##### 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 1934For the fiscal year ended
    December 31, 2007ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For 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:
  Depositary Shares each representing
    1/100th
    of a Share of Series A
    Noncumulative Redeemable Convertible Preferred Stock,
 $25.00 liquidation preference, NASDAQ Global Market
 (Title of Class)
  Securities registered pursuant to Section 12(g) of the
    Act:
  Common Stock, $0.01 par value, NASDAQ Global Market
 (Title of Class)
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  12b-2
  Large accelerated
    filer o

Accelerated filer

Non-accelerated
    filer o
    (Do not check if a smaller reporting company)

Smaller reporting
    company o   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




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##### 





MIDWEST
    BANC HOLDINGS, INC.
  FORM 10-K
  INDEX
   
 PageNo.PART IItem 1.


Business


1Item 1A.


Risk Factors


22Item 1B.


Unresolved Staff Comments


27Item 2.


Properties


28Item 3.


Legal Proceedings


29Item 4.


Submission of Matters to a Vote of Security
    Holders


29PART IIItem 5.


Market for the Registrants Common Equity
    and Related Stockholder Matters


29Item 6.


Selected Consolidated Financial Data


32Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


35Item 7A.


Quantitative and Qualitative Disclosures about
    Market Risk


71Item 8.


Consolidated Financial Statements and
    Supplementary Data


73Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


73Item 9A.


Controls and Procedures


73Item 9B.


Other Information


74PART IIIItem 10.


Directors and Executive Officers of the
    Registrant


74Item 11.


Executive Compensation


74Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


74Item 13.


Certain Relationships and Related Transactions


74Item 14.


Principal Accounting Fees and Services


74PART IVItem 15.


Exhibits and Financial Statement Schedules


75Signature(s) Page


78Contents of Consolidated Financial Statements


F-1Lease Dated December 27, 2007Mutual Agreement RE Severance and RetirementSubsidiariesConsent of PricewaterhouseCoopers LLPCertificationCertificationCertification




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##### Table of Contents



PART I  Item 1.
    Business  The
    Company
      2007
    Developments
    th
   1




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##### Table of Contents



th
  Market for the Registrants
    Common Equity and Related Stockholder Matters
    2006
    Developments
          Strategy
    Expand and diversify loan portfolio.
 2




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Expand deposit base.
  Expand footprint in Chicago market.
    
    Expanding the community banking market penetration;
    Adding experienced key executives;
    Expanding the size of the loan portfolio and diversifying its
    risk profile by increasing the percentage of commercial and
    industrial loans and owner-occupied commercial real estate
    loans, while decreasing the percentage of construction loans;
    Expanding the deposit base by adding a higher percentage of
    noninterest-bearing and interest-bearing demand deposit, money
    market, and savings accounts; and
    Acquiring approximately $200.0 million in managed trust
    assets.    Expand noninterest income.
     3




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##### Table of Contents



Number ofBanking CentersCompany Subsidiaries

Headquarters

Market Area

or OfficesBanks:Midwest Bank and Trust Company

Elmwood Park, IL

Addison, Algonquin,


29Bensenville, Bloomingdale, Buffalo Grove, Chicago, Des Plaines,
    Downers Grove, Elgin, Elmwood Park, Franklin Park, Glenview,
    Hinsdale, Inverness, Island Lake, Lakemoor, Lake Zurich, Long
    Grove, McHenry, Melrose Park, Mount Prospect, Naperville,
    Norridge, North Barrington, Roselle, and UnionNon-banks:MBTC Investment Company

Las Vegas, NV

*


2Midwest Funding, L.L.C.

Melrose Park, IL

**


1MBHI Capital Trust III

Melrose Park, IL

***


MBHI Capital Trust IV

Melrose Park, IL

***


MBHI Capital Trust V

Melrose Park, IL

***


Royal Capital Trust I

Melrose Park, IL

***


Northwest Capital Trust I

Melrose Park, IL

***


Midwest Financial and Investment Services, Inc.

Elmwood Park, IL

****


24     *
    
    Provides additional investment portfolio management to the Bank.**
    
    Provides real estate management services to the Bank.***
    
    The trust is a statutory business trust formed as a financing
    subsidiary of the Company.****
    
    Provides securities brokerage services.  History
  The
    Bank
    
    On January 3, 2003, the Company completed the acquisition
    of Big Foot Financial Corp., BFFC. BFFC was the holding company
    for Fairfield Savings Bank, F.S.B. with approximately
    $200 million in total assets at December 31, 2002, and
    three branches in Chicago, Long Grove, and Norridge which were
    merged into the Bank. The Company issued a total of
    1,599,088 shares in the transaction. Fairfield Savings
    Bank, F.S.B. merged into the Bank on January 3, 2003.
    In 2004, the Bank added new branches in Addison and Glenview,
    Illinois.
    In September 2005, the Company sold Midwest Bank of Western
    Illinois and its insurance agency subsidiary in order to focus
    on the Chicago metropolitan area.
    The Company opened a branch in Franklin Park, Illinois in 2006. 4




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##### Table of Contents




    On July 1, 2006, the Company completed its acquisition of
    Royal American. The Company issued 2.9 million common
    shares, paid $64.6 million in cash, and incurred $795,000
    in costs that were capitalized for a total purchase price of
    $129.2 million. Royal American Bank merged into the Bank on
    July 1, 2006.
    On October 1, 2007, the Company, completed its acquisition
    of Northwest Suburban. The Company issued 3.7 million
    common shares, paid $81.2 million in cash, and incurred
    $414,000 in costs which were capitalized for a total purchase
    price of $136.7 million. Mount Prospect National Bank
    merged into the Bank on October 1, 2007.  Strategy
  Non-bank
    Subsidiaries
          Mandatory

OptionalRedemption

RedemptionIssuer

Issue Date

Amount


Rate

Date

Date(In thousands)MBHI Capital Trust III

December 19, 2003

$
9,000


LIBOR+3.00%

December 30, 2033

December 30, 2008MBHI Capital Trust IV

December 19, 2003

$
10,000


LIBOR+2.85%

January 23, 2034

January 23, 2009MBHI Capital Trust V

June 7, 2005

$
20,000


LIBOR+1.77%

June 15, 2035

June 15, 2010Royal Capital Trust I

April 30, 2004

$
10,000


6.62% until July 23, 2009;
    LIBOR+2.75% thereafter

July 23, 2034

July 23, 2009Northwest Suburban Capital Trust I

May 18, 2004

$
10,000


LIBOR+2.70%

July 23, 2034

July 23, 2009   Markets
   5




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##### Table of Contents



10-20 mile
  Competition
            Products
    and Services
  Deposit
    Products
    Checking and Interest-bearing Checking
    Accounts.
  Savings and Money Market Accounts.
  Time Deposits.
 6




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Lending
    Services
    Commercial Loans.
  Construction Loans.
  Commercial Real Estate Loans.
  Consumer Real Estate Loans.
    Consumer Loans.
    ATMs
  sf sf
  Trust Activities
   7




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##### Table of Contents



Insurance
    and Securities Brokerage
    Employees
    Available
    Information
  www.midwestbanc.com. Forms 10-K, 10-Q, 8-K,
  1-800-SEC-0330. http://www.sec.gov.
  SUPERVISION
    AND REGULATION
    Bank
    Holding Company Regulation
     8




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9




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##### Table of Contents



Form 10-K.
        Bank
    Regulation
   10




---



##### Table of Contents



and/or
      Financial
    Institution Regulation
  Transactions with Affiliates.
  Dividend Limitations.
    Capital Requirements.
   11




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Standards for Safety and Soundness.
        Prompt Corrective Action.
 12




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Insurance of Deposit Accounts.
             13




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notice-and-comment
      Federal Reserve System.
  Community Reinvestment.
  Brokered Deposits.
  Enforcement Actions.
 14




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Bank Secrecy Act and USA Patriot Act.
      Interstate Banking and Branching
    Legislation.
  de novo
  Insurance Powers.
      Securities Brokerage.
 15




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##### Table of Contents



Consumer Compliance.
  
    require lenders to disclose credit terms in meaningful and
    consistent ways;
    prohibit discrimination against an applicant in any consumer or
    business credit transaction;
    prohibit discrimination in housing-related lending activities;
    require certain lenders to collect and report applicant and
    borrower data regarding loans for home purchases or improvement
    projects;
    require lenders to provide borrowers with information regarding
    the nature and cost of real estate settlements;
    prohibit certain lending practices and limit escrow account
    amounts with respect to real estate transactions; and
    prescribe possible penalties for violations of the requirements
    of consumer protection statutes and regulations.  Federal Fair Lending Laws.
  Home Mortgage Disclosure Act.
    Real Estate Settlement Procedures Act.
 16




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Truth in Lending Act.
    Fair Credit Reporting Act
    Federal Home Loan Bank System
      Monetary
    Policy and Economic Conditions
     17




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SAFE
    HARBOR STATEMENT UNDER THE PRIVATE SECURITIES
    LITIGATION REFORM ACT OF 1995
  Form 10-K,
        
    Managements ability to effectively manage interest rate
    risk and the impact of interest rates in general on the
    volatility of the Companys net interest income;
    Fluctuations in the value of the Companys investment
    securities;
    The ability to attract and retain senior management experienced
    in banking and financial services;
    The sufficiency of the allowance for loan losses to absorb the
    amount of actual losses inherent in the existing portfolio of
    loans;
    The ability to ultimately collect on the Large Problem Credit;
    The Companys ability to adapt successfully to
    technological changes to compete effectively in the marketplace;
    Credit risks and risks from concentrations (by geographic area
    and by industry) within the Banks loan portfolio and
    individual large loans;
    The effects of competition from other commercial banks, thrifts,
    mortgage banking firms, consumer finance companies, credit
    unions, securities brokerage firms, insurance companies, money
    market and other mutual funds, and other financial institutions
    operating in the Companys market or elsewhere or providing
    similar services;
    The failure of assumptions underlying the establishment of the
    allowance for loan losses and estimation of values of collateral
    or cash flow projections and various financial assets and
    liabilities;
    Volatility of rate sensitive deposits; 18




