##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


|   |  |                                              
|-- |  | ---------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
|   |  | OF THE SECURITIES EXCHANGE ACT OF 1934       
|  
|   |  | For the fiscal year ended December 31, 2004  
|  
|OR

|  |  |                                                  
|- |  | -------------------------------------------------
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
|  |  | OF THE SECURITIES EXCHANGE ACT OF 1934           
| 
|  |  | For the transition period
    from           to  

Commission file number 001-13735


Midwest Banc Holdings, Inc.


(Exact name of Registrant as specified in its charter)


|                         |  |                                        
|------------------------ |  | ---------------------------------------
|Delaware                 |  | 36-3252484                             
|(State of Incorporation) |  | (I.R.S. Employer Identification Number)

501 West North Avenue, Melrose Park, Illinois 60160


(Address of principal executive offices including ZIP
Code)


(708) 865-1053


(Registrants telephone number including Area Code)


Securities registered pursuant to Section 12(b) of the
Act:


10.0% Cumulative Trust Preferred Securities, American
Stock Exchange


(And Guarantee with Respect Thereto)


Securities registered pursuant to Section 12(g) of the
Act:


Common Stock, $0.01 par value, Nasdaq National Market


(Title of Class)


þ o


o


þ o






DOCUMENTS INCORPORATED BY REFERENCE












---










MIDWEST BANC HOLDINGS, INC.


FORM 10-K


INDEX


|                                                  |  |                                                                                                    |     |      |    | 
|------------------------------------------------- |  | -------------------------------------------------------------------------------------------------- | --- | ---- | -- | 
|                                                  |  |                                                                                                    |     | Page |   
|                                                  |  |                                                                                                    |     | No.  |   
|                                                  |  |                                                                                                    |     |      |   
|PART I                                           
|Item 1.                                           |  | Business                                                                                           |     |      | 1  | 
|Item 2.                                           |  | Properties                                                                                         |     |      | 19 | 
|Item 3.                                           |  | Legal Proceedings                                                                                  |     |      | 20 | 
|Item 4.                                           |  | Submission of Matters to a Vote of Security
    Holders                                            |     |      | 20 | 
|PART II                                          
|Item 5.                                           |  | Market for the Registrants Common
    Equity and Related Stockholder Matters                      |     |      | 20 | 
|Item 6.                                           |  | Selected Consolidated Financial Data                                                               |     |      | 22 | 
|Item 7.                                           |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations          |     |      | 24 | 
|Item 7A.                                          |  | Quantitative and Qualitative Disclosures
    about Market Risk                                     |     |      | 52 | 
|Item 8.                                           |  | Consolidated Financial Statements and
    Supplementary Data                                       |     |      | 54 | 
|Item 9.                                           |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure           |     |      | 54 | 
|Item 9A.                                          |  | Controls and Procedures                                                                            |     |      | 55 | 
|PART III                                         
|Item 10.                                          |  | Directors and Executive Officers of the
    Registrant                                             |     |      | 55 | 
|Item 11.                                          |  | Executive Compensation                                                                             |     |      | 55 | 
|Item 12.                                          |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters |     |      | 56 | 
|Item 13.                                          |  | Certain Relationships and Related
    Transactions                                                 |     |      | 56 | 
|Item 14.                                          |  | Principal Accounting Fees and Services                                                             |     |      | 56 | 
|PART IV                                          
|Item 15.                                          |  | Exhibits and Financial Statement
    Schedules                                                     |     |      | 57 | 
|Signature(s) Page                                 |  |                                                                                                    | 59  |     
|Contents of Consolidated Financial
    Statements |  |                                                                                                    | F-1 |     
|Officer Compensation                             
|Director Compensation                            
|Subsidiaries                                     
|Consent of Crowe Chizek and Company LLC          
|Consent of McGladrey & Pullen, LLP               
|Certification of Principal Executive Officer     
|Certification of Principal Financial Officer     
|Section 906 Certifications                       





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##### Table of Contents






PART I







|        |         
|------- | --------
|Item 1. | Business

The Company














|                                 |  |              |                  |  |             |                      |            |  |    | 
|-------------------------------- |  | ------------ | ---------------- |  | ----------- | -------------------- | ---------- |  | -- | 
|                                 |  |              |                  |  |             | Number of            |           
|                                 |  |              |                  |  |             | Banking Centers      |           
|Company Subsidiaries             |  | Headquarters |                  |  | Market Area |                      | or Offices | 
|                                 |  |              |                  |  |             |                      |            | 
|Banks:                           |  |              |                  |  |             |                      |            |  |    | 
|                                
|Midwest Bank and Trust Company   |  |              | Elmwood Park, IL |  |             | Addison, Algonquin,  |            |  | 17 | 
|                                 |  |              |                  |  |             | Chicago, Downers     |            |  |    | 
|                                 |  |              |                  |  |             | Grove, Elmwood Park, |            |  |    | 
|                                 |  |              |                  |  |             | Glenview, Hinsdale,  |            |  |    | 
|                                 |  |              |                  |  |             | Island Lake, Long    |            |  |    | 
|                                 |  |              |                  |  |             | Grove, Melrose Park, |            |  |    | 
|                                 |  |              |                  |  |             | McHenry, Norridge,   |            |  |    | 
|                                 |  |              |                  |  |             | Roselle, and Union   |            |  |    | 
|Midwest Bank of Western Illinois |  |              | Monmouth, IL     |  |             | Aledo, Galesburg,    |            |  | 6  | 
|                                 |  |              |                  |  |             | Kirkwood, Monmouth   |            |  |    | 
|                                 |  |              |                  |  |             | and Oquawka          |            |  |    | 

1



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|                                                |  |              |                  |  |             |                  |            |  |   | 
|----------------------------------------------- |  | ------------ | ---------------- |  | ----------- | ---------------- | ---------- |  | - | 
|                                                |  |              |                  |  |             | Number of        |           
|                                                |  |              |                  |  |             | Banking Centers  |           
|Company Subsidiaries                            |  | Headquarters |                  |  | Market Area |                  | or Offices | 
|                                                |  |              |                  |  |             |                  |            | 
|Nonbanks:                                       |  |              |                  |  |             |                  |            |  |   | 
|                                               
|Porter Insurance Agency, Inc.                   |  |              | Alexis, IL       |  |             | Western Illinois |            |  | 2 | 
|Midwest Bank Insurance Services, L.L.C.         |  |              | Algonquin, IL    |  |             | *                |            |  | 1 | 
|MBTC Investment Company                         |  |              | Las Vegas, NV    |  |             | **               |            |  | 2 | 
|MBHI Capital Trust I                            |  |              | Melrose Park, IL |  |             | ***              |            |  |  | 
|MBHI Capital Trust II                           |  |              | Melrose Park, IL |  |             | ***              |            |  |  | 
|MBHI Capital Trust III                          |  |              | Melrose Park, IL |  |             | ***              |            |  |  | 
|MBHI Capital Trust IV                           |  |              | Melrose Park, IL |  |             | ***              |            |  |  | 
|Midwest Financial and Investment Services, Inc. |  |              | Elmwood Park, IL |  |             | ****             |            |  | 4 | 






|     |                                                                                             
|---- | --------------------------------------------------------------------------------------------
|*    | Provides fixed annuity products to individuals.                                             
|    
|**   | Provides additional investment portfolio management to Midwest
    Bank and Trust Company.  
|    
|***  | The trust is a statutory business trust formed as a financing
    subsidiary of the Company.
|    
|**** | Provides securities brokerage services to individuals and
    commercial business.          

History




| |          
| | ---------
| | The Banks











2



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| |                     
| | --------------------
| | Nonbank Subsidiaries











3



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The Banks




Markets






Strategy






| |   |                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Recruit seasoned commercial lenders, credit analysts, and key
    risk and operations managers.                                                                               
|
| |  | Diversify the loan portfolio mix by reducing the concentration
    in commercial real estate lending and expanding commercial,
    consumer real estate, and consumer lending.
|
| |  | Modify the structure and mix of the securities portfolio and
    derivative activities.                                                                                       

4



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| |   |                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Expand focus on retail banking activities including traditional
    and non-deposit investment products and placing greater emphasis
    on transactional deposit growth.





| |   |                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Reduce the earnings volatility and risk in the investment
    portfolio.                                                                               
|
| |  | Implement ongoing risk and credit management processes that
    provide strong levels of control, minimize risk, and anticipate
    potential problems.
|
| |  | Develop a growing, well diversified, well priced, and
    fundamentally sound loan portfolio.                                                          
|
| |  | Focus our deposit efforts on transaction account growth,
    especially demand deposit growth.                                                         
|
| |  | Develop additional sources of fee income.                                                                                                              



Products and Services




| |                 
| | ----------------
| | Deposit Products



Checking and NOW Accounts.


Savings and Money Market Accounts.


Time Deposits.




| |                 
| | ----------------
| | Lending Services



Commercial Loans.


5



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Commercial Real Estate Loans.


Agricultural Loans.


Consumer Real Estate Loans.




Consumer Loans.






| |     
| | ----
| | ATMs





| |                 
| | ----------------
| | Trust Activities





| |                   
| | ------------------
| | Insurance Services



6



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| |                     
| | --------------------
| | Securities Brokerage



Competition










Employees




Recent Regulatory Developments




7



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Available Information


www.midwestbanc.com.


http://www.sec.gov.


SUPERVISION AND REGULATION




Bank Holding Company Regulation




8



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9



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Bank Regulation








10



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Financial Institution Regulation


Transactions with Affiliates.


Dividend Limitations.




Capital Requirements.




Standards for Safety and Soundness.


11



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Prompt Corrective Action.


Insurance of Deposit Accounts.


12



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Federal Reserve System.


Community Reinvestment.


Consumer Compliance.


Brokered Deposits.


Enforcement Actions.


13



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Interstate Banking and Branching Legislation.


de novo


Insurance Powers.






Securities Brokerage.


Monetary Policy and Economic Conditions






SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES


LITIGATION REFORM ACT OF 1995




14



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| |   |                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Managements ability to reduce and effectively manage
    interest rate risk and the impact of interest rates in general
    on the volatility of the Companys net interest income;                                                                                                                                                                        
|
| |  | Fluctuations in the value of the Companys investment
    securities;                                                                                                                                                                                                                                                                                       
|
| |  | The ability to attract and retain senior management experienced
    in banking and financial services;                                                                                                                                                                                                                                                      
|
| |  | The sufficiency of allowances for loan losses to absorb the
    amount of actual losses inherent in the existing portfolio of
    loans;                                                                                                                                                                                                                    
|
| |  | The Companys ability to adapt successfully to
    technological changes to compete effectively in the marketplace;                                                                                                                                                                                                                                         
|
| |  | Credit risks and risks from concentrations (by geographic area
    and by industry) within the Banks loan portfolio;                                                                                                                                                                                                                                       
|
| |  | 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;                                                                                                                                                                                                                                                                                                         
|
| |  | 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;    

15



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| |   |                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 Banks
    to comply with banking laws, rules or regulations, including the
    failure of the Company and Midwest Bank and Trust Company
    to comply with the written agreement it entered into with the
    Federal Reserve and IDFPR;
|
| |  | 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;                                                                                                                                                                                                                                 
|
| |  | 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.                                                                                                                                                                                                         





EXECUTIVE OFFICERS OF THE REGISTRANT








16



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17



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18



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|        |           
|------- | ----------
|Item 2. | Properties



|                                                          |  |                |      |  |                   |   |       |           |  |  |        | 
|--------------------------------------------------------- |  | -------------- | ---- |  | ----------------- | - | ----- | --------- |  |  | ------ | 
|                                                          |  | Date           |      |  | Net Book Value at |   |       | Leased or | 
|Location                                                  |  | Acquired       |      |  | December 31, 2004 |   |       | Owned     | 
|                                                          |  |                |      |  |                   |   |       |           | 
|                                                          |  | (In thousands) |     
|Principal Office                                          |  |                |      |  |                   |   |       |           |  |  |        | 
|501 West North Avenue
    Melrose Park, Illinois 60160    |  |                | 1987 |  |                   | $ | 975   |           |  |  | Owned  | 
|                                                         
|Midwest Bank and Trust Company Banking Offices            |  |                |      |  |                   |   |       |           |  |  |        | 
|1606 North Harlem Avenue
    Elmwood Park, Illinois 60607 |  |                | 1959 |  |                   |   | 1,605 |           |  |  | Owned  | 
|300 South Michigan Avenue
    Chicago, Illinois 60604     |  |                | 1986 |  |                   |   |      |           |  |  | Leased | 
|4012 North Pulaski Road
    Chicago, Illinois 60641       |  |                | 1993 |  |                   |   | 922   |           |  |  | Owned  | 
|7227 West Addison Street
    Chicago, Illinois 60634      |  |                | 1996 |  |                   |   | 1,121 |           |  |  | Owned  | 
|1601 North Milwaukee Avenue
    Chicago, Illinois 60647   |  |                | 2003 |  |                   |   | 157   |           |  |  | Owned  | 
|8301 West Lawrence
    Norridge, Illinois 60656           |  |                | 2003 |  |                   |   | 4     |           |  |  | *      | 
|245 South Addison Road
    Addison, Illinois 60101        |  |                | 2002 |  |                   |   | 954   |           |  |  | Owned  | 
|1441 Waukegan Road
    Glenview, Illinois 60025           |  |                | 2003 |  |                   |   | 12    |           |  |  | Leased | 
|500 West Chestnut Street
    Hinsdale, Illinois 60521     |  |                | 1991 |  |                   |   | 1,553 |           |  |  | Owned  | 
|927 Curtiss Street
    Downers Grove, Illinois 60515      |  |                | 1996 |  |                   |   | 3     |           |  |  | Leased | 
|505 North Roselle Road
    Roselle, Illinois 60172        |  |                | 1999 |  |                   |   | 2,011 |           |  |  | Owned  | 
|17622 Depot Street
    Union, Illinois 60180              |  |                | 1987 |  |                   |   | 48    |           |  |  | Owned  | 
|2045 East Algonquin Road
    Algonquin, Illinois 60102    |  |                | 1994 |  |                   |   | 694   |           |  |  | Owned  | 
|204 E. State Road
    Island Lake, Illinois 60042         |  |                | 1998 |  |                   |   | 318   |           |  |  | Owned  | 
|5555 Bull Valley Road
    McHenry, Illinois 60050         |  |                | 1998 |  |                   |   | 1,197 |           |  |  | Owned  | 
|Old McHenry Road
    Long Grove, Illinois                 |  |                | 2003 |  |                   |   | 2,794 |           |  |  | Owned  | 
|                                                         
|Midwest Bank of Western Illinois Banking Offices          |  |                |      |  |                   |   |       |           |  |  |        | 
|200 East Broadway
    Monmouth, Illinois 61462            |  |                | 1993 |  |                   |   | 2,374 |           |  |  | Owned  | 
|612 West Main Street
    Galesburg, Illinois 61401        |  |                | 1996 |  |                   |   | 499   |           |  |  | Owned  | 
|Schuyler Street
    Oquawka, Illinois 61469               |  |                | 1991 |  |                   |   | 50    |           |  |  | Owned  | 

19



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|                                                   |  |                |      |  |                   |  |     |           |  |  |        | 
|-------------------------------------------------- |  | -------------- | ---- |  | ----------------- |  | --- | --------- |  |  | ------ | 
|                                                   |  | Date           |      |  | Net Book Value at |  |     | Leased or | 
|Location                                           |  | Acquired       |      |  | December 31, 2004 |  |     | Owned     | 
|                                                   |  |                |      |  |                   |  |     |           | 
|                                                   |  | (In thousands) |     
|104 S.E. 3rd Avenue
    Aledo, Illinois 61231      |  |                | 1999 |  |                   |  | 145 |           |  |  | Owned  | 
|106 South Kirk
    Kirkwood, Illinois 61473        |  |                | 1993 |  |                   |  |    |           |  |  | Owned  | 
|1120 North 6th Street
    Monmouth, Illinois 61462 |  |                | 2001 |  |                   |  |    |           |  |  | Leased | 






|  |                                      
|- | -------------------------------------
|* | Land is leased and building is owned.








|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings








|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders






PART II







|        |                                                                              
|------- | -----------------------------------------------------------------------------
|Item 5. | Market for the Registrants Common Equity and Related
    Stockholder Matters



|     |                |      |   |       |     |  |   |       | 
|---- | -------------- | ---- | - | ----- | --- |  | - | ----- | 
|     |                | High |   |       | Low | 
|     |                |      |   |       |     | 
|2003 |                |      |   |       |     |  |   |      
|     | First Quarter  |      | $ | 21.13 |     |  | $ | 16.01 | 
|     | Second Quarter |      |   | 20.55 |     |  |   | 16.81 | 
|     | Third Quarter  |      |   | 23.20 |     |  |   | 19.42 | 
|     | Fourth Quarter |      |   | 24.15 |     |  |   | 21.84 | 
|2004 |                |      |   |       |     |  |   |      
|     | First Quarter  |      | $ | 25.00 |     |  | $ | 22.08 | 
|     | Second Quarter |      |   | 24.39 |     |  |   | 21.31 | 
|     | Third Quarter  |      |   | 22.25 |     |  |   | 17.96 | 
|     | Fourth Quarter |      |   | 23.17 |     |  |   | 19.20 | 

20



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|     |                |  |   |      |  |  |  |  | 
|---- | -------------- |  | - | ---- |  |  |  |  | 
|2003 |                |  |   |      |  |  |  | 
|     | First Quarter  |  | $ | 0.10 |  |  |  |  | 
|     | Second Quarter |  |   | 0.10 |  |  |  |  | 
|     | Third Quarter  |  |   | 0.12 |  |  |  |  | 
|     | Fourth Quarter |  |   | 0.12 |  |  |  |  | 
|2004 |                |  |   |      |  |  |  | 
|     | First Quarter  |  | $ | 0.12 |  |  |  |  | 
|     | Second Quarter |  |   | 0.12 |  |  |  |  | 
|     | Third Quarter  |  |   | 0.12 |  |  |  |  | 
|     | Fourth Quarter |  |   | 0.12 |  |  |  |  | 





|                       |  |                   |  |        |            |  |      |             |      |                   |      |                  
|---------------------- |  | ----------------- |  | ------ | ---------- |  | ---- | ----------- | ---- | ----------------- | ---- | -----------------
|                       |  |                   |  |        |            |  |      | Mandatory   |      | Optional         
|                       |  |                   |  |        |            |  |      | Redemption  |      | Redemption       
|Issuer                 |  | Issue Date        |  | Amount |            |  | Rate |             | Date |                   | Date
|                       |  |                   |  |        |            |  |      |             |      |                   |     
|MBHI Capital Trust I   |  | June 7, 2000      |  | $      | 20,000,000 |  |      | 10.0%       |      | June 7, 2030      |      | June 7, 2005     
|MBHI Capital Trust II  |  | October 29, 2002  |  | $      | 15,000,000 |  |      | LIBOR+3.45% |      | November 7, 2032  |      | November 7, 2007 
|MBHI Capital Trust III |  | December 19, 2003 |  | $      | 9,000,000  |  |      | LIBOR+3.00% |      | December 30, 2033 |      | December 30, 2008
|MBHI Capital Trust IV  |  | December 19, 2003 |  | $      | 10,000,000 |  |      | LIBOR+2.85% |      | January 23, 2034  |      | January 23, 2008 



21



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|        |                                     
|------- | ------------------------------------
|Item 6. | Selected Consolidated Financial Data



|                           |                                            |                                               |   |         |      |  |   |         |   |  |      |         |   |      |   |         |   |  |   |         |  
|-------------------------- | ------------------------------------------ | --------------------------------------------- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - | ---- | - | ------- | - |  | - | ------- | -
|                           |                                            | Year Ended December 31,                       |  
|                           |                                            |                                               |  
|                           |                                            | 2004                                          |   |         | 2003 |  |   | 2002    |   |  | 2001 |         |   | 2000 |  
|                           |                                            |                                               |   |         |      |  |   |         |   |  |      |         |   |      |  
|                           |                                            | (Dollars in thousands, except per share data) |  
|Statement of Income Data:  |                                            |                                               |   |         |      |  |   |         |   |  |      |         |   |      |   |         |   |  |   |        
|                           | Total interest income                      |                                               | $ | 105,407 |      |  | $ | 112,079 |   |  | $    | 112,721 |   |      | $ | 113,132 |   |  | $ | 109,792 |  
|                           | Total interest expense                     |                                               |   | 47,749  |      |  |   | 49,797  |   |  |      | 53,319  |   |      |   | 65,665  |   |  |   | 64,032  |  
|                           |                                            |                                               |   |         |      |  |   |         |   |  |      |         |   |      |  
|                           | Net interest income                        |                                               |   | 57,658  |      |  |   | 62,282  |   |  |      | 59,402  |   |      |   | 47,467  |   |  |   | 45,760  |  
|                           | Provision for loan losses                  |                                               |   | 4,224   |      |  |   | 10,205  |   |  |      | 18,532  |   |      |   | 2,220   |   |  |   | 1,850   |  
|                           | Other income                               |                                               |   | (2,500  | )    |  |   | 23,086  |   |  |      | 14,008  |   |      |   | 12,802  |   |  |   | 7,695   |  
|                           | Other expenses                             |                                               |   | 52,733  |      |  |   | 43,495  |   |  |      | 33,909  |   |      |   | 31,463  |   |  |   | 29,360  |  
|                           |                                            |                                               |   |         |      |  |   |         |   |  |      |         |   |      |  
|                           | Income before income taxes                 |                                               |   | (1,799  | )    |  |   | 31,668  |   |  |      | 20,969  |   |      |   | 26,586  |   |  |   | 22,245  |  
|                           | Provision for income taxes                 |                                               |   | (4,175  | )    |  |   | 8,887   |   |  |      | 4,661   |   |      |   | 8,704   |   |  |   | 7,632   |  
|                           |                                            |                                               |   |         |      |  |   |         |   |  |      |         |   |      |  
|                           | Net income                                 |                                               | $ | 2,376   |      |  | $ | 22,781  |   |  | $    | 16,308  |   |      | $ | 17,882  |   |  | $ | 14,613  |  
|                           |                                            |                                               |   |         |      |  |   |         |   |  |      |         |   |      |  
|Per Share Data(1):         |                                            |                                               |   |         |      |  |   |         |   |  |      |         |   |      |   |         |   |  |   |        
|                           | Earnings per share (basic)                 |                                               | $ | 0.13    |      |  | $ | 1.28    |   |  | $    | 1.01    |   |      | $ | 1.11    |   |  | $ | 0.91    |  
|                           | Earnings per share (diluted)               |                                               |   | 0.13    |      |  |   | 1.25    |   |  |      | 0.99    |   |      |   | 1.09    |   |  |   | 0.90    |  
|                           | Cash dividends declared                    |                                               |   | 0.48    |      |  |   | 0.44    |   |  |      | 0.40    |   |      |   | 0.40    |   |  |   | 0.35    |  
|                           | Book value at end of year                  |                                               |   | 7.66    |      |  |   | 8.01    |   |  |      | 7.12    |   |      |   | 5.99    |   |  |   | 5.13    |  
|                           | Tangible book value at end of year         |                                               |   | 7.42    |      |  |   | 7.77    |   |  |      | 6.83    |   |      |   | 5.87    |   |  |   | 4.99    |  
|Selected Financial Ratios: |                                            |                                               |   |         |      |  |   |         |   |  |      |         |   |      |   |         |   |  |   |        
|                           | Return on average assets(2)                |                                               |   | 0.10    | %    |  |   | 1.02    | % |  |      | 0.86    | % |      |   | 1.12    | % |  |   | 1.07    | %
|                           | Return on average equity(3)                |                                               |   | 1.68    |      |  |   | 15.45   |   |  |      | 14.81   |   |      |   | 19.50   |   |  |   | 20.57   |  
|                           | Dividend payout ratio                      |                                               |   | 361.49  |      |  |   | 34.43   |   |  |      | 39.61   |   |      |   | 36.02   |   |  |   | 38.64   |  
|                           | Average equity to average assets           |                                               |   | 6.12    |      |  |   | 6.60    |   |  |      | 5.83    |   |      |   | 5.75    |   |  |   | 5.18    |  
|                           | Tier 1 risk-based capital                  |                                               |   | 13.27   |      |  |   | 13.68   |   |  |      | 10.49   |   |      |   | 9.93    |   |  |   | 11.02   |  
|                           | Total risk-based capital                   |                                               |   | 14.65   |      |  |   | 14.74   |   |  |      | 11.74   |   |      |   | 10.82   |   |  |   | 11.94   |  
|                           | Net interest margin (tax equivalent)(4)(5) |                                               |   | 2.83    |      |  |   | 3.17    |   |  |      | 3.46    |   |      |   | 3.31    |   |  |   | 3.65    |  
|                           | Loan to deposit ratio                      |                                               |   | 73.13   |      |  |   | 68.16   |   |  |      | 81.74   |   |      |   | 82.82   |   |  |   | 75.95   |  
|                           | Net overhead expense to average assets(6)  |                                               |   | 1.76    |      |  |   | 1.15    |   |  |      | 1.13    |   |      |   | 1.34    |   |  |   | 1.67    |  
|                           | Efficiency ratio(7)                        |                                               |   | 71.23   |      |  |   | 49.62   |   |  |      | 45.03   |   |      |   | 51.41   |   |  |   | 52.98   |  

22



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|                     |                                                             |                                               |   |           |      |  |   |           |   |  |      |           |   |      |   |           |   |  |   |           | 
|-------------------- | ----------------------------------------------------------- | --------------------------------------------- | - | --------- | ---- |  | - | --------- | - |  | ---- | --------- | - | ---- | - | --------- | - |  | - | --------- | 
|                     |                                                             | Year Ended December 31,                       |  
|                     |                                                             |                                               |  
|                     |                                                             | 2004                                          |   |           | 2003 |  |   | 2002      |   |  | 2001 |           |   | 2000 |  
|                     |                                                             |                                               |   |           |      |  |   |           |   |  |      |           |   |      |  
|                     |                                                             | (Dollars in thousands, except per share data) |  
|Loan Quality Ratios: |                                                             |                                               |   |           |      |  |   |           |   |  |      |           |   |      |   |           |   |  |   |          
|                     | Allowance for loan losses to total loans at the end of year |                                               |   | 1.46      |      |  |   | 1.45      |   |  |      | 1.83      |   |      |   | 1.01      |   |  |   | 1.04      | 
|                     | Provision for loan losses to total loans                    |                                               |   | 0.34      |      |  |   | 0.94      |   |  |      | 1.63      |   |      |   | 0.22      |   |  |   | 0.22      | 
|                     | Net loans charged off to average total loans                |                                               |   | 0.18      |      |  |   | 0.79      |   |  |      | 0.73      |   |      |   | 0.07      |   |  |   | 0.11      | 
|                     | Nonperforming loans to total loans at the end of year(8)    |                                               |   | 0.80      |      |  |   | 1.45      |   |  |      | 2.78      |   |      |   | 0.24      |   |  |   | 0.26      | 
|                     | Nonperforming assets to total assets(9)                     |                                               |   | 0.81      |      |  |   | 1.00      |   |  |      | 1.60      |   |      |   | 0.15      |   |  |   | 0.23      | 
|                     | Allowance for loan losses to nonperforming loans            |                                               |   | 1.82      | x    |  |   | 1.00      | x |  |      | 0.66      | x |      |   | 4.28      | x |  |   | 3.82x     | 
|Balance Sheet Data:  |                                                             |                                               |   |           |      |  |   |           |   |  |      |           |   |      |   |           |   |  |   |          
|                     | Total assets                                                |                                               | $ | 2,236,813 |      |  | $ | 2,264,149 |   |  | $    | 2,009,047 |   |      | $ | 1,810,422 |   |  | $ | 1,467,770 | 
|                     | Total earning assets                                        |                                               |   | 2,056,038 |      |  |   | 2,061,747 |   |  |      | 1,908,533 |   |      |   | 1,711,030 |   |  |   | 1,371,519 | 
|                     | Year-to-date average assets                                 |                                               |   | 2,310,594 |      |  |   | 2,234,293 |   |  |      | 1,889,511 |   |      |   | 1,593,939 |   |  |   | 1,370,386 | 
|                     | Total loans                                                 |                                               |   | 1,230,400 |      |  |   | 1,081,296 |   |  |      | 1,136,704 |   |      |   | 1,003,386 |   |  |   | 824,632   | 
|                     | Allowance for loan losses                                   |                                               |   | 17,961    |      |  |   | 15,714    |   |  |      | 20,754    |   |      |   | 10,135    |   |  |   | 8,593     | 
|                     | Total deposits                                              |                                               |   | 1,682,421 |      |  |   | 1,586,411 |   |  |      | 1,390,648 |   |      |   | 1,211,520 |   |  |   | 1,085,786 | 
|                     | Total borrowings                                            |                                               |   | 387,701   |      |  |   | 512,160   |   |  |      | 462,382   |   |      |   | 442,150   |   |  |   | 289,093   | 
|                     | Stockholders equity                                        |                                               |   | 137,423   |      |  |   | 143,081   |   |  |      | 114,951   |   |      |   | 96,214    |   |  |   | 82,576    | 
|                     | Tangible stockholders equity(10)                           |                                               |   | 133,063   |      |  |   | 138,721   |   |  |      | 111,929   |   |      |   | 94,272    |   |  |   | 80,463    | 






|    |                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------
|(1) | Restated for 3-for-2 stock split paid on July 9, 2002.                                                                    
|   
|(2) | Net income divided by year-to-date average assets.                                                                        
|   
|(3) | Net income divided by year-to-date average equity.                                                                        
|   
|(4) | Net interest income, on a fully tax-equivalent basis, divided by
    year-to-date average earning assets.                 
|   
|(5) | The following table reconciles reported net interest income on a
    fully tax-equivalent basis for the periods presented:

|                                                 |  |      |        |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|------------------------------------------------ |  | ---- | ------ |  | ---- | - | ------ | ---- |  | - | ------ |  |  | ---- | ------ |  |  | - | ------ | 
|                                                 |  | 2004 |        |  | 2003 |   |        | 2002 |  |   | 2001   |  |  | 2000 |       
|                                                 |  |      |        |  |      |   |        |      |  |   |        |  |  |      |       
|Net interest income                              |  | $    | 57,658 |  |      | $ | 62,282 |      |  | $ | 59,402 |  |  | $    | 47,467 |  |  | $ | 45,760 | 
|Tax-equivalent adjustment to net interest income |  |      | 2,886  |  |      |   | 4,333  |      |  |   | 2,890  |  |  |      | 2,624  |  |  |   | 1,304  | 
|                                                 |  |      |        |  |      |   |        |      |  |   |        |  |  |      |       
|Net interest income, fully tax-equivalent basis  |  | $    | 60,544 |  |      | $ | 66,615 |      |  | $ | 62,292 |  |  | $    | 50,091 |  |  | $ | 47,064 | 
|                                                 |  |      |        |  |      |   |        |      |  |   |        |  |  |      |       



|    |                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6) | Noninterest expense less noninterest income, excluding security
    gains or losses, divided by average assets.                                                                                                  
|   
|(7) | Noninterest income, excluding security gains or losses, plus net
    interest income on a fully tax-equivalent basis divided by
    noninterest expense excluding amortization and other real estate
    expense.
|   
|(8) | Includes total nonaccrual, impaired and all other loans
    90 days or more past due.                                                                                                                            
|   
|(9) | Includes total nonaccrual, all other loans 90 days or more
    past due, and other real estate owned.                                                                                                            

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##### Table of Contents





|     |                                                                                                                                                                     
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Stockholders equity less goodwill. The following table
    reconciles reported stockholders equity to tangible
    stockholders equity for the periods presented:

|                              |  |      |         |  |      |   |         |      |  |   |         |  |  |      |        |  |  |   |        | 
|----------------------------- |  | ---- | ------- |  | ---- | - | ------- | ---- |  | - | ------- |  |  | ---- | ------ |  |  | - | ------ | 
|                              |  | 2004 |         |  | 2003 |   |         | 2002 |  |   | 2001    |  |  | 2000 |       
|                              |  |      |         |  |      |   |         |      |  |   |         |  |  |      |       
|Stockholders equity          |  | $    | 137,423 |  |      | $ | 143,081 |      |  | $ | 114,951 |  |  | $    | 96,214 |  |  | $ | 82,576 | 
|Goodwill                      |  |      | 4,360   |  |      |   | 4,360   |      |  |   | 3,022   |  |  |      | 1,942  |  |  |   | 2,113  | 
|                              |  |      |         |  |      |   |         |      |  |   |         |  |  |      |       
|Tangible stockholders equity |  | $    | 133,063 |  |      | $ | 138,721 |      |  | $ | 111,929 |  |  | $    | 94,272 |  |  | $ | 80,463 | 
|                              |  |      |         |  |      |   |         |      |  |   |         |  |  |      |       






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

Overview








Critical Accounting Policies and Estimates




Allowance for Loan Losses:


24



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##### Table of Contents











Evaluation of Securities for Impairment:


Fair Value of Financial Instruments and Derivatives:


25



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##### Table of Contents





Consolidated Results of Operations




| |                      
| | ---------------------
| | 2004 Compared to 2003





| |   |                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Total assets decreased $27.3 million, or 1.2%, to
    $2.2 billion as of December 31, 2004 from
    December 31, 2003.                                                        
|
| |  | Loans increased $149.1 million, or 13.8%, to
    $1.2 billion as of December 31, 2004 compared to
    December 31, 2003.                                                      
|
| |  | Net loans charged off to average total loans were 0.18% at
    December 31, 2004 compared to 0.79% the prior year.                                                            
|
| |  | Securities decreased by $214.3 million, or 25.1%, in 2004
    compared to 2003.                                                                                               
|
| |  | Allowance to nonperforming loans coverage increased to 1.82x in
    2004 from 1.00x in 2003.                                                                                  
|
| |  | Net income decreased $20.4 million, or 89.6%, to
    $2.4 million for the year ended December 31, 2004
    compared to $22.8 million for the year ended
    December 31, 2003.
|
| |  | Non-cash impairment loss on equity securities of
    $10.1 million as of December 31, 2004.                                                                                   
|
| |  | The return on average assets was 0.10% for 2004, 1.02% for 2003,
    and 0.86% for 2002.                                                                                      
|
| |  | The return on average equity decreased to 1.68% in 2004 from
    15.45% in 2003 due to the decrease in earnings.                                                              

Net Interest Income.








| |   |                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Sold $324.4 million of U.S. Agency notes and corporate
    bonds with a weighted average yield of 3.24% in order to prepay
    $115.0 million of Federal Home Loan Bank Advances with
    a weighted average yield of 5.44% as well as to invest in
    securities with shorter duration.

