
    $
    10,746Diluted earnings per share
from continuing operations, as reported
    
    $
    0.24
    
    
    $
    0.29
    
    
    $
    0.64
    
    
    $
    (0.44
    )Core diluted earnings per share
from continuing operations
    
    $
    0.28
    
    
    $
    0.29
    
    
    $
    0.68
    
    
    $
    0.57
 Net Interest Income
  PAGE 24




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For the Three Months EndedSeptember 30, 2006
    
    
    September 30, 2005
    
    
    June 30, 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
    
    $
    13,057
    
    
    $
    157
    
    
    
    4.81
    %
    
    $
    15,252
    
    
    $
    142
    
    
    
    3.72
    %
    
    $
    11,834
    
    
    $
    186
    
    
    
    6.29
    %Securities:Taxable(1)
    
    
    604,176
    
    
    
    8,273
    
    
    
    5.48
    
    
    
    643,561
    
    
    
    7,803
    
    
    
    4.85
    
    
    
    601,238
    
    
    
    7,893
    
    
    
    5.25Exempt from federal income taxes(1)
    
    
    99,746
    
    
    
    1,471
    
    
    
    5.90
    
    
    
    34,432
    
    
    
    524
    
    
    
    6.09
    
    
    
    87,396
    
    
    
    1,281
    
    
    
    5.86Total securities
    
    
    703,922
    
    
    
    9,744
    
    
    
    5.52
    
    
    
    677,993
    
    
    
    8,327
    
    
    
    4.92
    
    
    
    688,634
    
    
    
    9,174
    
    
    
    5.32FRB and FHLB stock
    
    
    20,914
    
    
    
    199
    
    
    
    3.81
    
    
    
    14,093
    
    
    
    183
    
    
    
    5.19
    
    
    
    14,851
    
    
    
    139
    
    
    
    3.74Loans:Commercial loans(1)(3)(4)
    
    
    406,046
    
    
    
    8,242
    
    
    
    8.12
    
    
    
    179,926
    
    
    
    3,106
    
    
    
    6.91
    
    
    
    208,637
    
    
    
    4,172
    
    
    
    8.00Commercial real estate
loans(1)(3)(4)(6)
    
    
    1,241,622
    
    
    
    23,925
    
    
    
    7.71
    
    
    
    854,888
    
    
    
    14,876
    
    
    
    6.96
    
    
    
    979,351
    
    
    
    18,655
    
    
    
    7.62Agricultural loans(1)(3)(4)
    
    
    2,701
    
    
    
    54
    
    
    
    8.00
    
    
    
    1,565
    
    
    
    29
    
    
    
    7.41
    
    
    
    2,540
    
    
    
    49
    
    
    
    7.72Consumer real estate loans(3)(4)(6)
    
    
    257,589
    
    
    
    4,529
    
    
    
    7.03
    
    
    
    190,306
    
    
    
    2,823
    
    
    
    5.93
    
    
    
    227,913
    
    
    
    3,768
    
    
    
    6.61Consumer installment loans(3)(4)
    
    
    13,569
    
    
    
    247
    
    
    
    7.28
    
    
    
    3,796
    
    
    
    75
    
    
    
    7.90
    
    
    
    4,557
    
    
    
    90
    
    
    
    7.90Total loans
    
    
    1,921,527
    
    
    
    36,997
    
    
    
    7.72
    
    
    
    1,230,481
    
    
    
    20,909
    
    
    
    6.80
    
    
    
    1,422,998
    
    
    
    26,734
    
    
    
    7.52Total interest-earning assets
    
    $
    2,659,420
    
    
    $
    47,097
    
    
    
    7.08
    %
    
    $
    1,937,819
    
    
    $
    29,561
    
    
    
    6.12
    %
    
    $
    2,138,317
    
    
    $
    36,233
    
    
    
    6.76
    %Interest-Bearing Liabilities:Deposits:Interest-bearing demand deposits
    
    $
    165,672
    
    
    $
    568
    
    
    
    1.37
    %
    
    $
    170,647
    
    
    $
    355
    
    
    
    0.83
    %
    
    $
    136,094
    
    
    $
    269
    
    
    
    0.79
    %Money-market demand accounts and
savings accounts
    
    
    413,626
    
    
    
    2,589
    
    
    
    2.50
    
    
    
    335,347
    
    
    
    1,275
    
    
    
    1.52
    
    
    
    276,221
    
    
    
    1,158
    
    
    
    1.68Time deposits less than $100,000
    
    
    748,929
    
    
    
    8,118
    
    
    
    4.34
    
    
    
    771,113
    
    
    
    6,353
    
    
    
    3.30
    
    
    
    758,439
    
    
    
    7,685
    
    
    
    4.05Time deposits of $100,000 or more
    
    
    417,731
    
    
    
    5,461
    
    
    
    5.23
    
    
    
    44,929
    
    
    
    384
    
    
    
    3.42
    
    
    
    260,695
    
    
    
    3,068
    
    
    
    4.71Public funds
    
    
    19,397
    
    
    
    227
    
    
    
    4.68
    
    
    
    18,900
    
    
    
    154
    
    
    
    3.26
    
    
    
    12,539
    
    
    
    143
    
    
    
    4.56Total interest-bearing deposits
    
    
    1,765,355
    
    
    
    16,963
    
    
    
    3.84
    
    
    
    1,340,936
    
    
    
    8,521
    
    
    
    2.56
    
    
    
    1,443,988
    
    
    
    12,323
    
    
    
    3.40Borrowings:Federal funds purchased and
repurchase agreements
    
    
    255,718
    
    
    
    3,209
    
    
    
    5.02
    
    
    
    224,556
    
    
    
    1,721
    
    
    
    3.07
    
    
    
    207,660
    
    
    
    2,358
    
    
    
    4.54FHLB advances
    
    
    254,862
    
    
    
    3,001
    
    
    
    4.71
    
    
    
    150,000
    
    
    
    1,340
    
    
    
    3.57
    
    
    
    206,594
    
    
    
    1,982
    
    
    
    3.84Notes payable and other borrowings
    
    
    65,788
    
    
    
    1,337
    
    
    
    8.13
    
    
    
    55,672
    
    
    
    875
    
    
    
    6.29
    
    
    
    55,672
    
    
    
    1,074
    
    
    
    7.72Total borrowings
    
    
    576,368
    
    
    
    7,547
    
    
    
    5.24
    
    
    
    430,228
    
    
    
    3,936
    
    
    
    3.64
    
    
    
    469,926
    
    
    
    5,414
    
    
    
    4.60Total interest-bearing liabilities
    
    $
    2,341,723
    
    
    $
    24,510
    
    
    
    4.20
    %
    
    $
    1,771,164
    
    
    $
    12,457
    
    
    