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##### Table of Contents




    Operational risks, including data processing system failures or
    fraud;
    Liquidity risks;
    The ability to successfully acquire low cost deposits or funding;
    The ability to successfully execute strategies to increase
    noninterest income;
    The ability of the Company to fully realize expected cost
    savings and revenues in connection with acquisitions, or the
    ability to realize them on a timely basis;
    The risk of borrower, depositor, and other customer attrition
    after acquisitions are completed;
    Changes in the economic environment, competition, or other
    factors that may influence the anticipated growth rate of loans
    and deposits, the quality of the loan portfolio and loan and
    deposit pricing, and the Companys ability to successfully
    pursue acquisition and expansion strategies and integrate any
    acquired companies;
    Possible recognition of losses related to the Companys
    holdings of Federal National Mortgage Association and Federal
    Home Loan Mortgage Corporation preferred stock; if the
    unrealized losses in these securities do not demonstrate a clear
    pattern of substantial recovery in the near future, the Company
    would be required to recognize impairment losses;
    The impact from changes in federal and state tax laws relating
    to certain tax structures of the Company including an
    80/20 company which holds a portion of the Companys
    securities portfolio and a real estate investment trust which
    holds certain real estate loans previously held by the Bank;
    The impact from liabilities arising from legal or administrative
    proceedings on the financial condition of the Company;
    Possible administrative or enforcement actions of banking
    regulators in connection with any material failure of the
    Company or the Bank to comply with banking laws, rules or
    regulations;
    Possible administrative or enforcement actions of the SEC in
    connection with the SEC inquiry of the restatement of the
    Companys September 30, 2002 financial statements;
    Governmental monetary and fiscal policies, as well as
    legislative and regulatory changes, that may result in the
    imposition of costs and constraints on the Company through
    higher FDIC insurance premiums, significant fluctuations in
    market interest rates, increases in capital requirements, and
    operational limitations;
    Changes in general economic or industry conditions, nationally
    or in the communities in which the Company conducts business;
    Changes in accounting principles, policies, or guidelines
    affecting the business conducted by the Company;
    Acts of war or terrorism; and
    Other economic, competitive, governmental, regulatory, and
    technical factors affecting the Companys operations,
    products, services, and prices.     19




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EXECUTIVE
    OFFICERS OF THE REGISTRANT
                   20




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21




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##### Table of Contents



Item 1A.
    Risk
    Factors    Changes
    in economic conditions, in particular an economic slowdown in
    Chicago, Illinois, could hurt the Companys business
    materially.
    
    loan delinquencies may increase;
    problem assets and foreclosures may increase;
    demand for its products and services may decline;
    low cost or noninterest bearing deposits may decrease; and
    collateral for loans made by us, especially real estate, may
    decline in value, in turn reducing customers borrowing
    power, and reducing the value of assets and collateral
    associated with the Companys existing loans.  A large
    percentage of the Companys loans are collateralized by
    real estate, and an adverse change in the real estate market may
    result in losses and adversely affect its
    profitability.
    The
    Companys business is subject to interest rate risk and
    fluctuations in interest rates may adversely affect its
    earnings.
      
    inflation;
    recession; 22




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##### Table of Contents




    changes in unemployment;
    the money supply; and
    international disorder and instability in domestic and foreign
    financial markets.    The
    Companys allowance for loan losses may not be sufficient
    to cover actual loan losses, including losses associated with
    the Large Problem Credit, which could adversely affect its
    results of operations or its financial condition.
    
    current economic conditions and their estimated effects on
    specific borrowers;
    an evaluation of the existing relationships among loans,
    potential loan losses and the present level of the allowance;
    results of examinations of our loan portfolios by regulatory
    agencies; and
    managements internal review of the loan portfolio.     23




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##### Table of Contents



Future
    impairment losses could be required on the Federal National
    Mortgage Association, FNMA, and Federal Home Loan Mortgage
    Corporation, FHLMC, preferred equity securities that the Company
    owns.
          The
    Companys effective tax rates may be adversely affected by
    changes in federal and state tax laws.
   24




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The
    Company may not be able to successfully implement its growth
    strategy and may encounter difficulties or unexpected
    developments in connection with the integration of its
    acquisitions.
      
    potential exposure to unknown or contingent liabilities or asset
    quality issues of the target company;
    difficulty and expense of integrating the operations and
    personnel of the target company;
    potential disruption to our business, including diversion of
    managements time and attention;
    the possible loss of key employees and customers of the target
    company;
    difficulty in estimating the value of the target
    company; and
    potential changes in the laws and regulations that affect the
    business of the target company.  and/or
  The
    Companys continued pace of growth may require it to
    increase its regulatory capital in the future, but that capital
    may not be available when it is needed.
   25




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An
    interruption in or breach in security of the Companys
    information systems may result in a loss of customer
    business.
    The
    Companys ability to pay dividends and make payment on its
    debt securities and on its outstanding debt is dependent on the
    earnings of its subsidiaries and is subject to other
    restrictions.
          The
    Companys business may be adversely affected by the highly
    regulated environment in which it operates.
   26




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Provisions
    in the Companys amended and restated certificate of
    incorporation and its amended and restated by-laws may delay or
    prevent an acquisition of the Company by a third
    party.
      Item 1B.
    Unresolved
    Staff Comments   27




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##### Table of Contents



Item 2.
    Properties    Date

Net Book Value at

Leased orLocation

Acquired

December 31, 2007

Owned(In thousands)Principal Office of the Company and Midwest Bank and Trust
    Company Banking Office501 West North Avenue


1987


$
1,167



OwnedMelrose Park, Illinois 60160Other Midwest Bank and Trust Company Banking Offices1606 North Harlem Avenue


1959



1,775



OwnedElmwood Park, Illinois 60607245 South Addison Road


2002



1,270



OwnedAddison, Illinois 601012045 East Algonquin Road


1994



605



OwnedAlgonquin, Illinois 601021000 Tower Lane #125


2006



7



LeasedBensenville, Illinois 60106236 West Lake Street


2006



523



LeasedBloomingdale, Illinois 601081001 Johnson Drive


2006



100



LeasedBuffalo Grove, Illinois 60089300 South Michigan Avenue


1986



22



LeasedChicago, Illinois 606044012 North Pulaski Road


1993



785



OwnedChicago, Illinois 606417227 West Addison Street


1996



1,026



OwnedChicago, Illinois 606341601 North Milwaukee Avenue


2003



3,041



OwnedChicago, Illinois 606471545 Ellinwood Ave


2007



5,100



OwnedDes Plaines, Illinois 60016927 Curtiss Street


1996



115



LeasedDowners Grove, Illinois 60515645 Tollgate Road


2006







LeasedElgin, Illinois 601239668 Franklin Avenue


2006



207



LeasedFranklin Park, Illinois 601311441 Waukegan Road


2003



638



LeasedGlenview, Illinois 60025500 West Chestnut Street


1991



1,369



OwnedHinsdale, Illinois 605211604 West Colonial Parkway


2006







LeasedInverness, Illinois 60067204 E. State Road


1998



286



OwnedIsland Lake, Illinois 60042274444 W. Route 120


2007



2,247



LeasedLakemoor, Illinois 60050585 Ela Road


2007



20



LeasedLake Zurich, Illinois 600471190 Old McHenry Road


2003







LeasedLong Grove, Illinois 600475555 Bull Valley Road


1998



1,092



OwnedMcHenry, Illinois 6005050 N. Main Street


2007



5,948



OwnedMount Prospect, Illinois 600561730 Park Street


2006



548



OwnedNaperville, Illinois 605638301 West Lawrence


2003



103



*Norridge, Illinois 60656444 N. Rand Road


2007



4,680



OwnedNorth Barrington, Illinois 60010505 North Roselle Road


1999



2,148



OwnedRoselle, Illinois 6017217622 Depot Street


1987



75



OwnedUnion, Illinois 60180     *
    
    Land is leased and building is owned. 28




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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    Dividends DeclaredHigh


Low


Per Common Share2006First Quarter

$
26.65


$
21.94


$
0.12Second Quarter


25.89



20.99



0.13Third Quarter


25.18



20.89



0.13Fourth Quarter


25.17



22.34



0.132007First Quarter

$
24.44


$
17.40


$
0.13Second Quarter


18.03



14.50



0.13Third Quarter


15.95



12.78



0.13Fourth Quarter


15.80



11.45



0.13   Issuer
    Purchases of Equity Securities
   29




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##### Table of Contents



TotalNumberof Shares


Maximum NumberTotal





Purchased as Part


of Shares thatNumber


Average


of Publicly


May Yet Beof Shares


Price Paid


Announced Plans


Purchased UnderPeriod

Purchased


per Share


or Programs


the Plans or Programs10/1/07 - 10/31/07


83,000


$
13.58



83,000



631,11111/1/07 - 11/30/07


257,000



12.92



257,000



374,11112/1/07 - 12/31/07














374,111Total


340,000


$
13.08



340,000



374,111   Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters
    Issuance
    of Preferred Stock  Use of Proceeds
  No. 333-147295
 30




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Performance
    Graph
    
 31




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##### Table of Contents



Item 6.
    Selected
    Consolidated Financial Data    Year Ended December 31,2007


2006


2005


2004


2003(Dollars in thousands, except per share data)Statement of Income Data:Total interest income

$
193,869


$
159,262


$
112,244


$
91,962


$
98,108Total interest expense


111,237



83,980



50,797



41,780



43,260Net interest income


82,632



75,282



61,447



50,182



54,848Provision for loan losses


4,891



12,050



2,589



3,400



9,455Noninterest income


15,477



14,551



(6,245
)


(88
)


19,829Noninterest expenses


71,395



58,615



60,527



46,491



38,099Income (loss) before income taxes and discontinued operations


21,823



19,168



(7,914
)


203



27,123Provision (benefit) for income taxes


3,246



1,422



(6,325
)


(2,869
)


7,779Income (loss) from continuing operations


18,577



17,746



(1,589
)


3,072



19,344Income (loss) from discontinued operations










7,533



(696
)


3,437Net income


18,577



17,746



5,944



2,376



22,781Preferred stock dividends


(204
)














Net income available to common stockholders

$
18,373


$
17,746


$
5,944


$
2,376


$
22,781Per Common Share Data:Earnings per share (basic) from continuing operations

$
0.72


$
0.76


$
(0.08
)

$
0.17


$
1.09Earnings per share (basic) from discontinued operations










0.38



(0.04
)


0.19Earnings per share (basic)


0.72



0.76



0.30



0.13



1.28Earnings per share (diluted) from continuing operations


0.72



0.75



(0.08
)


0.17



1.06Earnings per share (diluted) from discontinued operations










0.38



(0.04
)


0.19Earnings per share (diluted)


0.72



0.75



0.30



0.13



1.25Cash dividends declared


0.52



0.51



0.48



0.48



0.44Book value at end of period


11.94



11.65



9.91



7.66



8.01Tangible book value at end of period (non-GAAP measure)(10)