26



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##### Table of Contents





| |   |                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Purchased $194.9 million in mortgage-backed securities with
    a weighted average yield of 4.53% and duration of 3.6 years
    in January 2005:



| |   |                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $174.9 million of these purchases are hybrid ARMs: 5/1,
    7/1, and 10/1 products with yields ranging between 4.24% to
    4.80% and duration from 2.9 to 4.0 years and
|
| |  | $20.0 million was invested in a 15 year product with a
    yield of 4.54% and duration of 4.3 years.                                                                    





Provision for Loan Losses.


Other Income.




| |   |                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------
| |  | $9.8 million decrease in net gains or losses on securities
    transactions, which includes the $6.1 million in hedge
    ineffectiveness;
|
| |  | $10.1 million non-cash impairment charge on equity
    securities;                                                                        
|
| |  | $5.9 million decrease in trading profits; and                                                                                             
|
| |  | Gains on sale of loans and insurance and brokerage commissions
    decreased by $484,000 and $119,000, respectively.                      



Other Expenses.




| |   |                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Salaries and employee benefits increased $3.5 million due
    to a retirement benefit obligation of $1.5 million and
    severance expense of $359,000 as well as an increase in
    full-time staff positions and annual merit increases;
|
| |  | Occupancy and equipment increased $473,000 in 2004 compared to
    the prior year;                                                                                                                                                        

27



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##### Table of Contents





| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Professional services increased $413,000 for 2004 compared to
    2003 due to legal, consulting, and Sarbanes-Oxley
    Section 404 compliance expenses; and
|
| |  | Prepayment penalties associated with the FHLB advances, as
    mentioned above, were $4.2 million.                                                          



Federal and State Income Tax.




| |                      
| | ---------------------
| | 2003 Compared to 2002





| |   |                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Net income increased $6.5 million, or 39.7%, to
    $22.8 million for the year ended December 31, 2003
    compared to $16.3 million for the year ended
    December 31, 2002.                                                                      
|
| |  | The return on average assets was 1.02% for 2003 and 0.86% for
    2002.                                                                                                                                                                             
|
| |  | The return on average equity increased to 15.45% in 2003 from
    14.81% in 2002 due to the increase in earnings, while decreasing
    from 19.50% in 2001 due to increased lower incremental increases
    in earnings and larger amount of equity.
|
| |  | Total assets increased $255.1 million, or 12.7%, to
    $2.3 billion as of December 31, 2003 from
    $2.0 billion as of December 31, 2002.                                                                                                         

Net Interest Income.






28



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##### Table of Contents





Provision for Loan Losses.


Other Income.




Other Expenses.




| |   |                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Salaries and employee benefits increased $3.5 million due
    to an increase in full-time staff positions, including brokerage
    staff and employees added through the acquisition of BFFC,
    growth in existing banking centers, and annual merit increases;
|
| |  | Occupancy and equipment increased $1.7 million in 2003
    compared to the prior year primarily due to the increase
    premises and equipment as a result of the BFFC acquisition;                                                                              
|
| |  | Professional services increased $1.7 million for 2003
    compared to 2002 due to higher legal and consulting fees.                                                                                                                                              
|
| |  | Other real estate expense increased by $888,000 for 2003
    compared to 2002.                                                                                                                                                                                   
|
| |  | Other increases in incremental expenses of $700,000 are
    attributed to the three banking centers acquired through the
    BFFC acquisition.                                                                                                                   
|
| |  | Amortization expense on intangible assets increased by $517,000
    in 2003 compared to 2002 due to the BFFC acquisition.                                                                                                                                        



Federal and State Income Tax.


29



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##### Table of Contents



Interest-Earning Assets and Interest-Bearing Liabilities




|                                                       |                                       |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |         |         |  |  |          |      |  |      |           |         |  |   |         |        |  |  |      |      | 
|------------------------------------------------------ | ------------------------------------- | ------------------------------- | --------- | ------- | -------- | - | ------- | ------ |  | ------- | ------- | ---- |  | -------- | --------- | ------- | ---- | ------- | ------- | ------- |  |  | -------- | ---- |  | ---- | --------- | ------- |  | - | ------- | ------ |  |  | ---- | ---- | 
|                                                       |                                       | For the Year Ended December 31, |          
|                                                       |                                       |                                 |          
|                                                       |                                       | 2004                            |           |         | 2003     |   |         | 2002   | 
|                                                       |                                       |                                 |           |         |          |   |         |        | 
|                                                       |                                       | Average                         |           |         |          |   | Average |        |  | Average |         |      |  |          | Average   |         |      | Average |         |         |  |  | Average  |     
|                                                       |                                       | Balance                         |           |         | Interest |   |         | Rate   |  |         | Balance |      |  | Interest |           |         | Rate |         |         | Balance |  |  | Interest |      |  | Rate |          
|                                                       |                                       |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |         |         |  |  |          |      |  |      |          
|                                                       |                                       | (Dollars in thousands)          |          
|Interest-Earning Assets:                               |                                       |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |         |         |  |  |          |      |  |      |           |         |  |   |         |        |  |  |      |     
|Federal funds sold and interest-bearing due from banks |                                       | $                               | 120,661   |         |          | $ | 1,378   |        |  |         | 1.14    | %    |  | $        | 24,956    |         |      | $       | 247     |         |  |  | 0.99     | %    |  | $    | 8,796     |         |  | $ | 138     |        |  |  | 1.57 | %   
|Securities:                                            |                                       |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |         |         |  |  |          |      |  |      |           |         |  |   |         |        |  |  |      |     
|                                                       | Taxable(1)                            |                                 |           | 882,333 |          |   |         | 37,609 |  |         |         | 4.26 |  |          |           | 888,577 |      |         |         | 38,647  |  |  |          | 4.35 |  |      |           | 639,226 |  |   |         | 36,542 |  |  |      | 5.72 | 
|                                                       | Exempt from federal income taxes(1)   |                                 |           | 17,519  |          |   |         | 1,200  |  |         |         | 6.85 |  |          |           | 71,191  |      |         |         | 4,786   |  |  |          | 6.72 |  |      |           | 59,662  |  |   |         | 4,033  |  |  |      | 6.76 | 
|                                                       |                                       |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |         |         |  |  |          |      |  |      |          
|Total securities                                       |                                       |                                 | 899,852   |         |          |   | 38,809  |        |  |         | 4.31    |      |  |          | 959,768   |         |      |         | 43,433  |         |  |  | 4.53     |      |  |      | 698,888   |         |  |   | 40,575  |        |  |  | 5.81 |     
|Loans:                                                 |                                       |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |         |         |  |  |          |      |  |      |           |         |  |   |         |        |  |  |      |     
|                                                       | Commercial loans(1)(3)(4)             |                                 |           | 193,703 |          |   |         | 10,771 |  |         |         | 5.56 |  |          |           | 219,277 |      |         |         | 12,764  |  |  |          | 5.82 |  |      |           | 229,525 |  |   |         | 13,175 |  |  |      | 5.74 | 
|                                                       | Commercial real estate loans(1)(3)(4) |                                 |           | 731,206 |          |   |         | 45,808 |  |         |         | 6.26 |  |          |           | 704,514 |      |         |         | 47,031  |  |  |          | 6.68 |  |      |           | 684,414 |  |   |         | 49,044 |  |  |      | 7.17 | 
|                                                       | Agricultural loans(1)(3)(4)           |                                 |           | 63,816  |          |   |         | 3,845  |  |         |         | 6.03 |  |          |           | 57,112  |      |         |         | 3,657   |  |  |          | 6.40 |  |      |           | 53,853  |  |   |         | 3,702  |  |  |      | 6.87 | 
|                                                       | Consumer real estate loans(3)(4)      |                                 |           | 119,888 |          |   |         | 6,849  |  |         |         | 5.71 |  |          |           | 122,390 |      |         |         | 8,249   |  |  |          | 6.74 |  |      |           | 108,339 |  |   |         | 7,805  |  |  |      | 7.20 | 
|                                                       | Consumer installment loans(3)(4)      |                                 |           | 11,308  |          |   |         | 833    |  |         |         | 7.37 |  |          |           | 12,992  |      |         |         | 1,031   |  |  |          | 7.94 |  |      |           | 14,183  |  |   |         | 1,172  |  |  |      | 8.26 | 
|                                                       |                                       |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |         |         |  |  |          |      |  |      |          
|Total loans                                            |                                       |                                 | 1,119,921 |         |          |   | 68,106  |        |  |         | 6.08    |      |  |          | 1,116,285 |         |      |         | 72,732  |         |  |  | 6.52     |      |  |      | 1,090,314 |         |  |   | 74,898  |        |  |  | 6.87 |     
|                                                       |                                       |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |         |         |  |  |          |      |  |      |          
|Total interest-earning Assets                          |                                       | $                               | 2,140,434 |         |          | $ | 108,293 |        |  |         | 5.06    | %    |  | $        | 2,101,009 |         |      | $       | 116,412 |         |  |  | 5.54     | %    |  | $    | 1,797,998 |         |  | $ | 115,611 |        |  |  | 6.43 | %   
|                                                       |                                       |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |         |         |  |  |          |      |  |      |          
|Interest-Bearing Liabilities:                          |                                       |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |         |         |  |  |          |      |  |      |           |         |  |   |         |        |  |  |      |     
|Deposits:                                              |                                       |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |         |         |  |  |          |      |  |      |           |         |  |   |         |        |  |  |      |     
|Interest-bearing demand deposits                       |                                       | $                               | 230,441   |         |          | $ | 2,841   |        |  |         | 1.23    | %    |  | $        | 181,474   |         |      | $       | 2,143   |         |  |  | 1.18     | %    |  | $    | 135,943   |         |  | $ | 2,035   |        |  |  | 1.50 | %   
|Money-market demand accounts and savings accounts      |                                       |                                 | 349,348   |         |          |   | 4,858   |        |  |         | 1.39    |      |  |          | 326,491   |         |      |         | 3,853   |         |  |  | 1.18     |      |  |      | 260,151   |         |  |   | 4,271   |        |  |  | 1.64 |     
|Time deposits less than $100,000                       |                                       |                                 | 771,874   |         |          |   | 20,413  |        |  |         | 2.64    |      |  |          | 718,495   |         |      |         | 20,130  |         |  |  | 2.80     |      |  |      | 590,978   |         |  |   | 21,298  |        |  |  | 3.60 |     
|Time deposits of $100,000 or more                      |                                       |                                 | 90,044    |         |          |   | 1,985   |        |  |         | 2.20    |      |  |          | 111,372   |         |      |         | 2,670   |         |  |  | 2.40     |      |  |      | 133,991   |         |  |   | 4,132   |        |  |  | 3.08 |     
|Public funds                                           |                                       |                                 | 25,893    |         |          |   | 505     |        |  |         | 1.95    |      |  |          | 56,453    |         |      |         | 1,269   |         |  |  | 2.25     |      |  |      | 72,495    |         |  |   | 2,300   |        |  |  | 3.17 |     
|                                                       |                                       |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |         |         |  |  |          |      |  |      |          
|Total interest-bearing deposits                        |                                       |                                 | 1,467,600 |         |          |   | 30,602  |        |  |         | 2.09    |      |  |          | 1,394,285 |         |      |         | 30,065  |         |  |  | 2.16     |      |  |      | 1,193,558 |         |  |   | 34,036  |        |  |  | 2.85 |     
|Borrowings:                                            |                                       |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |         |         |  |  |          |      |  |      |           |         |  |   |         |        |  |  |      |     
|Federal funds purchased and repurchase agreements      |                                       |                                 | 220,252   |         |          |   | 5,664   |        |  |         | 2.57    |      |  |          | 223,608   |         |      |         | 6,111   |         |  |  | 2.73     |      |  |      | 172,011   |         |  |   | 4,518   |        |  |  | 2.63 |     
|FHLB advances                                          |                                       |                                 | 241,612   |         |          |   | 7,916   |        |  |         | 3.28    |      |  |          | 256,583   |         |      |         | 10,862  |         |  |  | 4.23     |      |  |      | 235,923   |         |  |   | 13,004  |        |  |  | 5.51 |     
|Notes payable and other borrowings                     |                                       |                                 | 56,038    |         |          |   | 3,567   |        |  |         | 6.37    |      |  |          | 41,848    |         |      |         | 2,759   |         |  |  | 6.59     |      |  |      | 30,472    |         |  |   | 1,761   |        |  |  | 5.78 |     
|                                                       |                                       |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |         |         |  |  |          |      |  |      |          
|Total borrowings                                       |                                       |                                 | 517,902   |         |          |   | 17,147  |        |  |         | 3.31    |      |  |          | 522,039   |         |      |         | 19,732  |         |  |  | 3.78     |      |  |      | 438,406   |         |  |   | 19,283  |        |  |  | 4.40 |     
|                                                       |                                       |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |         |         |  |  |          |      |  |      |          
|Total interest-bearing liabilities                     |                                       | $                               | 1,985,502 |         |          | $ | 47,749  |        |  |         | 2.40    | %    |  | $        | 1,916,324 |         |      | $       | 49,797  |         |  |  | 2.60     | %    |  | $    | 1,631,964 |         |  | $ | 53,319  |        |  |  | 3.27 | %   
|                                                       |                                       |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |         |         |  |  |          |      |  |      |          
|Net interest income (tax equivalent)(1)(5)             |                                       |                                 |           |         |          | $ | 60,544  |        |  |         | 2.65    | %    |  |          |           |         |      | $       | 66,615  |         |  |  | 2.94     | %    |  |      |           |         |  | $ | 62,292  |        |  |  | 3.16 | %   
|                                                       |                                       |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |         |         |  |  |          |      |  |      |          
|Net interest margin (tax equivalent)(1)                |                                       |                                 |           |         |          |   |         |        |  |         | 2.83    | %    |  |          |           |         |      |         |         |         |  |  | 3.17     | %    |  |      |           |         |  |   |         |        |  |  | 3.46 | %   
|Net interest income(2)(5)                              |                                       |                                 |           |         |          | $ | 57,658  |        |  |         |         |      |  |          |           |         |      | $       | 62,282  |         |  |  |          |      |  |      |           |         |  | $ | 59,402  |        |  |  |      |     
|                                                       |                                       |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |         |         |  |  |          |      |  |      |          
|Net interest margin(2)                                 |                                       |                                 |           |         |          |   |         |        |  |         | 2.69    | %    |  |          |           |         |      |         |         |         |  |  | 2.96     | %    |  |      |           |         |  |   |         |        |  |  | 3.30 | %   

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|    |                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------
|(1) | Adjusted for 35% tax rate in 2004, 2003, and 2002 and adjusted
    for the dividends-received deduction where applicable.
|   
|(2) | Not adjusted for 35% tax rate in 2004, 2003, and 2002 or for the
    dividends-received deduction.                       
|   
|(3) | Nonaccrual loans are included in the average balance; however,
    these loans are not earning any interest.             
|   
|(4) | Includes loan fees which are immaterial.                                                                                 
|   
|(5) | The following table reconciles reported net interest income on a
    tax equivalent basis for the periods presented:     

|                                                 |  |      |        |  |      |   |        |      |  |   |        | 
|------------------------------------------------ |  | ---- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                                 |  | 2004 |        |  | 2003 |   |        | 2002 | 
|                                                 |  |      |        |  |      |   |        |      | 
|Net interest income                              |  | $    | 57,658 |  |      | $ | 62,282 |      |  | $ | 59,402 | 
|Tax equivalent adjustment to net interest income |  |      | 2,886  |  |      |   | 4,333  |      |  |   | 2,890  | 
|                                                 |  |      |        |  |      |   |        |      | 
|Net interest income, tax equivalent basis        |  | $    | 60,544 |  |      | $ | 66,615 |      |  | $ | 62,292 | 
|                                                 |  |      |        |  |      |   |        |      | 

Changes in Interest Income and Expense






|                         |                                                        |                                 |   |        |                       |  |   |        |   |  |     |        |   |        |   |        |      |  |   |        |   |  |   |         |  
|------------------------ | ------------------------------------------------------ | ------------------------------- | - | ------ | --------------------- |  | - | ------ | - |  | --- | ------ | - | ------ | - | ------ | ---- |  | - | ------ | - |  | - | ------- | -
|                         |                                                        | For the Year Ended December 31, |  
|                         |                                                        |                                 |  
|                         |                                                        | 2004 Compared to 2003           |   |        | 2003 Compared to 2002 | 
|                         |                                                        | Change Due to                   |   |        | Change Due to         | 
|                         |                                                        |                                 |   |        |                       | 
|                         |                                                        | Net                             |   |        | Volume                |  |   | Rate   |   |  | Net |        |   | Volume |   |        | Rate | 
|                         |                                                        |                                 |   |        |                       |  |   |        |   |  |     |        |   |        |   |        |      | 
|Interest-Earning Assets: |                                                        |                                 |   |        |                       |  |   |        |   |  |     |        |   |        |   |        |      |  |   |        |   |  |   |        
|                         | Federal funds sold and interest-bearing due from banks |                                 | $ | 1,131  |                       |  | $ | 1,087  |   |  | $   | 44     |   |        | $ | 109    |      |  | $ | 176    |   |  | $ | (67     | )
|                         | Securities taxable                                     |                                 |   | (1,038 | )                     |  |   | (270   | ) |  |     | (768   | ) |        |   | 2,105  |      |  |   | 12,141 |   |  |   | (10,036 | )
|                         | Securities exempt from federal income taxes            |                                 |   | (3,586 | )                     |  |   | (3,675 | ) |  |     | 89     |   |        |   | 753    |      |  |   | 775    |   |  |   | (22     | )
|                         | Commercial loans                                       |                                 |   | (1,993 | )                     |  |   | (1,441 | ) |  |     | (552   | ) |        |   | (411   | )    |  |   | (595   | ) |  |   | 184     |  
|                         | Commercial real estate loans                           |                                 |   | (1,223 | )                     |  |   | 1,740  |   |  |     | (2,963 | ) |        |   | (2,013 | )    |  |   | 1,411  |   |  |   | (3,424  | )
|                         | Agricultural loans                                     |                                 |   | 188    |                       |  |   | 412    |   |  |     | (224   | ) |        |   | (45    | )    |  |   | 217    |   |  |   | (262    | )
|                         | Consumer real estate loans                             |                                 |   | (1,400 | )                     |  |   | (166   | ) |  |     | (1,234 | ) |        |   | 444    |      |  |   | 969    |   |  |   | (525    | )
|                         | Consumer installment loans                             |                                 |   | (198   | )                     |  |   | (127   | ) |  |     | (71    | ) |        |   | (141   | )    |  |   | (96    | ) |  |   | (45     | )
|                         |                                                        |                                 |   |        |                       |  |   |        |   |  |     |        |   |        |   |        |      | 
|                         | Total interest-earning assets                          |                                 | $ | (8,119 | )                     |  | $ | (2,440 | ) |  | $   | (5,679 | ) |        | $ | 801    |      |  | $ | 14,998 |   |  | $ | (14,197 | )
|                         |                                                        |                                 |   |        |                       |  |   |        |   |  |     |        |   |        |   |        |      | 

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|                              |                                                   |                                 |        |        |                       |   |        |       |   |   |        |        |   |        |       |        |      |   |       |       |   |   |        |         |  
|----------------------------- | ------------------------------------------------- | ------------------------------- | ------ | ------ | --------------------- | - | ------ | ----- | - | - | ------ | ------ | - | ------ | ----- | ------ | ---- | - | ----- | ----- | - | - | ------ | ------- | -
|                              |                                                   | For the Year Ended December 31, |       
|                              |                                                   |                                 |       
|                              |                                                   | 2004 Compared to 2003           |        |        | 2003 Compared to 2002 |  
|                              |                                                   | Change Due to                   |        |        | Change Due to         |  
|                              |                                                   |                                 |        |        |                       |  
|                              |                                                   | Net                             |        |        | Volume                |   |        | Rate  |   |   | Net    |        |   | Volume |       |        | Rate |  
|                              |                                                   |                                 |        |        |                       |   |        |       |   |   |        |        |   |        |       |        |      |  
|Interest-Bearing Liabilities: |                                                   |                                 |        |        |                       |   |        |       |   |   |        |        |   |        |       |        |      |   |       |       |   |   |        |        
|                              | Interest-bearing demand deposits                  |                                 | $      | 698    |                       |   | $      | 600   |   |   | $      | 98     |   |        | $     | 108    |      |   | $     | 593   |   |   | $      | (485    | )
|                              | Money market demand accounts and savings accounts |                                 |        | 1,005  |                       |   |        | 283   |   |   |        | 722    |   |        |       | (418   | )    |   |       | 943   |   |   |        | (1,361  | )
|                              | Time deposits of less than $100,000               |                                 |        | 283    |                       |   |        | 1,448 |   |   |        | (1,165 | ) |        |       | (1,168 | )    |   |       | 4,092 |   |   |        | (5,260  | )
|                              | Time deposits of $100,000 or more                 |                                 |        | (685   | )                     |   |        | (482  | ) |   |        | (203   | ) |        |       | (1,462 | )    |   |       | (631  | ) |   |        | (831    | )
|                              | Public funds                                      |                                 |        | (764   | )                     |   |        | (614  | ) |   |        | (150   | ) |        |       | (1,031 | )    |   |       | (445  | ) |   |        | (586    | )
|                              | Federal funds purchased and repurchase agreements |                                 |        | (447   | )                     |   |        | (91   | ) |   |        | (356   | ) |        |       | 1,593  |      |   |       | 1,404 |   |   |        | 189     |  
|                              | FHLB advances                                     |                                 |        | (2,946 | )                     |   |        | (604  | ) |   |        | (2,342 | ) |        |       | (2,142 | )    |   |       | 1,066 |   |   |        | (3,208  | )
|                              | Notes payable and other borrowings                |                                 |        | 808    |                       |   |        | 906   |   |   |        | (98    | ) |        |       | 998    |      |   |       | 725   |   |   |        | 273     |  
|                              |                                                   |                                 |        |        |                       |   |        |       |   |   |        |        |   |        |       |        |      |  
|                              | Total interest-bearing liabilities                |                                 | $      | (2,048 | )                     |   | $      | 1,446 |   |   | $      | (3,494 | ) |        | $     | (3,522 | )    |   | $     | 7,747 |   |   | $      | (11,269 | )
|                              |                                                   |                                 |        |        |                       |   |        |       |   |   |        |        |   |        |       |        |      |  
|Net interest                  |                                                   | $                               | (6,071 | )      |                       | $ | (3,886 | )     |   | $ | (2,185 | )      |   | $      | 4,323 |        |      | $ | 7,251 |       |   | $ | (2,928 | )      
|                              |                                                   |                                 |        |        |                       |   |        |       |   |   |        |        |   |        |       |        |      |  

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Financial Condition




| |      
| | -----
| | Loans



|                          |                      |                |         |           |      |   |         |           |  |   |         |           |  |      |         |           |  |   |         |         | 
|------------------------- | -------------------- | -------------- | ------- | --------- | ---- | - | ------- | --------- |  | - | ------- | --------- |  | ---- | ------- | --------- |  | - | ------- | ------- | 
|                          |                      | December 31,   |        
|                          |                      |                |        
|                          |                      | 2004           |         |           | 2003 |   |         | 2002      |  |   | 2001    |           |  | 2000 |        
|                          |                      |                |         |           |      |   |         |           |  |   |         |           |  |      |        
|                          |                      | (In thousands) |        
|Commercial                |                      | $              | 211,278 |           |      | $ | 203,920 |           |  | $ | 229,764 |           |  | $    | 220,801 |           |  | $ | 205,698 |        
|Commercial real estate    |                      |                | 781,547 |           |      |   | 711,891 |           |  |   | 730,836 |           |  |      | 612,687 |           |  |   | 448,988 |        
|Agricultural              |                      |                | 62,949  |           |      |   | 58,144  |           |  |   | 57,426  |           |  |      | 48,772  |           |  |   | 47,773  |        
|Consumer real estate(1)   |                      |                | 164,455 |           |      |   | 96,107  |           |  |   | 105,391 |           |  |      | 109,329 |           |  |   | 108,780 |        
|Consumer installment      |                      |                | 10,665  |           |      |   | 12,124  |           |  |   | 14,573  |           |  |      | 13,375  |           |  |   | 14,529  |        
|                          |                      |                |         |           |      |   |         |           |  |   |         |           |  |      |        
|                          | Total loans, gross   |                |         | 1,230,894 |      |   |         | 1,082,186 |  |   |         | 1,137,990 |  |      |         | 1,004,964 |  |   |         | 825,768 | 
|Net deferred fees         |                      |                | (494    | )         |      |   | (890    | )         |  |   | (1,286  | )         |  |      | (1,578  | )         |  |   | (1,136  | )      
|                          |                      |                |         |           |      |   |         |           |  |   |         |           |  |      |        
|                          | Total loans          |                |         | 1,230,400 |      |   |         | 1,081,296 |  |   |         | 1,136,704 |  |      |         | 1,003,386 |  |   |         | 824,632 | 
|Allowance for loan losses |                      |                | (17,961 | )         |      |   | (15,714 | )         |  |   | (20,754 | )         |  |      | (10,135 | )         |  |   | (8,593  | )      
|                          |                      |                |         |           |      |   |         |           |  |   |         |           |  |      |        
|                          | Net loans            |                | $       | 1,212,439 |      |   | $       | 1,065,582 |  |   | $       | 1,115,950 |  |      | $       | 993,251   |  |   | $       | 816,039 | 
|                          |                      |                |         |           |      |   |         |           |  |   |         |           |  |      |        
|Loans held for sale:      |                      |                |         |           |      |   |         |           |  |   |         |           |  |      |         |           |  |   |         |        
|                          | Consumer real estate |                | $       | 693       |      |   | $       | 1,571     |  |   | $       | 4,924     |  |      | $       | 3,414     |  |   | $       | 616     | 
|                          |                      |                |         |           |      |   |         |           |  |   |         |           |  |      |        






|    |                              
|--- | -----------------------------
|(1) | Includes loans held for sale.





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Commercial loans increased $7.4 million to
    $211.3 million as of December 31, 2004 from
    $203.9 million as of December 31, 2003, an increase of
    3.6%.                                                                                                                                                                                                                                                                
|
| |  | Commercial real estate loans increased $69.7 million, or
    9.8%, from December 31, 2003. The Company has added lending
    personnel to assist in the growth in this category in which the
    Company maintains a primary focus.                                                                                                                                                                                            
|
| |  | Agricultural loans increased $4.8 million, or 8.3% as of
    December 31, 2004 compared to December 31, 2003.                                                                                                                                                                                                                                                                                                                  
|
| |  | Consumer real estate loans increased $68.3 million, or
    71.1%, to $164.5 million as of December 31, 2004
    compared to $96.1 million as of December 31, 2003. The
    Company purchased $30.2 million in fixed rate mortgages at
    an average yield of 4.61% in June 2004 and $11.2 million in
    adjustable rate mortgages at an average yield of 4.92% in
    December 2004 to offset loans paid off during the year.
|
| |  | Most consumer residential mortgage loans the Company originates
    are sold in the secondary market. At any point in time, loans
    will be at various stages of the mortgage banking process.
    Included as part of consumer real estate loans are loans held
    for sale. The carrying value of these loans approximated their
    market value at that time.                                                           





| |   |                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The primary risks associated with commercial loans are the
    quality of the borrowers management, financial strength
    and cash flow resources, and the impact of local economic
    factors.
|
| |  | Risks associated with real estate loans include concentrations
    of loans in a certain loan type, such as commercial or
    residential, and fluctuating land and property values.              