    2.80
    %
    
    $
    1,913,914
    
    
    $
    17,737
    
    
    
    3.72
    %Net interest income (tax
equivalent)(1)(5)
    
    
    
    
    
    $
    22,587
    
    
    
    2.88
    %
    
    
    
    
    
    $
    17,104
    
    
    
    3.32
    %
    
    
    
    
    
    $
    18,496
    
    
    
    3.04
    %Net interest margin (tax
equivalent)(1)
    
    
    
    
    
    
    
    
    
    
    3.40
    %
    
    
    
    
    
    
    
    
    
    
    3.53
    %
    
    
    
    
    
    
    
    
    
    
    3.46
    %Net interest income(2)(5)
    
    
    
    
    
    $
    21,393
    
    
    
    
    
    
    
    
    
    
    $
    16,423
    
    
    
    
    
    
    
    
    
    
    $
    17,553Net interest margin(2)
    
    
    
    
    
    
    
    
    
    
    3.22
    %
    
    
    
    
    
    
    
    
    
    
    3.39
    %
    
    
    
    
    
    
    
    
    
    
    3.28
    %
 
 (1)
    
    Adjusted for 35.0% tax rate in 2006 and 2005 and adjusted for the dividends-received
deduction where applicable.(2)
    
    Not adjusted for 35.0% tax rate in 2006 and 2005 or for the dividends-received deduction.(3)
    
    Nonaccrual loans are included in the average balance; however, these loans are not earning
interest.(4)
    
    Includes loan fees which are immaterial. PAGE 25




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##### Table of Contents



(5)
    
    The following table reconciles reported net interest income on a tax equivalent basis for the
periods presented: For the three months ended,September 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006Net interest income
    
    $
    21,393
    
    
    $
    16,423
    
    
    $
    17,553Tax equivalent adjustment to net interest income
    
    
    1,194
    
    
    
    681
    
    
    
    943Net interest income, tax equivalent basis
    
    $
    22,587
    
    
    $
    17,104
    
    
    $
    18,496
 
 (6)
    
    Includes construction loans. For the Nine Months EndedSeptember 30, 2006
    
    
    September 30, 2005Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)Interest-Earning Assets:Federal funds sold and
interest- bearing deposits due from
banks
    
    $
    11,621
    
    
    $
    437
    
    
    
    5.01
    %
    
    $
    20,159
    
    
    $
    387
    
    
    
    2.56
    %Securities:Taxable(1)
    
    
    618,985
    
    
    
    24,503
    
    
    
    5.28
    
    
    
    655,284
    
    
    
    22,860
    
    
    
    4.65Exempt from federal income taxes(1)
    
    
    90,966
    
    
    
    4,012
    
    
    
    5.88
    
    
    
    19,113
    
    
    
    891
    
    
    
    6.22Total securities
    
    
    709,951
    
    
    
    28,515
    
    
    
    5.36
    
    
    
    674,397
    
    
    
    23,751
    
    
    
    4.70FRB and FHLB stock
    
    
    16,832
    
    
    
    475
    
    
    
    3.76
    
    
    
    13,919
    
    
    
    570
    
    
    
    5.46Loans:Commercial loans(1)(3)(4)
    
    
    270,941
    
    
    
    16,118
    
    
    
    7.93
    
    
    
    181,133
    
    
    
    8,701
    
    
    
    6.40Commercial real estate
loans(1)(3)(4)(6)
    
    
    1,057,020
    
    
    
    59,741
    
    
    
    7.54
    
    
    
    822,040
    
    
    
    40,754
    
    
    
    6.61Agricultural loans(3)(4)
    
    
    2,419
    
    
    
    140
    
    
    
    7.72
    
    
    
    1,424
    
    
    
    75
    
    
    
    7.02Consumer real estate loans(3)(4)(6)
    
    
    235,304
    
    
    
    11,772
    
    
    
    6.67
    
    
    
    172,561
    
    
    
    7,460
    
    
    
    5.76Consumer installment loans(3)(4)
    
    
    7,556
    
    
    
    420
    
    
    
    7.41
    
    
    
    3,776
    
    
    
    215
    
    
    
    7.59Total loans
    
    
    1,573,240
    
    
    
    88,191
    
    
    
    7.48
    
    
    
    1,180,934
    
    
    
    57,205
    
    
    
    6.46Total interest-earning assets
    
    $
    2,311,644
    
    
    $
    117,618
    
    
    
    6.79
    %
    
    $
    1,889,409
    
    
    $
    81,913
    
    
    
    5.78
    %Interest-Bearing Liabilities:Deposits:Interest-bearing demand deposits
    
    $
    148,869
    
    
    $
    1,117
    
    
    
    1.00
    %
    
    $
    184,117
    
    
    $
    1,825
    
    
    
    1.32
    %Money-market demand accounts and
savings accounts
    
    
    328,388
    
    
    
    4,962
    
    
    
    2.01
    
    
    
    349,067
    
    
    
    4,263
    
    
    
    1.63Time deposits less than $100,000
    
    
    756,544
    
    
    
    22,878
    
    
    
    4.03
    
    
    
    744,363
    
    
    
    17,175
    
    
    
    3.08Time deposits of $100,000 or more
    
    
    289,399
    
    
    
    10,548
    
    
    
    4.86
    
    
    
    51,057
    
    
    
    1,078
    
    
    
    2.82Public funds
    
    
    15,288
    
    
    
    518
    
    
    
    4.52
    
    
    
    12,232
    
    
    
    256
    
    
    
    2.79Total interest-bearing deposits
    
    
    1,538,488
    
    
    
    40,023
    
    
    
    3.47
    
    
    
    1,340,836
    
    
    
    24,597
    
    
    
    2.45Borrowings:Federal funds purchased and
repurchase agreements
    
    
    249,151
    
    
    
    8,486
    
    
    
    4.54
    
    
    
    213,089
    
    
    
    4,601
    
    
    
    2.88FHLB advances
    
    
    210,979
    
    
    
    6,522
    
    
    
    4.12
    
    
    
    128,867
    
    
    
    4,366
    
    
    
    4.52Notes payable and other borrowings
    
    
    59,081
    
    
    
    3,414
    
    
    
    7.70
    
    
    
    55,943
    
    
    
    2,848
    
    
    
    6.79Total borrowings
    
    
    519,211
    
    
    
    18,422
    
    
    
    4.73
    
    
    
    397,899
    
    
    
    11,815
    
    
    
    3.96Total interest-bearing liabilities
    
    $
    2,057,699
    
    
    $
    58,445
    
    
    
    3.79
    %
    
    $
    1,738,735
    
    
    $
    36,412
    
    
    
    2.79
    %Net interest income (tax
equivalent)(1)(5)
    