5.56



7.97



9.78



7.49



7.80 32




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Year Ended December 31,2007


2006


2005


2004


2003(Dollars in thousands, except per share data)Selected Financial Ratios:Return on average assets from continuing operations(1)


0.58
%


0.67
%


(0.07
)%


0.13
%


0.87
%Return on average equity from continuing operations(2)


6.13



7.04



(0.95
)


2.17



13.12Dividend payout ratio


73.04



67.95



162.38



279.59



40.55Average equity to average assets


9.53



9.57



7.29



6.12



6.60Tier 1 risk-based capital


9.21



11.92



16.97



13.27



13.68Total risk-based capital


10.17



12.97



18.07



14.65



14.74Net interest margin (tax equivalent)(3)(4)(5)


3.02



3.32



3.31



2.82



3.19Loan to deposit ratio(5)


100.66



99.44



88.62



73.07



67.23Net overhead expense to average assets(5)(6)


1.76



1.67



2.14



1.58



1.01Efficiency ratio(5)(7)


68.29



60.55



75.44



72.79



49.56Loan Quality Ratios(5):Allowance for loan losses to total loans at the end of year


1.08



1.19



1.32



1.48



1.51Provision for loan losses to total loans


0.20



0.62



0.19



0.31



0.99Net loans charged off to average total loans


0.20



0.59



0.09



0.17



0.82Nonaccrual loans to total loans at the end of year(8)


1.99



2.20



0.59



0.85



1.56Nonperforming assets to total assets(9)


1.39



1.55



0.83



0.78



0.96Allowance for loan losses to nonaccrual loans


0.54
x


0.54
x


2.25
x


1.74
x


0.97
xBalance Sheet Data:Total assets

$
3,692,782


$
2,942,046


$
2,307,608


$
2,236,813


$
2,264,149Total earning assets(5)


3,266,461



2,617,894



2,126,227



1,807,609



1,807,207Average assets


3,181,990



2,635,138



2,305,086



2,310,594



2,234,293Loans(5)


2,474,327



1,946,816



1,349,996



1,097,299



955,380Allowance for loan losses(5)


26,748



23,229



17,760



16,217



14,459Deposits(5)


2,458,148



1,957,810



1,523,384



1,501,646



1,421,027Borrowings(5)


821,063



652,774



538,480



320,636



418,797Stockholders equity


375,164



287,242



216,126



137,423



143,081Tangible stockholders
    equity(non-GAAP
    measure)(5)(10)


197,713



196,481



213,447



134,315



139,400     (1)
    
    Net income divided by average assets.(2)
    
    Net income divided by average equity.(3)
    
    Net interest income, on a fully tax-equivalent basis, divided by
    average earning assets. 33




---



##### Table of Contents



(4)
    
    The following table reconciles reported net interest income on a
    fully tax-equivalent basis for the periods presented:  2007


2006


2005


2004


2003Net interest income

$
82,632


$
75,282


$
61,447


$
50,182


$
54,848Tax-equivalent adjustment to net interest income


3,612



4,286



2,628



2,399



3,511Net interest income, fully tax-equivalent basis

$
86,244


$
79,568


$
64,075


$
52,581


$
58,359   (5)
    
    Reflects continuing operations due to the sale of bank
    subsidiary on September 30, 2005.(6)
    
    Noninterest expense less noninterest income, excluding security
    gains or losses, divided by average assets.(7)
    
    Noninterest expense excluding amortization of intangible assets
    and foreclosed properties expense divided by noninterest income,
    excluding security gains or losses, plus net interest income on
    a fully tax-equivalent basis.(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.(10)
    
    Stockholders equity less goodwill, core deposit intangible
    and other intangible assets. Management believes that tangible
    stockholders equity (non-GAAP measure) is a more useful
    measure since it excludes the balances of intangible assets. The
    following table reconciles reported stockholders equity to
    tangible stockholders equity for the periods presented:  2007


2006


2005


2004


2003Stockholders equity

$
375,164


$
287,242


$
216,126


$
137,423


$
143,081Core deposit intangible and other intangibles, net


17,044



11,273



1,788



2,217



2,790Goodwill


160,407



79,488



891



891



891Tangible stockholders equity

$
197,713


$
196,481


$
213,447


$
134,315


$
139,400  34




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##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Overview
        Critical
    Accounting Policies and Estimates
    Allowance for Loan Losses:
   35




---



##### Table of Contents



Income Taxes:
      Evaluation of Securities for
    Impairment:
 36




---



##### Table of Contents



2007
    Developments
   37




---



##### Table of Contents



th
  Market for the Registrants
    Common Equity and Related Stockholder Matters
    2006
    Developments
     38




---



##### Table of Contents



2005
    Developments
        Consolidated
    Results of Operations
  2007
    Compared to 2006
    
    Net income was $18.6 million for the year ended
    December 31, 2007 compared to $17.7 million for the
    prior year.
    Core income (defined as income excluding merger-related expense
    as reconciled below in Supplemental Information) was
    $19.4 million for the year ended December 31, 2007, or
    3.6% higher compared to core income of $18.7 million for
    the year ended December 31, 2006.
    Basic and diluted earnings per share for the year ended
    December 31, 2007 were both $0.72 compared to $0.76 and
    $0.75 for basic and diluted, respectively, for 2006.
    The return on average assets was 0.58% for 2007 compared to a
    0.67% for 2006; core return on average assets (as reconciled
    below) was 0.61% for 2007 compared to 0.71% for 2006.
    The return on average equity was 6.13% in 2007 compared to a
    7.04% in 2006; core return on average equity (as reconciled
    below) was 6.39% for 2007 compared to 7.42% for 2006.
    Top line revenue (net interest income plus noninterest income)
    increased by $8.3 million, or 9.2%, to $98.1 million
    for 2007 compared to $89.8 million in the prior year.
    The carrying cost of the previously disclosed Large Problem
    Credit continues to have a substantial negative impact on
    earnings, reducing net income by approximately $0.10 per diluted
    share in 2007. The Large Problem Credit accounted for
    $29.0 million of nonaccrual loans at year end 2007.  Net Interest Income.
 39




---



##### Table of Contents




    Interest income increased $33.9 million to
    $197.5 million in 2007 compared to $163.5 million in
    2006. Average earning assets increased by $464.1 million
    ($498.3 million of earning assets were acquired through the
    Northwest Suburban acquisition on October 1, 2007) and
    average yields increased by 8 basis points.
    Interest income on loans increased $31.2 million to
    $155.3 million in 2007 from $124.1 million in 2006 due
    to an increase of $429.8 million in average loans;
    $439.2 million in loans were acquired in the Northwest
    Suburban acquisition on October 1, 2007.
    Interest income on securities increased $2.3 million to
    $40.4 million in 2007 from $38.1 million in 2006 as a
    result of an increase in yields on securities from 5.39% in 2006
    to 5.55% while average securities increased $21.2 million,
    or 3.0%.    
    Interest expense increased $27.3 million to
    $111.2 million in 2007 from $84.0 million in 2006.
    Average balances on interest-bearing liabilities increased by
    $436.4 million in 2007 to $2.6 billion compared to
    $2.1 billion in the prior year while rates paid increased
    39 basis points to 4.34% during 2007 compared to 3.95% in
    2006.
    Interest expense on deposits increased by $19.2 million to
    $76.7 million in 2007 from $57.5 million in 2006.
    Average interest-bearing deposits increased $273.0 million
    to $1.9 billion in 2007 compared to $1.6 billion in
    the prior year; $405.4 million in interest-bearing deposits
    were acquired in the Northwest Suburban acquisition on
    October 1, 2007. Average rates paid on interest-bearing
    deposits increased by 50 basis points to 4.13% in 2007
    compared to 3.63% in the prior year.  
    Average interest-bearing core deposits (interest-bearing demand
    deposit, money market, and savings accounts) increased
    $71.6 million in 2007 compared to 2006 and average rates
    paid increased 46 basis points.
    Average certificates of deposit less than $100,000 increased by
    $14.0 million while average rates paid increased by
    67 basis points. Average certificates of deposit greater
    than $100,000 increased $187.4 million in 2007 and average
    rates paid increased 3 basis points. Average brokered
    deposits increased by $129.4 million in 2007 compared to
    the prior year.  
    Interest expense on borrowings increased by $8.1 million to
    $34.5 million in 2007 from $26.5 million in 2006.
    Average borrowings increased by $163.4 million to
    $708.8 million in 2007 compared to $545.4 million in
    the prior year, primarily a result of the Companys asset
    growth exceeding deposit growth and $81.2 million cash used
    for the Northwest Suburban acquisition.
    Interest expense on Federal funds purchased and securities sold
    under agreements to repurchase increased by $1.2 million in
    2007 as a result of the increases in average balances of
    $48.4 million.
    Interest expense on FHLB advances increased by $5.0 million
    in 2007 compared to the prior year while average balances
    increased by $88.4 million during the same period. Average
    rates paid on FHLB advances rose by 37 basis points in 2007
    to 4.66% compared to 4.29% in 2006.
    Average junior subordinated debentures decreased by
    $5.3 million in 2007 compared to the prior year while rates
    paid increased by 18 basis points. The Company acquired
    $10.3 million in junior subordinated debentures at LIBOR
    plus 2.70% through the Northwest Suburban acquisition, and
    redeemed $15.5 million at LIBOR plus 3.45% in November 2007.
    Average notes payable increased by $21.2 million in 2007
    compared to the prior year. The Company used the proceeds from a
    $75.0 million term note it has with a correspondent bank to
    pay the cash portion of the Northwest Suburban acquisition. The
    term note has an initial rate of one-month LIBOR plus
    140 basis points. 40




---



##### Table of Contents




    Short-term LIBOR rates, which most of the Companys
    borrowings are indexed to, have been declining and are
    anticipated to continue its decline in the near term.  Provision for Loan Losses.
      Noninterest Income.
  
    $964,000 increase in service charges on deposits as a result of
    an increased deposit base;
    $669,000 increase in the cash surrender value of life insurance
    reflecting an addition of $12.9 million of such insurance
    acquired from Northwest Suburban;
    $938,000 increase in trust income reflecting an entire
    years earnings from the trust assets under management
    previously acquired from Royal American on July 1, 2006;
    $297,000 increase in insurance and brokerage commissions mostly
    as a result of increased annuity sales;
    $317,000 decrease in gains on sale of loans resulting from the
    outsourcing of residential mortgage origination operations;
    $1.3 million gain on extinguishment of debt in
    2006; and
    $624,000 decrease in trading profits.    Noninterest Expense.
  