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| |   |                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.





| |                
| | ---------------
| | Loan Maturities



|                       |             |                |         |           |       |   |              |          |  |   |         |         |  |          |        |        |       |   |         |         |  |   |           |           | 
|---------------------- | ----------- | -------------- | ------- | --------- | ----- | - | ------------ | -------- |  | - | ------- | ------- |  | -------- | ------ | ------ | ----- | - | ------- | ------- |  | - | --------- | --------- | 
|                       |             |                |         | 1-5 Years |       |   | Over 5 Years |          |  |  
|                       |             | One Year       |         |           |       |   |              |          |  |   |        
|                       |             | Or Less        |         |           | Fixed |   |              | Variable |  |   | Fixed   |         |  | Variable |        |        | Total |  
|                       |             |                |         |           |       |   |              |          |  |   |         |         |  |          |        |        |       |  
|                       |             | (In thousands) |        
|Commercial             |             | $              | 148,652 |           |       | $ | 26,709       |          |  | $ | 29,642  |         |  | $        | 4,819  |        |       | $ | 1,456   |         |  | $ | 211,278   |          
|Commercial real estate |             |                | 394,985 |           |       |   | 283,524      |          |  |   | 65,725  |         |  |          | 24,201 |        |       |   | 13,112  |         |  |   | 781,547   |          
|Agricultural           |             |                | 20,904  |           |       |   | 6,368        |          |  |   | 10,700  |         |  |          | 3,183  |        |       |   | 21,794  |         |  |   | 62,949    |          
|Consumer real estate   |             |                | 26,941  |           |       |   | 9,479        |          |  |   | 16,082  |         |  |          | 41,704 |        |       |   | 70,249  |         |  |   | 164,455   |          
|Consumer installment   |             |                | 4,671   |           |       |   | 5,256        |          |  |   | 11      |         |  |          | 727    |        |       |   |        |         |  |   | 10,665    |          
|                       |             |                |         |           |       |   |              |          |  |   |         |         |  |          |        |        |       |  
|Total loans, gross     |             |                | 596,153 |           |       |   | 331,336      |          |  |   | 112,160 |         |  |          | 74,634 |        |       |   | 106,611 |         |  |   | 1,230,894 |          
|Net deferred fees      |             |                | (494    | )         |       |   |             |          |  |   |        |         |  |          |       |        |       |   |        |         |  |   | (494      | )        
|                       |             |                |         |           |       |   |              |          |  |   |         |         |  |          |        |        |       |  
|                       | Total loans |                | $       | 596,659   |       |   | $            | 331,336  |  |   | $       | 112,160 |  |          | $      | 74,634 |       |   | $       | 106,611 |  |   | $         | 1,230,400 | 
|                       |             |                |         |           |       |   |              |          |  |   |         |         |  |          |        |        |       |  



| |                    
| | -------------------
| | Nonperforming Loans









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|                                                                |                            |                        |       |        |      |   |        |        |  |   |        |        |  |      |       |       |  |   |       |       | 
|--------------------------------------------------------------- | -------------------------- | ---------------------- | ----- | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ |  | ---- | ----- | ----- |  | - | ----- | ----- | 
|                                                                |                            | December 31,           |      
|                                                                |                            |                        |      
|                                                                |                            | 2004                   |       |        | 2003 |   |        | 2002   |  |   | 2001   |        |  | 2000 |      
|                                                                |                            |                        |       |        |      |   |        |        |  |   |        |        |  |      |      
|                                                                |                            | (Dollars in thousands) |      
|Nonaccrual and impaired loans not accruing                      |                            | $                      | 9,865 |        |      | $ | 15,665 |        |  | $ | 29,035 |        |  | $    | 1,774 |       |  | $ | 1,168 |      
|Impaired and other loans 90 days past due and accruing          |                            |                        | 29    |        |      |   | 18     |        |  |   | 2,514  |        |  |      | 595   |       |  |   | 1,082 |      
|                                                                |                            |                        |       |        |      |   |        |        |  |   |        |        |  |      |      
|                                                                | Total nonperforming loans  |                        |       | 9,894  |      |   |        | 15,683 |  |   |        | 31,549 |  |      |       | 2,369 |  |   |       | 2,250 | 
|Other real estate                                               |                            |                        | 8,224 |        |      |   | 6,942  |        |  |   | 533    |        |  |      | 355   |       |  |   | 1,153 |      
|                                                                |                            |                        |       |        |      |   |        |        |  |   |        |        |  |      |      
|                                                                | Total nonperforming assets |                        | $     | 18,118 |      |   | $      | 22,625 |  |   | $      | 32,082 |  |      | $     | 2,724 |  |   | $     | 3,403 | 
|                                                                |                            |                        |       |        |      |   |        |        |  |   |        |        |  |      |      
|Total nonperforming loans to total loans                        |                            |                        | 0.80  | %      |      |   | 1.45   | %      |  |   | 2.78   | %      |  |      | 0.24  | %     |  |   | 0.26  | %    
|Total nonperforming assets to total loans and other real estate |                            |                        | 1.46  |        |      |   | 2.08   |        |  |   | 2.82   |        |  |      | 0.27  |       |  |   | 0.41  |      
|Total nonperforming assets to total assets                      |                            |                        | 0.81  |        |      |   | 1.00   |        |  |   | 1.60   |        |  |      | 0.15  |       |  |   | 0.23  |      







| |                                      
| | -------------------------------------
| | Analysis of Allowance for Loan Losses







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|                                                         |                              |                         |           |       |       |   |           |       |        |   |           |       |       |      |           |     |     |   |         |     |       | 
|-------------------------------------------------------- | ---------------------------- | ----------------------- | --------- | ----- | ----- | - | --------- | ----- | ------ | - | --------- | ----- | ----- | ---- | --------- | --- | --- | - | ------- | --- | ----- | 
|                                                         |                              | Year Ended December 31, |          
|                                                         |                              |                         |          
|                                                         |                              | 2004                    |           |       | 2003  |   |           | 2002  |        |   | 2001      |       |       | 2000 |          
|                                                         |                              |                         |           |       |       |   |           |       |        |   |           |       |       |      |          
|                                                         |                              | (Dollars in thousands)  |          
|Average total loans                                      |                              | $                       | 1,119,921 |       |       | $ | 1,116,285 |       |        | $ | 1,090,314 |       |       | $    | 917,610   |     |     | $ | 745,085 |    
|                                                         |                              |                         |           |       |       |   |           |       |        |   |           |       |       |      |          
|Total loans at end of year                               |                              | $                       | 1,230,400 |       |       | $ | 1,081,296 |       |        | $ | 1,136,704 |       |       | $    | 1,003,386 |     |     | $ | 824,632 |    
|                                                         |                              |                         |           |       |       |   |           |       |        |   |           |       |       |      |          
|Total nonperforming loans                                |                              | $                       | 9,894     |       |       | $ | 15,683    |       |        | $ | 31,549    |       |       | $    | 2,369     |     |     | $ | 2,250   |    
|                                                         |                              |                         |           |       |       |   |           |       |        |   |           |       |       |      |          
|Allowance at beginning of year                           |                              | $                       | 15,714    |       |       | $ | 20,754    |       |        | $ | 10,135    |       |       | $    | 8,593     |     |     | $ | 7,567   |    
|Allowance from acquired bank                             |                              |                         |          |       |       |   | 300       |       |        |   |          |       |       |      |          |     |     |   |        |    
|Allowance adjustment for loan sale by related parties(1) |                              |                         |          |       |       |   | (6,685    | )     |        |   |          |       |       |      |          |     |     |   |        |    
|Charge-offs:                                             |                              |                         |           |       |       |   |           |       |        |   |           |       |       |      |           |     |     |   |         |    
|                                                         | Commercial loans             |                         |           | 1,132 |       |   |           | 8,111 |        |   |           | 6,957 |       |      |           | 541 |     |   |         | 874 |      
|                                                         | Consumer real estate loans   |                         |           | 49    |       |   |           | 72    |        |   |           | 14    |       |      |           | 49  |     |   |         | 56  |      
|                                                         | Commercial real estate loans |                         |           | 1,168 |       |   |           | 1,526 |        |   |           | 651   |       |      |           | 231 |     |   |         | 89  |      
|                                                         | Agricultural loans           |                         |           |      |       |   |           | 168   |        |   |           | 284   |       |      |           |    |     |   |         | 11  |      
|                                                         | Consumer installment loans   |                         |           | 173   |       |   |           | 128   |        |   |           | 300   |       |      |           | 56  |     |   |         | 77  |      
|                                                         |                              |                         |           |       |       |   |           |       |        |   |           |       |       |      |          
|                                                         |                              | Total charge-offs       |           |       | 2,522 |   |           |       | 10,005 |   |           |       | 8,206 |      |           |     | 877 |   |         |     | 1,107 | 

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|                                        |                              |                         |        |     |      |   |        |       |       |   |        |     |     |      |        |     |     |   |       |     |     | 
|--------------------------------------- | ---------------------------- | ----------------------- | ------ | --- | ---- | - | ------ | ----- | ----- | - | ------ | --- | --- | ---- | ------ | --- | --- | - | ----- | --- | --- | 
|                                        |                              | Year Ended December 31, |       
|                                        |                              |                         |       
|                                        |                              | 2004                    |        |     | 2003 |   |        | 2002  |       |   | 2001   |     |     | 2000 |       
|                                        |                              |                         |        |     |      |   |        |       |       |   |        |     |     |      |       
|                                        |                              | (Dollars in thousands)  |       
|Recoveries:                             |                              |                         |        |     |      |   |        |       |       |   |        |     |     |      |        |     |     |   |       |    
|                                        | Commercial loans             |                         |        | 189 |      |   |        | 1,081 |       |   |        | 206 |     |      |        | 168 |     |   |       | 256 |    
|                                        | Consumer real estate loans   |                         |        | 37  |      |   |        | 2     |       |   |        | 47  |     |      |        | 2   |     |   |       | 6   |    
|                                        | Commercial real estate loans |                         |        | 261 |      |   |        | 10    |       |   |        | 5   |     |      |        |    |     |   |       | 1   |    
|                                        | Agricultural loans           |                         |        |    |      |   |        |      |       |   |        |    |     |      |        |    |     |   |       |    |    
|                                        | Consumer installment loans   |                         |        | 58  |      |   |        | 52    |       |   |        | 35  |     |      |        | 29  |     |   |       | 20  |    
|                                        |                              |                         |        |     |      |   |        |       |       |   |        |     |     |      |       
|                                        |                              | Total recoveries        |        |     | 545  |   |        |       | 1,145 |   |        |     | 293 |      |        |     | 199 |   |       |     | 283 | 
|                                        |                              |                         |        |     |      |   |        |       |       |   |        |     |     |      |       
|Net charge-offs                         |                              |                         | 1,977  |     |      |   | 8,860  |       |       |   | 7,913  |     |     |      | 678    |     |     |   | 824   |    
|Provision for loan losses               |                              |                         | 4,224  |     |      |   | 10,205 |       |       |   | 18,532 |     |     |      | 2,220  |     |     |   | 1,850 |    
|                                        |                              |                         |        |     |      |   |        |       |       |   |        |     |     |      |       
|Allowance at end of the year            |                              | $                       | 17,961 |     |      | $ | 15,714 |       |       | $ | 20,754 |     |     | $    | 10,135 |     |     | $ | 8,593 |    
|                                        |                              |                         |        |     |      |   |        |       |       |   |        |     |     |      |       
|Net charge-off to average total loans   |                              |                         | 0.18   | %   |      |   | 0.79   | %     |       |   | 0.73   | %   |     |      | 0.07   | %   |     |   | 0.11  | %  
|Allowance to total loans at end of year |                              |                         | 1.46   |     |      |   | 1.45   |       |       |   | 1.83   |     |     |      | 1.01   |     |     |   | 1.04  |    
|Allowance to nonperforming loans        |                              |                         | 1.82   | x   |      |   | 1.00   | x     |       |   | 0.66   | x   |     |      | 4.28   | x   |     |   | 3.82x |    






|    |                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Adjustment made following the March 26, 2003 receipt of
    $13.3 million of proceeds relating to the sale of certain
    loans, of which $12.5 million was applied to outstanding
    principal, $750,000 to the letter of credit, and $67,000 applied
    to interest income and late charges. See Note 28 to the
    Notes to Consolidated Financial Statements.







|                       |                                 |                        |       |          |       |  |       |        |          |   |       |        |  |          |       |        |       |   |          |        |  |  |       |          |   |        |       |        |       |  |       |        |   |   |       |       |  |  |       |        |  
|---------------------- | ------------------------------- | ---------------------- | ----- | -------- | ----- |  | ----- | ------ | -------- | - | ----- | ------ |  | -------- | ----- | ------ | ----- | - | -------- | ------ |  |  | ----- | -------- | - | ------ | ----- | ------ | ----- |  | ----- | ------ | - | - | ----- | ----- |  |  | ----- | ------ | -
|                       |                                 | December 31,           |      
|                       |                                 |                        |      
|                       |                                 | 2004                   |       |          | 2003  |  |       | 2002   |          |   | 2001  |        |  | 2000     |      
|                       |                                 |                        |       |          |       |  |       |        |          |   |       |        |  |          |      
|                       |                                 |                        |       | Loan     |       |  |       |        | Loan     |   |       |        |  | Loan     |       |        |       |   | Loan     |        |  |  |       | Loan     |  
|                       |                                 |                        |       | Category |       |  |       |        | Category |   |       |        |  | Category |       |        |       |   | Category |        |  |  |       | Category |  
|                       |                                 |                        |       | To       |       |  |       |        | To       |   |       |        |  | To       |       |        |       |   | To       |        |  |  |       | To       |  
|                       |                                 |                        |       | Gross    |       |  |       |        | Gross    |   |       |        |  | Gross    |       |        |       |   | Gross    |        |  |  |       | Gross    |  
|                       |                                 | Amount                 |       |          | Loans |  |       | Amount |          |   | Loans |        |  | Amount   |       |        | Loans |   |          | Amount |  |  | Loans |          |   | Amount |       |        | Loans | 
|                       |                                 |                        |       |          |       |  |       |        |          |   |       |        |  |          |       |        |       |   |          |        |  |  |       |          |   |        |       |        |       | 
|                       |                                 | (Dollars in thousands) |      
|Commercial             |                                 | $                      | 8,553 |          |       |  | 17.16 | %      |          | $ | 7,242 |        |  |          | 18.84 | %      |       | $ | 15,392   |        |  |  | 20.19 | %        |   | $      | 5,339 |        |       |  | 22.00 | %      |   | $ | 4,579 |       |  |  | 24.91 | %     
|Commercial real estate |                                 |                        | 6,935 |          |       |  | 63.49 |        |          |   | 7,286 |        |  |          | 65.78 |        |       |   | 3,141    |        |  |  | 64.22 |          |   |        | 2,386 |        |       |  | 60.95 |        |   |   | 1,865 |       |  |  | 54.37 |       
|Agricultural           |                                 |                        | 408   |          |       |  | 5.11  |        |          |   | 190   |        |  |          | 5.37  |        |       |   | 426      |        |  |  | 5.05  |          |   |        | 737   |        |       |  | 4.86  |        |   |   | 659   |       |  |  | 5.79  |       
|Consumer real estate   |                                 |                        | 419   |          |       |  | 13.36 |        |          |   | 289   |        |  |          | 8.88  |        |       |   | 145      |        |  |  | 9.26  |          |   |        | 310   |        |       |  | 10.89 |        |   |   | 206   |       |  |  | 13.17 |       
|Consumer installment   |                                 |                        | 475   |          |       |  | 0.87  |        |          |   | 410   |        |  |          | 1.12  |        |       |   | 421      |        |  |  | 1.28  |          |   |        | 173   |        |       |  | 1.30  |        |   |   | 138   |       |  |  | 1.76  |       
|Unallocated            |                                 |                        | 782   |          |       |  |      |        |          |   | 297   |        |  |          |      |        |       |   | 1,229    |        |  |  |      |          |   |        | 1,190 |        |       |  |      |        |   |   | 1,146 |       |  |  |      |       
|                       |                                 |                        |       |          |       |  |       |        |          |   |       |        |  |          |       |        |       |   |          |        |  |  |       |          |   |        |       |        |       | 
|                       | Total allowance for loan losses |                        | $     | 17,961   |       |  |       | 100.00 | %        |   | $     | 15,714 |  |          |       | 100.00 | %     |   | $        | 20,754 |  |  |       | 100.00   | % |        | $     | 10,135 |       |  |       | 100.00 | % |   | $     | 8,593 |  |  |       | 100.00 | %
|                       |                                 |                        |       |          |       |  |       |        |          |   |       |        |  |          |       |        |       |   |          |        |  |  |       |          |   |        |       |        |       | 

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| |   |                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Net commercial loan charge-offs were $943,000 in 2004 compared
    to $7.0 million in 2003.                                                                                 
|
| |  | Net commercial real estate loan charge-offs were $907,000 in
    2004 compared to $1.5 million in 2003.                                                                     
|
| |  | Loans subject to adverse classification (substandard and
    doubtful) have decreased to $40.0 million at
    December 31, 2004 from $51.4 million at
    December 31, 2003.



|                |       |                |        |        |      |   |        |        | 
|--------------- | ----- | -------------- | ------ | ------ | ---- | - | ------ | ------ | 
|                |       | December 31,   |       
|                |       |                |       
|                |       | 2004           |        |        | 2003 |  
|                |       |                |        |        |      |  
|                |       | (In thousands) |       
|Special mention |       | $              | 30,666 |        |      | $ | 12,711 |       
|Substandard     |       |                | 38,107 |        |      |   | 48,643 |       
|Doubtful        |       |                | 1,849  |        |      |   | 2,744  |       
|                |       |                |        |        |      |  
|                | Total |                | $      | 70,622 |      |   | $      | 64,098 | 
|                |       |                |        |        |      |  

Special Mention:






Substandard:


38



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##### Table of Contents







Doubtful:








| |           
| | ----------
| | Securities





39



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##### Table of Contents





|                                                              |  |                        |        |  |                    |   |        |           |  |   |            |  |           |      |         |  |            |      |         |           |  |   |         |  |  |  |        |  
|------------------------------------------------------------- |  | ---------------------- | ------ |  | ------------------ | - | ------ | --------- |  | - | ---------- |  | --------- | ---- | ------- |  | ---------- | ---- | ------- | --------- |  | - | ------- |  |  |  | ------ | -
|                                                              |  | December 31, 2004      |       
|                                                              |  |                        |       
|                                                              |  | Held-to-Maturity       |        |  | Available-for-Sale |   |        | Total     | 
|                                                              |  |                        |        |  |                    |   |        |           | 
|                                                              |  | Amortized              |        |  | Fair               |   |        | Amortized |  |   |            |  | Amortized |      |         |  |            | % of |        
|                                                              |  | Cost                   |        |  | Value              |   |        | Cost      |  |   | Fair Value |  |           | Cost |         |  | Fair Value |      |         | Portfolio | 
|                                                              |  |                        |        |  |                    |   |        |           |  |   |            |  |           |      |         |  |            |      |         |           | 
|                                                              |  | (Dollars in thousands) |       
|U.S. Treasury and obligations of U.S. government
    agencies |  | $                      |       |  |                    | $ |       |           |  | $ | 397,510    |  |           | $    | 370,834 |  |            | $    | 397,510 |           |  | $ | 370,834 |  |  |  | 59.72  | %
|Obligations of states and political subdivisions              |  |                        | 9,574  |  |                    |   | 9,833  |           |  |   | 1,909      |  |           |      | 1,967   |  |            |      | 11,483  |           |  |   | 11,800  |  |  |  | 1.73   |  
|Mortgage-backed securities                                    |  |                        | 80,159 |  |                    |   | 79,967 |           |  |   | 51,016     |  |           |      | 50,250  |  |            |      | 131,175 |           |  |   | 130,217 |  |  |  | 19.71  |  
|Equity securities                                             |  |                        |       |  |                    |   |       |           |  |   | 114,331    |  |           |      | 114,507 |  |            |      | 114,331 |           |  |   | 114,507 |  |  |  | 17.18  |  
|Other bonds                                                   |  |                        |       |  |                    |   |       |           |  |   | 11,074     |  |           |      | 10,653  |  |            |      | 11,074  |           |  |   | 10,653  |  |  |  | 1.66   |  
|                                                              |  |                        |        |  |                    |   |        |           |  |   |            |  |           |      |         |  |            |      |         |           | 
|Total                                                         |  | $                      | 89,733 |  |                    | $ | 89,800 |           |  | $ | 575,840    |  |           | $    | 548,211 |  |            | $    | 665,573 |           |  | $ | 638,011 |  |  |  | 100.00 | %
|                                                              |  |                        |        |  |                    |   |        |           |  |   |            |  |           |      |         |  |            |      |         |           | 

|                                                              |  |                        |        |  |                    |   |        |           |  |   |            |  |           |      |         |  |            |      |         |           |  |   |         |  |  |  |        |  
|------------------------------------------------------------- |  | ---------------------- | ------ |  | ------------------ | - | ------ | --------- |  | - | ---------- |  | --------- | ---- | ------- |  | ---------- | ---- | ------- | --------- |  | - | ------- |  |  |  | ------ | -
|                                                              |  | December 31, 2003      |       
|                                                              |  |                        |       
|                                                              |  | Held-to-Maturity       |        |  | Available-for-Sale |   |        | Total     | 
|                                                              |  |                        |        |  |                    |   |        |           | 
|                                                              |  | Amortized              |        |  | Fair               |   |        | Amortized |  |   |            |  | Amortized |      |         |  |            | % of |        
|                                                              |  | Cost                   |        |  | Value              |   |        | Cost      |  |   | Fair Value |  |           | Cost |         |  | Fair Value |      |         | Portfolio | 
|                                                              |  |                        |        |  |                    |   |        |           |  |   |            |  |           |      |         |  |            |      |         |           | 
|                                                              |  | (Dollars in thousands) |       
|U.S. Treasury and obligations of U.S. government
    agencies |  | $                      |       |  |                    | $ |       |           |  | $ | 360,280    |  |           | $    | 336,604 |  |            | $    | 360,280 |           |  | $ | 336,604 |  |  |  | 40.99  | %
|Obligations of states and political subdivisions              |  |                        | 12,840 |  |                    |   | 13,468 |           |  |   | 35,124     |  |           |      | 37,202  |  |            |      | 47,964  |           |  |   | 50,670  |  |  |  | 5.46   |  
|Mortgage-backed securities                                    |  |                        | 43,234 |  |                    |   | 43,771 |           |  |   | 172,420    |  |           |      | 173,510 |  |            |      | 215,654 |           |  |   | 217,281 |  |  |  | 24.54  |  
|Equity securities                                             |  |                        |       |  |                    |   |       |           |  |   | 159,391    |  |           |      | 154,760 |  |            |      | 159,391 |           |  |   | 154,760 |  |  |  | 18.13  |  
|Other bonds                                                   |  |                        |       |  |                    |   |       |           |  |   | 95,625     |  |           |      | 94,064  |  |            |      | 95,625  |           |  |   | 94,064  |  |  |  | 10.88  |  
|                                                              |  |                        |        |  |                    |   |        |           |  |   |            |  |           |      |         |  |            |      |         |           | 
|Total                                                         |  | $                      | 56,074 |  |                    | $ | 57,239 |           |  | $ | 822,840    |  |           | $    | 796,140 |  |            | $    | 878,914 |           |  | $ | 853,379 |  |  |  | 100.00 | %
|                                                              |  |                        |        |  |                    |   |        |           |  |   |            |  |           |      |         |  |            |      |         |           | 

|                                                              |  |                        |         |  |                    |   |           |       |  |   |            |           |  |      |         |  |            |   |         |           |  |   |         |  |  |  |        |  
|------------------------------------------------------------- |  | ---------------------- | ------- |  | ------------------ | - | --------- | ----- |  | - | ---------- | --------- |  | ---- | ------- |  | ---------- | - | ------- | --------- |  | - | ------- |  |  |  | ------ | -
|                                                              |  | December 31, 2002      |        
|                                                              |  |                        |        
|                                                              |  | Held-to-Maturity       |         |  | Available-for-Sale |   |           | Total | 
|                                                              |  |                        |         |  |                    |   |           |       | 
|                                                              |  | Amortized              |         |  |                    |   | Amortized |       |  |   |            | Amortized |  |      |         |  | % of       |  
|                                                              |  | Cost                   |         |  | Fair Value         |   |           | Cost  |  |   | Fair Value |           |  | Cost |         |  | Fair Value |   |         | Portfolio | 
|                                                              |  |                        |         |  |                    |   |           |       |  |   |            |           |  |      |         |  |            |   |         |           | 
|                                                              |  | (Dollars in thousands) |        
|U.S. Treasury and obligations of U.S. government
    agencies |  | $                      |        |  |                    | $ |          |       |  | $ | 23,856     |           |  | $    | 23,544  |  |            | $ | 23,856  |           |  | $ | 23,544  |  |  |  | 3.14   | %
|Obligations of states and political subdivisions              |  |                        | 17,706  |  |                    |   | 18,666    |       |  |   | 55,109     |           |  |      | 57,720  |  |            |   | 72,815  |           |  |   | 76,386  |  |  |  | 9.58   |  
|Mortgage-backed securities                                    |  |                        | 100,914 |  |                    |   | 101,755   |       |  |   | 495,569    |           |  |      | 504,432 |  |            |   | 596,483 |           |  |   | 606,187 |  |  |  | 78.51  |  
|Equity securities                                             |  |                        |        |  |                    |   |          |       |  |   | 59,369     |           |  |      | 59,364  |  |            |   | 59,369  |           |  |   | 59,364  |  |  |  | 7.81   |  
|Other bonds                                                   |  |                        |        |  |                    |   |          |       |  |   | 7,194      |           |  |      | 6,813   |  |            |   | 7,194   |           |  |   | 6,813   |  |  |  | 0.95   |  
|                                                              |  |                        |         |  |                    |   |           |       |  |   |            |           |  |      |         |  |            |   |         |           | 
|Total                                                         |  | $                      | 118,620 |  |                    | $ | 120,421   |       |  | $ | 641,097    |           |  | $    | 651,873 |  |            | $ | 759,717 |           |  | $ | 772,294 |  |  |  | 100.00 | %
|                                                              |  |                        |         |  |                    |   |           |       |  |   |            |           |  |      |         |  |            |   |         |           | 







| |   |                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | U.S. government agency mortgage-backed securities decreased
    70.4%, or $121.4 million, from $172.4 million at
    December 31, 2003 to $51.0 million at
    December 31, 2004.

40



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Equity securities decreased $46.1 million from
    $159.4 million at December 31, 2003 to
    $114.3 million at December 31, 2004. Equity securities
    included capital securities of government sponsored entities
    FNMA and FHLMC and the Federal Home Loan Bank as well as
    Federal Reserve Bank stock at December 31, 2004. As of
    December 31, 2004, the Company took a non-cash impairment
    charge of $10.1 million on a floating rate FNMA issue. See
    Note 3 to the Notes to Consolidated Financials Statements
    for further information.
|
| |  | Obligations of state and political subdivisions decreased
    $33.2 million to $1.9 million at December 31,
    2004 from $35.1 million at December 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Other bonds decreased $84.6 million to $11.1 million
    at December 31, 2004 compared to $95.6 million at
    December 31, 2003. Other bonds include high grade corporate
    bonds primarily issued by financial institutions.                                                                                                                                                                                                                                                                                                                                     
|
| |  | U.S. government agency notes increased $37.2 million
    to $397.5 million at December 31, 2004 compared to
    $360.3 million at December 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Low-yielding U.S. government agency notes totaling
    $312.4 million which were acquired during the year were
    sold during the last quarter of 2004 in order to pre-pay FHLB
    advances.                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | In January 2005, the Company purchased $194.9 million in
    mortgage-backed securities with a weighted average yield of
    4.53% and duration of 3.6 years:                                                                                                                                                                                                                                                                                                                                                                                                        



| |   |                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $174.9 million of these purchases are hybrid ARMs: 5/1,
    7/1, and 10/1 products with yields ranging between 4.24% to
    4.80% and duration from 2.9 to 4.0 years, and
|
| |  | $20.0 million was invested in a 15 year product with a
    yield of 4.54% and duration of 4.3 years.                                                                     













41



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| |                                 
| | --------------------------------
| | Investment Maturities and Yields



42



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|                                                              |       |                        |       |               |            |  |                |           |   |   |           |        |  |        |      |      |       |   |         |         |  |  |       |      |   |        |         |         |       |  |      |      |   |   |         |         |  |  |      |      |  
|------------------------------------------------------------- | ----- | ---------------------- | ----- | ------------- | ---------- |  | -------------- | --------- | - | - | --------- | ------ |  | ------ | ---- | ---- | ----- | - | ------- | ------- |  |  | ----- | ---- | - | ------ | ------- | ------- | ----- |  | ---- | ---- | - | - | ------- | ------- |  |  | ---- | ---- | -
|                                                              |       | Maturing               |      
|                                                              |       |                        |      
|                                                              |       |                        |       | After One But |            |  | After Five But |           |   |   |           |       
|                                                              |       | Within                 |       |               | Within     |  |                | Within    |   |   | After     |        |  |       
|                                                              |       | One Year               |       |               | Five Years |  |                | Ten Years |   |   | Ten Years |        |  | Total  |     
|                                                              |       |                        |       |               |            |  |                |           |   |   |           |        |  |        |     
|                                                              |       | Amount                 |       |               | Yield      |  |                | Amount    |   |   | Yield     |        |  | Amount |      |      | Yield |   |         | Amount  |  |  | Yield |      |   | Amount |         |         | Yield | 
|                                                              |       |                        |       |               |            |  |                |           |   |   |           |        |  |        |      |      |       |   |         |         |  |  |       |      |   |        |         |         |       | 
|                                                              |       | (Dollars in thousands) |      
|Available-for-Sale-Securities:                                |       |                        |       |               |            |  |                |           |   |   |           |        |  |        |      |      |       |   |         |         |  |  |       |      |   |        |         |         |       |  |      |      |   |   |         |         |  |  |      |     
|U.S. Treasury and obligations of U.S. government
    agencies |       | $                      |      |               |            |  | 0.00           | %         |   | $ | 29,307    |        |  |        | 2.93 | %    |       | $ | 341,527 |         |  |  | 4.22  | %    |   | $      |        |         |       |  | 0.00 | %    |   | $ | 370,834 |         |  |  | 4.12 | %   
|Obligations of states and political subdivisions              |       |                        | 929   |               |            |  | 6.31           |           |   |   | 1,038     |        |  |        | 6.76 |      |       |   |        |         |  |  | 0.00  |      |   |        |        |         |       |  | 0.00 |      |   |   | 1,967   |         |  |  | 6.54 |     
|Mortgage-backed securities                                    |       |                        |      |               |            |  | 0.00           |           |   |   | 49,867    |        |  |        | 5.64 |      |       |   | 383     |         |  |  | 3.38  |      |   |        |        |         |       |  | 0.00 |      |   |   | 50,250  |         |  |  | 5.63 |     
|Equity securities(1)                                          |       |                        |      |               |            |  | 0.00           |           |   |   |          |        |  |        | 0.00 |      |       |   |        |         |  |  | 0.00  |      |   |        | 114,507 |         |       |  | 4.01 |      |   |   | 114,507 |         |  |  | 4.24 |     
|Other bonds                                                   |       |                        |      |               |            |  | 0.00           |           |   |   |          |        |  |        | 0.00 |      |       |   | 6,755   |         |  |  | 4.69  |      |   |        | 3,898   |         |       |  | 4.80 |      |   |   | 10,653  |         |  |  | 4.73 |     
|                                                              |       |                        |       |               |            |  |                |           |   |   |           |        |  |        |      |      |       |   |         |         |  |  |       |      |   |        |         |         |       | 
|                                                              | Total |                        | $     | 929           |            |  |                | 6.31      | % |   | $         | 80,212 |  |        |      | 4.67 | %     |   | $       | 348,665 |  |  |       | 4.23 | % |        | $       | 118,405 |       |  |      | 4.03 | % |   | $       | 548,211 |  |  |      | 4.31 | %
|                                                              |       |                        |       |               |            |  |                |           |   |   |           |        |  |        |      |      |       |   |         |         |  |  |       |      |   |        |         |         |       | 
|Held-to-Maturity Securities:                                  |       |                        |       |               |            |  |                |           |   |   |           |        |  |        |      |      |       |   |         |         |  |  |       |      |   |        |         |         |       |  |      |      |   |   |         |         |  |  |      |     
|Obligations of states and political subdivisions              |       | $                      | 4,386 |               |            |  | 4.73           | %         |   | $ | 4,938     |        |  |        | 5.07 | %    |       | $ | 250     |         |  |  | 4.90  | %    |   | $      |        |         |       |  | 0.00 | %    |   | $ | 9,574   |         |  |  | 4.91 | %   
|Mortgage-backed securities                                    |       |                        |      |               |            |  | 0.00           |           |   |   | 80,159    |        |  |        | 5.79 |      |       |   |        |         |  |  | 0.00  |      |   |        |        |         |       |  | 0.00 |      |   |   | 80,159  |         |  |  | 5.79 |     
|                                                              |       |                        |       |               |            |  |                |           |   |   |           |        |  |        |      |      |       |   |         |         |  |  |       |      |   |        |         |         |       | 
|                                                              | Total |                        | $     | 4,386         |            |  |                | 4.73      | % |   | $         | 85,097 |  |        |      | 5.75 | %     |   | $       | 250     |  |  |       | 4.90 | % |        | $       |        |       |  |      | 0.00 | % |   | $       | 89,733  |  |  |      | 5.70 | %
|                                                              |       |                        |       |               |            |  |                |           |   |   |           |        |  |        |      |      |       |   |         |         |  |  |       |      |   |        |         |         |       | 






|    |                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------
|(1) | Equity securities, although they do not have a maturity date,
    are included in the after ten years column.



| |         
| | --------
| | Deposits





| |   |                                                      
| | - | -----------------------------------------------------
| |  | Total deposits were $1.7 billion at December 31, 2004



| |   |                                                             
| | - | ------------------------------------------------------------
| |  | 6.1% greater than the $1.6 billion at December 31, 2003     
|
| |  | 14.1% greater than the $1.4 billion at December 31,
    2002



| |   |                                                                                  
| | - | ---------------------------------------------------------------------------------
| |  | Average total deposits were $1.6 billion for the year ended
    December 31, 2004



| |   |                                                                             
| | - | ----------------------------------------------------------------------------
| |  | 5.5% greater than the $1.5 billion for the year ended
    December 31, 2003 
|
| |  | 22.9% greater than the $1.3 billion for the year ended
    December 31, 2002



| |   |                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Non-interest-bearing deposits were $177.0 million as of
    December 31, 2004, approximately $16.3 million higher
    than the $160.7 million level as of December 31, 2003.                                                
|
| |  | Interest-bearing deposits increased 5.6% or $79.7 million
    to $1.5 billion as of December 31, 2004.                                                                                                                      
|
| |  | Core deposits, which include demand, NOW, money market, and
    savings deposits, increased $89.2 million to
    $797.3 million at December 31, 2004 compared to
    $708.1 million at December 31, 2003.                   
|
| |  | Certificates of deposits less than $100,000 increased 3.3% or
    $24.7 million to $764.1 million at December 31,
    2004 compared to $739.4 million in 2003.                                                              
|
| |  | Certificates of deposit over $100,000 increased
    $10.4 million from December 31, 2003 to
    $95.6 million at December 31, 2004, while public funds
    certificates of deposits decreased by $28.2 million or
    52.7%.