    
    
    
    
    $
    59,173
    
    
    
    3.00
    %
    
    
    
    
    
    $
    45,501
    
    
    
    2.99
    %Net interest margin (tax
equivalent)(1)
    
    
    
    
    
    
    
    
    
    
    3.41
    %
    
    
    
    
    
    
    
    
    
    
    3.21
    %Net interest income(2)(5)
    
    
    
    
    
    $
    56,107
    
    
    
    
    
    
    
    
    
    
    $
    43,731Net interest margin(2)
    
    
    
    
    
    
    
    
    
    
    3.24
    %
    
    
    
    
    
    
    
    
    
    
    3.09
    %
 
 (1)
    
    Adjusted for 35% tax rate in 2006 and 2005 and adjusted for the dividends-received
deduction where applicable.(2)
    
    Not adjusted for 35% tax rate in 2006 and 2005 or for the dividends-received deduction.(3)
    
    Nonaccrual loans are included in the average balance; however, these loans are not earning
interest.(4)
    
    Includes loan fees which are immaterial.(5)
    
    The following table reconciles reported net interest income on a tax equivalent basis for the
periods presented: For the nine months ended,September 30,2006
    
    
    2005Net interest income
    
    $
    56,107
    
    
    $
    43,731Tax equivalent adjustment to net interest income
    
    
    3,066
    
    
    
    1,770Net interest income, tax equivalent basis
    
    $
    59,173
    
    
    $
    45,501
 
 (6)
    
    Includes construction loans.  PAGE 26




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##### Table of Contents




    
    Yields on average earning assets increased 96 basis points in the third
quarter of 2006 compared to the third quarter of 2005, and average balances on
earning assets increased by $721.6 million; $516.4 million was attributable to the
Royal American acquisition. Yields on average earning assets increased by 32 basis
points compared to the second quarter of 2006. Yields on average earning assets
increased 101 basis points in the first nine months of 2006 compared to the similar
period in 2005, and the related average balances increased by $422.2 million.
    
    Yields on average loans increased 92 basis points as a result of six
rate increases from September 30, 2005. Average loans increased by $691.0 million in
the quarter ended September 30, 2006 compared to the same period in 2005; $516.4
million were from Royal American. Measured to the second quarter of 2006, yields on
average loans increased by 20 basis points, while average balances increased $498.5
million compared to the second quarter of 2006. Yields on average loans increased
102 basis points in the first nine months of 2006 compared to the similar period in
2005, and average balances increased by $392.3 million.
    
    Excluding the loans acquired from Royal American, average loans
decreased slightly during the third quarter of 2006 compared to the second quarter
of 2006. Management expects loans to increase during the fourth quarter of 2006.
At September 30, 2006, commitments to extend credit were $132.6 million.
    
    Yields on average securities increased 60 basis points while balances
increased by $25.9 million in the third quarter of 2006 compared to the similar
period in 2005. Yields on average securities increased by 20 basis points compared
to the second quarter of 2006, while average balances increased by $15.3 million.
The securities portfolio will continue to be a source of cash flow for loan growth
which generates yields that are more than 200 basis points above the yields on
securities. Yields on average securities increased 66 basis points in the first
nine months of 2006 compared to the similar period in 2005, and average balances
increased by $35.6 million.
  
    
    Yields on average interest-bearing liabilities increased by 140 basis
points, and average balances increased $570.6 million in the third quarter of 2006
compared to the similar period in 2005; $384.6 million was attributable to Royal
American. Compared to the second quarter of 2006, yields on interest-bearing
liabilities increased by 48 basis points, and average balances increased
 PAGE 27




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$427.8
million. Yields on average interest-bearing liabilities increased 100 basis points
in the first nine months of 2006 compared to the similar period in 2005, and average
balances increased by
$319.0 million.
    
    Average interest-bearing deposits increased by $424.4 million while
yields increased 128 basis points in the third quarter of 2006 compared to the
similar period of 2005; $369.6 million was attributable to Royal American. Compared
to the second quarter of 2006, yields on interest-bearing deposits increased by 44
basis points, and average balances increased $321.4 million. Most of this increase
was in certificates of deposit which grew in volume with overall rated increasing by
40 basis points. Yields on average interest-bearing deposits increased 102 basis
points in the first nine months of 2006 compared to the similar period in 2005, and
average balances increased by $197.7 million.
    
    Average interest-bearing demand deposit, money market, and savings
accounts increased by $73.3 million for the third quarter of 2006 compared to
September 30, 2005 and by $167.0 million compared to June 30, 2006 mainly as a
result of the Royal American acquisition. On a year-to-date basis, average
interest-bearing demand deposit, money market, and savings accounts decreased by
$55.9 million for the year compared to September 30, 2005.
    
    The migration of demand deposit, interest-bearing demand deposit, money
market, and savings accounts into certificates of deposit and the reliance on more
expensive wholesale funds contributed to the increase in the cost of funds.
    
    Average borrowings increased by $146.1 million in the third quarter of
2006 while yields increased by 160 basis points to 5.24% compared to the third
quarter of 2005; $15.0 million was attributable to the Royal American acquistion.
Measured to the second quarter of 2006, yields on borrowings increased by 64 basis
points while average balances increased $106.4 million.
    
    Average rates paid on FHLB borrowings for the third quarter of 2006
increased by 114 basis points to 4.71% compared to the third quarter of 2005.
However, average rates paid decreased by 40 basis points for the first nine months
of 2006 while average balances increased by $82.1 million when compared to the same
period in 2005.
    
    Average Federal funds and repurchase agreements increased by $31.2
million, while average rates increased 195 basis points for the third quarter of
2006 compared to the third quarter of 2005. Average rates on Federal funds and
repurchase agreements increased 166 basis points in the first nine months of 2006
compared to the similar period in 2005, and average balances increased by $36.1
million.
    
    As part of the Royal American acquisition, the Company paid out $64.6
million in cash that was held in a noninterest bearing account at the Bank. Funding
costs increased as a result of replacing these funds with more expensive borrowings,
which was offset by the increase in net interest income resulting from the Royal
Amercian acquisition.
 Noninterest Income
  
    
    Noninterest income was $4.1 million for the three months ended September
30, 2006, an increase of $585,000, or 16.4%, over the comparable period in 2005, and
was $546,000 higher
 PAGE 28




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than the second quarter of 2006; $737,000 was attributable to
the Royal American acquisition.
    
    The annualized noninterest income to average assets ratio was 0.55% for
the three months ended September 30, 2006 compared to 0.59% for the same period in
2005 and 0.62% for the three months ended June 30, 2006.
    