    Salaries and employee benefits increased $7.7 million
    reflecting the additions to management and employees from the
    Royal American and Northwest Suburban acquisitions;
    Non-capitalized merger related expense was $1.3 million in
    2007 compared to $1.6 million in 2006;
    Occupancy and equipment increased $2.4 million in 2007
    compared to the prior year reflecting the additional branches
    acquired in the Royal American and Northwest Suburban
    acquisitions;
    Marketing expenses increased by $260,000 in 2007 compared to the
    prior year due to increased marketing activity;
    Amortization of intangible assets increased by $695,000; and 41




---



##### Table of Contents




    Professional services increased $499,000 in 2007 due to an
    increase in loan workout legal fees and consulting expense.    Federal and State Income Tax.
  Year Ended December 31,2007


2006(Dollars in thousands)Income taxes computed at the statutory rate

$
7,638



35.0
%

$
6,709



35.0
%Tax-exempt interest income on securities and loans


(771
)


(3.5
)


(1,171
)


(6.1
)General business credits


(643
)


(2.9
)


(665
)


(3.5
)State income taxes, net of federal tax benefit due to state
    operating loss


(1,027
)


(4.7
)


(676
)


(3.5
)Income tax reserve reversal










(591
)


(3.1
)Life insurance cash surrender value increase, net of premiums


(1,072
)


(4.9
)


(838
)


(4.4
)Dividends received deduction


(1,214
)


(5.6
)


(1,106
)


(5.8
)Nondeductible meals and entertainment


45



0.2



27



0.2Annuity proceeds


267



1.2







Merger related expenses










(278
)


(1.5
)Stock based compensation, net










56



0.3Other


23



0.1



(45
)


(0.2
)Total provision for income taxes

$
3,246



14.9
%

$
1,422



7.4
%   Recent
    Developments.
       42




---



##### Table of Contents



2006
    Compared to 2005
    
    Income was $17.7 million for the year ended
    December 31, 2006 compared to a loss of $1.6 million
    for the prior year.
    Core income (defined as income excluding the merger related and
    balance sheet repositioning charges as reconciled below in
    Supplemental Information) was $18.7 million for
    the year ended December 31, 2006, or 7.4% higher compared
    to core income of $17.4 million for the year ended
    December 31, 2005.
    Basic and diluted earnings per share for the year ended
    December 31, 2006 were $0.76 and $0.75, respectively,
    compared to a loss of $0.08 per share for both basic and diluted
    for 2005.
    2006 earnings were reduced by provisions for loan losses
    recorded to reflect the deterioration of the Large Problem
    Credit. The Company recorded a loan loss provision of
    $5.0 million relating to this problem relationship in the
    second quarter of 2006. In the fourth quarter, the Company
    recorded a $5.5 million provision for loan losses and
    charged off $7.5 million of these loans to reflect the
    deterioration of the relationship with this borrower.
    The return on average assets was 0.67% for 2006 compared to a
    negative 0.07% for 2005; core return on average assets (as
    reconciled below) was 0.71% for 2006 compared to 0.76% for 2005.
    The return on average equity was 7.04% in 2006 compared to a
    negative 0.95% in 2005; core return on average equity (as
    reconciled below) was 7.42% for 2006 compared to 10.37% for 2005.  Net Interest Income.
    
    Interest income increased $48.7 million to
    $163.5 million in 2006 compared to $114.9 million in
    2005. Average earning assets increased by $457.7 million
    (approximately $262.2 million of this increase was
    attributable to the Royal American acquisition) and average
    yields increased by 90 basis points. 43




---



##### Table of Contents




    Interest income on loans increased $43.9 million to
    $124.1 million in 2006 from $80.2 million in 2005 due
    to an increase in average rates paid on loans from 6.63% to
    7.48% and an increase of $448.0 million in average loans;
    $261.8 million of the increase in average loans was from
    the Royal American acquisition.
    Interest income on securities increased $4.7 million to
    $38.1 million in 2006 from $33.4 million in 2005 as a
    result of an increase in yields on securities from 4.81% in 2005
    to 5.39% in 2006 while average securities increased
    $12.9 million, or 1.9%.    
    Interest expense on interest-bearing liabilities increased
    $33.2 million to $84.0 million in 2006 from
    $50.8 million in 2005. Average balances on interest-bearing
    liabilities increased by $360.3 million in 2006 to
    $2.1 billion compared to $1.8 billion in the prior
    year while rates paid increased 108 basis points to 3.95%
    during 2006 compared to 2.87% in 2005.
    Interest expense on interest-bearing deposits increased by
    $23.5 million to $57.5 million in 2006 from
    $34.1 million in 2005. Average interest-bearing deposits
    increased $237.2 million to $1.6 billion in 2006
    compared to $1.3 billion in the prior year;
    $188.0 million of the increase was attributable to the
    Royal American acquisition. Average rates paid on
    interest-bearing deposits increased by 110 basis points to
    3.63% in 2006 compared to 2.53% in the prior year.  
    The migration of demand deposit, interest-bearing demand
    deposit, money market, and savings accounts into certificates of
    deposit and the reliance on more expensive wholesale funds
    contributed to the increase in the cost of funds.
    Average interest-bearing core deposits (interest-bearing demand
    deposit, money market, and savings accounts) decreased
    $26.7 million in 2006 compared to 2005 and rates paid
    increased 38 basis points.
    Average certificates of deposit less than $100,000 remained flat
    while rates paid increased by 101 basis points. Average
    certificates of deposit greater than $100,000 increased
    $266.1 million in 2006 and rates paid increased by
    176 basis points. Average brokered deposits increased by
    $136.5 million in 2006 compared to the prior year.  
    Interest expense on borrowings increased by $9.7 million to
    $26.5 million in 2006 from $16.7 million in 2005.
    Average borrowings increased by $123.0 million to
    $545.4 million in 2006 compared to $422.4 million in
    the prior year mainly due to the increase in FHLB advances;
    $15.0 million of the increase in borrowings was from the
    Royal American acquisition. This increase in borrowings was a
    result of the Companys difficulty in raising lower cost
    deposits.
    Interest expense on Federal funds purchased and securities sold
    under agreements to repurchase increased by $4.7 million in
    2006 as a result of the increases in rates of 155 basis
    points and average balances of $23.5 million.
    Interest expense on FHLB advances increased by $4.1 million
    in 2006 compared to the prior year while average balances
    increased by $94.6 million during the same period; a
    $5.0 million FHLB advance was acquired in the Royal
    American acquisition. Average rates paid on FHLB advances rose
    by only 4 basis points in 2006 to 4.29% compared to 4.25%
    in 2005.
    The Company used $64.6 million of the cash raised through a
    secondary public offering to pay for the Royal American
    acquisition. Funding costs increased as a result of replacing
    these funds with more expensive borrowings, which were offset by
    the increase in net interest income resulting from the Royal
    American acquisition.  Provision for Loan Losses.
 44




---



##### Table of Contents



Noninterest Income.
  
    $1.3 million 2006 gain on extinguishment of debt. The
    Company, as part of its program of repositioning the maturities
    of its borrowings, recognized a gain on the extinguishment of
    debt of $625,000 in the first quarter of 2006 as a result of the
    prepayment of a $28.0 million repurchase agreement and
    recognized $625,000 gain in the second quarter of 2006 as a
    result of the assignment of a $50.0 million FHLB advance;
    $629,000 increase in the cash surrender value of life insurance
    reflecting an additional purchase of bank owned life insurance
    of $6.0 million in 2006 and $12.5 million of such
    insurance acquired with Royal American;
    $616,000 increase in trust income primarily as a result of the
    trust operations acquired from Royal American;
    $594,000 increase in service charges on deposits mainly due to
    the increase in noninterest-bearing demand deposit service
    charges of $1.1 million which was partially offset by the
    decrease in overdraft fees of $514,000;
    $471,000 increase in insurance and brokerage commissions as a
    result of increased staff and brokerage activity;
    $403,000 increase in gains on sale of loans due to a 134.5%
    increase in loans sold as a result of a higher level of mortgage
    refinancing volume; and
    $211,000 increase in trading profits.    Noninterest Expense.
  
    The loss on extinguishment of debt of $13.1 million in
    2005, which did not occur in 2006;
    Other real estate expense decreased by $2.2 million in 2006
    compared to 2005 as a result of a $2.4 million write down
    of other real estate owned in the second quarter of 2005;
    Salaries and employee benefits increased $7.8 million
    reflecting additions to management and the 50 full-time
    equivalent employees from the Royal American acquisition;
    Non-capitalized merger related expense was $1.6 million in
    2006;
    Occupancy and equipment increased $1.5 million in 2006
    compared to the prior year reflecting the additional branches
    acquired in the Royal American acquisition;
    Marketing expenses increased by $294,000 in 2006 compared to the
    prior year due to increased marketing activity; and
    Professional services increased $248,000 in 2006 due to an
    increase in consulting expense. 45




---



##### Table of Contents



Federal and State Income Tax.
  Year Ended December 31,2006


2005(Dollars in thousands)Income taxes computed at the statutory rate

$
6,709



35.0
%

$
(2,770
)


(35.0
)%Tax-exempt interest income on securities and loans


(1,171
)


(6.1
)


(563
)


(7.1
)General business credits


(665
)


(3.5
)


(255
)


(3.2
)State income taxes, net of federal tax benefit due to state
    operating loss


(676
)


(3.5
)


(952
)


(12.0
)Income tax reserve reversal


(591
)


(3.1
)






Life insurance cash surrender value increase, net of premiums


(838
)


(4.4
)


(615
)


(7.8
)Life insurance death benefit










(276
)


(3.5
)Dividends received deduction


(1,106
)


(5.8
)


(868
)


(11.0
)Nondeductible meals and entertainment


27



0.2



13



0.2Merger related expenses


(278
)


(1.5
)






Stock based compensation, net


56



0.3







Other


(45
)


(0.2
)


(39
)


(0.5
)Total provision (benefit) for income taxes

$
1,422



7.4
%

$
(6,325
)


(79.9
)%   Supplemental Information.
  Year Ended December 31,2007


2006


2005(In thousands)Income (loss) from continuing operations

$
18,577


$
17,746


$
(1,589
)Merger related charges, net of tax


806



961



Loss on sale of U.S. government-sponsored entity notes, net of
    tax










10,595Charge from prepayment of FHLB advances, net of tax










5,886Charge from unwinding of swaps, net of tax










2,206Charge from redemption of trust preferred securities, net of tax










318Core income from continuing operations (non-GAAP measure)