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|                                     |                                            |                                 |         |         |            |  |       |       |        |         |         |      |            |          |         |         |           |         |       |         |            |   |          |      |      |      |         |         |           |  |       |       |        |   |      |      |      |  
|------------------------------------ | ------------------------------------------ | ------------------------------- | ------- | ------- | ---------- |  | ----- | ----- | ------ | ------- | ------- | ---- | ---------- | -------- | ------- | ------- | --------- | ------- | ----- | ------- | ---------- | - | -------- | ---- | ---- | ---- | ------- | ------- | --------- |  | ----- | ----- | ------ | - | ---- | ---- | ---- | -
|                                     |                                            | For the Year Ended December 31, |        
|                                     |                                            |                                 |        
|                                     |                                            | 2004                            |         |         | 2003       |  |       | 2002  |       
|                                     |                                            |                                 |         |         |            |  |       |       |       
|                                     |                                            | Average                         |         |         | Percent of |  |       |       |        | Average |         |      | Percent of |          |         |         |           | Average |       |         | Percent of |   |          |     
|                                     |                                            | Balance                         |         |         | Deposits   |  |       | Rate  |        |         | Balance |      |            | Deposits |         |         | Rate      |         |       | Balance |            |   | Deposits |      |      | Rate |        
|                                     |                                            |                                 |         |         |            |  |       |       |        |         |         |      |            |          |         |         |           |         |       |         |            |   |          |      |      |      |        
|                                     |                                            | (Dollars in thousands)          |        
|Non-interest-bearing demand deposits |                                            | $                               | 158,650 |         |            |  | 9.76  | %     |        |         | 0.00    | %    |            | $        | 146,699 |         |           |         | 9.52  | %       |            |   | 0.00     | %    |      | $    | 129,864 |         |           |  | 9.81  | %     |        |   | 0.00 | %   
|Interest-bearing demand deposits     |                                            |                                 | 230,441 |         |            |  | 14.17 |       |        |         | 1.23    |      |            |          | 181,474 |         |           |         | 11.78 |         |            |   | 1.18     |      |      |      | 135,943 |         |           |  | 10.27 |       |        |   | 1.50 |     
|Savings and money market accounts    |                                            |                                 | 349,348 |         |            |  | 21.48 |       |        |         | 1.39    |      |            |          | 326,491 |         |           |         | 21.19 |         |            |   | 1.18     |      |      |      | 260,151 |         |           |  | 19.66 |       |        |   | 1.64 |     
|Time Deposits:                       |                                            |                                 |         |         |            |  |       |       |        |         |         |      |            |          |         |         |           |         |       |         |            |   |          |      |      |      |         |         |           |  |       |       |        |   |      |     
|                                     | Certificates of deposit, under $100,000(1) |                                 |         | 771,874 |            |  |       | 47.46 |        |         |         | 2.64 |            |          |         | 718,495 |           |         |       | 46.62   |            |   |          | 2.80 |      |      |         | 590,978 |           |  |       | 44.66 |        |   |      | 3.60 |     
|                                     | Certificates of deposit, over $100,000(1)  |                                 |         | 90,044  |            |  |       | 5.54  |        |         |         | 2.20 |            |          |         | 111,372 |           |         |       | 7.23    |            |   |          | 2.40 |      |      |         | 133,991 |           |  |       | 10.12 |        |   |      | 3.08 |     
|                                     | Public funds                               |                                 |         | 25,893  |            |  |       | 1.59  |        |         |         | 1.95 |            |          |         | 56,453  |           |         |       | 3.66    |            |   |          | 2.25 |      |      |         | 72,495  |           |  |       | 5.48  |        |   |      | 3.17 |     
|                                     |                                            |                                 |         |         |            |  |       |       |        |         |         |      |            |          |         |         |           |         |       |         |            |   |          |      |      |      |        
|                                     |                                            | Total time deposits             |         |         | 887,811    |  |       |       | 54.59  |         |         |      | 2.58       |          |         |         | 886,320   |         |       |         | 57.52      |   |          |      | 2.72 |      |         |         | 797,464   |  |       |       | 60.26  |   |      |      | 3.48 |  
|                                     |                                            |                                 |         |         |            |  |       |       |        |         |         |      |            |          |         |         |           |         |       |         |            |   |          |      |      |      |        
|                                     |                                            | Total deposits                  |         | $       | 1,626,250  |  |       |       | 100.00 | %       |         |      | 1.88       | %        |         | $       | 1,540,984 |         |       |         | 100.00     | % |          |      | 1.95 | %    |         | $       | 1,323,422 |  |       |       | 100.00 | % |      |      | 2.57 | %
|                                     |                                            |                                 |         |         |            |  |       |       |        |         |         |      |            |          |         |         |           |         |       |         |            |   |          |      |      |      |        






|    |                                                   
|--- | --------------------------------------------------
|(1) | Certificates of deposit exclusive of public funds.



|                                      |       |                |         |         | 
|------------------------------------- | ----- | -------------- | ------- | ------- | 
|                                      |       | (In thousands) |        
|Three months or less                  |       | $              | 62,486  |        
|Over three months through six months  |       |                | 109,527 |        
|Over six months through twelve months |       |                | 33,479  |        
|Over twelve months                    |       |                | 640     |        
|                                      |       |                |        
|                                      | Total |                | $       | 206,132 | 
|                                      |       |                |        

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Borrowings




|                                               |       |                |         |         |      |   |         |         |  |   |         |         | 
|---------------------------------------------- | ----- | -------------- | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                                               |       | December 31,   |        
|                                               |       |                |        
|                                               |       | 2004           |         |         | 2003 |   |         | 2002    | 
|                                               |       |                |         |         |      |   |         |         | 
|                                               |       | (In thousands) |        
|Federal funds purchased                        |       | $              |        |         |      | $ |        |         |  | $ | 20,825  |        
|Securities sold under agreements to repurchase |       |                | 198,401 |         |      |   | 202,699 |         |  |   | 185,057 |        
|Notes payable                                  |       |                |        |         |      |   | 2,000   |         |  |   | 2,000   |        
|Junior subordinated debt(1)                    |       |                | 55,672  |         |      |   | 54,000  |         |  |   | 35,000  |        
|FHLB advances                                  |       |                | 133,628 |         |      |   | 253,461 |         |  |   | 219,500 |        
|                                               |       |                |         |         |      |   |         |         | 
|                                               | Total |                | $       | 387,701 |      |   | $       | 512,160 |  |   | $       | 462,382 | 
|                                               |       |                |         |         |      |   |         |         | 






|    |                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------
|(1) | The provisions of FIN 46 were applied in 2004 resulting in
    the deconsolidation of the wholly-owned subsidiary trust.



|                         |                                               |                         |   |        |      |  |   |        |   |  |   |        |  
|------------------------ | --------------------------------------------- | ----------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                         |                                               | Year Ended December 31, |  
|                         |                                               |                         |  
|                         |                                               | 2004                    |   |        | 2003 |  |   | 2002   |  
|                         |                                               |                         |   |        |      |  |   |        |  
|                         |                                               | (Dollars in thousands)  |  
|Federal funds purchased: |                                               |                         |   |        |      |  |   |        |   |  |   |       
|                         | Balance at end of year                        |                         | $ |       |      |  | $ |       |   |  | $ | 20,825 |  
|                         | Weighted average interest rate at end of year |                         |   | 0.00   | %    |  |   | 0.00   | % |  |   | 1.43   | %
|                         | Maximum amount outstanding(1)                 |                         | $ | 55,825 |      |  | $ | 29,125 |   |  | $ | 29,850 |  
|                         | Average amount outstanding                    |                         |   | 7,608  |      |  |   | 11,783 |   |  |   | 16,376 |  
|                         | Weighted average interest rate during year    |                         |   | 1.76   | %    |  |   | 1.38   | % |  |   | 1.91   | %






|    |                                                           
|--- | ----------------------------------------------------------
|(1) | Based on amount outstanding at month end during each year.

|                                             |                                               |                         |   |         |      |  |   |         |   |  |   |         |  
|-------------------------------------------- | --------------------------------------------- | ----------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                             |                                               | Year Ended December 31, |  
|                                             |                                               |                         |  
|                                             |                                               | 2004                    |   |         | 2003 |  |   | 2002    |  
|                                             |                                               |                         |   |         |      |  |   |         |  
|                                             |                                               | (Dollars in thousands)  |  
|Securities sold under repurchase agreements: |                                               |                         |   |         |      |  |   |         |   |  |   |        
|                                             | Balance at end of year                        |                         | $ | 198,401 |      |  | $ | 202,699 |   |  | $ | 185,057 |  
|                                             | Weighted average interest rate at end of year |                         |   | 2.59    | %    |  |   | 2.89    | % |  |   | 2.95    | %
|                                             | Maximum amount outstanding(1)                 |                         | $ | 335,764 |      |  | $ | 243,909 |   |  | $ | 204,830 |  
|                                             | Average amount outstanding                    |                         |   | 212,644 |      |  |   | 211,825 |   |  |   | 155,635 |  
|                                             | Weighted average interest rate during year    |                         |   | 2.59    | %    |  |   | 2.81    | % |  |   | 2.70    | %






|    |                                                           
|--- | ----------------------------------------------------------
|(1) | Based on amount outstanding at month end during each year.



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|               |                                                  |                         |   |         |      |  |   |         |   |  |   |         |  
|-------------- | ------------------------------------------------ | ----------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|               |                                                  | Year Ended December 31, |  
|               |                                                  |                         |  
|               |                                                  | 2004                    |   |         | 2003 |  |   | 2002    |  
|               |                                                  |                         |   |         |      |  |   |         |  
|               |                                                  | (Dollars in thousands)  |  
|FHLB advances: |                                                  |                         |   |         |      |  |   |         |   |  |   |        
|               | Balance at end of year                           |                         | $ | 133,628 |      |  | $ | 253,461 |   |  | $ | 219,500 |  
|               | Weighted average interest rate at end of year(2) |                         |   | 4.55    | %    |  |   | 4.26    | % |  |   | 4.75    | %
|               | Maximum amount outstanding(1)                    |                         | $ | 256,095 |      |  | $ | 258,594 |   |  | $ | 244,500 |  
|               | Average amount outstanding                       |                         |   | 241,612 |      |  |   | 256,583 |   |  |   | 235,923 |  
|               | Weighted average interest rate during year(2)    |                         |   | 3.28    | %    |  |   | 4.23    | % |  |   | 5.51    | %






|    |                                                                                                
|--- | -----------------------------------------------------------------------------------------------
|(1) | Based on amount outstanding at month end during each year.                                     
|   
|(2) | Includes the impact of the interest rate swaps and purchase
    accounting adjustment for 2004.



|                 |                                            |                                               |   |       |      |   |   |       |      |   |   |        |      |  
|---------------- | ------------------------------------------ | --------------------------------------------- | - | ----- | ---- | - | - | ----- | ---- | - | - | ------ | ---- | -
|                 |                                            | Year Ended December 31,                       |  
|                 |                                            |                                               |  
|                 |                                            | 2004                                          |   |       | 2003 |   |   | 2002  |     
|                 |                                            |                                               |   |       |      |   |   |       |     
|                 |                                            | (Dollars in thousands)                        |  
|Lines of Credit: |                                            |                                               |   |       |      |   |   |       |      |   |   |       
|                 | Balance at end of year                     |                                               | $ |      |      |   | $ | 2,000 |      |   | $ | 2,000  |     
|                 |                                            | Weighted average interest rate at end of year |   |       |     | % |   |       | 2.11 | % |   |        | 2.37 | %
|                 | Maximum amount outstanding(1)              |                                               | $ | 2,000 |      |   | $ | 7,500 |      |   | $ | 12,300 |     
|                 | Average amount outstanding                 |                                               |   | 366   |      |   |   | 6,171 |      |   |   | 7,842  |     
|                 | Weighted average interest rate during year |                                               |   | 2.32  | %    |   |   | 2.76  | %    |   |   | 2.61   | %   






|    |                                                           
|--- | ----------------------------------------------------------
|(1) | Based on amount outstanding at month end during each year.









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|                       |  |                   |  |        |            |  |      |             |                 |                   |                 |                  
|---------------------- |  | ----------------- |  | ------ | ---------- |  | ---- | ----------- | --------------- | ----------------- | --------------- | -----------------
|                       |  |                   |  |        |            |  |      | Mandatory   |                 | Optional         
|Issuer                 |  | Issue Date        |  | Amount |            |  | Rate |             | Redemption Date |                   | Redemption Date
|                       |  |                   |  |        |            |  |      |             |                 |                   |                
|MBHI Capital Trust I   |  | June 7, 2000      |  | $      | 20,000,000 |  |      | 10.0%       |                 | June 7, 2030      |                 | June 7, 2005     
|MBHI Capital Trust II  |  | October 29, 2002  |  | $      | 15,000,000 |  |      | LIBOR+3.45% |                 | November 7, 2032  |                 | November 7, 2007 
|MBHI Capital Trust III |  | December 19, 2003 |  | $      | 9,000,000  |  |      | LIBOR+3.00% |                 | December 30, 2033 |                 | December 30, 2008
|MBHI Capital Trust IV  |  | December 19, 2003 |  | $      | 10,000,000 |  |      | LIBOR+2.85% |                 | January 23, 2034  |                 | January 23, 2008 









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Capital Resources






|                                       |  |                                        |           |  |       |  |       |        |  |   |           |  |  |        |       |   |       |   |           |  |  |  |       |  
|-------------------------------------- |  | -------------------------------------- | --------- |  | ----- |  | ----- | ------ |  | - | --------- |  |  | ------ | ----- | - | ----- | - | --------- |  |  |  | ----- | -
|                                       |  | Risk-Based Capital Ratios December 31, |          
|                                       |  |                                        |          
|                                       |  | 2004                                   |           |  | 2003  |  |       | 2002   | 
|                                       |  |                                        |           |  |       |  |       |        | 
|                                       |  | Amount                                 |           |  | Ratio |  |       | Amount |  |   | Ratio     |  |  | Amount |       |   | Ratio |  
|                                       |  |                                        |           |  |       |  |       |        |  |   |           |  |  |        |       |   |       |  
|                                       |  | (Dollars in thousands)                 |          
|Tier 1 capital to risk-weighted assets |  | $                                      | 198,597   |  |       |  | 13.27 | %      |  | $ | 201,105   |  |  |        | 13.68 | % |       | $ | 138,197   |  |  |  | 10.44 | %
|Tier 1 capital minimum requirement     |  |                                        | 59,879    |  |       |  | 4.00  |        |  |   | 58,823    |  |  |        | 4.00  |   |       |   | 52,938    |  |  |  | 4.00  |  
|Total capital to risk-weighted assets  |  |                                        | 219,343   |  |       |  | 14.65 |        |  |   | 216,819   |  |  |        | 14.74 |   |       |   | 154,740   |  |  |  | 11.69 |  
|Total capital minimum requirements     |  |                                        | 119,758   |  |       |  | 8.00  |        |  |   | 117,647   |  |  |        | 8.00  |   |       |   | 105,876   |  |  |  | 8.00  |  
|Total risk-weighted assets             |  |                                        | 1,496,978 |  |       |  |       |        |  |   | 1,470,587 |  |  |        |       |   |       |   | 1,323,454 |  |  |  |       |  



Liquidity










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Contractual Obligations, Commitments, and Off-Balance Sheet
Arrangements


|                                                       |  |                        |           |  |           |   |         |           |  |   |         |  |  |       |         |  |  |   |           | 
|------------------------------------------------------ |  | ---------------------- | --------- |  | --------- | - | ------- | --------- |  | - | ------- |  |  | ----- | ------- |  |  | - | --------- | 
|                                                       |  | December 31, 2004      |          
|                                                       |  |                        |          
|                                                       |  | Payments Due By Period |          
|                                                       |  |                        |          
|                                                       |  | Within                 |           |  |           |   | After   |           |  |  
|                                                       |  | 1 Year                 |           |  | 1-3 Years |   |         | 4-5 Years |  |   | 5 Years |  |  | Total |        
|                                                       |  |                        |           |  |           |   |         |           |  |   |         |  |  |       |        
|                                                       |  | (In thousands)         |          
|Deposits without a stated maturity                     |  | $                      | 797,320   |  |           | $ |        |           |  | $ |        |  |  | $     |        |  |  | $ | 797,320   | 
|Consumer and brokered certificates of deposits         |  |                        | 650,723   |  |           |   | 228,587 |           |  |   | 5,791   |  |  |       |        |  |  |   | 885,101   | 
|Securities sold under agreements to repurchase         |  |                        | 104,355   |  |           |   | 56,045  |           |  |   | 38,000  |  |  |       |        |  |  |   | 198,400   | 
|FHLB advances(1)                                       |  |                        |          |  |           |   |        |           |  |   |        |  |  |       | 137,500 |  |  |   | 137,500   | 
|Junior subordinated debt owed to unconsolidated trusts |  |                        |          |  |           |   |        |           |  |   |        |  |  |       | 55,672  |  |  |   | 55,672    | 
|Leases                                                 |  |                        | 506       |  |           |   | 912     |           |  |   | 770     |  |  |       | 1,907   |  |  |   | 4,095     | 
|                                                       |  |                        |           |  |           |   |         |           |  |   |         |  |  |       |        
|Total contractual cash obligations                     |  | $                      | 1,552,904 |  |           | $ | 285,544 |           |  | $ | 44,561  |  |  | $     | 195,079 |  |  | $ | 2,078,088 | 
|                                                       |  |                        |           |  |           |   |         |           |  |   |         |  |  |       |        






|    |                                                                                          
|--- | -----------------------------------------------------------------------------------------
|(1) | Excludes purchase accounting adjustments and the market value of
    interest rate swaps.

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|                             |                        |                                            |         |         |           |   |        |           |  |   |         |       |  |       |        |        |  |   |         |         | 
|---------------------------- | ---------------------- | ------------------------------------------ | ------- | ------- | --------- | - | ------ | --------- |  | - | ------- | ----- |  | ----- | ------ | ------ |  | - | ------- | ------- | 
|                             |                        | Amount of Commitment Expiration Per Period |        
|                             |                        |                                            |        
|                             |                        | Within                                     |         |         |           |   | After  |           |  |  
|                             |                        | 1 Year                                     |         |         | 1-3 Years |   |        | 4-5 Years |  |   | 5 Years |       |  | Total |       
|                             |                        |                                            |         |         |           |   |        |           |  |   |         |       |  |       |       
|                             |                        | (In thousands)                             |        
|Lines of Credit:             |                        |                                            |         |         |           |   |        |           |  |   |         |       |  |       |        |        |  |   |         |        
|                             | Commercial real estate |                                            | $       | 115,817 |           |   | $      | 32,755    |  |   | $       | 544   |  |       | $      | 1,881  |  |   | $       | 150,997 | 
|                             | Consumer real estate   |                                            |         | 16,491  |           |   |        | 2,474     |  |   |         | 9,367 |  |       |        | 27,766 |  |   |         | 56,098  | 
|                             | Consumer               |                                            |         |        |           |   |        |          |  |   |         |      |  |       |        | 3,427  |  |   |         | 3,427   | 
|                             | Commercial             |                                            |         | 94,540  |           |   |        | 2,639     |  |   |         | 454   |  |       |        | 1,261  |  |   |         | 98,894  | 
|Letters of credit            |                        |                                            | 32,452  |         |           |   | 660    |           |  |   | 3,997   |       |  |       |       |        |  |   | 37,109  |        
|Commitments to extend credit |                        |                                            | 146,270 |         |           |   |       |           |  |   |        |       |  |       |       |        |  |   | 146,270 |        
|                             |                        |                                            |         |         |           |   |        |           |  |   |         |       |  |       |       
|Total commercial commitments |                        | $                                          | 405,570 |         |           | $ | 38,528 |           |  | $ | 14,362  |       |  | $     | 34,335 |        |  | $ | 492,795 |        
|                             |                        |                                            |         |         |           |   |        |           |  |   |         |       |  |       |       

Asset/ Liability Management










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Effects of Inflation




51



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|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk



|        |  |                          |        |        |        |   |     |        |  |  |      |  
|------- |  | ------------------------ | ------ | ------ | ------ | - | --- | ------ |  |  | ---- | -
|        |  | 2004 Net Interest Income |       
|        |  |                          |       
|        |  |                          |        | Dollar |        |   | %   |       
|        |  | Amount                   |        |        | Change |   |     | Change | 
|        |  |                          |        |        |        |   |     |        | 
|        |  | (Dollars in thousands)   |       
|+200 bp |  | $                        | 58,769 |        |        | $ | 251 |        |  |  | 0.43 | %
|+100 bp |  |                          | 58,547 |        |        |   | 29  |        |  |  | 0.05 |  
|Base    |  |                          | 58,518 |        |        |   |    |        |  |  |     |  
|-100 bp |  |                          | 58,847 |        |        |   | 329 |        |  |  | 0.56 |  

|        |  |                          |        |        |        |   |        |        |  |  |       |   
|------- |  | ------------------------ | ------ | ------ | ------ | - | ------ | ------ |  |  | ----- | --
|        |  | 2003 Net Interest Income |       
|        |  |                          |       
|        |  |                          |        | Dollar |        |   | %      |       
|        |  | Amount                   |        |        | Change |   |        | Change | 
|        |  |                          |        |        |        |   |        |        | 
|        |  | (Dollars in thousands)   |       
|+200 bp |  | $                        | 65,389 |        |        | $ | (329   | )      |  |  | (0.50 | )%
|+100 bp |  |                          | 64,710 |        |        |   | (1,008 | )      |  |  | (1.53 | ) 
|Base    |  |                          | 65,718 |        |        |   |       |        |  |  |      |   
|-100 bp |  |                          | 65,727 |        |        |   | 9      |        |  |  | 0.01  |   







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|                                                                                               |  |                        |           |      |        |   |          |           |      |   |          |    |  |       |         |   |  |   |           | 
|---------------------------------------------------------------------------------------------- |  | ---------------------- | --------- | ---- | ------ | - | -------- | --------- | ---- | - | -------- | -- |  | ----- | ------- | - |  | - | --------- | 
|                                                                                               |  |                        |           | 4-12 |        |   |          |           | Over |   |          |   
|                                                                                               |  | 0-3 Months             |           |      | Months |   |          | 1-5 Years |      |   | 5 Years  |    |  | Total |        
|                                                                                               |  |                        |           |      |        |   |          |           |      |   |          |    |  |       |        
|                                                                                               |  | (Dollars in thousands) |          
|INTEREST-EARNING ASSETS:                                                                       |  |                        |           |      |        |   |          |           |      |   |          |    |  |       |         |   |  |   |           | 
|Funds sold                                                                                     |  | $                      | 77,900    |      |        | $ |         |           |      | $ |         |    |  | $     |        |   |  | $ | 77,900    | 
|Interest-bearing due from banks                                                                |  |                        | 109,794   |      |        |   |         |           |      |   |         |    |  |       |        |   |  |   | 109,794   | 
|Securities                                                                                     |  |                        | 86,961    |      |        |   | 37,900   |           |      |   | 132,299  |    |  |       | 380,784 |   |  |   | 637,944   | 
|Loans                                                                                          |  |                        | 753,318   |      |        |   | 37,034   |           |      |   | 363,884  |    |  |       | 58,203  |   |  |   | 1,212,439 | 
|                                                                                               |  |                        |           |      |        |   |          |           |      |   |          |    |  |       |        
|Total interest-bearing assets                                                                  |  | $                      | 1,027,973 |      |        | $ | 74,934   |           |      | $ | 496,183  |    |  | $     | 438,987 |   |  | $ | 2,038,077 | 
|                                                                                               |  |                        |           |      |        |   |          |           |      |   |          |    |  |       |        
|INTEREST-BEARING LIABILITIES:                                                                  |  |                        |           |      |        |   |          |           |      |   |          |    |  |       |         |   |  |   |           | 
|Interest-bearing demand deposits                                                               |  | $                      | 218,755   |      |        | $ | 4,610    |           |      | $ | 18,441   |    |  | $     |        |   |  | $ | 241,806   | 
|Money markets                                                                                  |  |                        | 213,234   |      |        |   |         |           |      |   |         |    |  |       |        |   |  |   | 213,234   | 
|Savings deposits                                                                               |  |                        | 4,562     |      |        |   | 13,686   |           |      |   | 72,990   |    |  |       | 74,047  |   |  |   | 165,285   | 
|Time deposits                                                                                  |  |                        | 216,529   |      |        |   | 434,194  |           |      |   | 234,378  |    |  |       |        |   |  |   | 885,101   | 
|                                                                                               |  |                        |           |      |        |   |          |           |      |   |          |    |  |       |        
|Total interest-bearing deposits                                                                |  | $                      | 653,080   |      |        | $ | 452,490  |           |      | $ | 325,809  |    |  | $     | 74,047  |   |  | $ | 1,505,426 | 
|                                                                                               |  |                        |           |      |        |   |          |           |      |   |          |    |  |       |        
|Securities sold under agreements to repurchase, funds purchased,
    and treasury tax deposits |  | $                      | 11,610    |      |        | $ | 92,746   |           |      | $ | 94,045   |    |  | $     |        |   |  | $ | 198,401   | 
|FHLB advances                                                                                  |  |                        |          |      |        |   |         |           |      |   |         |    |  |       | 133,628 |   |  |   | 133,628   | 
|Junior subordinated debt                                                                       |  |                        | 35,053    |      |        |   |         |           |      |   |         |    |  |       | 20,619  |   |  |   | 55,672    | 
|Note payable                                                                                   |  |                        |          |      |        |   |         |           |      |   |         |    |  |       |        |   |  |   |          | 
|                                                                                               |  |                        |           |      |        |   |          |           |      |   |          |    |  |       |        
|Total borrowings                                                                               |  |                        | 46,663    |      |        |   | 92,746   |           |      |   | 94,045   |    |  |       | 154,247 |   |  |   | 387,701   | 
|                                                                                               |  |                        |           |      |        |   |          |           |      |   |          |    |  |       |        
|Total interest-bearing liabilities                                                             |  | $                      | 699,743   |      |        | $ | 545,236  |           |      | $ | 419,854  |    |  | $     | 228,294 |   |  | $ | 1,893,127 | 
|                                                                                               |  |                        |           |      |        |   |          |           |      |   |          |    |  |       |        
|Interest sensitivity gap                                                                       |  | $                      | 190,730   |      |        | $ | (470,302 | )         |      | $ | 76,329   |    |  | $     | 210,693 |   |  | $ | 7,450     | 
|Cumulative gap                                                                                 |  | $                      | 190,730   |      |        | $ | (279,572 | )         |      | $ | (203,243 | )  |  | $     | 7,450   |   |  |   |           | 
|Interest sensitivity gap to total assets                                                       |  |                        | 8.53      | %    |        |   | (21.03   | )%        |      |   | 3.41     | %  |  |       | 9.42    | % |  |   |           | 
|Cumulative sensitivity gap to total assets                                                     |  |                        | 8.53      | %    |        |   | (12.50   | )%        |      |   | (9.09    | )% |  |       | 0.33    | % |  |   |           | 





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|        |                                                             
|------- | ------------------------------------------------------------
|Item 8. | Consolidated Financial Statements and Supplementary
    Data








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements With Accountants On
    Accounting and Financial Disclosure















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|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures



| |                                                 
| | ------------------------------------------------
| | Evaluation of Disclosure Controls and Procedures







| |                                                                     
| | --------------------------------------------------------------------
| | Managements Report on Internal Control Over
    Financial Reporting









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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


ON INTERNAL CONTROL OVER FINANCIAL REPORTING


To the Stockholders and Board of Directors 
 Midwest Banc Holdings, Inc. 
 Melrose Park, Illinois












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Additional
Information on Internal Control Over Financial Reporting


















| |   |                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Replaced and hired a new Chief Investment Officer.                                                                                                                                                                                                                         
|
| |  | Revised its Investment Policy and Procedures.                                                                                                                                                                                                                              
|
| |  | Sold the floating rate FNMA Series F perpetual preferred
    equity securities that management failed to adequately
    demonstrate as being temporarily impaired in a suitable reliable
    evidential manner acceptable to the Companys independent
    accounting firm.