    Customer service fees increased by $208,000 to $1.5 million in the third
quarter of 2006 compared to the third quarter of 2005 and increased by $128,000
compared to the second quarter of 2006. The former Royal American branches
contributed $178,000 in the third quarter of 2006.
    
    Trust income increased by $277,000 in the third quarter of 2006 compared
to the same period in 2005 and was $271,000 higher when compared to the second
quarter of 2006 mainly, in both cases, as a result of the trust operations acquired
from Royal American.
    
    Insurance and brokerage commissions increased by $64,000 in the three
months ended September 30, 2006 compared to the similar period in 2005 as a result
of increased staff and brokerage activity. The former Royal American operations
contributed $100,400 during the third quarter of 2006. When compared to the second
quarter of 2006, insurance and brokerage commissions were flat. Management
anticipates an increase in insurance and brokerage commissions as a result of the
acquisition of Royal American.
    
    Gains on sales of loans increased during the third quarter of 2006 by
67.2% or $78,000 to $194,000 compared to the third quarter of 2005 but decreased
slightly by $11,000 or 5.4% when compared to the second quarter of 2006.
    
    Increase in the cash surrender value of life insurance increased by
$277,000 to $676,000 during the three months ended September 30, 2006 compared to
the similar period in 2005, and was $142,000 higher compared to the second quarter
of 2006.
    
    Net trading profits were $355,000 higher in the third quarter of 2006,
or $624,000, when compared to the same period in 2006.
  
    
    Noninterest income, excluding net losses on securities transactions, was
$11.0 million for the nine months ended September 30, 2006, an increase of $2.3
million, or 26.6%, over the comparable period in 2005; $737,000 was attributable to
the Royal American acquisition.
    
    The annualized noninterest income, excluding net losses on securities
transactions, to average assets ratio was 0.58% for the nine months ended September
30, 2006 compared to 0.50% for the same period in 2005.
    
    Insurance and brokerage commission increased by $296,000 during the
first nine months of 2006 compared to the same period in 2005. Management
anticipates an increase in insurance and brokerage commissions as a result of the
acquisition of Royal American.
    
    Customer service fees, for the first nine months of 2006, increased by
$295,000 when compared with the same period in 2005. This improvement was a result
of the increase in the number of deposit accounts, increased fees, and less waived
fees. In addition, the former Royal American
 PAGE 29




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##### Table of Contents



branches contributed $178,000 in the
third quarter of 2006.
    
    Gains on sales of loans totaled $490,000 for the nine months ended
September 30, 2006,
reflecting a $236,000 or 92.9% increase when compared to $254,000 for the prior year
period; $36,000 was attributable to the Royal American acquisition.
    
    Trust income increased by $296,000 to $520,000 for the nine months ended
September 30, 2006 compared to the same period in 2005 as a result of the trust
operations acquired from Royal American.
    
    For the first nine months of 2006, the increase in the cash surrender
value of life insurance was $413,000 higher than the first nine months of 2005. The
Company made an additional purchase of bank owned life insurance of $6.0 million in
2006 and acquired $12.5 million of such insurance in the acquisition of Royal
American.
    
    Net losses on securities transactions were $17.4 million for the first
nine months of 2005 as a result of the balance sheet repositioning and were $195,000
during the first nine months of 2006.
    
    As part of its program of repositioning the maturities of its
borrowings, the Company recognized a gain on the extinguishment of debt of $625,000
in the second quarter of 2006 as a result of the assignment of a $50.0 million FHLB
advance and recognized another $625,000 gain in the first quarter of 2006 as a
result of the prepayment of a $28.0 million repurchase agreement.
 Noninterest Expenses
  
    
    Total noninterest expenses increased 52.5%, or $5.9 million, to $17.2
million during the third quarter of 2006 compared to $11.3 million for the similar
period in 2005. In comparison to the second quarter of 2006, total noninterest
expenses increased $4.2 million.
    
    The annualized noninterest expenses to average assets ratio was 2.30%
for the three months ended September 30, 2006 compared to 1.88% for the same period
in 2005 and 2.25% for the three months ended June 30, 2006.
    
    The efficiency ratio was 62.41% for the three months ended September 30,
2006 compared to 53.75% for the same period in 2005 and 57.38% for the second
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.
    
    Excluding one-time merger costs, the core efficiency ratio was 56.45%
for the quarter ended September 30, 2006. Excluding the balance sheet repositioning
charges, the core efficiency ratio was 53.75% for the quarter ended September 30,
2005. Management believes that core efficiency ratio, as defined under Core
Efficiency Ratio, provides insight into comparisons between periods by
eliminating the impact of specific unusual or nonrecurring items.
    
    The efficiency ratio rose in the third quarter of 2006 when compared to
the second quarter of
 PAGE 30




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##### Table of Contents



2006 mainly due to the increase in noninterest expenses,
including salaries and employee benefits and one-time merger costs. The
Company has added to its management structure in the areas of revenue production,
support, and risk management, and at the same time, was able to maintain its
efficiency ratio at an acceptable level.
    
    Salaries and benefits expense increased by $2.4 million, or 35.3%,
during the third quarter of 2006 compared to the third quarter of 2005 and $1.7
million, or 22.3%, compared to the second quarter of 2006, reflecting $2.3 million
related to the additions to management and the 50 full-time equivalent employees
from the Royal American acquisition.
    
    Occupancy and equipment expense increased by $309,000 during the third
quarter of 2006 to $1.9 million compared to the similar period in 2005 and $238,000
compared to the second quarter of 2006; $244,000 was related to the former Royal
American branches.
    
    Professional services expense rose by $2.0 million, or 196.1%, to $3.0
million in the third quarter of 2006 compared to the third quarter of 2005 and $1.8
million, or 140.5%, compared to the second quarter of 2006 due in the most part to
one-time merger costs and new hire placement fees.
    
    Marketing expenses in the third quarter of 2006 were $31,000 lower than
in the third quarter of 2005, and $169,000 lower compared to the second quarter of
2006.
  
    
    Total noninterest expenses decreased by $7.5 million to $42.1 million
for the nine months ended September 30, 2006 when compared to the same period of
2005. Total noninterest expenses in 2005 reflect a $13.1 million loss on
extinguishment of debt relating to the balance sheet repositioning.
    
    The annualized noninterest expenses to average assets ratio was 2.22%
for the nine months ended September 30, 2006 compared to 2.86% for the same period
in 2005.
    
    The efficiency ratio was 58.64% for the first nine months of 2006 and
85.10% for the same period in 2005. Excluding one-time merger costs, the
core efficiency ratio was 56.36% for the nine months ended September 30, 2006.
Excluding the balance sheet repositioning charges, the core efficiency ratio, as
defined under Core Efficiency Ratio, was 60.86% for the nine months ended September
30, 2005. The decrease in the efficiency ratio compared to the prior year was due
primarily to the increase in net interest income on a fully tax-equivalent basis and
in noninterest income during 2006.
    