$
19,383


$
18,707


$
17,416   Core return on average assets Core return on average equity
 46




---



##### Table of Contents



Year Ended December 31,2007


2006


2005(In thousands)Noninterest expense

$
71,395


$
58,615


$
60,527Merger related charges


(1,312
)


(1,595
)


Charge from prepayment of FHLB advances










(9,547
)Charge from unwinding of swaps










(3,578
)Charge from redemption of trust preferred securities










(516
)Core noninterest expense (non-GAAP measure)

$
70,083


$
57,020


$
46,886  47




---



##### Table of Contents



Interest-Earning
    Assets and Interest-Bearing Liabilities
    Year Ended December 31,2007


2006


2005Average





Average


Average





Average


Average





AverageBalance


Interest


Rate


Balance


Interest


Rate


Balance


Interest


Rate(Dollars in thousands)Interest-Earning Assets:Federal funds sold and interest-bearing deposits due from banks

$
17,124


$
839



4.90
%

$
10,009


$
506



5.06
%

$
18,576


$
505



2.72
%Securities:Taxable(1)


669,154



36,901



5.51



613,485



32,593



5.31



662,100



31,448



4.75Exempt from federal income taxes(1)


58,844



3,491



5.93



93,347



5,492



5.88



31,801



1,920



6.04Total securities


727,998



40,392



5.55



706,832



38,085



5.39



693,901



33,368



4.81FRB and FHLB stock


24,697



839



3.40



18,105



693



3.83



14,081



727



5.16Loans held for sale


1,450



89



6.14



2,028



125



6.16



805



47



5.84Loans:Commercial loans(1)(3)(4)


452,438



34,105



7.54



296,533



23,219



7.83



183,553



12,194



6.64Commercial real estate loans(1)(3)(4)(6)


1,336,421



100,954



7.55



1,110,828



83,891



7.55



842,889



57,130



6.78Agricultural loans(1)(3)(4)


3,406



268



7.87



2,456



191



7.78



1,615



116



7.18Consumer real estate loans(3)(4)(6)


285,999



19,207



6.72



240,601



16,207



6.74



178,982



10,492



5.86Consumer installment loans(3)(4)


10,432



788



7.55



8,502



631



7.42



3,834



293



7.64Total loans


2,088,696



155,322



7.44



1,658,920



124,139



7.48



1,210,873



80,225



6.63Total interest-earning assets

$
2,859,965


$
197,481



6.91
%

$
2,395,894


$
163,548



6.83
%

$
1,938,236


$
114,872



5.93
%Noninterest-Earning Assets:Cash

$
57,185










$
61,519










$
47,201Premises and equipment, net


27,093











21,706











22,706Allowance for loan losses


(24,977
)










(22,115
)










(17,562
)Other assets


262,724











178,134











314,505Total noninterest-earning assets


322,025











239,244











366,850Total assets

$
3,181,990










$
2,635,138










$
2,305,086Interest-Bearing Liabilities:Deposits:Interest-bearing demand deposits

$
182,276


$
3,366



1.85
%

$
150,503


$
1,759



1.17
%

$
176,355


$
2,147



1.22
%Money-market demand accounts and savings accounts


386,722



9,949



2.57



346,933



7,571



2.18



347,792



5,718



1.64Time deposits less than $100,000


761,698



37,114



4.87



747,676



31,370



4.20



747,611



23,814



3.19Time deposits of $100,000 or more


525,649



26,263



5.00



326,516



16,287



4.99



60,405



1,950



3.23Public funds














11,703



531



4.54



13,943



438



3.14Total interest-bearing deposits


1,856,345



76,692



4.13



1,583,331



57,518



3.63



1,346,106



34,067



2.53Borrowings:Federal funds purchased and repurchase agreements


304,269



13,131



4.32



255,843



11,913



4.66



232,326



7,229



3.11FHLB advance


317,232



14,769



4.66



228,811



9,808



4.29



134,194



5,701



4.25Junior subordinated debt


66,114



5,275



7.98



60,776



4,741



7.80



55,672



3,791



6.81Notes payable


21,212



1,370



6.46















202



9



4.46Total borrowings


708,827



34,545



4.87



545,430



26,462



4.85



422,394



16,730



3.96Total interest-bearing liabilities

$
2,565,172


$
111,237



4.34
%

$
2,128,761


$
83,980



3.95
%

$
1,768,500


$
50,797



2.87
%Noninterest-Bearing Liabilities:Demand deposits

$
274,819










$
220,706










$
154,180Other liabilities


38,804











33,495











214,381Total noninterest-bearing liabilities


313,623











254,201











368,561Stockholders equity


303,195











252,176











168,025Total liabilities and stockholders equity

$
3,181,990










$
2,635,138










$
2,305,086Net interest income (tax equivalent)(1)(5)





$
86,244



2.57
%





$
79,568



2.88
%





$
64,075



3.05
%Net interest margin (tax equivalent)(1)










3.02
%










3.32
%










3.31
%Net interest income(2)(5)





$
82,632










$
75,282










$
61,447Net interest margin(2)










2.89
%










3.14
%










3.17
%     (1)
    
    Adjusted for 35% tax rate and adjusted for the
    dividends-received deduction where applicable.(2)
    
    Not adjusted for 35% tax rate or for the dividends-received
    deduction.(3)
    
    Nonaccrual loans are included in the average balance; however,
    these loans are not earning any interest.(4)
    
    Includes loan fees (in thousands) of $2,747, $3,113, and $2,610
    for 2007, 2006, and 2005, respectively. 48




---



##### Table of Contents



(5)
    
    The following table reconciles reported net interest income on a
    tax equivalent basis for the periods presented (in thousands):  2007


2006


2005Net interest income

$
82,632


$
75,282


$
61,447Tax-equivalent adjustment to net interest income


3,612



4,286



2,628Net interest income, fully tax-equivalent basis

$
86,244


$
79,568


$
64,075   (6)
    
    Includes construction loans.  Changes
    in Interest Income and Expense
   49




---



##### Table of Contents



Year Ended December 31,2007 Compared to 2006


2006 Compared to 2005Change Due to


Change Due toNet


Volume


Rate


Net


Volume


Rate(In thousands)Interest-Earning Assets:Federal funds sold and interest- bearing due from banks

$
333


$
349


$
(16
)

$
1


$
(303
)

$
304Securities taxable


4,308



3,037



1,271



1,145



(2,414
)


3,559Securities exempt from federal income taxes


(2,001
)


(2,047
)


46



3,572



3,622



(50
)FRB and FHLB stock


146



231



(85
)


(34
)


180



(214
)Loans held for sale


(36
)


(35
)


(1
)


78



75



3Commercial loans


10,886



11,782



(896
)


11,025



8,545



2,480Commercial real estate loans


17,063



17,041



22



26,761



19,687



7,074Agricultural loans


77



75



2



75



65



10Consumer real estate loans


3,000



3,049



(49
)


5,715



3,988



1,727Consumer installment loans


157



146



11



338



347



(9
)Total interest-earning assets

$
33,933


$
33,628


$
305


$
48,676


$
33,792


$
14,884Interest-Bearing Liabilities:Interest-bearing demand deposits

$
1,607


$
429


$
1,178


$
(388
)

$
(305
)

$
(83
)Money market demand accounts and savings accounts


2,378



929



1,449



1,853



(14
)


1,867Time deposits of less than $100,000


5,744



598



5,146



7,556



2



7,554Time deposits of $100,000 or more


9,976



9,949



27



14,337



12,758



1,579Public funds


(531
)


(531
)






93



(79
)


172Federal funds purchased and repurchase agreements


1,218



2,136



(918
)


4,684



793



3,891FHLB advances


4,961



4,057



904



4,107



4,055



52Junior subordinated debentures


534



424



110



950



367



583Notes payable


1,370



1,370







(9
)


(9
)


Total interest-bearing liabilities

$
27,257


$
19,361


$
7,896


$
33,183


$
17,568


$
15,615Net interest

$
6,676


$
14,267


$
(7,591
)

$
15,493


$
16,224


$
(731
)  50




---



##### Table of Contents



Financial
    Condition
    Excluding


ExcludingNorthwest


NorthwestNorthwest


Suburban


SuburbanDecember 31,





Suburban


Acquisition


Acquisition2007


2006


$ Change


Acquisition(1)


$ Change


% Change(Dollars in thousands)Assets:Cash and cash equivalents(2)

$
84,499


$
100,532


$
(16,033
)

$
3,342


$
(19,375
)


(19.3
)%Securities
    available-for-sale,
    at fair value


710,881



589,981



120,900



57,597



63,303



10.7Securities
    held-to-maturity,
    at amortized cost


37,601



45,931



(8,330
)






(8,330
)


(18.1
)Total securities


748,482



635,912



112,570



57,597



54,973



8.6Federal Reserve and Federal Home Loan Bank stock


29,264



23,592



5,672



1,503



4,169



17.7Loans held for sale






2,672



(2,672
)






(2,672
)


(100.0
)Loans


2,474,327



1,946,816



527,511



439,249



88,262



4.5Allowance for loan loss


(26,748
)


(23,229
)


(3,519
)


(2,767
)


(752
)


3.2Net loans


2,447,579



1,923,587



523,992



436,482



87,510



4.5Cash surrender value of life insurance


81,166



65,220



15,946



12,884



3,062



4.7Premises and equipment, net


41,821



21,960



19,861



19,279



582



2.7Other real estate


2,220



2,640



(420
)






(420
)


(15.9
)Core deposit and other intangibles, net


17,044



11,273



5,771



8,061



(2,290
)


(20.3
)Goodwill


160,407



79,488



80,919



80,550



369



0.5Other assets


80,300



75,170



5,130



7,914



(2,784
)


(3.7
)Total assets

$
3,692,782


$
2,942,046


$
750,736


$
627,612


$
123,124



4.2
%Liabilities and stockholders equity:Noninterest-bearing

$
321,317


$
276,381


$
44,936


$
65,299


$
(20,363
)


(7.4
)%Interest-bearing


2,136,831



1,681,429



455,402



405,361



50,041



3.0Total deposits


2,458,148



1,957,810



500,338



470,660



29,678



1.5Federal funds purchased


81,000



66,000



15,000



6,170



8,830



13.4Securities sold under agreements to repurchase


283,400



201,079



82,321







82,321



40.9Advances from the Federal Home Loan Bank


323,439



319,883



3,556



3,500



56



0.0Junior subordinated debentures


60,724



65,812



(5,088
)


10,310



(15,398
)


(23.4
)Notes payable


72,500







72,500



75,000



(2,500
)