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| |   |                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Expanded its documentation and process for evaluating securities
    that may be or subsequently become other-than-temporary
    impaired for 2005.



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PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant








|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters








|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions








|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services



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PART IV







|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules

Index to Financial Statements




Financial Statement Schedules




Exhibits




| |     |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | --- | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3   | .1  |  | Restated Certificate of Incorporation, as amended (incorporated
    by reference to Registrants Registration Statement on
    Form S-1, Registration No. 333-42827)                                                                                                                                                                                                                                                                     
| | 3   | .2  |  | Amended and Restated By-Laws, filed February 28, 2005
    (incorporated by reference to Registrants Report on
    Form 8-K filed February 28, 2005, File
    No. 001-13735)                                                                                                                                                                                                                                                             
| | 3   | .11 |  | Certificate of Amendment of Restated Certificate of
    Incorporation (incorporated by reference to Registrants
    Form 10-Q for quarter ended June 30, 2002, 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 | .3  |  | Midwest Banc Holdings, Inc. 1996 Stock Option Plan
    (incorporated by reference to Registrants Registration
    Statement on Form S-1, Registration No. 333-42827)                                                                                                                                                                                                                                                                    
| | *10 | .3a |  | Amendment to the Midwest Banc Holdings, Inc. 1996 Stock
    Option Plan (incorporated by reference to Registrants
    Annual Report on Form  10-K for the year ended
    December 31, 1998, File No. 0-29652)                                                                                                                                                                                                                           
| | *10 | .4  |  | Form of Transitional Employment Agreements (incorporated by
    reference to Registrants Registration Statement on
    Form S-1, Registration No. 333-42827)                                                                                                                                                                                                                                                                            
| | 10  | .5  |  | Lease dated as of December 24, 1958, between Western
    National Bank of Cicero and Midwest Bank and Trust Company,
    as amended (incorporated by reference to Registrants
    Registration Statement on Form S-1, Registration
    No. 333-42827)                                                                                                                                                                                   
| | 10  | .6  |  | Britannica Centre Lease, dated as of May 1, 1994, between
    Chicago Title and Trust Company, as Trustee under
    Trust Agreement dated November 2, 1977 and known as
    Trust No. 1070932 and Midwest Bank &
    Trust Company (incorporated by reference to
    Registrants Registration Statement on Form S-1,
    Registration No. 333-42827)                                                                                    
| | 10  | .7  |  | Lease dated as of March 20, 1996 between Grove Lodge
    No. 824 Ancient Free and Accepted Masons and Midwest Bank
    of Hinsdale (incorporated by reference to Registrants
    Registration Statement on Form S-1, Registration
    No. 333-42827)                                                                                                                                                                                    
| | 10  | .8  |  | Office Lease, undated, between Grove Lodge No. 824 Ancient
    Free and Accepted Masons and Midwest Bank of Hinsdale
    (incorporated by reference to Registrants Registration
    Statement on Form S-1, Registration No. 333-42827)                                                                                                                                                                                                  
| | *10 | .15 |  | Form of Supplemental Executive Retirement Agreement
    (incorporated by reference to Registrants Form 10-Q
    for the quarter ended September 30, 2001, File
    No. 001-13735)                                                                                                                                                                                                                                                       

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| |     |     |  |                                                                                                                                                                                                                                                                                          
| | --- | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | *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  | .19 |  | Agreement and Plan of Reorganization between the Company and Big
    Foot Financial Corp. dated as of July 19, 2002
    (incorporated by reference to Annex A of the
    Registrants Proxy Statement/ Prospectus dated
    October 23, 2002, Registration Statement No. 333-
    100090)
| | 10  | .21 |  | Lease dated as of April 29, 1976, between Sanfilippo,
    Joseph C. and Grace Ann and Fairfield Savings and
    Loan Association, as amended (incorporated by reference to
    Registrants Form 10-K for the year ended
    December 31, 2003, File No. 001-13735)                      
| | 10  | .22 |  | Lease dated as of August 28, 2002 between Glen Oak Plaza
    and Midwest Bank and Trust Company (incorporated by
    reference to Registrants Form 10-K for the year ended
    December 31, 2003, File No. 001-13735)                                                                   
| | 10  | .24 |  | Loan Agreement as of April 8, 2004, between the Company and
    LaSalle Bank National Association (incorporated by reference to
    Registrants Form 10-Q for the year ended
    September 30, 2004, 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 year 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 year ended
    September 30, 2004, File No. 001-13735)                                                       
| | 10  | .27 |  | Midwest Banc Holdings, Inc. Severance Policy as of
    December 20, 2004 (incorporated by reference to
    Registrants Form 8-K dated November 22, 2004,
    File No. 001-13735)                                                                                                        
| | 10  | .28 |  | Officer Compensation                                                                                                                                                                                                                                                                     
| | 10  | .29 |  | Director Compensation                                                                                                                                                                                                                                                                    
| | 21  | .1  |  | Subsidiaries                                                                                                                                                                                                                                                                             
| | 23  | .1  |  | Consent of Crowe Chizek and Company LLC                                                                                                                                                                                                                                                  
| | 23  | .2  |  | Consent of McGladrey & Pullen, LLP                                                                                                                                                                                                                                                       
| | 24  | .1  |  | Power of Attorney (included on signature page)                                                                                                                                                                                                                                           
| | 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.

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SIGNATURES






| |                                
| | -------------------------------
| | Midwest Banc
    Holdings, Inc.



| |     |                      
| | --- | ---------------------
| | By: | /s/ James J. Giancola

| |                                      
| | -------------------------------------
| |                                      
| | James J. Giancola                    
| | President and Chief Executive Officer







|                                           |  |                                                  |  |               |  | 
|------------------------------------------ |  | ------------------------------------------------ |  | ------------- |  | 
|Signature                                  |  | Title                                            |  | Date         
|                                           |  |                                                  |  |              
|                                          
|/s/ E.V. SilveriE.V.
    Silveri           |  | Chairman of the Board, Director                  |  | March 9, 2005
|                                          
|/s/ James J. GiancolaJames
    J. Giancola |  | President, Chief Executive Officer, and Director |  | March 9, 2005
|                                          
|/s/ Angelo A. DiPaoloAngelo
    A. DiPaolo |  | Director                                         |  | March 9, 2005
|                                          
|/s/ Gerald F. HartleyGerald
    F. Hartley |  | Director                                         |  | March 9, 2005
|                                          
|/s/ Daniel NagleDaniel
    Nagle           |  | Director                                         |  | March 9, 2005
|                                          
|/s/ Joseph RizzaJoseph
    Rizza           |  | Director                                         |  | March 9, 2005
|                                          
|/s/ LeRoy RosascoLeRoy
    Rosasco         |  | Director                                         |  | March 9, 2005

63



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##### Table of Contents



|                                           |  |                                                                                    |  |               |  | 
|------------------------------------------ |  | ---------------------------------------------------------------------------------- |  | ------------- |  | 
|Signature                                  |  | Title                                                                              |  | Date         
|                                           |  |                                                                                    |  |              
|                                          
|/s/ Robert D. SmallRobert
    D. Small     |  | Director                                                                           |  | March 9, 2005
|                                          
|/s/ Leon WolinLeon
    Wolin               |  | Director                                                                           |  | March 9, 2005
|                                          
|/s/ Daniel R. KadolphDaniel
    R. Kadolph |  | Senior Vice President,
    Chief Financial Officer, Comptroller,
    and Treasurer |  | March 9, 2005

64



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.





CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2004, 2003, and 2002


CONTENTS


|                                                          |                                                 |      |    
|--------------------------------------------------------- | ----------------------------------------------- | ---- | ---
|FINANCIAL STATEMENTS                                      |                                                 |     
|                                                          | CONSOLIDATED BALANCE SHEETS                     |      | F-2
|                                                          | CONSOLIDATED STATEMENTS OF INCOME               |      | F-3
|                                                          | CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY |      | F-4
|                                                          | CONSOLIDATED STATEMENTS OF CASH FLOWS           |      | F-5
|                                                          | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      |      | F-7
|REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS |                                                 | F-39

F-1



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


CONSOLIDATED BALANCE SHEETS


|                                                                             |                                                                                                    |                            |                                            |           |           |           |           |           |           |           | 
|---------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | --------- | --------- | --------- | --------- | --------- | --------- | --------- | 
|                                                                             |                                                                                                    | December 31,               |                                           
|                                                                             |                                                                                                    |                            |                                           
|                                                                             |                                                                                                    | 2004                       |                                            |           | 2003      |          
|                                                                             |                                                                                                    |                            |                                            |           |           |          
|                                                                             |                                                                                                    | (In thousands except share |                                           
|                                                                             |                                                                                                    | and per share data)        |                                           
|ASSETS                                                                      
|Cash and cash equivalents                                                    |                                                                                                    | $                          | 243,431                                    |           |           | $         | 196,157   |          
|Securities available-for-sale                                                |                                                                                                    |                            | 548,211                                    |           |           |           | 796,140   |          
|Securities held-to-maturity (fair value: 2004 - $89,800;
    2003 - $57,239) |                                                                                                    |                            | 89,733                                     |           |           |           | 56,074    |          
|Loans                                                                        |                                                                                                    |                            | 1,230,400                                  |           |           |           | 1,081,296 |          
|Allowance for loan losses                                                    |                                                                                                    |                            | (17,961                                    | )         |           |           | (15,714   | )        
|                                                                             |                                                                                                    |                            |                                            |           |           |          
|                                                                             | Net loans                                                                                          |                            |                                            | 1,212,439 |           |           |           | 1,065,582 |          
|Cash value of life insurance                                                 |                                                                                                    |                            | 49,500                                     |           |           |           | 24,906    |          
|Premises and equipment, net                                                  |                                                                                                    |                            | 27,521                                     |           |           |           | 27,376    |          
|Other real estate                                                            |                                                                                                    |                            | 8,224                                      |           |           |           | 6,942     |          
|Core deposit and other intangibles, net                                      |                                                                                                    |                            | 2,217                                      |           |           |           | 2,790     |          
|Goodwill                                                                     |                                                                                                    |                            | 4,360                                      |           |           |           | 4,360     |          
|Due from broker                                                              |                                                                                                    |                            |                                           |           |           |           | 40,477    |          
|Other assets                                                                 |                                                                                                    |                            | 51,177                                     |           |           |           | 43,345    |          
|                                                                             |                                                                                                    |                            |                                            |           |           |          
|                                                                             | Total assets                                                                                       |                            | $                                          | 2,236,813 |           |           | $         | 2,264,149 |          
|                                                                             |                                                                                                    |                            |                                            |           |           |          
|                                                                            
|LIABILITIES AND STOCKHOLDERS EQUITY                                        
|Liabilities                                                                  |                                                                                                    |                            |                                            |           |           |           |           |          
|                                                                             | Deposits                                                                                           |                            |                                            |           |           |           |           |           |          
|                                                                             |                                                                                                    | Non-interest-bearing       |                                            | $         | 176,995   |           |           | $         | 160,668   |          
|                                                                             |                                                                                                    | Interest-bearing           |                                            |           | 1,505,426 |           |           |           | 1,425,743 |          
|                                                                             |                                                                                                    |                            |                                            |           |           |          
|                                                                             |                                                                                                    |                            | Total deposits                             |           |           | 1,682,421 |           |           |           | 1,586,411 | 
|                                                                             | Securities sold under agreements to repurchase                                                     |                            |                                            | 198,401   |           |           |           | 202,699   |          
|                                                                             | Advances from the Federal Home Loan Bank                                                           |                            |                                            | 133,628   |           |           |           | 253,461   |          
|                                                                             | Junior subordinated debt owed to unconsolidated trusts                                             |                            |                                            | 55,672    |           |           |           | 54,000    |          
|                                                                             | Notes payable                                                                                      |                            |                                            |          |           |           |           | 2,000     |          
|                                                                             | Other liabilities                                                                                  |                            |                                            | 29,268    |           |           |           | 22,497    |          
|                                                                             |                                                                                                    |                            |                                            |           |           |          
|                                                                             |                                                                                                    |                            | Total liabilities                          |           |           | 2,099,390 |           |           |           | 2,121,068 | 
|                                                                             |                                                                                                    |                            |                                            |           |           |          
|Stockholders equity                                                         |                                                                                                    |                            |                                            |           |           |           |           |          
|                                                                             | Preferred stock, $.01 par value, 1,000,000 shares
    authorized; none issued                      |                            |                                            |          |           |           |           |          |          
|                                                                             | Common stock, $.01 par value, 24,000,000 shares
    authorized; 18,668,140 issued in 2004 and 2003 |                            |                                            | 187       |           |           |           | 187       |          
|                                                                             | Surplus                                                                                            |                            |                                            | 65,781    |           |           |           | 64,330    |          
|                                                                             | Retained earnings                                                                                  |                            |                                            | 95,829    |           |           |           | 102,041   |          
|                                                                             | Unearned stock-based compensation                                                                  |                            |                                            | (2,642    | )         |           |           |          |          
|                                                                             | Accumulated other comprehensive loss                                                               |                            |                                            | (16,457   | )         |           |           | (15,824   | )        
|                                                                             | Treasury stock, at cost (2004 - 586,413 shares,
    2003 - 806,934 shares)                         |                            |                                            | (5,275    | )         |           |           | (7,653    | )        
|                                                                             |                                                                                                    |                            |                                            |           |           |          
|                                                                             |                                                                                                    | Total stockholders equity |                                            |           | 137,423   |           |           |           | 143,081   |          
|                                                                             |                                                                                                    |                            |                                            |           |           |          
|                                                                             |                                                                                                    |                            | Total liabilities and stockholders equity |           | $         | 2,236,813 |           |           | $         | 2,264,149 | 
|                                                                             |                                                                                                    |                            |                                            |           |           |          



F-2



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


CONSOLIDATED STATEMENTS OF INCOME


|                                                    |                                                        |                                       |        |         |         |   |        |        |         |   |        |        |         | 
|--------------------------------------------------- | ------------------------------------------------------ | ------------------------------------- | ------ | ------- | ------- | - | ------ | ------ | ------- | - | ------ | ------ | ------- | 
|                                                    |                                                        | Year Ended December 31,               |       
|                                                    |                                                        |                                       |       
|                                                    |                                                        | 2004                                  |        |         | 2003    |   |        | 2002   |        
|                                                    |                                                        |                                       |        |         |         |   |        |        |        
|                                                    |                                                        | (In thousands, except per share data) |       
|Interest income                                     |                                                        |                                       |        |         |         |   |        |        |         |   |        |       
|                                                    | Loans                                                  |                                       | $      | 67,656  |         |   | $      | 72,210 |         |   | $      | 74,433 |        
|                                                    | Securities                                             |                                       |        |         |         |   |        |        |         |   |        |        |        
|                                                    |                                                        | Taxable                               |        |         | 33,857  |   |        |        | 36,492  |   |        |        | 35,529  | 
|                                                    |                                                        | Exempt from federal income taxes      |        |         | 780     |   |        |        | 3,111   |   |        |        | 2,621   | 
|                                                    | Trading securities                                     |                                       |        | 1,736   |         |   |        | 19     |         |   |        |       |        
|                                                    | Federal funds sold and other short-term investments    |                                       |        | 1,378   |         |   |        | 247    |         |   |        | 138    |        
|                                                    |                                                        |                                       |        |         |         |   |        |        |        
|                                                    |                                                        | Total interest income                 |        |         | 105,407 |   |        |        | 112,079 |   |        |        | 112,721 | 
|                                                    |                                                        |                                       |        |         |         |   |        |        |        
|Interest expense                                    |                                                        |                                       |        |         |         |   |        |        |         |   |        |       
|                                                    | Deposits                                               |                                       |        | 30,602  |         |   |        | 30,065 |         |   |        | 34,036 |        
|                                                    | Federal funds purchased                                |                                       |        | 134     |         |   |        | 163    |         |   |        | 313    |        
|                                                    | Securities sold under agreements to repurchase         |                                       |        | 5,530   |         |   |        | 5,948  |         |   |        | 4,205  |        
|                                                    | Advances from the Federal Home Loan Bank               |                                       |        | 7,916   |         |   |        | 10,862 |         |   |        | 13,004 |        
|                                                    | Junior subordinated debt owed to unconsolidated trusts |                                       |        | 3,547   |         |   |        | 2,589  |         |   |        | 1,556  |        
|                                                    | Notes payable                                          |                                       |        | 20      |         |   |        | 170    |         |   |        | 205    |        
|                                                    |                                                        |                                       |        |         |         |   |        |        |        
|                                                    |                                                        | Total interest expense                |        |         | 47,749  |   |        |        | 49,797  |   |        |        | 53,319  | 
|                                                    |                                                        |                                       |        |         |         |   |        |        |        
|Net interest income                                 |                                                        |                                       | 57,658 |         |         |   | 62,282 |        |         |   | 59,402 |       
|Provision for loan losses                           |                                                        |                                       | 4,224  |         |         |   | 10,205 |        |         |   | 18,532 |       
|                                                    |                                                        |                                       |        |         |         |   |        |        |        
|Net interest income after provision for loan losses |                                                        |                                       | 53,434 |         |         |   | 52,077 |        |         |   | 40,870 |       
|                                                    |                                                        |                                       |        |         |         |   |        |        |        
|Other income                                        |                                                        |                                       |        |         |         |   |        |        |         |   |        |       
|                                                    | Service charges on deposit accounts                    |                                       |        | 5,938   |         |   |        | 5,855  |         |   |        | 5,691  |        
|                                                    | Net gains (losses) on securities transactions          |                                       |        | (4,480  | )       |   |        | 5,340  |         |   |        | 1,522  |        
|                                                    | Impairment loss on equity securities                   |                                       |        | (10,098 | )       |   |        |       |         |   |        |       |        
|                                                    | Net trading profits                                    |                                       |        | 414     |         |   |        | 6,334  |         |   |        | 2,288  |        
|                                                    | Gains on sale of loans                                 |                                       |        | 537     |         |   |        | 1,021  |         |   |        | 650    |        
|                                                    | Insurance and brokerage commissions                    |                                       |        | 2,125   |         |   |        | 2,244  |         |   |        | 1,490  |        
|                                                    | Trust income                                           |                                       |        | 608     |         |   |        | 574    |         |   |        | 572    |        
|                                                    | Increase in cash surrender value of life insurance     |                                       |        | 1,594   |         |   |        | 959    |         |   |        | 1,080  |        
|                                                    | Other income                                           |                                       |        | 862     |         |   |        | 759    |         |   |        | 715    |        
|                                                    |                                                        |                                       |        |         |         |   |        |        |        
|                                                    |                                                        | Total other income                    |        |         | (2,500  | ) |        |        | 23,086  |   |        |        | 14,008  | 
|                                                    |                                                        |                                       |        |         |         |   |        |        |        
|Other expenses                                      |                                                        |                                       |        |         |         |   |        |        |         |   |        |       
|                                                    | Salaries and employee benefits                         |                                       |        | 27,683  |         |   |        | 24,156 |         |   |        | 20,659 |        
|                                                    | Occupancy and equipment                                |                                       |        | 6,968   |         |   |        | 6,495  |         |   |        | 4,818  |        
|                                                    | Professional services                                  |                                       |        | 4,906   |         |   |        | 4,493  |         |   |        | 2,825  |        
|                                                    | Prepayment fees on FHLB advances                       |                                       |        | 4,215   |         |   |        |       |         |   |        |       |        
|                                                    | Other expenses                                         |                                       |        | 8,961   |         |   |        | 8,351  |         |   |        | 5,607  |        
|                                                    |                                                        |                                       |        |         |         |   |        |        |        
|                                                    |                                                        | Total other expenses                  |        |         | 52,733  |   |        |        | 43,495  |   |        |        | 33,909  | 
|                                                    |                                                        |                                       |        |         |         |   |        |        |        
|Income (loss) before income taxes                   |                                                        |                                       | (1,799 | )       |         |   | 31,668 |        |         |   | 20,969 |       
|Provision for income taxes                          |                                                        |                                       | (4,175 | )       |         |   | 8,887  |        |         |   | 4,661  |       
|                                                    |                                                        |                                       |        |         |         |   |        |        |        
|Net income                                          |                                                        | $                                     | 2,376  |         |         | $ | 22,781 |        |         | $ | 16,308 |       
|                                                    |                                                        |                                       |        |         |         |   |        |        |        
|Basic earnings per share                            |                                                        | $                                     | 0.13   |         |         | $ | 1.28   |        |         | $ | 1.01   |       
|                                                    |                                                        |                                       |        |         |         |   |        |        |        
|Diluted earnings per share                          |                                                        | $                                     | 0.13   |         |         | $ | 1.25   |        |         | $ | 0.99   |       
|                                                    |                                                        |                                       |        |         |         |   |        |        |        
|Cash dividends declared per common share            |                                                        | $                                     | 0.48   |         |         | $ | 0.44   |        |         | $ | 0.40   |       
|                                                    |                                                        |                                       |        |         |         |   |        |        |        



F-3



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


|                                                                                                                                                                                            |                                                                                                                                         |                                                 |     |   |         |   |          |          |  |             |              |        |               |               |        |          |       |   |               |         |   |   |        |   |  |   |         |         |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | --- | - | ------- | - | -------- | -------- |  | ----------- | ------------ | ------ | ------------- | ------------- | ------ | -------- | ----- | - | ------------- | ------- | - | - | ------ | - |  | - | ------- | ------- | ------ | -
|                                                                                                                                                                                            |                                                                                                                                         |                                                 |     |   |         |   |          |          |  | Accumulated |              |        |               |               |       
|                                                                                                                                                                                            |                                                                                                                                         |                                                 |     |   |         |   |          | Unearned |  |             | Other        |        |               |               |        | Total    |      
|                                                                                                                                                                                            |                                                                                                                                         | Common                                          |     |   |         |   | Retained |          |  | Stock-based |              |        | Comprehensive |               |        | Treasury |       |   | Stockholders |        
|                                                                                                                                                                                            |                                                                                                                                         | Stock                                           |     |   | Surplus |   |          | Earnings |  |             | Compensation |        |               | Income (Loss) |        |          | Stock |   |               | Equity  |  
|                                                                                                                                                                                            |                                                                                                                                         |                                                 |     |   |         |   |          |          |  |             |              |        |               |               |        |          |       |   |               |         |  
|                                                                                                                                                                                            |                                                                                                                                         | (In thousands, except share and per share data) |    
|Balance, January 1, 2002                                                                                                                                                                    |                                                                                                                                         | $                                               | 114 |   |         | $ | 29,587   |          |  | $           | 77,256       |        |               | $             |       |          |       | $ | (1,057        | )       |   | $ | (9,686 | ) |  | $ | 96,214  |        
|Issuance of 5,689,660 shares of stock in conjunction with a
    three for two stock split                                                                                                   |                                                                                                                                         |                                                 | 57  |   |         |   | (57      | )        |  |             |             |        |               |               |       |          |       |   |              |         |   |   |       |   |  |   |        |        
|Cash dividends declared ($.40 per share)                                                                                                                                                    |                                                                                                                                         |                                                 |    |   |         |   |         |          |  |             | (6,459       | )      |               |               |       |          |       |   |              |         |   |   |       |   |  |   | (6,459  | )      
|Purchase of 35,000 shares of treasury stock                                                                                                                                                 |                                                                                                                                         |                                                 |    |   |         |   |         |          |  |             |             |        |               |               |       |          |       |   |              |         |   |   | (576   | ) |  |   | (576    | )      
|Issuance of 12,846 shares of common stock upon acquisition
    of Service 1st Financial Corp., and issuance of common
    stock upon exercise of 107,632 stock options, net of tax benefits |                                                                                                                                         |                                                 |    |   |         |   | (164     | )        |  |             |             |        |               |               |       |          |       |   |              |         |   |   | 1,426  |   |  |   | 1,262   |        
|Comprehensive income                                                                                                                                                                        |                                                                                                                                         |                                                 |     |   |         |   |          |          |  |             |              |        |               |               |        |          |       |   |               |         |   |   |        |   |  |   |         |        
|                                                                                                                                                                                            | Net income                                                                                                                              |                                                 |     |  |         |   |          |         |  |             |              | 16,308 |               |               |        |         |       |   |               |        |   |   |        |  |  |   |         | 16,308  |       
|                                                                                                                                                                                            | Net increase in fair value of securities classified as
    available-for-sale, net of income taxes and reclassification
    adjustments |                                                 |     |  |         |   |          |         |  |             |              |       |               |               |        |         |       |   |               | 8,202   |   |   |        |  |  |   |         | 8,202   |       
|                                                                                                                                                                                            |                                                                                                                                         |                                                 |     |   |         |   |          |          |  |             |              |        |               |               |        |          |       |   |               |         |  
|                                                                                                                                                                                            |                                                                                                                                         | Total comprehensive income                      |     |   |         |   |          |          |  |             |              |        |               |               |        |          |       |   |               |         |   |   |        |   |  |   |         |         | 24,510 |  
|                                                                                                                                                                                            |                                                                                                                                         |                                                 |     |   |         |   |          |          |  |             |              |        |               |               |        |          |       |   |               |         |  
|Balance, December 31, 2002                                                                                                                                                                  |                                                                                                                                         |                                                 | 171 |   |         |   | 29,366   |          |  |             | 87,105       |        |               |               |       |          |       |   | 7,145         |         |   |   | (8,836 | ) |  |   | 114,951 |        
|Cash dividends declared ($.44 per share)                                                                                                                                                    |                                                                                                                                         |                                                 |    |   |         |   |         |          |  |             | (7,845       | )      |               |               |       |          |       |   |              |         |   |   |       |   |  |   | (7,845  | )      
|Issuance of 1,599,088 shares of common stock upon
    acquisition of Big Foot Financial Corp.                                                                                               |                                                                                                                                         |                                                 | 16  |   |         |   | 30,448   |          |  |             |             |        |               |               |       |          |       |   |              |         |   |   |       |   |  |   | 30,464  |        
|Issuance of common stock upon exercise of 108,088 stock options,
    net of tax benefits                                                                                                    |                                                                                                                                         |                                                 |    |   |         |   | 483      |          |  |             |             |        |               |               |       |          |       |   |              |         |   |   | 1,183  |   |  |   | 1,666   |        
|Capital contribution from loan payoff by related parties                                                                                                                                    |                                                                                                                                         |                                                 |    |   |         |   | 4,033    |          |  |             |             |        |               |               |       |          |       |   |              |         |   |   |       |   |  |   | 4,033   |        
|Comprehensive income                                                                                                                                                                        |                                                                                                                                         |                                                 |     |   |         |   |          |          |  |             |              |        |               |               |        |          |       |   |               |         |   |   |        |   |  |   |         |        
|                                                                                                                                                                                            | Net income                                                                                                                              |                                                 |     |  |         |   |          |         |  |             |              | 22,781 |               |               |        |         |       |   |               |        |   |   |        |  |  |   |         | 22,781  |       
|                                                                                                                                                                                            | Net decrease in fair value of securities classified as
    available-for-sale, net of income taxes and reclassification
    adjustments |                                                 |     |  |         |   |          |         |  |             |              |       |               |               |        |         |       |   |               | (22,969 | ) |   |        |  |  |   |         | (22,969 | )     
|                                                                                                                                                                                            |                                                                                                                                         |                                                 |     |   |         |   |          |          |  |             |              |        |               |               |        |          |       |   |               |         |  
|                                                                                                                                                                                            |                                                                                                                                         | Total comprehensive loss                        |     |   |         |   |          |          |  |             |              |        |               |               |        |          |       |   |               |         |   |   |        |   |  |   |         |         | (188   | )
|                                                                                                                                                                                            |                                                                                                                                         |                                                 |     |   |         |   |          |          |  |             |              |        |               |               |        |          |       |   |               |         |  
|Balance, December 31, 2003                                                                                                                                                                  |                                                                                                                                         |                                                 | 187 |   |         |   | 64,330   |          |  |             | 102,041      |        |               |               |       |          |       |   | (15,824       | )       |   |   | (7,653 | ) |  |   | 143,081 |        
|Cash dividends declared ($.48 per share)                                                                                                                                                    |                                                                                                                                         |                                                 |    |   |         |   |         |          |  |             | (8,588       | )      |               |               |       |          |       |   |              |         |   |   |       |   |  |   | (8,588  | )      
|Issuance of common stock upon exercise of 70,521 stock options,
    net of tax benefits                                                                                                     |                                                                                                                                         |                                                 |    |   |         |   | 345      |          |  |             |             |        |               |               |       |          |       |   |              |         |   |   | 677    |   |  |   | 1,022   |        
|Issuance of 150,000 shares of restricted stock from treasury                                                                                                                                |                                                                                                                                         |                                                 |    |   |         |   | 1,106    |          |  |             |             |        |               |               | (2,807 | )        |       |   |              |         |   |   | 1,701  |   |  |   |        |        
|Unearned stock-based compensation                                                                                                                                                           |                                                                                                                                         |                                                 |    |   |         |   |         |          |  |             |             |        |               |               | 165    |          |       |   |              |         |   |   |       |   |  |   | 165     |        
|Comprehensive income                                                                                                                                                                        |                                                                                                                                         |                                                 |     |   |         |   |          |          |  |             |              |        |               |               |        |          |       |   |               |         |   |   |        |   |  |   |         |        
|                                                                                                                                                                                            | Net income                                                                                                                              |                                                 |     |  |         |   |          |         |  |             |              | 2,376  |               |               |        |         |       |   |               |        |   |   |        |  |  |   |         | 2,376   |       
|                                                                                                                                                                                            | Net decrease in fair value of securities classified as
    available-for-sale, net of income taxes and reclassification
    adjustments |                                                 |     |  |         |   |          |         |  |             |              |       |               |               |        |         |       |   |               | (633    | ) |   |        |  |  |   |         | (633    | )     
|                                                                                                                                                                                            |                                                                                                                                         |                                                 |     |   |         |   |          |          |  |             |              |        |               |               |        |          |       |   |               |         |  
|                                                                                                                                                                                            |                                                                                                                                         | Total comprehensive income                      |     |   |         |   |          |          |  |             |              |        |               |               |        |          |       |   |               |         |   |   |        |   |  |   |         |         | 1,743  |  
|                                                                                                                                                                                            |                                                                                                                                         |                                                 |     |   |         |   |          |          |  |             |              |        |               |               |        |          |       |   |               |         |  
|Balance, December 31, 2004                                                                                                                                                                  |                                                                                                                                         | $                                               | 187 |   |         | $ | 65,781   |          |  | $           | 95,829       |        |               | $             | (2,642 | )        |       | $ | (16,457       | )       |   | $ | (5,275 | ) |  | $ | 137,423 |        
|                                                                                                                                                                                            |                                                                                                                                         |                                                 |     |   |         |   |          |          |  |             |              |        |               |               |        |          |       |   |               |         |  