    Salaries and benefits expense increased by $4.2 million, or 20.6%, to
$24.4 million for the first nine months of 2006 compared to the same period in 2005,
reflecting $2.3 million related to the additions to management and the 50 full-time
equivalent employees from the Royal American acquisition.
    
    Occupancy and equipment expense increased by $397,000 to $5.0 million
for the nine months ended September 30, 2006 compared to the
same period in 2005; $244,000 was related to the former Royal
American branches.
    
    Professional services expense for the first nine months of 2006
increased 60.2% to $5.4 million compared to the nine months ended September 30,
2005.
 PAGE 31




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##### Table of Contents




    
    Marketing expenses for the first nine months of 2006 were at the same
level as the first nine months of 2005.
    
    During 2005, a $13.1 million loss on the early extinguishment of FHLB
advances was recorded as a result of the balance sheet repositioning consisting of
$9.5 million in prepayment penalties and $3.6 million to unwind the interest rate
swaps associated with the advances.
    
    Reflected in the noninterest expenses also was the $2.4 million
write-down of the townhouse project held in other real estate owned taken in the
2005.
 Core
Efficiency Ratio
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Noninterest expenses
    
    $
    17,194
    
    
    $
    11,277
    
    
    $
    42,120
    
    
    $
    49,663Charge from prepayment of FHLB advances
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,547
    )Charge from unwinding swaps
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,578
    )Charge from redemption of trust preferred
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (516
    )One-time merger costs
    
    
    (1,595
    )
    
    
    
    
    
    
    (1,595
    )
    
    
    Core noninterest expenses
    
    $
    40,525
    
    
    $
    11,277
    
    
    $
    40,525
    
    
    $
    36,022
 Income Taxes
  2006
    
    
    2005(In thousands)Income taxes (benefit) computed at the statutory rate
    
    $
    6,369
    
    
    $
    (6,004
    )Tax-exempt interest income on securities and loans
    
    
    (869
    )
    
    
    (317
    )General business credits
    
    
    (555
    )
    
    
    (75
    )State income taxes, net of federal tax benefit
    
    
    (290
    )
    
    
    (1,173
    )Cash surrender value increase, net of premiums
    
    
    (595
    )
    
    
    (471
    )Life insurance benefit
    
    
    
    
    
    
    (276
    )Dividends received deduction
    
    
    (717
    )
    
    
    (648
    )Other
    
    
    42
    
    
    
    68Total provision (benefit) for income taxes
    
    $
    3,385
    
    
    $
    (8,896
    )
 PAGE 32




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##### Table of Contents



Financial Condition
  
    
    Total assets increased $634.7 million to $2.9 billion at September 30, 2006 compared to
year end and increased $717.2 million compared to September 30, 2005. The Company
consummated the acquisition of Royal American effective July 1, 2006, which had $561.2
million in total assets.
    
    Total loans grew 41.4%, or $559.0 million, to $1.9 billion at September 30, 2006
compared to year end 2005 and rose 49.6%, or $633.0 million over the third quarter of 2005.
The Company acquired $500.6 million in total loans through the Royal American merger.
    
    Loan concentrations on the balance sheet have also been reduced due to the acquisition
of Royal American. While the Company continues to be an active real estate lender, better
diversification reduces the inherent risk in the balance sheet. The real estate component
of total loans has been reduced to 81.0% as of September 30, 2006 from 84.8% as of December
31, 2005. Royal Americans percentage of owner occupied commercial real estate exceeded
75.0%.
    
    Loan to deposit ratio increased to 94.19% at September 30, 2006 from 88.62% at December
31, 2005, and was higher than the 83.22% figure recorded at September 30, 2005.
    
    Deposits increased by 33.1% to $2.0 billion in the third quarter of 2006 compared to
year end and increased by 32.2% when compared to the period ended September 30, 2005. The
Company acquired $467.9 million in total deposits through the Royal American merger.
Deposit growth was centered in certificates of deposit.
    
    The Company has increased its reliance on noninterest-bearing deposits from 10.1% of
total deposits at the end of the third quarter of 2005 to 13.4% at the end of the third
quarter of 2006; $125.5 million in noninterest-bearing deposits were acquired through Royal
American.
  
    
    Nonperforming assets to total assets were flat at 0.83% at September 30, 2006 and year
end and 0.81% at September 30, 2005.
    
    In the second quarter of 2006, the Company benefited from the sale of properties
included in a townhouse project previously held in other real estate. During the third
quarter of 2006, a property carried at $1.6 million previously held in other real estate was
sold. As a result of these sales, other real estate declined to $2.9 million at September
30, 2006 from $11.2 million at December 31, 2005.
    
    The allowance for loan losses was 1.34% of total loans, versus 1.32% at year end and
1.41% at September 30, 2005. During the third quarter of 2006,
the allowance for loan losses increased by $3.2 million due
to the Royal American merger.
    
    The allowance for loan losses decreased to 1.18 times nonaccruing loans compared to 2.25
times nonaccruing loans year end and 2.61 times nonaccruing loans at September 30, 2005.
    
    Nonaccruing loans increased to 1.13% of total loans from 0.59% at year end and 0.54% at
September 30, 2005.
    
    The Company previously announced the downgrading of a large loan relationship linked to
a single long-standing customer to substandard in the second quarter of 2006; $11.3 million
of this loan relationship is on a nonaccrual status. Additional portions of this loan
relationship may be placed on
 PAGE 33




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##### Table of Contents



nonaccrual status depending on many variables. Additional
advances may also be provided as part of the loan workout strategy.
 Loans
  September 30,
    
    
    December 31,2006
    
    
    2005% of
    
    
    
    
    
    
    % ofGross
    
    
    
    
    
    
    GrossAmount
    
    
    Loans
    
    
    Amount
    
    
    Loans(Dollars in thousands)Commercial
    
    $
    354,900
    
    
    
    18.6
    %
    
    $
    201,284
    
    
    
    14.9
    %Construction
    
    
    420,627
    
    
    
    22.0
    
    
    
    358,785
    
    
    
    26.6Commercial real estate
    
    
    762,125
    
    
    
    39.9
    
    
    
    496,819
    
    
    
    36.8ConsumerHome equity
    
    
    147,573
    
    
    
    7.7
    
    
    
    115,429
    
    
    
    8.5Other consumer
    
    
    9,520
    
    
    
    0.5
    
    
    
    4,273
    
    
    
    0.3Total consumer
    
    
    157,093
    
    
    
    8.2
    
    
    
    119,702
    
    
    
    8.8Residential mortgage
    
    
    214,967
    
    
    
    11.3
    
    
    
    174,184
    
    
    
    12.9Total loans, gross
    
    
    1,909,712
    
    
    
    100.0
    %
    
    
    1,350,774
    
    
    
    100.0
    %Net deferred fees
    
    
    (686
    )
    
    
    
    
    
    
    (778
    )Total loans, net
    
    $
    1,909,026
    
    
    
    
    
    
    $
    1,349,996Loans held for sale
    
    $
    3,321
    
    
    
    
    
    
    $
    1,912
  
    
    Commercial loans increased $153.6 million to $354.9 million as of September 30, 2006
from $201.3 million as of December 31, 2005.
    