(100.0
)Due to broker


1,539







1,539







1,539



100.0Other liabilities


36,868



44,220



(7,352
)


6,982



(14,334
)


(32.4
)Total liabilities


3,317,618



2,654,804



662,814



572,622



90,192



3.4Total stockholders equity


375,164



287,242



87,922



54,990



32,932



11.5Total liabilities and stockholders equity

$
3,692,782


$
2,942,046


$
750,736


$
627,612


$
123,124



4.2
%     (1)
    
    Includes fair value adjustments.(2)
    
    Northwest Suburban Acquisition column includes cash and cash
    equivalents acquired through Northwest Suburban of $10,066 less
    cash paid for acquisition of $81,163, capitalized costs of $414,
    costs relating to registration statement of $147, and $75,000
    borrowing. 51




---



##### Table of Contents




    Total assets increased $123.1 million, or 4.2%.
    Loans increased $88.3 million, or 4.5%.
    Securities increased by $55.0 million, or 8.6%.
    Deposits increased by $29.7 million, or 1.5%.    
    The allowance for loan losses was 1.08% of total loans at
    December 31, 2007 versus 1.19% at December 31, 2006.
    The allowance for loan losses increased by $2.8 million due
    to the Northwest Suburban acquisition.
    Nonaccrual loans decreased to 1.99% of total loans at
    December 31, 2007 from 2.20% at December 31, 2006. The
    Large Problem Credit accounted for $29.0 million, or 59.0%,
    of the $49.2 million in nonaccrual loans at
    December 31, 2007.
    Allowance to nonaccrual loans coverage 0.54x for 2007 and 2006.
    Net loans charged off to average total loans were 0.20% for 2007
    compared to 0.59% for 2006. The prior year includes the
    $7.5 million charge off in the fourth quarter to reflect
    deterioration of the Large Problem Credit.  Loans
    December 31,2007(1)


2006(2)


2005(2)


2004(2)


2003(2)(In thousands)Commercial

$
1,015,799


$
376,944


$
201,284


$
184,558


$
182,344Construction


444,613



424,181



358,785



270,836



253,951Commercial real estate


600,451



761,742



496,819



411,535



359,047Home equity


157,987



147,366



115,429



100,322



77,772Other consumer


10,968



9,373



4,273



4,377



5,062Residential mortgage


244,874



227,762



174,184



126,047



77,916Total loans, gross


2,474,692



1,947,368



1,350,774



1,097,675



956,092Net deferred fees


(365
)


(552
)


(778
)


(376
)


(712
)Total loans


2,474,327



1,946,816



1,349,996



1,097,299



955,380Allowance for loan losses


(26,748
)


(23,229
)


(17,760
)


(16,217
)


(14,459
)Net loans

$
2,447,579


$
1,923,587


$
1,332,236


$
1,081,082


$
940,921Loans held for sale:Consumer real estate

$



$
2,672


$
1,912


$
693


$
1,571     (1)
    
    Source of repayment classification.(2)
    
    Collateral-based classification.  and/or
 52




---



##### Table of Contents



loan-by-loan
  Source of Repayment


Collateral-Based% of Gross





% of GrossAmount


Loans


Amount


Loans(Dollars in thousands)Commercial

$
1,015,799



41.0
%

$
464,902



18.8
%Construction


444,613



18.0



451,103



18.2Commercial real estate


600,451



24.3



1,087,876



44.0Home equity


157,987



6.4



193,506



7.8Other consumer


10,968



0.4



10,968



0.4Residential mortgage


244,874



9.9



266,337



10.8Total loans, gross


2,474,692



100.0
%


2,474,692



100.0
%Net deferred fees


(365
)






(365
)Total loans, net

$
2,474,327






$
2,474,327     Excluding


ExcludingNorthwest


NorthwestNorthwest


Suburban


SuburbanDecember 31,





Suburban


Acquisition


Acquisition2007


2006


$ Change


Acquisition(1)


$ Change


% Change(Dollars in thousands)Commercial

$
464,902


$
376,944


$
87,958


$
94,510


$
(6,552
)


(1.7
)%Construction


451,103



424,181



26,922



55,060



(28,138
)


(6.6
)Commercial real estate


1,087,876



761,742



326,134



211,929



114,205



15.0Home equity


193,506



147,366



46,140



45,698



442



0.3Other consumer


10,968



9,373



1,595



4,238



(2,643
)


(28.2
)Residential mortgage


266,337



227,762



38,575



27,814



10,761



4.7Total loans, gross


2,474,692



1,947,368



527,324



439,249



88,075



4.5Net deferred fees


(365
)


(552
)


187







187



(33.9
)Total loans


2,474,327



1,946,816



527,511



439,249



88,262



4.5Allowance for loan losses


(26,748
)


(23,229
)


(3,519
)


(2,767
)


(752
)


3.2Net loans

$
2,447,579


$
1,923,587


$
523,992


$
436,482


$
87,510



4.5
%     (1)
    
    Based on Northwest Suburbans FRY-9C September 30,
    2007 data with acquisition fair value adjustments.    
    Total loans increased $88.3 million, or 4.5%.
    Commercial loans decreased $6.6 million, or 1.7%. 53




---



##### Table of Contents




    Construction loans decreased by $28.1 million or 6.6%.
    Commercial real estate loans rose by $114.2 million or
    15.0%.
    Consumer loans decreased $2.2 million or 1.4%.
    Residential mortgage loans increased $10.8 million or 4.7%.      
    The primary risks associated with commercial loans are the
    quality of the borrowers management, financial strength
    and cash flow resources, and the impact of local economic
    factors.
    Risks associated with real estate loans include concentrations
    of loans in a certain loan type, such as commercial or
    residential, and fluctuating land and property values.
    Consumer loans also have risks associated with concentrations of
    loans in a single type of loan, as well as the risk a borrower
    may become unemployed as a result of deteriorating economic
    conditions.  sub-prime
  Loan
    Maturities
    One Year


1-5 Years


Over 5 YearsOr Less


Fixed


Variable


Fixed


Variable


Total(In thousands)Commercial

$
491,960


$
380,517


$
70,972


$
59,169


$
13,181


$
1,015,799Construction


396,858



25,427



20,572



1,756







444,613Commercial real estate


190,069



355,928



39,633



13,406



1,415



600,451Home equity


16,450



14,349



66,248



180



60,760



157,987Other consumer


6,203



4,082



683











10,968Residential mortgage


51,688



57,993



11,925



63,321



59,947



244,874Total loans, gross


1,153,228



838,296



210,033



137,832



135,303



2,474,692Net deferred fees






















(365
)Total loans





















$
2,474,327   Nonaccrual
    Loans
   54




---



##### Table of Contents



case-by-case
      December 31,2007


2006


2005


2004


2003(Dollars in thousands)Impaired and other loans 90 days past due and accruing

$



$
34


$
4


$
21


$
11Nonaccrual and impaired loans not accruing

$
49,173


$
42,826


$
7,905


$
9,296


$
14,916Foreclosed properties


2,220



2,640



11,154



8,064



6,712Total nonperforming assets

$
51,393


$
45,466


$
19,059


$
17,360


$
21,628Total nonaccrual loans to total loans


1.99
%


2.20
%


0.59
%


0.85
%


1.56
%Total nonperforming assets to total loans and foreclosed
    properties


2.08



2.33



1.40



1.57



2.25Total nonperforming assets to total assets


1.39



1.55



0.83



0.78



0.96          55




---



##### Table of Contents



December 31,2007


2006Nonaccrual loansLarge Problem Credit

$
28,989


$
25,825Remainder of portfolio


20,184



17,001Total nonaccrual loans

$
49,173


$
42,826Nonperforming assetsLarge Problem Credit

$
28,989


$
25,825Remainder of portfolio


22,404



19,641Total nonperforming assets

$
51,393


$
45,466LoansLarge Problem Credit

$
28,989


$
27,902Remainder of portfolio


2,445,338



1,918,914Total loans

$
2,474,327


$
1,946,816Loan-related assets(1)Large Problem Credit

$
28,989


$
27,902Remainder of portfolio


2,447,558



1,921,554Total loan-related assets

$
2,476,547


$
1,949,456Nonaccrual loans to loansTotal


1.99
%


2.20
%Without Large Problem Credit


0.83



0.89Nonperforming assets to loan-related assetsTotal


2.08
%


2.33
%Without Large Problem Credit


0.92



1.02     (1)
    
    Includes loans and foreclosed properties.  Analysis
    of Allowance for Loan Losses
       56




---



##### Table of Contents



57




---



##### Table of Contents



Year Ended December 31,2007


2006


2005


2004


2003(Dollars in thousands)Average total loans

$
2,088,696


$
1,658,920


$
1,210,873


$
984,976


$
995,078Total loans at end of year

$
2,474,327


$
1,946,816


$
1,349,996


$
1,097,299


$
955,380Total nonaccrual loans

$
49,173


$
42,826


$
7,905


$
9,296


$
14,916Allowance at beginning of year

$
23,229


$
17,760


$
16,217


$
14,459


$
19,540Addition resulting from acquisition


2,767



3,244











300Allowance adjustment for loan sale by related parties(1)


















(6,685
)Charge-offs:Commercial loans


5,092



5,912



1,668



819



7,645Consumer real estate loans


458



360



15



37



48Commercial real estate loans


336



4,401



772



1,162



1,500Agricultural loans


















Consumer installment loans


89



136



64



130



77Total charge-offs


5,975



10,809



2,519



2,148



9,270Recoveries:Commercial loans


885



616



1,448



163



1,072Consumer real estate loans


9



4



5



32



2Commercial real estate loans


927



339



6



261



10Agricultural loans


















Consumer installment loans


15



25



14



50



35Total recoveries


1,836



984



1,473



506



1,119Net charge-offs


4,139



9,825



1,046



1,642



8,151Provision for loan losses


4,891



12,050



2,589



3,400



9,455Allowance at end of the year

$
26,748


$
23,229


$
17,760


$
16,217


$
14,459Net charge-offs to average total loans


0.20
%


0.59
%


0.09
%


0.17
%


0.82
%Allowance to total loans at end of year


1.08



1.19



1.32



1.48



1.51Allowance to nonaccrual loans


0.54
x


0.54
x


2.25
x


1.74
x


0.97
x     (1)
    
    Adjustment made following the Banks receipt of
    $13.3 million of proceeds from an entity indirectly owned
    by certain directors and family members of directors relating to
    the sale of previously classified loans, of which
    $12.5 million was applied to outstanding principal,
    $750,000 to fund a letter of credit, and $67,000 applied to
    accrued interest income and late charges on March 26, 2003.
    As a consequence, the Bank recognized a $4.0 million
    after-tax capital contribution as a result of the sale of these
    loans to the related parties.   58