F-4



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                 |                                                                                                     |                                                            |                                                     |          |        |         |         |          |        |        |        |          |         |          |  
|------------------------------------------------ | --------------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | --------------------------------------------------- | -------- | ------ | ------- | ------- | -------- | ------ | ------ | ------ | -------- | ------- | -------- | -
|                                                 |                                                                                                     | Year Ended December 31,                                    |                                                    
|                                                 |                                                                                                     |                                                            |                                                    
|                                                 |                                                                                                     | 2004                                                       |                                                     |          | 2003   |         |         | 2002     |       
|                                                 |                                                                                                     |                                                            |                                                     |          |        |         |         |          |       
|                                                 |                                                                                                     | (In thousands)                                             |                                                    
|Cash flows from operating activities             |                                                                                                     |                                                            |                                                     |          |        |         |         |          |        |        |        |         
|                                                 | Net income                                                                                          |                                                            | $                                                   | 2,376    |        |         | $       | 22,781   |        |        | $      | 16,308   |        
|                                                 | Adjustments to reconcile net income to net cash provided by
    operating activities Depreciation   |                                                            |                                                     | 2,744    |        |         |         | 2,433    |        |        |        | 2,308    |        
|                                                 |                                                                                                     | Provision for loan losses                                  |                                                     |          | 4,224  |         |         |          | 10,205 |        |        |          | 18,532  |         
|                                                 |                                                                                                     | Amortization of other intangibles                          |                                                     |          | 362    |         |         |          | 495    |        |        |          | 56      |         
|                                                 |                                                                                                     | Proceeds (purchases) from sales of trading securities, net |                                                     |          | (4,898 | )       |         |          | (14    | )      |        |          | 348     |         
|                                                 |                                                                                                     | Amortization of premiums and discounts on securities, net  |                                                     |          | 2,833  |         |         |          | 10,302 |        |        |          | 5,172   |         
|                                                 |                                                                                                     | Net loss (gain) on sales of securities                     |                                                     |          | 4,480  |         |         |          | (5,340 | )      |        |          | (1,522  | )       
|                                                 |                                                                                                     | Impairment loss on equity securities                       |                                                     |          | 10,098 |         |         |          |       |        |        |          |        |         
|                                                 |                                                                                                     | Net loss (gain) on sales of trading securities             |                                                     |          | 5,009  |         |         |          | 14     |        |        |          | (348    | )       
|                                                 |                                                                                                     | Net gain on sales of mortgage loans                        |                                                     |          | (537   | )       |         |          | (1,021 | )      |        |          | (650    | )       
|                                                 |                                                                                                     | Federal Home Loan Bank stock dividend                      |                                                     |          | (1,014 | )       |         |          | (1,245 | )      |        |          | (671    | )       
|                                                 |                                                                                                     | Net change in real estate loans held for sale              |                                                     |          | (877   | )       |         |          | 4,374  |        |        |          | (860    | )       
|                                                 |                                                                                                     | Increase in cash surrender value of life insurance         |                                                     |          | (1,594 | )       |         |          | (959   | )      |        |          | (1,080  | )       
|                                                 |                                                                                                     | Deferred income taxes                                      |                                                     |          | (6,528 | )       |         |          | 682    |        |        |          | (4,087  | )       
|                                                 |                                                                                                     | Gain on sale of other real estate, net                     |                                                     |          | 39     |         |         |          | 837    |        |        |          | 8       |         
|                                                 |                                                                                                     | Stock-based compensation                                   |                                                     |          | 165    |         |         |          |       |        |        |          |        |         
|                                                 |                                                                                                     | Change in other assets                                     |                                                     |          | (246   | )       |         |          | (4,345 | )      |        |          | (16,642 | )       
|                                                 |                                                                                                     | Change in other liabilities                                |                                                     |          | 4,467  |         |         |          | (829   | )      |        |          | 8,353   |         
|                                                 |                                                                                                     |                                                            |                                                     |          |        |         |         |          |       
|                                                 |                                                                                                     |                                                            | Net cash provided by operating activities           |          |        | 21,103  |         |          |        | 38,370 |        |          |         | 25,225   |  
|                                                 |                                                                                                     |                                                            |                                                     |          |        |         |         |          |       
|Cash flows from investing activities             |                                                                                                     |                                                            |                                                     |          |        |         |         |          |        |        |        |         
|                                                 | Sales of securities available-for-sale                                                              |                                                            |                                                     | 707,488  |        |         |         | 428,300  |        |        |        | 319,952  |        
|                                                 | Maturities of securities available-for-sale                                                         |                                                            |                                                     | 38,660   |        |         |         | 355      |        |        |        | 4,190    |        
|                                                 | Principal payments on securities                                                                    |                                                            |                                                     | 70,094   |        |         |         | 338,203  |        |        |        | 209,620  |        
|                                                 | Purchases of securities available-for-sale                                                          |                                                            |                                                     | (502,136 | )      |         |         | (932,634 | )      |        |        | (611,101 | )      
|                                                 | Purchases of securities held-to-maturity                                                            |                                                            |                                                     | (66,669  | )      |         |         |         |        |        |        | (24,588  | )      
|                                                 | Maturities of securities held-to-maturity                                                           |                                                            |                                                     | 3,205    |        |         |         | 4,795    |        |        |        | 26,290   |        
|                                                 | Sale of futures contracts                                                                           |                                                            |                                                     | (13,887  | )      |         |         | (7,967   | )      |        |        |         |        
|                                                 | Purchase of mortgage loans                                                                          |                                                            |                                                     | (42,690  | )      |         |         |         |        |        |        |         |        
|                                                 | Net (increase) decrease in loans                                                                    |                                                            |                                                     | (109,527 | )      |         |         | 48,545   |        |        |        | (139,722 | )      
|                                                 | Proceeds from sale of mortgage loans                                                                |                                                            |                                                     |         |        |         |         | 142,546  |        |        |        |         |        
|                                                 | Cash received (paid), net of cash and cash equivalents in
    acquisition and stock issuance        |                                                            |                                                     |         |        |         |         | 17,783   |        |        |        | (1,008   | )      
|                                                 | Proceeds from sale of other real estate                                                             |                                                            |                                                     | 1,094    |        |         |         | 2,635    |        |        |        | 347      |        
|                                                 | Property and equipment expenditures                                                                 |                                                            |                                                     | (3,250   | )      |         |         | (2,091   | )      |        |        | (1,830   | )      
|                                                 | Investment in life insurance                                                                        |                                                            |                                                     | (23,000  | )      |         |         |         |        |        |        |         |        
|                                                 |                                                                                                     |                                                            |                                                     |          |        |         |         |          |       
|                                                 |                                                                                                     |                                                            | Net cash provided by (used in) investing activities |          |        | 59,382  |         |          |        | 40,470 |        |          |         | (217,850 | )
|                                                 |                                                                                                     |                                                            |                                                     |          |        |         |         |          |       
|Cash flows from financing activities             |                                                                                                     |                                                            |                                                     |          |        |         |         |          |        |        |        |         
|                                                 | Net increase in deposits                                                                            |                                                            |                                                     | 96,010   |        |         |         | 58,034   |        |        |        | 179,128  |        
|                                                 | Issuance of junior subordinated debt owed to unconsolidated
    trusts, net of debt issuance costs  |                                                            |                                                     |         |        |         |         | 18,430   |        |        |        | 14,525   |        
|                                                 | Borrowings                                                                                          |                                                            |                                                     |         |        |         |         | 5,500    |        |        |        | 9,300    |        
|                                                 | Payments on borrowings                                                                              |                                                            |                                                     | (117,000 | )      |         |         | (5,500   | )      |        |        | (38,800  | )      
|                                                 | Dividends paid                                                                                      |                                                            |                                                     | (8,583   | )      |         |         | (7,317   | )      |        |        | (6,450   | )      
|                                                 | Change in short-term securities sold under agreements to
    repurchase and federal funds purchased |                                                            |                                                     | (4,298   | )      |         |         | (3,183   | )      |        |        | (116,789 | )      
|                                                 | Proceeds from long-term securities sold under agreement to
    repurchase                           |                                                            |                                                     |         |        |         |         |         |        |        |        | 151,521  |        
|                                                 | Repurchase of common stock                                                                          |                                                            |                                                     |         |        |         |         |         |        |        |        | (576     | )      
|                                                 | Proceeds from exercise of stock options                                                             |                                                            |                                                     | 660      |        |         |         | 1,666    |        |        |        | 641      |        
|                                                 |                                                                                                     |                                                            |                                                     |          |        |         |         |          |       
|                                                 |                                                                                                     |                                                            | Net cash provided by (used in) financing activities |          |        | (33,211 | )       |          |        | 67,630 |        |          |         | 192,500  |  
|                                                 |                                                                                                     |                                                            |                                                     |          |        |         |         |          |       
|Increase (decrease) in cash and cash equivalents |                                                                                                     |                                                            | 47,274                                              |          |        |         | 146,470 |          |        |        | (125   | )       
|Cash and cash equivalents at beginning of year   |                                                                                                     |                                                            | 196,157                                             |          |        |         | 49,687  |          |        |        | 49,812 |         
|                                                 |                                                                                                     |                                                            |                                                     |          |        |         |         |          |       
|Cash and cash equivalents at end of year         |                                                                                                     | $                                                          | 243,431                                             |          |        | $       | 196,157 |          |        | $      | 49,687 |         
|                                                 |                                                                                                     |                                                            |                                                     |          |        |         |         |          |       

F-5



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


CONSOLIDATED STATEMENTS OF CASH
FLOWS  (Continued)


|                                                                        |                                                                 |                          |                                          |                               |                             |                                    |   |        |        |         |         |        |        |     |       |       |   | 
|----------------------------------------------------------------------- | --------------------------------------------------------------- | ------------------------ | ---------------------------------------- | ----------------------------- | --------------------------- | ---------------------------------- | - | ------ | ------ | ------- | ------- | ------ | ------ | --- | ----- | ----- | - | 
|                                                                        |                                                                 | Year Ended December 31,  |                                         
|                                                                        |                                                                 |                          |                                         
|                                                                        |                                                                 | 2004                     |                                          |                               | 2003                        |                                    |   | 2002   |       
|                                                                        |                                                                 |                          |                                          |                               |                             |                                    |   |        |       
|                                                                        |                                                                 | (In thousands)           |                                         
|Supplemental disclosures                                                |                                                                 |                          |                                          |                               |                             |                                    |   |        |        |         |         |       
|                                                                        | Cash paid during the year for                                   |                          |                                          |                               |                             |                                    |   |        |        |         |         |        |       
|                                                                        |                                                                 | Interest                 |                                          | $                             | 47,732                      |                                    |   | $      | 49,953 |         |         | $      | 53,511 |    
|                                                                        |                                                                 | Income taxes             |                                          |                               | 3,731                       |                                    |   |        | 6,334  |         |         |        | 11,175 |    
|Supplemental schedule of noncash investing and financing
    activities |                                                                 |                          |                                          |                               |                             |                                    |   |        |        |         |         |       
|                                                                        | Amount due to broker for purchases of securities                |                          |                                          |                              |                             |                                    |   |       |        |         |         | 20,582 |       
|                                                                        | Amount due from broker for sales of securities                  |                          |                                          |                              |                             |                                    |   | 40,477 |        |         |         |       |       
|                                                                        | Transfer from securities available-for-sale to held-to-maturity |                          |                                          |                              |                             |                                    |   |       |        |         |         | 99,841 |       
|                                                                        | Acquisitions                                                    |                          |                                          |                               |                             |                                    |   |        |        |         |         |        |       
|                                                                        |                                                                 | Noncash assets acquired: |                                          |                               |                             |                                    |   |        |        |         |         |        |        |    
|                                                                        |                                                                 |                          | Investment securities available for sale |                               |                             |                                   |   |        |        | 17,128  |         |        |        |    |      
|                                                                        |                                                                 |                          | Loans, net                               |                               |                             |                                   |   |        |        | 157,477 |         |        |        |    |      
|                                                                        |                                                                 |                          | Premises and equipment, net              |                               |                             |                                   |   |        |        | 8,719   |         |        |        | 139 |      
|                                                                        |                                                                 |                          | Goodwill, net                            |                               |                             |                                   |   |        |        |        |         |        |        | 761 |      
|                                                                        |                                                                 |                          | Other intangibles, net                   |                               |                             |                                   |   |        |        | 3,041   |         |        |        | 300 |      
|                                                                        |                                                                 |                          | Other assets                             |                               |                             |                                   |   |        |        | 5,930   |         |        |        |    |      
|                                                                        |                                                                 |                          |                                          |                               |                             |                                    |   |        |       
|                                                                        |                                                                 |                          |                                          | Total noncash assets acquired |                             | $                                  |  |        |        | $       | 192,295 |        |        | $   | 1,200 |      
|                                                                        |                                                                 |                          |                                          |                               |                             |                                    |   |        |       
|                                                                        |                                                                 | Liabilities assumed:     |                                          |                               |                             |                                    |   |        |        |         |         |        |        |    
|                                                                        |                                                                 |                          | Deposits                                 |                               | $                           |                                   |   |        | $      | 137,729 |         |        | $      |    |      
|                                                                        |                                                                 |                          | Advances from the Federal Home Loan Bank |                               |                             |                                   |   |        |        | 36,727  |         |        |        |    |      
|                                                                        |                                                                 |                          | Accrued expenses and other liabilities   |                               |                             |                                   |   |        |        | 5,887   |         |        |        |    |      
|                                                                        |                                                                 |                          |                                          |                               |                             |                                    |   |        |       
|                                                                        |                                                                 |                          |                                          | Total liabilities assumed     |                             |                                    |  |        |        |         | 180,343 |        |        |     |      |      
|                                                                        |                                                                 |                          |                                          |                               |                             |                                    |   |        |       
|                                                                        |                                                                 |                          |                                          |                               | Net noncash assets acquired |                                    | $ |       |        |         | $       | 11,952 |        |     | $     | 1,200 |  
|                                                                        |                                                                 |                          |                                          |                               |                             |                                    |   |        |       
|                                                                        |                                                                 |                          |                                          |                               |                             | Cash and cash equivalents acquired |   | $      |       |         |         | $      | 19,698 |     |       | $     |  | 
|                                                                        |                                                                 |                          |                                          |                               |                             |                                    |   |        |       



F-6



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|         |                     
|-------- | --------------------
|Note 1  | Nature of Operations





|         |                                           
|-------- | ------------------------------------------
|Note 2  | Summary of Significant Accounting Policies

Basis of Presentation:


Use of Estimates:


Cash:


Securities:


F-7



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Derivatives:


Fair Value of Financial Instruments and Derivatives:


Loans:




Allowance for Loan Losses:




F-8



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








Premises and Equipment:


Other Real Estate:


Cash Surrender Value of Life Insurance:


Goodwill:


Income Taxes:


Contingencies:


Transfers of financial assets:


F-9



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Stock Compensation: Accounting for Stock-Based Compensation.


|                                                                                      |  |                       |       |  |      |   |        |      |  |   |        | 
|------------------------------------------------------------------------------------- |  | --------------------- | ----- |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                                                                      |  | 2004                  |       |  | 2003 |   |        | 2002 | 
|                                                                                      |  |                       |       |  |      |   |        |      | 
|                                                                                      |  | (In thousands, except |      
|                                                                                      |  | per share data)       |      
|Net income as reported                                                                |  | $                     | 2,376 |  |      | $ | 22,781 |      |  | $ | 16,308 | 
|Deduct: Stock-based compensation expense determined under fair
    value-based method |  |                       | 494   |  |      |   | 457    |      |  |   | 321    | 
|                                                                                      |  |                       |       |  |      |   |        |      | 
|Pro forma net income                                                                  |  | $                     | 1,882 |  |      | $ | 22,324 |      |  | $ | 15,987 | 
|                                                                                      |  |                       |       |  |      |   |        |      | 
|Basic earnings per share as reported                                                  |  | $                     | 0.13  |  |      | $ | 1.28   |      |  | $ | 1.01   | 
|Pro forma basic earnings per share                                                    |  |                       | 0.11  |  |      |   | 1.25   |      |  |   | 0.99   | 
|Diluted earnings per share as reported                                                |  |                       | 0.13  |  |      |   | 1.25   |      |  |   | 0.99   | 
|Pro forma diluted earnings per share                                                  |  |                       | 0.10  |  |      |   | 1.23   |      |  |   | 0.97   | 



|                                |  |      |         |   |      |   |         |      |  |   |         |  
|------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                |  | 2004 |         |   | 2003 |   |         | 2002 | 
|                                |  |      |         |   |      |   |         |      | 
|Fair value                      |  | $    | 7.82    |   |      | $ | 6.31    |      |  | $ | 4.83    |  
|Risk-free interest rate         |  |      | 4.56    | % |      |   | 3.40    | %    |  |   | 4.84    | %
|Expected option life            |  |      | 7 years |   |      |   | 5 years |      |  |   | 5 years |  
|Expected stock price volatility |  |      | 21.01   | % |      |   | 53.00   | %    |  |   | 36.68   | %
|Dividend yield                  |  |      | 2.18    |   |      |   | 1.98    |      |  |   | 2.27    |  









F-10



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Comprehensive Income:


Earnings Per Common Share:


Dividend Restriction:


Statement of Cash Flows:


Fair Value of Financial Instruments:


Guarantees:




Consolidation of Variable Interest Entities:


F-11



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










Reclassifications:


New accounting pronouncements:






F-12



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








F-13



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|         |           
|-------- | ----------
|Note 3  | Securities



|                                                                                 |                                                  |                                     |         |         |            |   |       |            |     |   |            |      |         |   |         |         |         | 
|-------------------------------------------------------------------------------- | ------------------------------------------------ | ----------------------------------- | ------- | ------- | ---------- | - | ----- | ---------- | --- | - | ---------- | ---- | ------- | - | ------- | ------- | ------- | 
|                                                                                 |                                                  | December 31, 2004                   |        
|                                                                                 |                                                  |                                     |        
|                                                                                 |                                                  |                                     |         | Gross   |            |   | Gross |            |     |  
|                                                                                 |                                                  | Amortized                           |         |         | Unrealized |   |       | Unrealized |     |   |           
|                                                                                 |                                                  | Cost                                |         |         | Gains      |   |       | Losses     |     |   | Fair Value |     
|                                                                                 |                                                  |                                     |         |         |            |   |       |            |     |   |            |     
|                                                                                 |                                                  | (In thousands)                      |        
|Securities available-for-sale
    Obligations of U.S. government agencies        |                                                  | $                                   | 397,510 |         |            | $ |      |            |     | $ | (26,676    | )    |         | $ | 370,834 |        
|                                                                                 | Obligations of states and political subdivisions |                                     |         | 1,909   |            |   |       | 58         |     |   |            |     |         |   |         | 1,967   |        
|                                                                                 | Mortgage-backed securities                       |                                     |         | 51,016  |            |   |       | 74         |     |   |            | (840 | )       |   |         | 50,250  |        
|                                                                                 | Equity securities                                |                                     |         | 114,331 |            |   |       | 238        |     |   |            | (62  | )       |   |         | 114,507 |        
|                                                                                 | Corporate and other debt securities              |                                     |         | 11,074  |            |   |       |           |     |   |            | (421 | )       |   |         | 10,653  |        
|                                                                                 |                                                  |                                     |         |         |            |   |       |            |     |   |            |     
|                                                                                 |                                                  | Total securities available-for-sale |         | $       | 575,840    |   |       | $          | 370 |   |            | $    | (27,999 | ) |         | $       | 548,211 | 
|                                                                                 |                                                  |                                     |         |         |            |   |       |            |     |   |            |     
|Securities held-to-maturity
    Obligations of states and political subdivisions |                                                  | $                                   | 9,574   |         |            | $ | 259   |            |     | $ |           |      |         | $ | 9,833   |        
|                                                                                 | Mortgage-backed securities                       |                                     |         | 80,159  |            |   |       | 406        |     |   |            | (598 | )       |   |         | 79,967  |        
|                                                                                 |                                                  |                                     |         |         |            |   |       |            |     |   |            |     
|                                                                                 |                                                  | Total securities held-to-maturity   |         | $       | 89,733     |   |       | $          | 665 |   |            | $    | (598    | ) |         | $       | 89,800  | 
|                                                                                 |                                                  |                                     |         |         |            |   |       |            |     |   |            |     

|                              |                                                  |                                     |   |         |            |  |       |            |       |  |            |         |         |   |   |         |         | 
|----------------------------- | ------------------------------------------------ | ----------------------------------- | - | ------- | ---------- |  | ----- | ---------- | ----- |  | ---------- | ------- | ------- | - | - | ------- | ------- | 
|                              |                                                  | December 31, 2003                   |  
|                              |                                                  |                                     |  
|                              |                                                  |                                     |   | Gross   |            |  | Gross |            |       | 
|                              |                                                  | Amortized                           |   |         | Unrealized |  |       | Unrealized |       |  |           
|                              |                                                  | Cost                                |   |         | Gains      |  |       | Losses     |       |  | Fair Value |        
|                              |                                                  |                                     |   |         |            |  |       |            |       |  |            |        
|                              |                                                  | (In thousands)                      |  
|Securities available-for-sale |                                                  |                                     |   |         |            |  |       |            |       |  |            |         |         |   |   |        
|                              | Obligations of U.S. government agencies          |                                     | $ | 360,280 |            |  | $     |           |       |  | $          | (23,676 | )       |   | $ | 336,604 |        
|                              | Obligations of states and political subdivisions |                                     |   | 35,124  |            |  |       | 2,078      |       |  |            |        |         |   |   | 37,202  |        
|                              | Mortgage-backed securities                       |                                     |   | 172,420 |            |  |       | 2,312      |       |  |            | (1,222  | )       |   |   | 173,510 |        
|                              | Equity securities                                |                                     |   | 159,391 |            |  |       | 353        |       |  |            | (4,984  | )       |   |   | 154,760 |        
|                              | Corporate and other debt securities              |                                     |   | 95,625  |            |  |       | 100        |       |  |            | (1,661  | )       |   |   | 94,064  |        
|                              |                                                  |                                     |   |         |            |  |       |            |       |  |            |        
|                              |                                                  | Total securities available-for-sale |   | $       | 822,840    |  |       | $          | 4,843 |  |            | $       | (31,543 | ) |   | $       | 796,140 | 
|                              |                                                  |                                     |   |         |            |  |       |            |       |  |            |        
|Securities held-to-maturity   |                                                  |                                     |   |         |            |  |       |            |       |  |            |         |         |   |   |        
|                              | Obligations of states and political subdivisions |                                     | $ | 12,840  |            |  | $     | 628        |       |  | $          |        |         |   | $ | 13,468  |        
|                              | Mortgage-backed securities                       |                                     |   | 43,234  |            |  |       | 537        |       |  |            |        |         |   |   | 43,771  |        
|                              |                                                  |                                     |   |         |            |  |       |            |       |  |            |        
|                              |                                                  | Total securities held-to-maturity   |   | $       | 56,074     |  |       | $          | 1,165 |  |            | $       |        |   |   | $       | 57,239  | 
|                              |                                                  |                                     |   |         |            |  |       |            |       |  |            |        

F-14



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                        |  |                     |        |  |                   |   |        |       |  |   |            |  |  |       |         |   |            |   |         |  |  |   |         |  
|--------------------------------------- |  | ------------------- | ------ |  | ----------------- | - | ------ | ----- |  | - | ---------- |  |  | ----- | ------- | - | ---------- | - | ------- |  |  | - | ------- | -
|                                        |  | December 31, 2004   |       
|                                        |  |                     |       
|                                        |  | Less Than 12 Months |        |  | 12 Months or More |   |        | Total | 
|                                        |  |                     |        |  |                   |   |        |       | 
|                                        |  | Fair                |        |  | Unrealized        |   |        | Fair  |  |   | Unrealized |  |  | Fair  |         |   | Unrealized |  
|                                        |  | Value               |        |  | Losses            |   |        | Value |  |   | Losses     |  |  | Value |         |   | Losses     |  
|                                        |  |                     |        |  |                   |   |        |       |  |   |            |  |  |       |         |   |            |  
|                                        |  | (In thousands)      |       
|Obligations of U.S. government agencies |  | $                   | 29,306 |  |                   | $ | (528   | )     |  | $ | 341,528    |  |  | $     | (26,148 | ) |            | $ | 370,834 |  |  | $ | (26,676 | )
|Mortgage-backed securities              |  |                     | 41,464 |  |                   |   | (603   | )     |  |   | 39,634     |  |  |       | (835    | ) |            |   | 81,098  |  |  |   | (1,438  | )
|Equity securities                       |  |                     | 3,975  |  |                   |   | (6     | )     |  |   | 7,445      |  |  |       | (56     | ) |            |   | 11,420  |  |  |   | (62     | )
|Corporate and other debt securities     |  |                     |       |  |                   |   |       |       |  |   | 10,653     |  |  |       | (421    | ) |            |   | 10,653  |  |  |   | (421    | )
|                                        |  |                     |        |  |                   |   |        |       |  |   |            |  |  |       |         |   |            |  
|Total temporarily impaired securities   |  | $                   | 74,745 |  |                   | $ | (1,137 | )     |  | $ | 399,260    |  |  | $     | (27,460 | ) |            | $ | 474,005 |  |  | $ | (28,597 | )
|                                        |  |                     |        |  |                   |   |        |       |  |   |            |  |  |       |         |   |            |  







F-15



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                              |                                        |                                     |         |         |            |  |         |         |         | 
|----------------------------- | -------------------------------------- | ----------------------------------- | ------- | ------- | ---------- |  | ------- | ------- | ------- | 
|                              |                                        | Amortized                           |         |         |           
|                              |                                        | Cost                                |         |         | Fair Value | 
|                              |                                        |                                     |         |         |            | 
|                              |                                        | (In thousands)                      |        
|Securities available-for-sale |                                        |                                     |         |         |            |  |         |        
|                              | Due in one year or less                |                                     | $       | 912     |            |  | $       | 929     |        
|                              | Due after one year through five years  |                                     |         | 30,831  |            |  |         | 30,345  |        
|                              | Due after five years through ten years |                                     |         | 374,616 |            |  |         | 348,282 |        
|                              | Due after ten years                    |                                     |         | 4,134   |            |  |         | 3,898   |        
|                              |                                        |                                     |         |         |            | 
|                              |                                        |                                     | 410,493 |         |            |  | 383,454 |        
|                              | Mortgage-backed securities             |                                     |         | 51,016  |            |  |         | 50,250  |        
|                              |                                        |                                     |         |         |            | 
|                              |                                        | Total debt securities               |         |         | 461,509    |  |         |         | 433,704 | 
|                              | Equity securities                      |                                     |         | 114,331 |            |  |         | 114,507 |        
|                              |                                        |                                     |         |         |            | 
|                              |                                        | Total securities available-for-sale |         | $       | 575,840    |  |         | $       | 548,211 | 
|                              |                                        |                                     |         |         |            | 
|Securities held-to-maturity   |                                        |                                     |         |         |            |  |         |        
|                              | Due in one year or less                |                                     | $       | 4,386   |            |  | $       | 4,452   |        
|                              | Due after one year through five years  |                                     |         | 4,938   |            |  |         | 5,112   |        
|                              | Due after five years through ten years |                                     |         | 250     |            |  |         | 269     |        
|                              |                                        |                                     |         |         |            | 
|                              |                                        |                                     | 9,574   |         |            |  | 9,833   |        
|                              | Mortgage-backed securities             |                                     |         | 80,159  |            |  |         | 79,967  |        
|                              |                                        |                                     |         |         |            | 
|                              |                                        | Total securities held-to-maturity   |         | $       | 89,733     |  |         | $       | 89,800  | 
|                              |                                        |                                     |         |         |            | 



|                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|--------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                              |  | Year Ended December 31, |        
|                                              |  |                         |        
|                                              |  | 2004                    |         |   | 2003 |   |         | 2002 | 
|                                              |  |                         |         |   |      |   |         |      | 
|                                              |  | (In thousands)          |        
|Proceeds from sales                           |  | $                       | 707,488 |   |      | $ | 428,300 |      |  | $ | 319,952 |  
|Gross realized gains                          |  | $                       | 5,048   |   |      | $ | 7,082   |      |  | $ | 2,069   |  
|Gross realized losses                         |  |                         | (3,428  | ) |      |   | (1,189  | )    |  |   | (547    | )
|Hedge ineffectiveness                         |  |                         | (6,100  | ) |      |   | (553    | )    |  |   |        |  
|                                              |  |                         |         |   |      |   |         |      | 
|Net gains (losses) on securities transactions |  | $                       | (4,480  | ) |      | $ | 5,340   |      |  | $ | 1,522   |  
|                                              |  |                         |         |   |      |   |         |      | 





|         |                                    
|-------- | -----------------------------------
|Note 4  | Fair Value of Financial Instruments