    Construction loans increased by $61.8 million to $420.6 million as of September 30, 2006
from $358.8 million at December 31, 2005.
    
    Commercial real estate loans rose by $265.3 million to $762.1 million at September 30,
2006 compared to $496.8 million at December 31, 2005.
    
    Consumer loans increased to $157.1 million as of September 30, 2006 compared to $119.7
million at December 31, 2005.
    
    Residential mortgage loans increased $40.8 million to $215.0 million as of September 30,
2006 from $174.2 million as of December 31, 2005.
   
    
    The primary risks associated with commercial loans are the quality of the borrowers
management,
 PAGE 34




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##### Table of Contents



financial strength and cash flow resources, and the impact of local economic
factors.
    
    Risks associated with real estate loans include concentrations of loans in a certain
loan type, such as commercial or residential, and fluctuating land and property values.
    
    Consumer loans also have risks associated with concentrations of loans in a single type
of loan, as well as the risk a borrower may become unemployed as a result of deteriorating
economic conditions.
 Allowance for Loan Losses
   2006
    
    
    2005(In thousands)Balance, January 1
    
    $
    17,760
    
    
    $
    16,217Addition resulting from acquisition
    
    
    3,244
    
    
    
    Provision charged to operations
    
    
    6,550
    
    
    
    2,440Loans charged off
    
    
    (2,601
    )
    
    
    (1,013
    )Recoveries
    
    
    589
    
    
    
    349Balance, September 30
    
    $
    25,542
    
    
    $
    17,993
  PAGE 35




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##### Table of Contents



September 30,
    
    December 31,
    
    September 30,2006
    
    2005
    
    2005Net loans charged off to average loans during quarter
    
    
    0.03
    %
    
    
    0.12
    %
    
    
    0.08
    %Provision for loan losses to total loans
    
    
    0.32
    
    
    
    0.04
    
    
    
    0.25Allowance for loan losses to total loans
    
    
    1.34
    
    
    
    1.32
    
    
    
    1.41Allowance to nonaccruing loans
    
    
    1.18
    x
    
    
    2.25
    x
    
    
    2.61
    x
      PAGE 36




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Nonaccruing Loans and Nonperforming Assets
    September 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Impaired and other loans 90 days
past due and accruing
    
    $
    29
    
    
    $
    4Nonaccrual and impaired loans not accruing
    
    $
    21,555
    
    
    $
    7,905Other real estate
    
    
    2,864
    
    
    
    11,154Total nonperforming assets
    
    $
    24,419
    
    
    $
    19,059Total nonaccruing loans to total loans
    
    
    1.13
    %
    
    
    0.59
    %Total nonperforming assets to total loans
and other real estate
    
    
    1.28
    
    
    
    1.40Total nonperforming assets to total assets
    
    
    0.83
    
    
    
    0.83
 PAGE 37




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##### Table of Contents



Securities
   September 30, 2006Held-to-Maturity
    
    
    Available-for-Sale
    
    


    TotalAmortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    % ofCost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Portfolio(Dollars in thousands)U.S. Treasury and
obligations of U.S.
government-sponsored
entities
    
    $
    
    
    
    $
    
    
    
    $
    1,971
    
    
    $
    1,972
    
    
    $
    1,971
    
    
    $
    1,972
    
    
    
    0.28
    %Obligations of states and
political subdivisions
    
    
    3,934
    
    
    
    3,959
    
    
    
    97,185
    
    
    
    98,026
    
    
    
    101,119
    
    
    
    101,985
    
    
    
    14.36Mortgage-backed securities
    
    
    46,754
    
    
    
    45,444
    
    
    
    463,846
    
    
    
    452,194
    
    
    
    510,600
    
    
    
    497,638
    
    
    
    72.52Equity securities
    
    
    
    
    
    
    
    
    
    
    79,326
    
    
    
    79,562
    
    
    
    79,326
    
    
    
    79,562
    
    
    
    11.27Other bonds
    
    
    
    
    
    
    
    
    
    
    11,039
    
    
    
    10,434
    
    
    
    11,039
    
    
    
    10,434
    
    
    
    1.57Total
    
    $
    50,688
    
    
    $
    49,403
    
    
    $
    653,367
    
    
    $
    642,188
    
    
    $
    704,055
    
    
    $
    691,591
    
    
    
    100.00
    %
   
    
    Cash flow from principal payments of $64.2 million received on mortgage-backed
securities in the available-for-sale and held-to-maturity portfolios were used to fund loan
growth during the first nine months of 2006.
    
    U.S. government agency and government-sponsored entity mortgage-backed securities
decreased 11.6%, or $59.1 million, from $511.3 million at December 31, 2005 to $452.2
million at September 30, 2006.
    
    Equity securities increased $16.6 million to $79.6 million at September 30, 2006 from
December 31, 2005. Equity securities included capital securities of U.S.
government-sponsored entities.
    
    Obligations of state and political subdivisions increased $19.7 million to $98.0 million
at September 30, 2006 from December 31, 2005. The Company is continuing to build its
tax-exempt municipal bond position in the securities portfolio.
    
    Other bonds decreased $192,000 to $10.4 million at September 30, 2006 compared to $10.6
million at December 31, 2005. Other bonds include high grade corporate bonds primarily
issued by financial institutions.
  PAGE 38




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##### Table of Contents



Other Assets
  Deposits and Borrowed Funds
  
    
    Noninterest-bearing deposits were $272.4 million at September 30, 2006,
$114.0 million more than the $158.4 million level at December 31, 2005; $125.5
million from Royal American.
    
    Over the same period, interest-bearing deposits grew $389.4 million to
$1.8 billion at September 30, 2006 compared to December 31, 2005, including $342.4
million from Royal American.
    
    Core deposits, which include demand deposit, interest-bearing demand
deposit, money market, and savings accounts, increased $212.4 million to $833.4
million at September 30, 2006 from $621.0 million at December 31, 2005. The
majority of this increase was attributable to the Royal American acquisition.
    
    Certificates of deposit under $100,000 decreased $26.0 million from
December 31, 2005 to $726.1 million at September 30, 2006.
    