---



##### Table of Contents



December 31,2007


2006


2005


2004


2003Loan





Loan





Loan





Loan





LoanCategory





Category





Category





Category





CategoryTo





To





To





To





ToGross





Gross





Gross





Gross





GrossAmount


Loans


Amount


Loans


Amount


Loans


Amount


Loans


Amount


Loans(Dollars in thousands)Commercial

$
6,369



21.52
%

$
6,156



19.87
%

$
7,727



14.54
%

$
8,124



16.72
%

$
6,479



18.57
%Commercial real estate


19,336



65.15



16,166



65.35



7,807



69.24



6,837



68.92



7,101



72.04Agricultural


2



0.20



3



0.13



3



0.15







0.11







0.09Consumer real estate


603



12.64



352



14.10



864



15.76



385



13.90



257



8.81Consumer installment


81



0.49



90



0.55



46



0.31



438



0.35



360



0.49Unallocated


357







462







1,313







44







262



Total allowance for loan losses

$
26,748



100.00
%

$
23,229



100.00
%

$
17,760



100.00
%

$
16,217



100.00
%

$
14,459



100.00
%         Special Mention:
  and/or
    Substandard:
 59




---



##### Table of Contents



Doubtful:
      03-3, (SOP 03-3), SOP 03-3 SOP 03-3 SOP 03-3,
  Securities
   60




---



##### Table of Contents



available-for-sale held-to-maturity
  December 31, 2007Held-to-Maturity


Available-for-Sale


Total% ofAmortized


Fair


Amortized


Fair


Amortized


Fair


AmortizedCost


Value


Cost


Value


Cost


Value


Cost(Dollars in thousands)U.S. Treasury and obligations of U.S. government-sponsored
    entities

$



$



$
181,983


$
183,613


$
181,983


$
183,613



23.59
%Obligations of states and political subdivisions


1,254



1,268



60,985



61,400



62,239



62,668



8.07Mortgage-backed securities


36,347



35,644



383,633



379,040



419,980



414,684



54.44Equity securities










85,139



65,979



85,139



65,979



11.04Other bonds










22,095



20,849



22,095



20,849



2.86Total

$
37,601


$
36,912


$
733,835


$
710,881


$
771,436


$
747,793



100.00
%   December 31, 2006Held-to-Maturity


Available-for-Sale


Total% ofAmortized


Fair


Amortized


Fair


Amortized


Fair


AmortizedCost


Value


Cost


Value


Cost


Value


Cost(Dollars in thousands)U.S. Treasury and obligations of U.S. government-sponsored
    entities

$



$



$
6,958


$
6,958


$
6,958


$
6,958



1.08
%Obligations of states and political subdivisions


1,686



1,697



97,167



96,987



98,853



98,684



15.29Mortgage-backed securities


44,245



42,990



444,392



434,108



488,637



477,098



75.56Equity securities










41,131



41,521



41,131



41,521



6.36Other bonds










11,034



10,407



11,034



10,407



1.71Total

$
45,931


$
44,687


$
600,682


$
589,981


$
646,613


$
634,668



100.00
%   December 31, 2005Held-to-Maturity


Available-for-Sale


Total% ofAmortized


Fair


Amortized


Fair


Amortized


Fair


AmortizedCost


Value


Cost


Value


Cost


Value


Cost(Dollars in thousands)U.S. Treasury and obligations of U.S. government-sponsored
    entities

$



$



$
24,866


$
24,719


$
24,866


$
24,719



3.27
%Obligations of states and political subdivisions


6,138



6,182



79,463



78,350



85,601



84,532



11.26Mortgage-backed securities


53,313



52,150



521,896



511,312



575,209



563,462



75.66Equity securities










63,574



62,930



63,574



62,930



8.36Other bonds










11,054



10,626



11,054



10,626



1.45Total

$
59,451


$
58,332


$
700,853


$
687,937


$
760,304


$
746,269



100.00
%    61




---



##### Table of Contents



available-for-sale available-for-sale sub-prime other-than-temporary sub-prime
  available-for-sale available-for-sale available-for-sale available-for-sale
  
    U.S. Treasury and obligations of
    U.S. government-sponsored entities increased by
    $176.7 million to $183.6 million, or 23.6% of the
    securities portfolio, at December 31, 2007 compared to
    $7.0 million at year end 2006.
    U.S. government agency and government-sponsored entity
    mortgage-backed securities decreased 12.7%, or
    $55.1 million, from $434.1 million at
    December 31, 2006 to $379.0 million at
    December 31, 2007.
    Equity securities increased $24.5 million to
    $66.0 million at December 31, 2007 from
    $41.5 million at December 31, 2006. Equity securities
    included capital securities of U.S. government-sponsored
    entities.
    Obligations of state and political subdivisions decreased
    $35.6 million to $61.4 million at December 31,
    2007 from $97.0 million at December 31, 2006.
    Other bonds doubled to $20.8 million at December 31,
    2007 compared to $10.4 million at December 31, 2006.
    Other bonds include high grade corporate bonds primarily issued
    by financial institutions.  held-to-maturity
   62




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##### Table of Contents



Investment
    Maturities and Yields
  available-for-sale held-to-maturity
  MaturingAfter One But


After Five ButWithin One


Within


Within


AfterYear


Five Years


Ten Years


Ten Years


TotalAmount


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-sponsored
    entities

$
2,003



5.03
%

$





%

$
181,610



5.76
%

$





%

$
183,613



5.75
%Obligations of states and political subdivisions


142



3.59



1,867



3.79



43,556



3.74



15,835



4.07



61,400



3.83Mortgage-backed securities










352,953



5.61



26,087



5.96











379,040



4.87Equity securities(1)


























65,979



5.71



65,979



5.71Other bonds


















10,370



4.46



10,479



6.49



20,849



5.50Total

$
2,145



4.93
%

$
354,820



5.60
%

$
261,623



5.39
%

$
92,293



5.52
%

$
710,881



5.10
%Held-to-Maturity
    Securities:Obligations of states and political subdivisions

$





%

$
452



4.31
%

$
802



3.84
%

$





%

$
1,254



4.01
%Mortgage-backed securities










5,682



5.37



30,665



4.98











36,347



5.04Total

$





%

$
6,134



5.30
%

$
31,467



4.95
%

$





%

$
37,601



5.00
%     (1)
    
    Equity securities, although they do not have a maturity date,
    are included in the after ten years column.  Deposits
   63




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##### Table of Contents



Excluding


ExcludingNorthwest


NorthwestNorthwest


Suburban


SuburbanDecember 31,





Suburban


Acquisition


Acquisition2007


2006


$ Change


Acquisition(1)


$ Change


% Change(Dollars in thousands)Noninterest-bearing demand

$
321,317


$
276,381


$
44,936


$
65,299


$
(20,363
)


(7.4
)%Interest-bearing demand


226,225



161,585



64,640



28,403



36,237



22.4Money market


291,501



272,577



18,924



46,325



(27,401
)


(10.1
)Savings


129,476



105,378



24,098



31,387



(7,289
)


(6.9
)Certificates of deposit less than $100,000


866,770



721,578



145,192



80,967



64,225



8.9Certificates of deposit over $100,000


622,859



420,311



202,548



218,279



(15,731
)


(3.7
)Total interest-bearing deposits


2,136,831



1,681,429



455,402



405,361



50,041



3.0Total deposits

$
2,458,148


$
1,957,810


$
500,338


$
470,660


$
29,678



1.5
%     (1)
    
    Includes fair value adjustments.    
    Deposits increased by $29.7 million, or 1.5%;
    noninterest-bearing deposits decreased by $20.4 million
    while interest-bearing deposits increased by $50.0 million.
    Core deposits, which include noninterest-bearing demand,
    interest-bearing demand, money market, and savings deposits,
    decreased $18.8 million.
    Certificates of deposits less than $100,000 increased 8.9% or
    $64.2 million.
    Certificates of deposit over $100,000 decreased
    $15.7 million.    Year Ended December 31,2007


2006


2005Average


Percent of





Average


Percent of





Average


Percent ofBalance


Deposits


Rate


Balance


Deposits


Rate


Balance


Deposits


Rate(Dollars in thousands)Noninterest-bearing demand deposits

$
274,819



12.90
%


0.00
%

$
220,706



12.23
%


0.00
%

$
154,180



10.28
%


0.00
%Interest-bearing demand deposits


182,276



8.55



1.85



150,503



8.34



1.17



176,355



11.75



1.22Savings and money market accounts


386,722



18.15



2.57



346,933



19.23



2.18



347,792



23.18



1.64Time Deposits:Certificates of deposit, less than $100,000(1)


761,698



35.74



4.87



747,676



41.44



4.20



747,611



49.83



3.19Certificates of deposit, over $100,000(1)


525,649



24.66



5.00



326,516



18.10



4.99



60,405



4.03



3.23Public funds














11,703



0.65



4.54



13,943



0.93



3.14Total time deposits


1,287,347



60.40



4.92



1,085,895



60.19



4.44



821,960



54.79



3.19Total deposits

$
2,131,164



100.00
%


3.60
%

$
1,804,037



100.00
%


3.19
%

$
1,500,286



100.00
%


2.27
%     (1)
    
    Certificates of deposit exclusive of public funds. 64




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##### Table of Contents



not-for-profit
  December 31,2007


2006


2005(In thousands)Three months or less

$
308,259


$
271,994


$
131,607Over three months through six months


241,765



63,168



29,278Over six months through twelve months


230,985



160,478



74,054Over twelve months


75,598



58,020



11,848Total

$
856,607


$
553,660


$
246,787   Borrowings
    December 31,2007


2006


2005(In thousands)Federal funds purchased

$
81,000


$
66,000


$
68,000Securities sold under agreements to repurchase


283,400



201,079



264,808Notes payable


72,500







Junior subordinated debentures


60,724



65,812



55,672FHLB advances


323,439



319,883



150,000Total

$
821,063


$
652,774


$
538,480       Year Ended December 31,2007


2006


2005(Dollars in thousands)Federal funds purchased:Balance at end of year

$
81,000


$
66,000


$
68,000Weighted average interest rate at end of year


4.15
%


5.30
%


4.26
%Maximum amount outstanding(1)

$
109,000


$
95,000


$
73,000Average amount outstanding


35,630



29,474



27,888Weighted average interest rate during year(2)