F-16



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                      |                                                                                |                      |   |           |            |   |   |           |            |   |            |           |            |   |   |           |            |  
|--------------------- | ------------------------------------------------------------------------------ | -------------------- | - | --------- | ---------- | - | - | --------- | ---------- | - | ---------- | --------- | ---------- | - | - | --------- | ---------- | -
|                      |                                                                                | December 31,         |  
|                      |                                                                                |                      |  
|                      |                                                                                | 2004                 |   |           | 2003       |  
|                      |                                                                                |                      |   |           |            |  
|                      |                                                                                | Carrying             |   |           | Estimated  |   |   | Carrying  |            |   | Estimated  |          
|                      |                                                                                | Amount               |   |           | Fair Value |   |   | Amount    |            |   | Fair Value |          
|                      |                                                                                |                      |   |           |            |   |   |           |            |   |            |          
|                      |                                                                                | (In thousands)       |  
|Financial assets      |                                                                                |                      |   |           |            |   |   |           |            |   |            |           |            |   |   |          
|                      | Cash and cash equivalents                                                      |                      | $ | 243,431   |            |   | $ | 243,431   |            |   | $          | 196,157   |            |   | $ | 196,157   |           
|                      | Securities available-for-sale                                                  |                      |   | 548,211   |            |   |   | 548,211   |            |   |            | 796,140   |            |   |   | 796,140   |           
|                      | Securities held-to-maturity                                                    |                      |   | 89,733    |            |   |   | 89,800    |            |   |            | 56,074    |            |   |   | 57,239    |           
|                      | Loans, net of allowance for loan losses                                        |                      |   | 1,212,439 |            |   |   | 1,213,541 |            |   |            | 1,065,582 |            |   |   | 1,070,032 |           
|                      | Accrued interest receivable                                                    |                      |   | 10,074    |            |   |   | 10,074    |            |   |            | 12,053    |            |   |   | 12,053    |           
|                      | Due from broker                                                                |                      |   |          |            |   |   |          |            |   |            | 40,477    |            |   |   | 40,477    |           
|Financial liabilities |                                                                                |                      |   |           |            |   |   |           |            |   |            |           |            |   |   |          
|                      | Deposits                                                                       |                      |   |           |            |   |   |           |            |   |            |           |            |   |   |           |           
|                      |                                                                                | Non-interest-bearing |   |           | (176,995   | ) |   |           | (176,995   | ) |            |           | (160,668   | ) |   |           | (160,668   | )
|                      |                                                                                | Interest-bearing     |   |           | (1,505,426 | ) |   |           | (1,475,653 | ) |            |           | (1,425,743 | ) |   |           | (1,403,049 | )
|                      | Securities sold under agreements to repurchase and federal funds
    purchased |                      |   | (198,401  | )          |   |   | (196,939  | )          |   |            | (202,699  | )          |   |   | (205,444  | )         
|                      | FHLB advances                                                                  |                      |   | (133,628  | )          |   |   | (148,266  | )          |   |            | (253,461  | )          |   |   | (275,630  | )         
|                      | Notes payable                                                                  |                      |   |          |            |   |   |          |            |   |            | (2,000    | )          |   |   | (2,000    | )         
|                      | Junior subordinated debt owed to unconsolidated trusts                         |                      |   | (55,672   | )          |   |   | (55,070   | )          |   |            | (54,000   | )          |   |   | (54,075   | )         
|                      | Accrued interest payable                                                       |                      |   | (3,480    | )          |   |   | (3,480    | )          |   |            | (3,463    | )          |   |   | (3,463    | )         
|                      | Interest rate swaps                                                            |                      |   | (3,872    | )          |   |   | (3,872    | )          |   |            | (1,886    | )          |   |   | (1,886    | )         







F-17



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|         |      
|-------- | -----
|Note 5  | Loans



|                       |                    |                        |         |           |       |  |      |        |          |   |         |           |  |  |      |       |  
|---------------------- | ------------------ | ---------------------- | ------- | --------- | ----- |  | ---- | ------ | -------- | - | ------- | --------- |  |  | ---- | ----- | -
|                       |                    | December 31,           |        
|                       |                    |                        |        
|                       |                    | 2004                   |         |           | 2003  | 
|                       |                    |                        |         |           |       | 
|                       |                    |                        |         | Loan      |       |  |      |        | Loan     |  
|                       |                    |                        |         | Category  |       |  |      |        | Category |  
|                       |                    |                        |         | to Gross  |       |  |      |        | to Gross |  
|                       |                    | Amount                 |         |           | Loans |  |      | Amount |          |   | Loans   |          
|                       |                    |                        |         |           |       |  |      |        |          |   |         |          
|                       |                    | (Dollars in thousands) |        
|Commercial             |                    | $                      | 211,278 |           |       |  | 17.2 | %      |          | $ | 203,920 |           |  |  | 18.8 | %    
|Commercial real estate |                    |                        | 781,547 |           |       |  | 63.5 |        |          |   | 711,891 |           |  |  | 65.8 |      
|Agricultural           |                    |                        | 62,949  |           |       |  | 5.1  |        |          |   | 58,144  |           |  |  | 5.4  |      
|Consumer real estate   |                    |                        | 164,455 |           |       |  | 13.4 |        |          |   | 96,107  |           |  |  | 8.9  |      
|Consumer installment   |                    |                        | 10,665  |           |       |  | 0.9  |        |          |   | 12,124  |           |  |  | 1.1  |      
|                       |                    |                        |         |           |       |  |      |        |          |   |         |          
|                       | Total loans, gross |                        |         | 1,230,894 |       |  |      | 100.0  | %        |   |         | 1,082,186 |  |  |      | 100.0 | %
|Net deferred fees      |                    |                        | (494    | )         |       |  |      |        |          |   | (890    | )         |  |  |      |      
|                       |                    |                        |         |           |       |  |      |        |          |   |         |          
|                       | Total loans        |                        | $       | 1,230,400 |       |  |      |        |          |   | $       | 1,081,296 |  |  |      |       |  
|                       |                    |                        |         |           |       |  |      |        |          |   |         |          





|         |                          
|-------- | -------------------------
|Note 6  | Allowance for Loan Losses



|                                               |                        |                         |        |        |      |   |         |        |  |   |        |        | 
|---------------------------------------------- | ---------------------- | ----------------------- | ------ | ------ | ---- | - | ------- | ------ |  | - | ------ | ------ | 
|                                               |                        | Year Ended December 31, |       
|                                               |                        |                         |       
|                                               |                        | 2004                    |        |        | 2003 |   |         | 2002   | 
|                                               |                        |                         |        |        |      |   |         |        | 
|                                               |                        | (In thousands)          |       
|Balance at beginning of year                   |                        | $                       | 15,714 |        |      | $ | 20,754  |        |  | $ | 10,135 |       
|Balance from acquisition                       |                        |                         |       |        |      |   | 300     |        |  |   |       |       
|Adjustment for loan sale to related parties(1) |                        |                         |       |        |      |   | (6,685  | )      |  |   |       |       
|Provision for loan losses                      |                        |                         | 4,224  |        |      |   | 10,205  |        |  |   | 18,532 |       
|Loans charged off                              |                        |                         | (2,522 | )      |      |   | (10,005 | )      |  |   | (8,206 | )     
|Recoveries on loans previously charged off     |                        |                         | 545    |        |      |   | 1,145   |        |  |   | 293    |       
|                                               |                        |                         |        |        |      |   |         |        | 
|                                               | Balance at end of year |                         | $      | 17,961 |      |   | $       | 15,714 |  |   | $      | 20,754 | 
|                                               |                        |                         |        |        |      |   |         |        | 






|    |                                                                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Adjustment made following the March 26, 2003 receipt of
    $13.3 million of proceeds relating to the sale of certain
    loans to a related party, of which $12.5 million was
    applied to outstanding principal, $750,000 to the letter of
    credit, and $67,000 applied to accrued interest income and late
    charges. See Note 28.

F-18



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                       |                      |                |        |        |      |   |        |        |  |   |        |        | 
|---------------------------------------------------------------------- | -------------------- | -------------- | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                                                       |                      | December 31,   |       
|                                                                       |                      |                |       
|                                                                       |                      | 2004           |        |        | 2003 |   |        | 2002   | 
|                                                                       |                      |                |        |        |      |   |        |        | 
|                                                                       |                      | (In thousands) |       
|Impaired loans for which no allowance for loan losses is
    allocated |                      | $              | 16,164 |        |      | $ | 8,905  |        |  | $ | 146    |       
|Impaired loans with an allocation of the allowance for loan
    losses |                      |                | 20,392 |        |      |   | 21,774 |        |  |   | 29,998 |       
|                                                                       |                      |                |        |        |      |   |        |        | 
|                                                                       | Total impaired loans |                | $      | 36,556 |      |   | $      | 30,679 |  |   | $      | 30,144 | 
|                                                                       |                      |                |        |        |      |   |        |        | 
|Allowance for loan losses allocated to impaired loans                  |                      | $              | 6,656  |        |      | $ | 5,507  |        |  | $ | 14,286 |       
|                                                                       |                      |                |        |        |      |   |        |        | 

|                                                             |  |                         |        |  |      |   |        |      |  |   |        | 
|------------------------------------------------------------ |  | ----------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                                             |  | Year Ended December 31, |       
|                                                             |  |                         |       
|                                                             |  | 2004                    |        |  | 2003 |   |        | 2002 | 
|                                                             |  |                         |        |  |      |   |        |      | 
|                                                             |  | (In thousands)          |       
|Average impaired loans                                       |  | $                       | 39,901 |  |      | $ | 26,728 |      |  | $ | 13,677 | 
|Interest income recognized on impaired loans on a cash basis |  |                         | 2,898  |  |      |   | 2,141  |      |  |   | 207    | 





|                                             |  |                |       |  |      |   |        |      |  |   |        | 
|-------------------------------------------- |  | -------------- | ----- |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                             |  | December 31,   |      
|                                             |  |                |      
|                                             |  | 2004           |       |  | 2003 |   |        | 2002 | 
|                                             |  |                |       |  |      |   |        |      | 
|                                             |  | (In thousands) |      
|Loans past due over 90 days still on accrual |  | $              | 29    |  |      | $ | 18     |      |  | $ | 2,514  | 
|Nonaccrual loans                             |  |                | 9,865 |  |      |   | 15,665 |      |  |   | 29,035 | 
|                                             |  |                |       |  |      |   |        |      | 
|Total nonperforming loans                    |  | $              | 9,894 |  |      | $ | 15,683 |      |  | $ | 31,549 | 
|                                             |  |                |       |  |      |   |        |      | 





|         |                  
|-------- | -----------------
|Note 7  | Other Real Estate







F-19



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                      |  |                |        |   |      |   |        |  
|----------------------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | -
|                                                      |  | December 31,   |       
|                                                      |  |                |       
|                                                      |  | 2004           |        |   | 2003 |  
|                                                      |  |                |        |   |      |  
|                                                      |  | (In thousands) |       
|Beginning balance                                     |  | $              | 6,942  |   |      | $ | 533    |  
|Transfer of net realizable value to other real estate |  |                | 874    |   |      |   | 9,881  |  
|Funding towards project                               |  |                | 1,542  |   |      |   |       |  
|Sales proceeds, net                                   |  |                | (1,134 | ) |      |   | (3,029 | )
|Provision for other real estate                       |  |                |       |   |      |   | (443   | )
|                                                      |  |                |        |   |      |  
|Total other real estate                               |  | $              | 8,224  |   |      | $ | 6,942  |  
|                                                      |  |                |        |   |      |  



|         |                       
|-------- | ----------------------
|Note 8  | Premises and Equipment



|                          |                             |                |         |        |      |   |         |        | 
|------------------------- | --------------------------- | -------------- | ------- | ------ | ---- | - | ------- | ------ | 
|                          |                             | December 31,   |        
|                          |                             |                |        
|                          |                             | 2004           |         |        | 2003 |  
|                          |                             |                |         |        |      |  
|                          |                             | (In thousands) |        
|Land and improvements     |                             | $              | 10,314  |        |      | $ | 10,519  |       
|Building and improvements |                             |                | 28,671  |        |      |   | 27,236  |       
|Furniture and equipment   |                             |                | 18,582  |        |      |   | 17,549  |       
|                          |                             |                |         |        |      |  
|                          | Total cost                  |                |         | 57,568 |      |   |         | 55,304 | 
|Accumulated depreciation  |                             |                | (30,047 | )      |      |   | (27,928 | )     
|                          |                             |                |         |        |      |  
|                          | Premises and equipment, net |                | $       | 27,521 |      |   | $       | 27,376 | 
|                          |                             |                |         |        |      |  



|         |                         
|-------- | ------------------------
|Note 9  | Goodwill and Intangibles

Goodwill and
Other Intangible Assets.




|                                           |  |                   |       |  |                   |   |      |                |  |   |              |  |  |   |      |  
|------------------------------------------ |  | ----------------- | ----- |  | ----------------- | - | ---- | -------------- |  | - | ------------ |  |  | - | ---- | -
|                                           |  | December 31, 2004 |       |  | December 31, 2003 |  
|                                           |  |                   |       |  |                   |  
|                                           |  | Gross Carrying    |       |  | Accumulated       |   |      | Gross Carrying |  |   | Accumulated  | 
|                                           |  | Amount            |       |  | Amortization      |   |      | Amount         |  |   | Amortization | 
|                                           |  |                   |       |  |                   |   |      |                |  |   |              | 
|Amortized intangible assets:               |  |                   |       |  |                   |   |      |                |  |   |              |  |  |   |      |  
|Core deposit and other intangibles         |  | $                 | 3,130 |  |                   | $ | (913 | )              |  | $ | 3,341        |  |  | $ | (551 | )
|Estimated intangible amortization expense: |  |                   |       |  |                   |   |      |                |  |   |              |  |  |   |      |  
|For the year ending December 31, 2005      |  |                   | 429   |  |                   |   |      |                |  |   |              |  |  |   |      |  
|For the year ending December 31, 2006      |  |                   | 373   |  |                   |   |      |                |  |   |              |  |  |   |      |  
|For the year ending December 31, 2007      |  |                   | 354   |  |                   |   |      |                |  |   |              |  |  |   |      |  
|For the year ending December 31, 2008      |  |                   | 354   |  |                   |   |      |                |  |   |              |  |  |   |      |  
|For the year ending December 31, 2009      |  |                   | 420   |  |                   |   |      |                |  |   |              |  |  |   |      |  

F-20



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                  |  |                   |       |              |             |   |       |  
|--------------------------------- |  | ----------------- | ----- | ------------ | ----------- | - | ----- | -
|                                  |  | December 31, 2004 |      
|                                  |  |                   |      
|                                  |  |                   |       | Core Deposit |            
|                                  |  |                   |       | and Other    |            
|                                  |  | Goodwill          |       |              | Intangibles |  
|                                  |  |                   |       |              |             |  
|Balance at beginning of period    |  | $                 | 4,360 |              |             | $ | 2,790 |  
|Amortization expense              |  |                   |      |              |             |   | (362  | )
|Goodwill and intangibles acquired |  |                   |      |              |             |   | (211  | )
|                                  |  |                   |       |              |             |  
|Balance at end of period          |  | $                 | 4,360 |              |             | $ | 2,217 |  
|                                  |  |                   |       |              |             |  

|                                  |  |                   |       |              |             |   |       |  
|--------------------------------- |  | ----------------- | ----- | ------------ | ----------- | - | ----- | -
|                                  |  | December 31, 2003 |      
|                                  |  |                   |      
|                                  |  |                   |       | Core Deposit |            
|                                  |  |                   |       | and Other    |            
|                                  |  | Goodwill          |       |              | Intangibles |  
|                                  |  |                   |       |              |             |  
|Balance at beginning of year      |  | $                 | 4,360 |              |             | $ | 244   |  
|Amortization expense              |  |                   |      |              |             |   | (495  | )
|Goodwill and intangibles acquired |  |                   |      |              |             |   | 3,041 |  
|                                  |  |                   |       |              |             |  
|Balance at end of year            |  | $                 | 4,360 |              |             | $ | 2,790 |  
|                                  |  |                   |       |              |             |  



|          |             
|--------- | ------------
|Note 10  | Income Taxes



|         |                                  |                         |        |        |      |  |     |       |  |  |        |       | 
|-------- | -------------------------------- | ----------------------- | ------ | ------ | ---- |  | --- | ----- |  |  | ------ | ----- | 
|         |                                  | Year Ended December 31, |       
|         |                                  |                         |       
|         |                                  | 2004                    |        |        | 2003 |  |     | 2002  | 
|         |                                  |                         |        |        |      |  |     |       | 
|         |                                  | (In thousands)          |       
|Current  |                                  |                         |        |        |      |  |     |       |  |  |        |      
|         | Federal                          |                         | $      | 2,991  |      |  | $   | 8,095 |  |  | $      | 7,761 | 
|         | State                            |                         |        | (638   | )    |  |     | 110   |  |  |        | 987   | 
|Deferred |                                  |                         | (6,528 | )      |      |  | 682 |       |  |  | (4,087 | )    
|         |                                  |                         |        |        |      |  |     |       | 
|         | Total provision for income taxes |                         | $      | (4,175 | )    |  | $   | 8,887 |  |  | $      | 4,661 | 
|         |                                  |                         |        |        |      |  |     |       | 

F-21



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                |                                  |                         |        |        |      |   |        |       |  |   |        |       | 
|--------------------------------------------------------------- | -------------------------------- | ----------------------- | ------ | ------ | ---- | - | ------ | ----- |  | - | ------ | ----- | 
|                                                                |                                  | Year Ended December 31, |       
|                                                                |                                  |                         |       
|                                                                |                                  | 2004                    |        |        | 2003 |   |        | 2002  | 
|                                                                |                                  |                         |        |        |      |   |        |       | 
|                                                                |                                  | (In thousands)          |       
|Income taxes computed at the statutory rate                     |                                  | $                       | (630   | )      |      | $ | 11,084 |       |  | $ | 7,339  |      
|Decrease in state income taxes due to Illinois audit settlement |                                  |                         |       |        |      |   |       |       |  |   | (821   | )    
|Tax-exempt interest income on securities and loans              |                                  |                         | (517   | )      |      |   | (1,184 | )     |  |   | (1,021 | )    
|General business credits                                        |                                  |                         | (120   | )      |      |   |       |       |  |   |       |      
|State income taxes, net of federal tax benefit                  |                                  |                         | (1,315 | )      |      |   | 506    |       |  |   | 378    |      
|Cash surrender value increase, net of premiums                  |                                  |                         | (553   | )      |      |   | (336   | )     |  |   | (376   | )    
|Dividends received deduction                                    |                                  |                         | (1,212 | )      |      |   | (1,091 | )     |  |   | (818   | )    
|Other                                                           |                                  |                         | 172    |        |      |   | (92    | )     |  |   | (20    | )    
|                                                                |                                  |                         |        |        |      |   |        |       | 
|                                                                | Total provision for income taxes |                         | $      | (4,175 | )    |   | $      | 8,887 |  |   | $      | 4,661 | 
|                                                                |                                  |                         |        |        |      |   |        |       | 



|                               |                                                  |                                      |                        |        |        |        |   |        |        |        | 
|------------------------------ | ------------------------------------------------ | ------------------------------------ | ---------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                               |                                                  | December 31,                         |                       
|                               |                                                  |                                      |                       
|                               |                                                  | 2004                                 |                        |        | 2003   |       
|                               |                                                  |                                      |                        |        |        |       
|                               |                                                  | (In thousands)                       |                       
|Gross deferred tax assets      |                                                  |                                      |                        |        |        |        |   |       
|                               | Unrealized loss on securities available-for-sale |                                      | $                      | 10,960 |        |        | $ | 10,608 |       
|                               | Allowance for loan losses                        |                                      |                        | 7,125  |        |        |   | 6,234  |       
|                               | Amortizable assets                               |                                      |                        |       |        |        |   | 117    |       
|                               | Deferred compensation                            |                                      |                        | 1,124  |        |        |   | 463    |       
|                               | Net operating loss carryforward                  |                                      |                        | 667    |        |        |   | 1,675  |       
|                               | Income from partnerships                         |                                      |                        | 117    |        |        |   | 261    |       
|                               | Deferred tax credits                             |                                      |                        | 430    |        |        |   |       |       
|                               | Impairment loss on equity securities             |                                      |                        | 4,006  |        |        |   |       |       
|                               | Hedge ineffectiveness                            |                                      |                        | 2,639  |        |        |   |       |       
|                               |                                                  |                                      |                        |        |        |       
|                               |                                                  | Total gross deferred tax assets      |                        |        | 27,068 |        |   |        | 19,358 |       
|                               |                                                  |                                      |                        |        |        |       
|Gross deferred tax liabilities |                                                  |                                      |                        |        |        |        |   |       
|                               | Depreciation                                     |                                      |                        | (1,773 | )      |        |   | (2,151 | )     
|                               | FHLB stock dividends                             |                                      |                        | (2,121 | )      |        |   | (1,719 | )     
|                               | Amortizable liabilities                          |                                      |                        | (726   | )      |        |   |       |       
|                               | Other                                            |                                      |                        | (82    | )      |        |   | (2     | )     
|                               |                                                  |                                      |                        |        |        |       
|                               |                                                  | Total gross deferred tax liabilities |                        |        | (4,702 | )      |   |        | (3,872 | )     
|                               |                                                  |                                      |                        |        |        |       
|                               |                                                  |                                      | Net deferred tax asset |        | $      | 22,366 |   |        | $      | 15,486 | 
|                               |                                                  |                                      |                        |        |        |       



F-22



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|          |                                               
|--------- | ----------------------------------------------
|Note 11  | Securities Sold Under Agreements to Repurchase



|                                                  |  |                |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                  |  | 2004           |         |   | 2003 |   |         | 2002 | 
|                                                  |  |                |         |   |      |   |         |      | 
|                                                  |  | (In thousands) |        
|Outstanding at end of year                        |  | $              | 198,401 |   |      | $ | 202,699 |      |  | $ | 185,057 |  
|Weighted average interest at year end             |  |                | 2.59    | % |      |   | 2.89    | %    |  |   | 2.95    | %
|Maximum amount outstanding as of any month end    |  | $              | 335,764 |   |      | $ | 243,909 |      |  | $ | 204,830 |  
|Average amount outstanding                        |  |                | 212,644 |   |      |   | 211,825 |      |  |   | 155,635 |  
|Approximate weighted average rate during the year |  |                | 2.59    | % |      |   | 2.81    | %    |  |   | 2.70    | %



|                   |  |                |         |  |                  |                      |      |           |  |   |            |  |  |   |         | 
|------------------ |  | -------------- | ------- |  | ---------------- | -------------------- | ---- | --------- |  | - | ---------- |  |  | - | ------- | 
|                   |  |                |         |  |                  | Collateral Mortgage- |     
|                   |  |                |         |  |                  | Backed and Equity    |     
|                   |  |                |         |  |                  | Securities           |     
|                   |  |                |         |  |                  |                      |     
|                   |  | Repurchase     |         |  | Weighted Average |                      |      | Amortized |  |   |           
|Original Term      |  | Liability      |         |  | Interest Rate    |                      |      | Cost      |  |   | Fair Value | 
|                   |  |                |         |  |                  |                      |      |           |  |   |            | 
|                   |  | (In thousands) |        
|Up to 30 days      |  | $              | 9,208   |  |                  |                      | 2.21 | %         |  | $ | 14,970     |  |  | $ | 11,906  | 
|30 to 90 days      |  |                | 893     |  |                  |                      | 2.10 |           |  |   | 1,124      |  |  |   | 1,127   | 
|180 days to 1 year |  |                | 2,509   |  |                  |                      | 2.47 |           |  |   | 2,927      |  |  |   | 2,877   | 
|2 to 3 years       |  |                | 19,500  |  |                  |                      | 2.16 |           |  |   | 28,713     |  |  |   | 26,421  | 
|Over 3 years       |  |                | 166,291 |  |                  |                      | 2.67 |           |  |   | 188,091    |  |  |   | 177,380 | 
|                   |  |                |         |  |                  |                      |      |           |  |   |            | 
|                   |  | $              | 198,401 |  |                  |                      | 2.59 | %         |  | $ | 235,825    |  |  | $ | 219,711 | 
|                   |  |                |         |  |                  |                      |      |           |  |   |            | 

F-23



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|          |                       
|--------- | ----------------------
|Note 12  | Advances from the FHLB



|                                             |      |                  |  |      |        |   |                  |         |         |  |        |      |      |   |   |         |         | 
|-------------------------------------------- | ---- | ---------------- |  | ---- | ------ | - | ---------------- | ------- | ------- |  | ------ | ---- | ---- | - | - | ------- | ------- | 
|                                             |      | December 31,     | 
|                                             |      |                  | 
|                                             |      | 2004             |  |      | 2003   |  
|                                             |      |                  |  |      |        |  
|                                             |      | Weighted Average |  |      |        |   | Weighted Average |         |         | 
|                                             |      | Rate             |  |      | Amount |   |                  | Rate    |         |  | Amount |     
|                                             |      |                  |  |      |        |   |                  |         |         |  |        |     
|                                             |      | (In thousands)   | 
|Advances from the Federal Home Loan Bank due |      |                  |  |      |        |   |                  |         |         |  |        |      |      |   |   |        
|                                             | 2004 |                  |  |     | %      |   | $                |        |         |  |        | 5.63 | %    |   | $ | 4,500   |        
|                                             | 2005 |                  |  |     |        |   |                  |        |         |  |        | 6.20 |      |   |   | 41,010  |        
|                                             | 2006 |                  |  |     |        |   |                  |        |         |  |        | 1.21 |      |   |   | 2,000   |        
|                                             | 2008 |                  |  |     |        |   |                  |        |         |  |        | 5.09 |      |   |   | 69,338  |        
|                                             | 2010 |                  |  | 4.55 |        |   |                  | 133,628 |         |  |        | 3.28 |      |   |   | 135,613 |        
|                                             | 2011 |                  |  |     |        |   |                  |        |         |  |        | 4.08 |      |   |   | 1,000   |        
|                                             |      |                  |  |      |        |   |                  |         |         |  |        |     
|                                             |      | Total            |  |      | 4.55   | % |                  | $       | 133,628 |  |        |      | 4.26 | % |   | $       | 253,461 | 
|                                             |      |                  |  |      |        |   |                  |         |         |  |        |     





|          |              
|--------- | -------------
|Note 13  | Notes Payable



|                                                                                                                                                                                                                                                                                                                               |  |                |   |      |  |   |       | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------- | - | ---- |  | - | ----- | 
|                                                                                                                                                                                                                                                                                                                               |  | December 31,   |  
|                                                                                                                                                                                                                                                                                                                               |  |                |  
|                                                                                                                                                                                                                                                                                                                               |  | 2004           |   | 2003 | 
|                                                                                                                                                                                                                                                                                                                               |  |                |   |      | 
|                                                                                                                                                                                                                                                                                                                               |  | (In thousands) |  
|Revolving line of credit ($25,000,000) maturing on April 7,
    2005, interest payments due quarterly at 90-day LIBOR plus
    150 basis points or prime rate; secured by all common stock
    of the subsidiary banks                                                                                                         |  | $              |  |      |  | $ |      | 
|Revolving line of credit ($10,000,000) maturing on May 1,
    2004, interest payments due quarterly at the 30-, 60-, 90-, or
    180-day LIBOR plus 120 basis points or prime rate less
    25 basis points (weighted average rate of 2.11% at
    December 31, 2003); secured by all common stock of the
    subsidiary banks |  | $              |  |      |  | $ | 2,000 | 





|          |                                                       
|--------- | ------------------------------------------------------
|Note 14  | Junior Subordinated Debt Owed to Unconsolidated Trusts



F-24



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|                       |  |            |                   |  |        |   |            |           |  |  |                 |   |  |                 |                   |  |  |  |                   | 
|---------------------- |  | ---------- | ----------------- |  | ------ | - | ---------- | --------- |  |  | --------------- | - |  | --------------- | ----------------- |  |  |  | ----------------- | 
|                       |  |            |                   |  |        |   |            | Mandatory |  |  | Optional        |  
|Issuer                 |  | Issue Date |                   |  | Amount |   |            | Rate      |  |  | Redemption Date |   |  | Redemption Date |                  
|                       |  |            |                   |  |        |   |            |           |  |  |                 |   |  |                 |                  
|MBHI Capital Trust II  |  |            | October 29, 2002  |  |        | $ | 15,000,000 |           |  |  | LIBOR+3.45      | % |  |                 | November 7, 2032  |  |  |  | November 7, 2007  | 
|MBHI Capital Trust III |  |            | December 19, 2003 |  |        | $ | 9,000,000  |           |  |  | LIBOR+3.00      | % |  |                 | December 30, 2033 |  |  |  | December 30, 2008 | 
|MBHI Capital Trust IV  |  |            | December 19, 2003 |  |        | $ | 10,000,000 |           |  |  | LIBOR+2.85      | % |  |                 | January 23, 2034  |  |  |  | January 23, 2008  | 







|          |                       
|--------- | ----------------------
|Note 15  | Employee Benefit Plans



F-25



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|          |              
|--------- | -------------
|Note 16  | Time Deposits





|           |  |                |         | 
|---------- |  | -------------- | ------- | 
|           |  | (In thousands) |        
|2005       |  | $              | 650,723 | 
|2006       |  |                | 185,877 | 
|2007       |  |                | 42,710  | 
|2008       |  |                | 3,313   | 
|2009       |  |                | 2,478   | 
|Thereafter |  |                |        | 
|           |  |                |        
|           |  | $              | 885,101 | 
|           |  |                |        



|          |                           
|--------- | --------------------------
|Note 17  | Related Party Transactions



|                             |                              |                |         |        | 
|---------------------------- | ---------------------------- | -------------- | ------- | ------ | 
|                             |                              | (In thousands) |        
|Balance at December 31, 2003 |                              | $              | 26,728  |       
|New loans                    |                              |                | 13,109  |       
|Repayments                   |                              |                | (10,441 | )     
|                             |                              |                |        
|                             | Balance at December 31, 2004 |                | $       | 29,396 | 
|                             |                              |                |        

F-26



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|          |                     
|--------- | --------------------
|Note 18  | Capital Requirements







|                                         |         |        |   |             |                   |                  |            |             |   |  |       |         |  |        |  |     |       |  |  |         |  |  |  |      | 
|---------------------------------------- | ------- | ------ | - | ----------- | ----------------- | ---------------- | ---------- | ----------- | - |  | ----- | ------- |  | ------ |  | --- | ----- |  |  | ------- |  |  |  | ---- | 
|                                         |         |        |   |             |                   | Minimum Required |           
|                                         |         |        |   |             |                   |                  |           
|                                         |         |        |   | For Capital |                   |                  | To Be Well |            
|                                         |         | Actual |   |             | Adequacy Purposes |                  |            | Capitalized |  
|                                         |         |        |   |             |                   |                  |            |             |  
|                                         |         | Amount |   |             | Ratio             |                  |            | Amount      |   |  | Ratio |         |  | Amount |  |     | Ratio | 
|                                         |         |        |   |             |                   |                  |            |             |   |  |       |         |  |        |  |     |       | 
|                                         |         |        |   |             |                   | (In thousands)   |            |             |   |  |      
|As of December 31, 2004                  |         |        |   |             |                   |                  |            |             |   |  |       |         |  |        |  |     |       |  |  |         |  |  |  |     
|Total Capital (to risk-weighted assets)  |         |        |   |             |                   |                  |            |             |   |  |       |         |  |        |  |     |       |  |  |         |  |  |  |     
|                                         | Company |        | $ | 219,343     |                   |                  |            | 14.7        | % |  | $     | 119,758 |  |        |  | 8.0 | %     |  |  | n/a     |  |  |  | n/a  | 
|                                         | MBTC    |        |   | 189,276     |                   |                  |            | 14.3        |   |  |       | 105,724 |  |        |  | 8.0 |       |  |  | 132,155 |  |  |  | 10.0 | 
|                                         | MBWI    |        |   | 23,685      |                   |                  |            | 13.7        |   |  |       | 13,822  |  |        |  | 8.0 |       |  |  | 17,278  |  |  |  | 10.0 | 
|Tier 1 Capital (to risk-weighted assets) |         |        |   |             |                   |                  |            |             |   |  |       |         |  |        |  |     |       |  |  |         |  |  |  |     
|                                         | Company |        |   | 198,597     |                   |                  |            | 13.3        |   |  |       | 59,879  |  |        |  | 4.0 |       |  |  | n/a     |  |  |  | n/a  | 
|                                         | MBTC    |        |   | 172,985     |                   |                  |            | 13.1        |   |  |       | 52,862  |  |        |  | 4.0 |       |  |  | 79,293  |  |  |  | 6.0  | 
|                                         | MBWI    |        |   | 21,936      |                   |                  |            | 12.7        |   |  |       | 6,911   |  |        |  | 4.0 |       |  |  | 10,367  |  |  |  | 6.0  | 
|Tier 1 Capital (to average assets)       |         |        |   |             |                   |                  |            |             |   |  |       |         |  |        |  |     |       |  |  |         |  |  |  |     
|                                         | Company |        |   | 198,597     |                   |                  |            | 8.5         |   |  |       | 93,225  |  |        |  | 4.0 |       |  |  | n/a     |  |  |  | n/a  | 
|                                         | MBTC    |        |   | 172,985     |                   |                  |            | 8.5         |   |  |       | 80,991  |  |        |  | 4.0 |       |  |  | 101,239 |  |  |  | 5.0  | 
|                                         | MBWI    |        |   | 21,936      |                   |                  |            | 7.4         |   |  |       | 11,816  |  |        |  | 4.0 |       |  |  | 14,770  |  |  |  | 5.0  | 