    Certificates of deposit over $100,000 and public funds increased $317.1
million from December 31, 2005 to $467.4 million at September 30, 2006. The
majority of the increase was a result of increased brokered certificates of deposit
coupled with the migration of balances in core deposits to certificates of deposits
as a result of the increase in rates as well as the Royal American acquisition.
    
    Brokered deposits increased by $177.1 million to $212.2 million at
September 30, 2006 when compared to December 31, 2005. Interest rates on brokered
certificates of deposit, in many instances, are less than advertised interest rates
for retail certificates of deposit in the market.
  PAGE 39




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##### Table of Contents



2006
    
    
    2005(In thousands)Federal funds purchased
    
    $
    34,000
    
    
    $
    68,000Securities sold under agreements to repurchase
    
    
    229,676
    
    
    
    264,808Federal Home Loan Bank advances
    
    
    254,869
    
    
    
    150,000Junior subordinated debt owed to unconsolidated
trusts
    
    
    65,800
    
    
    
    55,672Total
    
    $
    584,345
    
    
    $
    538,480
     Capital Resources
   PAGE 40




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##### Table of Contents



At September 30, 2006Minimum Required
    
    Minimum RequiredActual
    
    for Capital Adequacy
    
    to be Well CapitalizedAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in thousands)Total capital to risk-weighted assets
Company
    
    $
    295,443
    
    
    
    13.8
    %
    
    $
    170,763
    
    
    
    8.0
    %
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    282,145
    
    
    
    12.8
    
    
    
    176,562
    
    
    
    8.0
    
    
    $
    220,702
    
    
    
    10.0
    %Tier I capital to risk-weighted assets
Company
    
    
    269,795
    
    
    
    12.6
    
    
    
    85,382
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    256,497
    
    
    
    11.6
    
    
    
    88,281
    
    
    
    4.0
    
    
    
    132,421
    
    
    
    6.0Tier I capital to average assets
Company
    
    
    269,795
    
    
    
    9.1
    
    
    
    118,703
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    256,497
    
    
    
    8.7
    
    
    
    118,017
    
    
    
    4.0
    
    
    
    147,521
    
    
    
    5.0
 At December 31, 2005Minimum Required
    
    
    Minimum RequiredActual
    
    
    for Capital Adequacy
    
    
    to be Well CapitalizedAmount
    
    
    
    Ratio
    
    Amount
    
    
    
    Ratio
    
    Amount
    
    
    Ratio(Dollars in thousands)Total capital to risk-weighted assets
Company
    
    $
    292,168
    
    
    
    18.1
    %
    
    $
    129,381
    
    
    
    8.0
    %
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    205,866
    
    
    
    12.8
    
    
    
    128,844
    
    
    
    8.0
    
    
    $
    161,055
    
    
    
    10.0
    %Tier I capital to risk-weighted assets
Company
    
    
    274,408
    
    
    
    17.0
    
    
    
    64,691
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    188,106
    
    
    
    11.7
    
    
    
    64,422
    
    
    
    4.0
    
    
    
    96,633
    
    
    
    6.0Tier I capital to average assets
Company
    
    
    274,408
    
    
    
    12.2
    
    
    
    90,083
    
    
    
    4.0
    
    
    
    n/a
    
    
    
    n/aMidwest Bank and Trust Company
    
    
    188,106
    
    
    
    8.4
    
    
    
    89,635
    
    
    
    4.0
    
    
    
    112,044
    
    
    
    5.0
 PAGE 41




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##### Table of Contents



Liquidity
     PAGE 42




---



##### Table of Contents



ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
 Interest Rate Sensitivity Analysis
  Change in Net Interest Income Over One Year HorizonSeptember 30, 2006
    
    December 31, 2005
    
    GuidelineMaximumDollar
    
    %
    
    Dollar
    
    %
    
    %Change
    
    Change
    
    Change
    
    Change
    
    Change(Dollars in thousands)+200 bp
    
    $
    (300
    )
    
    
    (0.38
    )%
    
    $
    167
    
    
    
    0.26
    %
    
    
    (15.0
    )%+100 bp
    
    
    (31
    )
    
    
    (0.04
    )
    
    
    99
    
    
    
    0.15
    
    
    
    (15.0
    )-100 bp
    
    
    1,701
    
    
    
    2.17
    
    
    
    696
    
    
    
    1.09
    
    
    
    (15.0
    )-200 bp
    
    
    (1,207
    )
    
    
    (1.54
    )
    
    
    (3,481
    )
    
    
    (5.44
    )
    
    
    (15.0
    )
    PAGE 43




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##### Table of Contents



ITEM 4  CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls Over Financial Reporting
  PAGE 44




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##### Table of Contents



SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
     
    
    Managements ability to reduce and effectively manage interest rate risk and the impact
of interest rates in general on the volatility of the Companys net interest income;
    
    Fluctuations in the value of the Companys investment securities;
    
    The ability to attract and retain senior management experienced in banking and financial services;
    
    The sufficiency of allowances for loan losses to absorb the amount of actual losses
inherent in the existing portfolio of loans;
    
    The ability to ultimately collect on the downgraded long-standing loan relationship;
    
    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 45




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##### Table of Contents




    
    The effects of competition from other commercial banks, thrifts, mortgage banking firms,
consumer finance companies, credit unions, securities brokerage firms, insurance companies,
money market and other mutual funds, and other financial institutions operating in the
Companys market or elsewhere or providing similar services;
    
    The failure of assumptions underlying the establishment of allowances for loan losses and
estimation of values of collateral and various financial assets and liabilities;
    
    Volatility of rate sensitive deposits;
    
    Operational risks, including data processing system failures or fraud;
    
    Asset/liability matching risks and liquidity risks;
    
    The ability to successfully acquire low cost deposits or funding;
    
    The ability to successfully execute strategies to increase noninterest income;
    
    The ability to successfully to grow non-commercial real estate loans;
    
    The ability of the Company to successfully integrate the Royal American Corporation acquisition;
    
    The ability of the Company to fully realize expected cost savings and revenues in
connection with the Royal American Corporation acquisition, or the ability to realize them
on a timely basis;
    
    The risk of borrower, depositor, and other customer attrition after the Royal American
Corporation acquisition is completed;
    
    Changes in the economic environment, competition, or other factors that may influence the
anticipated growth rate of loans and deposits, the quality of the loan portfolio and loan
and deposit pricing, and the Companys ability to successfully pursue acquisition and
expansion strategies and integrate any acquired companies;
    
    The impact from liabilities arising from legal or administrative proceedings on the
financial condition of the Company;
    
    Possible administrative or enforcement actions of banking regulators in connection with
any material failure of the Bank to comply with banking laws, rules or regulations;
    