F-27



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                         |         |        |   |             |                   |                  |            |             |   |  |       |         |  |        |  |     |       |  |  |         |  |  |  |      | 
|---------------------------------------- | ------- | ------ | - | ----------- | ----------------- | ---------------- | ---------- | ----------- | - |  | ----- | ------- |  | ------ |  | --- | ----- |  |  | ------- |  |  |  | ---- | 
|                                         |         |        |   |             |                   | Minimum Required |           
|                                         |         |        |   |             |                   |                  |           
|                                         |         |        |   | For Capital |                   |                  | To Be Well |            
|                                         |         | Actual |   |             | Adequacy Purposes |                  |            | Capitalized |  
|                                         |         |        |   |             |                   |                  |            |             |  
|                                         |         | Amount |   |             | Ratio             |                  |            | Amount      |   |  | Ratio |         |  | Amount |  |     | Ratio | 
|                                         |         |        |   |             |                   |                  |            |             |   |  |       |         |  |        |  |     |       | 
|                                         |         |        |   |             |                   | (In thousands)   |            |             |   |  |      
|As of December 31, 2003                  |         |        |   |             |                   |                  |            |             |   |  |       |         |  |        |  |     |       |  |  |         |  |  |  |     
|Total Capital (to risk-weighted assets)  |         |        |   |             |                   |                  |            |             |   |  |       |         |  |        |  |     |       |  |  |         |  |  |  |     
|                                         | Company |        | $ | 216,819     |                   |                  |            | 14.7        | % |  | $     | 117,647 |  |        |  | 8.0 | %     |  |  | n/a     |  |  |  | n/a  | 
|                                         | MBTC    |        |   | 180,973     |                   |                  |            | 14.0        |   |  |       | 103,635 |  |        |  | 8.0 |       |  |  | 129,544 |  |  |  | 10.0 | 
|                                         | MBWI    |        |   | 23,129      |                   |                  |            | 13.2        |   |  |       | 14,065  |  |        |  | 8.0 |       |  |  | 17,581  |  |  |  | 10.0 | 
|Tier 1 Capital (to risk-weighted assets) |         |        |   |             |                   |                  |            |             |   |  |       |         |  |        |  |     |       |  |  |         |  |  |  |     
|                                         | Company |        |   | 201,105     |                   |                  |            | 13.7        |   |  |       | 58,823  |  |        |  | 4.0 |       |  |  | n/a     |  |  |  | n/a  | 
|                                         | MBTC    |        |   | 166,514     |                   |                  |            | 12.9        |   |  |       | 51,818  |  |        |  | 4.0 |       |  |  | 77,726  |  |  |  | 6.0  | 
|                                         | MBWI    |        |   | 21,874      |                   |                  |            | 12.4        |   |  |       | 7,033   |  |        |  | 4.0 |       |  |  | 10,549  |  |  |  | 6.0  | 
|Tier 1 Capital (to average assets)       |         |        |   |             |                   |                  |            |             |   |  |       |         |  |        |  |     |       |  |  |         |  |  |  |     
|                                         | Company |        |   | 201,105     |                   |                  |            | 8.9         |   |  |       | 89,967  |  |        |  | 4.0 |       |  |  | n/a     |  |  |  | n/a  | 
|                                         | MBTC    |        |   | 166,514     |                   |                  |            | 8.5         |   |  |       | 78,071  |  |        |  | 4.0 |       |  |  | 97,589  |  |  |  | 5.0  | 
|                                         | MBWI    |        |   | 21,874      |                   |                  |            | 7.7         |   |  |       | 11,391  |  |        |  | 4.0 |       |  |  | 14,239  |  |  |  | 5.0  | 

Note 19  Off-Balance-Sheet Risk and
Concentrations of Credit Risk




|                             |                        |                                            |         |         |           |   |        |           |  |   |         |       |  |       |        |        |  |   |         |         | 
|---------------------------- | ---------------------- | ------------------------------------------ | ------- | ------- | --------- | - | ------ | --------- |  | - | ------- | ----- |  | ----- | ------ | ------ |  | - | ------- | ------- | 
|                             |                        | Amount of Commitment Expiration Per Period |        
|                             |                        |                                            |        
|                             |                        | Within                                     |         |         |           |   | After  |           |  |  
|                             |                        | 1 Year                                     |         |         | 1-3 Years |   |        | 4-5 Years |  |   | 5 Years |       |  | Total |       
|                             |                        |                                            |         |         |           |   |        |           |  |   |         |       |  |       |       
|                             |                        | (In thousands)                             |        
|Lines of Credit:             |                        |                                            |         |         |           |   |        |           |  |   |         |       |  |       |        |        |  |   |         |        
|                             | Commercial real estate |                                            | $       | 115,817 |           |   | $      | 32,755    |  |   | $       | 544   |  |       | $      | 1,881  |  |   | $       | 150,997 | 
|                             | Consumer real estate   |                                            |         | 16,491  |           |   |        | 2,474     |  |   |         | 9,367 |  |       |        | 27,766 |  |   |         | 56,098  | 
|                             | Consumer               |                                            |         |        |           |   |        |          |  |   |         |      |  |       |        | 3,427  |  |   |         | 3,427   | 
|                             | Commercial             |                                            |         | 94,540  |           |   |        | 2,639     |  |   |         | 454   |  |       |        | 1,261  |  |   |         | 98,894  | 
|Letters of credit            |                        |                                            | 32,452  |         |           |   | 660    |           |  |   | 3,997   |       |  |       |       |        |  |   | 37,109  |        
|Commitments to extend credit |                        |                                            | 146,270 |         |           |   |       |           |  |   |        |       |  |       |       |        |  |   | 146,270 |        
|                             |                        |                                            |         |         |           |   |        |           |  |   |         |       |  |       |       
|Total commercial commitments |                        | $                                          | 405,570 |         |           | $ | 38,528 |           |  | $ | 14,362  |       |  | $     | 34,335 |        |  | $ | 492,795 |        
|                             |                        |                                            |         |         |           |   |        |           |  |   |         |       |  |       |       





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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Note 20  Stock Compensation and Restricted
Stock Awards






|                                 |  |           |           |                  |                |   |       | 
|-------------------------------- |  | --------- | --------- | ---------------- | -------------- | - | ----- | 
|                                 |  |           |           | Weighted Average |               
|                                 |  | Number of |           |                  | Exercise Price |  
|                                 |  | Options   |           |                  | Per Share      |  
|                                 |  |           |           |                  |                |  
|Outstanding at January 1, 2002   |  |           | 1,013,292 |                  |                |   | 9.77  | 
|Granted during 2002              |  |           | 235,500   |                  |                |   | 14.90 | 
|Exercised during 2002            |  |           | (137,717  | )                |                |   | 9.40  | 
|Forfeited during 2002            |  |           | (11,278   | )                |                |   | 10.76 | 
|                                 |  |           |           |                  |                |  
|Outstanding at December 31, 2002 |  |           | 1,099,797 |                  |                |   | 10.90 | 
|Granted during 2003              |  |           | 103,000   |                  |                |   | 18.34 | 
|Exercised during 2003            |  |           | (120,251  | )                |                |   | 10.25 | 
|Forfeited during 2003            |  |           | (6,001    | )                |                |   | 13.42 | 
|                                 |  |           |           |                  |                |  
|Outstanding at December 31, 2003 |  |           | 1,076,545 |                  |                |   | 11.67 | 
|Granted during 2004              |  |           | 117,500   |                  |                |   | 22.03 | 
|Exercised during 2004            |  |           | (70,521   | )                |                |   | 9.37  | 
|Forfeited during 2004            |  |           | (10,938   | )                |                |   | 16.78 | 
|                                 |  |           |           |                  |                |  
|Outstanding at December 31, 2004 |  |           | 1,112,586 |                  |                | $ | 12.78 | 
|                                 |  |           |           |                  |                |  



|     |  |           |         |                  |                |   |       | 
|---- |  | --------- | ------- | ---------------- | -------------- | - | ----- | 
|     |  |           |         | Weighted Average |               
|     |  | Number of |         |                  | Exercise Price |  
|     |  | Options   |         |                  | Per Share      |  
|     |  |           |         |                  |                |  
|2002 |  |           | 539,981 |                  |                | $ | 9.89  | 
|2003 |  |           | 584,670 |                  |                |   | 10.30 | 
|2004 |  |           | 805,836 |                  |                |   | 10.96 | 

F-29



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                        |  |             |           |                  |                  |  |       |        |                  |  |                |  |  |   |       | 
|----------------------- |  | ----------- | --------- | ---------------- | ---------------- |  | ----- | ------ | ---------------- |  | -------------- |  |  | - | ----- | 
|                        |  | Outstanding |           |                  |                 
|                        |  |             |           |                  | Exercisable      | 
|                        |  |             |           | Weighted Average |                  |  |       |       
|                        |  |             |           | Remaining        |                  |  |       |        | Weighted Average | 
|Range of Exercise Price |  | Number      |           |                  | Contractual Life |  |       | Number |                  |  | Exercise Price | 
|                        |  |             |           |                  |                  |  |       |        |                  |  |                | 
|$5.42-8.50              |  |             | 50,000    |                  |                  |  | 2.78  |        |                  |  | 50,000         |  |  | $ | 8.01  | 
|$8.83-10.59             |  |             | 487,774   |                  |                  |  | 5.57  |        |                  |  | 450,024        |  |  |   | 9.56  | 
|$10.75-14.90            |  |             | 362,062   |                  |                  |  | 10.35 |        |                  |  | 282,562        |  |  |   | 13.09 | 
|$18.34-22.03            |  |             | 212,750   |                  |                  |  | 9.00  |        |                  |  | 23,250         |  |  |   | 18.34 | 
|                        |  |             |           |                  |                  |  |       |        |                  |  |                | 
|Outstanding at year end |  |             | 1,112,586 |                  |                  |  | 6.18  |        |                  |  | 805,836        |  |  | $ | 10.96 | 
|                        |  |             |           |                  |                  |  |       |        |                  |  |                | 



F-30



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|          |                       
|--------- | ----------------------
|Note 21  | Derivative Instruments





|                                      |  |                |            |   |      |   |            |  
|------------------------------------- |  | -------------- | ---------- | - | ---- | - | ---------- | -
|                                      |  | 2004           |            |   | 2003 |  
|                                      |  |                |            |   |      |  
|                                      |  | (In thousands) |           
|Notional amounts                      |  | $              | 137,500    |   |      | $ | 137,500    |  
|Weighted average fixed rates received |  |                | 5.46       | % |      |   | 5.46       | %
|Weighted average variable rates paid  |  |                | 4.45       | % |      |   | 3.34       | %
|Weighted average maturity             |  |                | 5.60 years |   |      |   | 6.61 years |  
|Fair value                            |  | $              | (3,872     | ) |      | $ | (1,886     | )







F-31



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                              |  |                |        |   |      |   |       |      |  |   |       | 
|--------------------------------------------- |  | -------------- | ------ | - | ---- | - | ----- | ---- |  | - | ----- | 
|                                              |  | December 31,   |       
|                                              |  |                |       
|                                              |  | 2004           |        |   | 2003 |   |       | 2002 | 
|                                              |  |                |        |   |      |   |       |      | 
|                                              |  | (In thousands) |       
|Net gains on securities transactions          |  | $              | 1,620  |   |      | $ | 5,893 |      |  | $ | 1,522 | 
|Hedge ineffectiveness                         |  |                | (6,100 | ) |      |   | (553  | )    |  |   |      | 
|                                              |  |                |        |   |      |   |       |      | 
|Net gains (losses) on securities transactions |  | $              | (4,480 | ) |      | $ | 5,340 |      |  | $ | 1,522 | 
|                                              |  |                |        |   |      |   |       |      | 





F-32



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Note 22  Parent Company Financial
Statements




CONDENSED BALANCE SHEETS


|                                                       |                                            |                |         |         |      |   |         |         | 
|------------------------------------------------------ | ------------------------------------------ | -------------- | ------- | ------- | ---- | - | ------- | ------- | 
|                                                       |                                            | December 31,   |        
|                                                       |                                            |                |        
|                                                       |                                            | 2004           |         |         | 2003 |  
|                                                       |                                            |                |         |         |      |  
|                                                       |                                            | (In thousands) |        
|ASSETS                                                
|Cash                                                   |                                            | $              | 2,669   |         |      | $ | 11,716  |        
|Investment in subsidiaries                             |                                            |                | 186,700 |         |      |   | 186,097 |        
|Other assets                                           |                                            |                | 9,023   |         |      |   | 6,351   |        
|                                                       |                                            |                |         |         |      |  
|                                                       | Total assets                               |                | $       | 198,392 |      |   | $       | 204,164 | 
|                                                       |                                            |                |         |         |      |  
|                                                      
|LIABILITIES AND STOCKHOLDERS EQUITY                  
|Note payable                                           |                                            | $              |        |         |      | $ | 2,000   |        
|Junior subordinated debt owed to unconsolidated trusts |                                            |                | 55,672  |         |      |   | 54,000  |        
|Other liabilities                                      |                                            |                | 5,297   |         |      |   | 5,083   |        
|Stockholders equity                                   |                                            |                | 137,423 |         |      |   | 143,081 |        
|                                                       |                                            |                |         |         |      |  
|                                                       | Total liabilities and stockholders equity |                | $       | 198,392 |      |   | $       | 204,164 | 
|                                                       |                                            |                |         |         |      |  

CONDENSED STATEMENTS OF INCOME


|                                                                                         |                                 |                |        |        |      |   |        |        |   |   |        |        |  
|---------------------------------------------------------------------------------------- | ------------------------------- | -------------- | ------ | ------ | ---- | - | ------ | ------ | - | - | ------ | ------ | -
|                                                                                         |                                 | December 31,   |       
|                                                                                         |                                 |                |       
|                                                                                         |                                 | 2004           |        |        | 2003 |   |        | 2002   |  
|                                                                                         |                                 |                |        |        |      |   |        |        |  
|                                                                                         |                                 | (In thousands) |       
|Operating income                                                                         |                                 |                |        |        |      |   |        |        |   |   |        |       
|                                                                                         | Dividends from subsidiary banks |                | $      | 7,471  |      |   | $      | 7,445  |   |   | $      | 7,303  |  
|                                                                                         | Fees from subsidiaries          |                |        | 1,899  |      |   |        | 1,831  |   |   |        | 1,705  |  
|                                                                                         | Other income                    |                |        | 37     |      |   |        | 1,104  |   |   |        | 350    |  
|                                                                                         | Interest expense                |                |        | (3,567 | )    |   |        | (2,844 | ) |   |        | (1,827 | )
|                                                                                         | Other expense                   |                |        | (8,633 | )    |   |        | (5,566 | ) |   |        | (4,862 | )
|                                                                                         |                                 |                |        |        |      |   |        |        |  
|Income (loss) before income taxes and equity in undistributed
    income of subsidiaries |                                 |                | (2,793 | )      |      |   | 1,970  |        |   |   | 2,669  |       
|Income tax benefit                                                                       |                                 |                | 3,932  |        |      |   | 2,110  |        |   |   | 2,054  |       
|Equity in undistributed income of subsidiaries                                           |                                 |                | 1,237  |        |      |   | 18,701 |        |   |   | 11,585 |       
|                                                                                         |                                 |                |        |        |      |   |        |        |  
|Net income                                                                               |                                 | $              | 2,376  |        |      | $ | 22,781 |        |   | $ | 16,308 |       
|                                                                                         |                                 |                |        |        |      |   |        |        |  

F-33



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


CONDENSED STATEMENTS OF CASH FLOWS


|                                                 |                                                                                      |                                                     |                                           |        |        |       |        |         |         |       |       |        |         |     | 
|------------------------------------------------ | ------------------------------------------------------------------------------------ | --------------------------------------------------- | ----------------------------------------- | ------ | ------ | ----- | ------ | ------- | ------- | ----- | ----- | ------ | ------- | --- | 
|                                                 |                                                                                      | December 31,                                        |                                          
|                                                 |                                                                                      |                                                     |                                          
|                                                 |                                                                                      | 2004                                                |                                           |        | 2003   |       |        | 2002    |        
|                                                 |                                                                                      |                                                     |                                           |        |        |       |        |         |        
|                                                 |                                                                                      | (In thousands)                                      |                                          
|Cash flows from operating activities             |                                                                                      |                                                     |                                           |        |        |       |        |         |         |       |       |       
|                                                 | Net income                                                                           |                                                     | $                                         | 2,376  |        |       | $      | 22,781  |         |       | $     | 16,308 |        
|                                                 | Adjustments to reconcile net income to net cash provided by
    operating activities |                                                     |                                           |        |        |       |        |         |         |       |       |        |        
|                                                 |                                                                                      | Equity in undistributed income of subsidiaries      |                                           |        | (1,237 | )     |        |         | (18,701 | )     |       |        | (11,585 | )  
|                                                 |                                                                                      | Depreciation                                        |                                           |        | 73     |       |        |         | 66      |       |       |        | 71      |    
|                                                 |                                                                                      | Stock-based compensation                            |                                           |        | 165    |       |        |         |        |       |       |        |        |    
|                                                 |                                                                                      | Decrease (increase) in other assets                 |                                           |        | (2,175 | )     |        |         | 7,059   |       |       |        | (4,458  | )  
|                                                 |                                                                                      | Increase (decrease) in other liabilities            |                                           |        | 1,881  |       |        |         | (3,178  | )     |       |        | 341     |    
|                                                 |                                                                                      |                                                     |                                           |        |        |       |        |         |        
|                                                 |                                                                                      |                                                     | Net cash provided by operating activities |        |        | 1,083 |        |         |         | 8,027 |       |        |         | 677 | 
|                                                 |                                                                                      |                                                     |                                           |        |        |       |        |         |        
|Cash flows from investing activities             |                                                                                      |                                                     |                                           |        |        |       |        |         |         |       |       |       
|                                                 | Cash paid, net of cash and cash equivalents in acquisition and
    stock issuance    |                                                     |                                           |       |        |       |        | (1,377  | )       |       |       |       |        
|                                                 | Investment in subsidiaries                                                           |                                                     |                                           |       |        |       |        | (10,000 | )       |       |       | (4,700 | )      
|                                                 | Property and equipment expenditures                                                  |                                                     |                                           | (207   | )      |       |        | (68     | )       |       |       | (50    | )      
|                                                 |                                                                                      |                                                     |                                           |        |        |       |        |         |        
|                                                 |                                                                                      | Net cash used in investing activities               |                                           |        | (207   | )     |        |         | (11,445 | )     |       |        | (4,750  | )  
|                                                 |                                                                                      |                                                     |                                           |        |        |       |        |         |        
|Cash flows from financing activities             |                                                                                      |                                                     |                                           |        |        |       |        |         |         |       |       |       
|                                                 | Issuance of junior subordinated debt, net of debt issuance costs                     |                                                     |                                           |       |        |       |        | 18,430  |         |       |       | 14,525 |        
|                                                 | Notes payable                                                                        |                                                     |                                           |       |        |       |        | 5,500   |         |       |       |       |        
|                                                 | Payments on notes payable                                                            |                                                     |                                           | (2,000 | )      |       |        | (5,500  | )       |       |       | (4,500 | )      
|                                                 | Dividends paid                                                                       |                                                     |                                           | (8,583 | )      |       |        | (7,317  | )       |       |       | (6,450 | )      
|                                                 | Repurchase of common stock                                                           |                                                     |                                           |       |        |       |        |        |         |       |       | (576   | )      
|                                                 | Proceeds from exercise of stock options                                              |                                                     |                                           | 660    |        |       |        | 1,666   |         |       |       | (641   | )      
|                                                 |                                                                                      |                                                     |                                           |        |        |       |        |         |        
|                                                 |                                                                                      | Net cash provided by (used in) financing activities |                                           |        | (9,923 | )     |        |         | 12,779  |       |       |        | 3,640   |    
|                                                 |                                                                                      |                                                     |                                           |        |        |       |        |         |        
|Increase (decrease) in cash and cash equivalents |                                                                                      |                                                     | (9,047                                    | )      |        |       | 9,361  |         |         |       | (433  | )     
|Cash and cash equivalents at beginning of year   |                                                                                      |                                                     | 11,716                                    |        |        |       | 2,355  |         |         |       | 2,788 |       
|                                                 |                                                                                      |                                                     |                                           |        |        |       |        |         |        
|Cash and cash equivalents at end of year         |                                                                                      | $                                                   | 2,669                                     |        |        | $     | 11,716 |         |         | $     | 2,355 |       
|                                                 |                                                                                      |                                                     |                                           |        |        |       |        |         |        

F-34



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Note 23  Earnings Per Share


|                                  |                                            |                                       |      |        |      |   |      |        |  |   |      |        | 
|--------------------------------- | ------------------------------------------ | ------------------------------------- | ---- | ------ | ---- | - | ---- | ------ |  | - | ---- | ------ | 
|                                  |                                            | 2004                                  |      |        | 2003 |   |      | 2002   | 
|                                  |                                            |                                       |      |        |      |   |      |        | 
|                                  |                                            | (In thousands, except per share data) |     
|Basic                             |                                            |                                       |      |        |      |   |      |        |  |   |      |       
|                                  | Net income                                 |                                       | $    | 2,376  |      |   | $    | 22,781 |  |   | $    | 16,308 | 
|                                  |                                            |                                       |      |        |      |   |      |        | 
|                                  | Weighted average common shares outstanding |                                       |      | 17,888 |      |   |      | 17,798 |  |   |      | 16,122 | 
|                                  |                                            |                                       |      |        |      |   |      |        | 
|                                  | Basic earnings per common share            |                                       | $    | 0.13   |      |   | $    | 1.28   |  |   | $    | 1.01   | 
|                                  |                                            |                                       |      |        |      |   |      |        | 
|Diluted                           |                                            |                                       |      |        |      |   |      |        |  |   |      |       
|                                  | Net income                                 |                                       | $    | 2,376  |      |   | $    | 22,781 |  |   | $    | 16,308 | 
|                                  |                                            |                                       |      |        |      |   |      |        | 
|                                  | Weighted average common shares outstanding |                                       |      | 17,888 |      |   |      | 17,798 |  |   |      | 16,122 | 
|                                  | Dilutive effect of stock options           |                                       |      | 403    |      |   |      | 420    |  |   |      | 379    | 
|                                  |                                            |                                       |      |        |      |   |      |        | 
|                                  | Dilutive average common shares outstanding |                                       |      | 18,291 |      |   |      | 18,218 |  |   |      | 16,501 | 
|                                  |                                            |                                       |      |        |      |   |      |        | 
|Diluted earnings per common share |                                            | $                                     | 0.13 |        |      | $ | 1.25 |        |  | $ | 0.99 |       
|                                  |                                            |                                       |      |        |      |   |      |        | 

Note 24  Other Comprehensive Income




|                                                                                                        |                                   |                          |         |        |      |   |         |         |   |   |        |        | 
|------------------------------------------------------------------------------------------------------- | --------------------------------- | ------------------------ | ------- | ------ | ---- | - | ------- | ------- | - | - | ------ | ------ | 
|                                                                                                        |                                   | Years Ended December 31, |        
|                                                                                                        |                                   |                          |        
|                                                                                                        |                                   | 2004                     |         |        | 2003 |   |         | 2002    |  
|                                                                                                        |                                   |                          |         |        |      |   |         |         |  
|                                                                                                        |                                   | (In thousands)           |        
|Unrealized holding gains (losses) on securities
    available-for-sale                                  |                                   | $                        | (15,504 | )      |      | $ | (32,087 | )       |   | $ | 14,051 |       
|Reclassification adjustment for (gains) losses recognized
    in income                                 |                                   |                          | 14,578  |        |      |   | (5,340  | )       |   |   | (1,522 | )     
|Unrealized holding gains on securities transferred from
    available-for-sale to held-to-maturity      |                                   |                          |        |        |      |   |        |         |   |   | 1,396  |       
|Accretion of unrealized gains on securities transferred from
    available-for-sale to held-to-maturity |                                   |                          | (123    | )      |      |   | (595    | )       |   |   | (331   | )     
|                                                                                                        |                                   |                          |         |        |      |   |         |         |  
|                                                                                                        | Net unrealized gains (losses)     |                          |         | (1,049 | )    |   |         | (38,022 | ) |   |        | 13,594 | 
|Tax effect                                                                                              |                                   |                          | 416     |        |      |   | 15,053  |         |   |   | 5,392  |       
|                                                                                                        |                                   |                          |         |        |      |   |         |         |  
|                                                                                                        | Other comprehensive income (loss) |                          | $       | (633   | )    |   | $       | (22,969 | ) |   | $      | 8,202  | 
|                                                                                                        |                                   |                          |         |        |      |   |         |         |  

F-35



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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Note 25  Quarterly Results of Operations
(Unaudited)


|                                  |         |                                       |        |      |         |   |        |              |  |   |             |      |  |   |         |       |  
|--------------------------------- | ------- | ------------------------------------- | ------ | ---- | ------- | - | ------ | ------------ |  | - | ----------- | ---- |  | - | ------- | ----- | -
|                                  |         | Three Months Ended                    |       
|                                  |         |                                       |       
|2004                              |         | March 31                              |        |      | June 30 |   |        | September 30 |  |   | December 31 |     
|                                  |         |                                       |        |      |         |   |        |              |  |   |             |     
|                                  |         | (In thousands, except per share data) |       
|Interest income                   |         | $                                     | 26,093 |      |         | $ | 25,004 |              |  | $ | 27,077      |      |  | $ | 27,233  |      
|Interest expense                  |         |                                       | 11,926 |      |         |   | 11,914 |              |  |   | 12,836      |      |  |   | 11,073  |      
|                                  |         |                                       |        |      |         |   |        |              |  |   |             |     
|Net interest income               |         |                                       | 14,167 |      |         |   | 13,090 |              |  |   | 14,241      |      |  |   | 16,160  |      
|Provision for loan losses         |         |                                       | 756    |      |         |   | 756    |              |  |   | 556         |      |  |   | 2,156   |      
|Other income                      |         |                                       | 3,943  |      |         |   | 3,128  |              |  |   | (1,788      | )    |  |   | (7,783  | )    
|Other expense                     |         |                                       | 11,041 |      |         |   | 11,435 |              |  |   | 13,436      |      |  |   | 16,821  |      
|                                  |         |                                       |        |      |         |   |        |              |  |   |             |     
|Income/(loss) before income taxes |         |                                       | 6,313  |      |         |   | 4,027  |              |  |   | (1,539      | )    |  |   | (10,600 | )    
|Provision for income taxes        |         |                                       | 1,488  |      |         |   | 843    |              |  |   | (1,508      | )    |  |   | (4,998  | )    
|                                  |         |                                       |        |      |         |   |        |              |  |   |             |     
|Net income (loss)                 |         | $                                     | 4,825  |      |         | $ | 3,184  |              |  | $ | (31         | )    |  | $ | (5,602  | )    
|                                  |         |                                       |        |      |         |   |        |              |  |   |             |     
|Earnings per common share(a)      |         |                                       |        |      |         |   |        |              |  |   |             |      |  |   |         |      
|                                  | Basic   |                                       | $      | 0.27 |         |   | $      | 0.18         |  |   | $           | 0.00 |  |   | $       | (0.31 | )
|                                  | Diluted |                                       |        | 0.26 |         |   |        | 0.17         |  |   |             | 0.00 |  |   |         | (0.31 | )

|                             |         |                                       |        |      |         |   |        |              |  |   |             |      |  |   |        |      | 
|---------------------------- | ------- | ------------------------------------- | ------ | ---- | ------- | - | ------ | ------------ |  | - | ----------- | ---- |  | - | ------ | ---- | 
|                             |         | Three Months Ended                    |       
|                             |         |                                       |       
|2003                         |         | March 31                              |        |      | June 30 |   |        | September 30 |  |   | December 31 |     
|                             |         |                                       |        |      |         |   |        |              |  |   |             |     
|                             |         | (In thousands, except per share data) |       
|Interest income              |         | $                                     | 29,982 |      |         | $ | 27,576 |              |  | $ | 27,137      |      |  | $ | 27,384 |     
|Interest expense             |         |                                       | 13,016 |      |         |   | 12,749 |              |  |   | 12,257      |      |  |   | 11,775 |     
|                             |         |                                       |        |      |         |   |        |              |  |   |             |     
|Net interest income          |         |                                       | 16,966 |      |         |   | 14,827 |              |  |   | 14,880      |      |  |   | 15,609 |     
|Provision for loan losses    |         |                                       | 990    |      |         |   | 755    |              |  |   | 7,743       |      |  |   | 717    |     
|Other income                 |         |                                       | 4,062  |      |         |   | 7,939  |              |  |   | 5,790       |      |  |   | 5,295  |     
|Other expense                |         |                                       | 10,783 |      |         |   | 10,672 |              |  |   | 10,665      |      |  |   | 11,375 |     
|                             |         |                                       |        |      |         |   |        |              |  |   |             |     
|Income before income Taxes   |         |                                       | 9,255  |      |         |   | 11,339 |              |  |   | 2,262       |      |  |   | 8,812  |     
|Provision for income Taxes   |         |                                       | 2,861  |      |         |   | 3,548  |              |  |   | (21         | )    |  |   | 2,499  |     
|                             |         |                                       |        |      |         |   |        |              |  |   |             |     
|Net income                   |         | $                                     | 6,394  |      |         | $ | 7,791  |              |  | $ | 2,283       |      |  | $ | 6,313  |     
|                             |         |                                       |        |      |         |   |        |              |  |   |             |     
|Earnings per common share(a) |         |                                       |        |      |         |   |        |              |  |   |             |      |  |   |        |     
|                             | Basic   |                                       | $      | 0.36 |         |   | $      | 0.44         |  |   | $           | 0.13 |  |   | $      | 0.35 | 
|                             | Diluted |                                       |        | 0.35 |         |   |        | 0.43         |  |   |             | 0.12 |  |   |        | 0.34 | 






|    |                                                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Earnings per share for the quarters and fiscal years have been
    calculated separately. Accordingly, quarterly amounts may not
    add to the annual amounts because of differences in the average
    common shares outstanding during each period.

Note 26  Business Combination




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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






Note 27  Stock Dividend




Note 28  Capital Contribution and Regulatory
Matters










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##### Table of Contents



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




F-38



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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


ON THE FINANCIAL STATEMENTS


















| |                            
| | ---------------------------
| | McGladrey &
    Pullen, LLP





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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
















| |                                 
| | --------------------------------
| | Crowe Chizek and Company
    LLC







F-40