    Possible administrative or enforcement actions of the Securities and Exchange Commission
(the SEC) in connection with the SEC inquiry of the restatement of the Companys September
30, 2002 financial statements;
    
    Governmental monetary and fiscal policies, as well as legislative and regulatory changes,
that may result in the imposition of costs and constraints on the Company through higher
FDIC insurance premiums, significant fluctuations in market interest rates, increases in
capital requirements, and operational limitations;
    
    Changes in general economic or industry conditions, nationally or in the communities in
which the Company conducts business;
 PAGE 46




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##### Table of Contents




    
    Changes in accounting principles, policies, or guidelines affecting the businesses
conducted by the Company;
    
    Acts of war or terrorism; and
    
    Other economic, competitive, governmental, regulatory, and technical factors affecting
the Companys operations, products, services, and prices.
   PAGE 47




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##### Table of Contents



PART II
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Issuer Purchases of Equity Securities
 Maximum NumberTotal Number
    
    of Sharesof Shares Purchased
    
    that May Yet BeTotal Number
    
    Average
    
    as Part of Publicly
    
    Purchased Underof Shares
    
    Price Paid
    
    Announced Plans
    
    the PlansPeriod
    
    Purchased
    
    per Share
    
    or Programs
    
    or Programs7/1/06 - 7/31/06
    
    
    1,000
    
    
    
    21.75
    
    
    
    1,000
    
    
    
    1,238,7998/1/06 - 8/31/06
    
    
    5,700
    
    
    
    21.74
    
    
    
    5,700
    
    
    
    1,233,0999/1/06 - 9/30/06
    
    
    63,668
    
    
    
    23.66
    
    
    
    63,668
    
    
    
    1,169,431Total
    
    
    70,368
    
    
    
    23.48
    
    
    
    70,368
    
    
    
    1,169,431
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  PAGE 48




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##### Table of Contents



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 Holdings, Inc. and certain stockholders of
Royal American Corporation (incorporated by reference to Registrants
Report on Form 8-K filed February 8, 2006, File No. 001-13735).3.1
    
    Amended and Restated Certificate of
Incorporation, as amended (incorporated by reference to
Registrants Form 10-Q for the quarter ended June 30,
2006, File No. 001-13735).3.2
    
    Amended and Restated By-laws, filed September 27, 2005 (incorporated
by reference to Registrants Report on Form 8-K filed September 27,
2005, File No. 001-13735).4.1
    
    Specimen Common Stock Certificate (incorporated by reference to
Registrants Registration Statement on Form S-1, Registration No.
333-42827).4.2
    
    Certain instruments defining the rights of the holders of long-term
debt of the Company and certain of its subsidiaries, none of which
authorize a total amount of indebtedness in excess of 10% of the
total assets of the Company and its subsidiaries on a consolidated
basis, have not been filed as Exhibits. The Company hereby agrees
to furnish a copy of any of these agreements to the SEC upon
request.*10.1
    
    Midwest Banc Holdings, Inc. Stock and Incentive Plan (incorporated by reference to
Registrants Form 10-Q for the quarter ended June 30,
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
 PAGE 49




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##### Table of Contents



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 March 24, 2006, between the Company and M&I
Marshall & Ilsley Bank (incorporated by reference to Registrants
Report on Form 8-K filed March 24, 2006, File No. 001-13735).10.25
    
    Employment Agreement as of September 28, 2004 between the Company
and the Chief Executive Officer (incorporated by reference to
Registrants Form 10-Q for the quarter ended September 30, 2004,
File No. 001-13735).10.26
    
    Retirement Agreement as of September 28, 2004 between the Company
and retiring Chief Executive Officer (incorporated by reference to
Registrants Form 10-Q for the quarter ended September 30, 2004,
File No. 001-13735).10.27
    
    Midwest Banc Holdings, Inc. Severance Policy as of June 28, 2005
(incorporated by reference to Registrants Report on Form 8-K dated
June 28, 2005, File No. 001-13735).10.29
    
    Midwest Banc Holdings, Inc. Directors Deferred Compensation Plan
(incorporated by reference to Registrants Report on Form 8-K filed
December 16, 2005, File No. 001-13735).
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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, 2006.10.33
    
    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, 2006.10.34
    
    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, 2006.10.35
    
    Lease dated January 20, 2006 by and between Royal American Bank and
MEG Associates Limited Partnership, assumed by the Company as of
July 1, 2006.10.36
    
    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, 2006.10.37
    
    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, 2006.10.38
    
    Lease dated July 14, 2006 by and between Midwest Bank and Trust
Company and William C. Moran.*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.*10.41
    
    Form of 2006 Supplemental Executive Retirement Agreement.*10.42
    
    First Amendment to the Form of 2005
Supplemental Executive Retirement Agreement.10.43
    
    Lease dated November 9, 2005
by and between Midwest Bank and Trust Company and Crossings
Commercial, LLC.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 51




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##### Table of Contents



SIGNATURES
   MIDWEST BANC HOLDINGS, INC.(Registrant)By:
    /s/ James J. GiancolaJames J. Giancola,President and Chief Executive OfficerBy:
    /s/ Daniel R. KadolphDaniel R. Kadolph,Executive Vice President and
Chief Financial Officer PAGE 52




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##### Table of Contents



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




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##### Table of Contents



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 March 24, 2006, between the Company and M&I
Marshall & Ilsley Bank (incorporated by reference to Registrants
Report on Form 8-K filed March 24, 2006, File No. 001-13735).10.25
    
    Employment Agreement as of September 28, 2004 between the Company
and the Chief Executive Officer (incorporated by reference to
Registrants Form 10-Q for the quarter ended September 30, 2004,
File No. 001-13735).10.26
    
    Retirement Agreement as of September 28, 2004 between the Company
and retiring Chief Executive Officer (incorporated by reference to
Registrants Form 10-Q for the quarter ended September 30, 2004,
File No. 001-13735).10.27
    
    Midwest Banc Holdings, Inc. Severance Policy as of June 28, 2005
(incorporated by




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##### Table of Contents



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, 2006.10.33
    
    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, 2006.10.34
    
    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, 2006.10.35
    
    Lease dated January 20, 2006 by and between Royal American Bank and
MEG Associates Limited Partnership, assumed by the Company as of
July 1, 2006.10.36
    
    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, 2006.10.37
    
    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, 2006.10.38
    
    Lease dated July 14, 2006 by and between Midwest Bank and Trust
Company and William C. Moran.*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.*10.41
    
    Form of 2006 Supplemental Executive Retirement Agreement.*10.42
    
    First Amendment to the Form of 2005
Supplemental Executive Retirement Agreement.10.43
    
    Lease dated November 9, 2005
by and between Midwest Bank and Trust Company and Crossings
Commercial, LLC.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 55