5.13
%


5.18
%


3.64
%     (1)
    
    Based on amounts outstanding at each month end during the year.(2)
    
    During 2006 and 2005, there were four and eight increases,
    respectively, in the federal funds target rate.  65




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##### Table of Contents



Year Ended December 31,2007


2006


2005(Dollars in thousands)Securities sold under repurchase agreements:Balance at end of year

$
283,400


$
201,079


$
264,808Weighted average interest rate at end of year


4.21
%


4.40
%


3.83
%Maximum amount outstanding(1)

$
317,118


$
294,599


$
264,808Average amount outstanding


268,639



226,369



204,438Weighted average interest rate during year


4.21
%


4.59
%


3.04
%     (1)
    
    Based on amount outstanding at month end during each year.      Year Ended December 31,2007


2006


2005(Dollars in thousands)FHLB advances:Balance at end of year

$
323,439


$
319,883


$
150,000Weighted average interest rate at end of year


4.49
%


4.54
%


3.48
%Maximum amount outstanding(1)

$
323,439


$
319,883


$
150,000Average amount outstanding


317,232



228,811



134,194Weighted average interest rate during year


4.66
%


4.29
%


4.25
%     (1)
    
    Based on amount outstanding at month end during each year.    Year Ended December 31,2007


2006


2005(Dollars in thousands)Notes payable:Balance at end of year

$
72,500


$



$
Weighted average interest rate at end of year


6.63
%



%



%Maximum amount outstanding(1)

$
92,500


$



$
2,000Average amount outstanding


21,212







202Weighted average interest rate during year


6.46
%



%


4.33
%     (1)
    
    Based on amount outstanding at month end during each year.   66




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##### Table of Contents



December 31,2007


2006




Mandatory

OptionalIssuer

Issue Date

Amount


Amount


Rate

Redemption Date

Redemption Date(In thousands)MBHI Capital Trust II

October 29, 2002

$



$
15,464


LIBOR+3.45%

November 7, 2032

November 7, 2007MBHI Capital Trust III

December 19, 2003


9,279



9,279


LIBOR+3.00%

December 30, 2033

December 30, 2008MBHI Capital Trust IV

December 19, 2003


10,310



10,310


LIBOR+2.85%

January 23, 2034

January 23, 2009MBHI Capital Trust V

June 7, 2005


20,619



20,619


LIBOR+1.77%

June 15, 2035

June 15, 2010Royal Capital Trust I

April 30, 2004


10,206



10,140


6.62% until July 23, 2009;
    then LIBOR+2.75%

July 23, 2034

July 23, 2009Northwest Suburban Capital Trust I

May 18, 2004


10,310






LIBOR+2.70%

July 23, 2034

July 23, 2009Total



$
60,724


$
65,812     Capital
    Resources
      Risk-Based Capital Ratios December 31,2007


2006


2005Amount


Ratio


Amount


Ratio


Amount


Ratio(Dollars in thousands)Tier 1 capital to risk-weighted assets

$
258,862



9.21
%

$
266,753



11.92
%

$
274,408



16.97
%Tier 1 capital minimum requirement


112,457



4.00



89,492



4.00



64,691



4.00Total capital to risk-weighted assets


285,843



10.17



290,158



12.97



292,168



18.07Total capital minimum requirements


224,914



8.00



178,984



8.00



129,381



8.00Total risk-weighted assets


2,811,423







2,237,305







1,617,267      67




---



##### Table of Contents



Liquidity
        available-for-sale, available-for-sale Securities Risk
    Factors
   68




---



##### Table of Contents



Contractual
    Obligations, Commitments, and Off-Balance Sheet
    Arrangements
  December 31, 2007Payments Due By PeriodWithin








After1 Year


2-3 Years


4-5 Years


5 Years


Other(1)


Total(In thousands)Deposits without a stated maturity

$
968,519


$



$



$



$



$
968,519Consumer and brokered certificates of deposits


1,372,625



93,470



23,534











1,489,629Securities sold under agreements to repurchase














283,400







283,400FHLB advances


3,500



104,939



25,000



190,000







323,439Junior subordinated debentures














60,724







60,724Notes payable


2,500



70,000















72,500Operating leases


1,206



1,706



1,024



3,204







7,140FIN 48 liability


















769



769Total contractual cash obligations

$
2,348,350


$
270,115


$
49,558


$
537,328


$
769


$
3,206,120     (1)
    
    Duration of liability in not determinable.    Amount of Commitment Expiration Per PeriodWithin








After1 Year


2-3 Years


4-5 Years


5 Years


Total(In thousands)Lines of Credit:Commercial real estate

$
172,355


$
33,859


$
11,907


$
307


$
218,428Consumer real estate


42,943



30,395



42,725



49,444



165,507Consumer














2,213



2,213Commercial


259,149



6,120



1,467



2,867



269,603Letters of credit


39,873



23,496



2,602







65,971Commitments to extend credit


97,365















97,365Total commitments

$
611,685


$
93,870


$
58,701


$
54,831


$
819,087   Asset/Liability
    Management
  other-than-trading
   69




---



##### Table of Contents



Effects
    of Inflation
   70




---



##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    Change in Net Interest Income Over One Year HorizonGuidelineDecember 31, 2007


December 31, 2006


MaximumDollar


%


Dollar


%


%Change


Change


Change


Change


Change(Dollars in thousands)+200 bp

$
(2,161
)


(2.36
)%

$
(3,172
)


(4.00
)%


(10.0
)%+100 bp


694



0.76



(1,683
)


(2.12
)


(10.0
)−100 bp


(225
)


(0.25
)


1,410



1.78



(10.0
)−200 bp


(3,507
)


(3.83
)


(1,511
)


(1.90
)


(10.0
)       sub-prime sub-prime
   71




---



##### Table of Contents



0-3


4-12





OverMonths


Months


1-5 Years


5 Years


Total(Dollars in thousands)INTEREST-EARNING ASSETS:Federal funds sold and other short-term investments

$
14,388


$



$



$



$
14,388Securities
    available-for-sale,
    at fair value


169,773



316,093



92,880



132,135



710,881Securities
    held-to-maturity,
    at amortized cost


11,168



16,809



8,859



765



37,601Federal Reserve Bank and Federal Home Loan Bank stock














29,264



29,264Loans


1,228,939



321,179



761,162



163,047



2,474,327Total interest-earning assets

$
1,424,268


$
654,081


$
862,901


$
325,211


$
3,266,461INTEREST-BEARING LIABILITIES:Interest-bearing demand deposits

$
20,360


$
61,081


$
144,784


$



$
226,225Money market deposits


26,235



78,705



186,561







291,501Savings deposits


11,653



34,959



82,864







129,476Time deposits


510,367



863,362



115,900







1,489,629Total interest-bearing deposits


568,615



1,038,107



530,109







2,136,831Federal funds purchased


81,000















81,000Securities sold under agreements to repurchase


35,000











248,400



283,400Advances from the Federal Home Loan Bank


3,500



50,000



129,939



140,000



323,439Junior subordinated debentures


50,518







10,206







60,724Notes payable


72,500















72,500Total borrowings


242,518



50,000



140,145



388,400



821,063Total interest-bearing liabilities

$
811,133


$
1,088,107


$
670,254


$
388,400


$
2,957,894Interest sensitivity gap

$
613,135


$
(434,026
)

$
192,647


$
(63,189
)

$
308,567Cumulative interest sensitivity gap

$
613,135


$
179,109


$
371,756


$
308,567Interest sensitivity gap to total assets


16.60
%


(11.75
)%


5.22
%


(1.71
)%Cumulative interest sensitivity gap to total assets


16.60
%


4.85
%


10.07
%


8.36
%      72




---



##### Table of Contents



Item 8.
    Consolidated
    Financial Statements and Supplementary Data  page F-1.
  Item 9.
    Changes
    in and Disagreements With Independent Accountants On Accounting
    and Financial Disclosure    Item 9A.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures
  Rule 13a-15(e)).
  Managements
    Report on Internal Control Over Financial
    Reporting
  Rule 13a-15(f)
     73




---



##### Table of Contents



Item 9B.
    Other
    Information   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   74




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##### Table of Contents



PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  Index to Financial Statements
  Form 10-K page F-1.
  Financial Statement Schedules
  Form 10-K
  Exhibits
    2
.1

Agreement and Plan of Merger, dated as of March 22, 2007,
    by and between Midwest Banc Holdings, Inc. and Northwest
    Suburban Bancorp., Inc. (incorporated by reference to
    Registrants Report on
    Form 8-K
    filed March 23, 2007, File
    No. 001-13735).3
.1

Amended and Restated Certificate of Incorporation, as amended
    (incorporated by reference to Registrants
    Form 10-Q
    for the quarter ended September 30, 2007, File
    No. 001-13735).3
.1.1

Certificate of Designation for the Series A Preferred Stock
    (incorporated by reference to Registrants Report on
    Form 8-K
    filed December 7, 2007, File
    No. 001-13735).3
.1.2

Deposit Agreement, dated December 5, 2007, among the
    Registrant, Illinois Stock Transfer Company and the holders from
    time to time of the Depositary Receipts issued pursuant to the
    Deposit Agreement (incorporated by reference to
    Registrants Report on
    Form 8-K
    filed December 7, 2007, File
    No. 001-13735).3
.2

Amended and Restated By-laws, filed September 27, 2005
    (incorporated by reference to Registrants Report on
    Form 8-K
    filed December 14, 2007, File
    No. 001-13735).4
.1

Specimen Common Stock Certificate (incorporated by reference to
    Registrants Registration Statement on
    Form S-1,
    Registration
    No. 333-42827).4
.1.1

Form of Certificate for the Preferred Stock (incorporated by
    reference to Registrants Report on
    Form 8-K
    filed December 7, 2007, File
    No. 001-13735).4
.1.2

Form of Depositary Receipt for the Depositary Shares
    (incorporated by reference to Registrants Report on
    Form 8-K
    filed December 7, 2007, File
    No. 001-13735).4
.2

Certain instruments defining the rights of the holders of
    long-term debt of the Company and certain of its subsidiaries,
    none of which authorize a total amount of indebtedness in excess
    of 10% of the total assets of the Company and its subsidiaries
    on a consolidated basis, have not been filed as Exhibits. The
    Company hereby agrees to furnish a copy of any of these
    agreements to the SEC upon request.*10
.1

Midwest Banc Holdings, Inc. Stock and Incentive Plan
    (incorporated by reference to Registrants
    Form 10-K
    for the year ended December 31, 2006, File
    No. 001-13735).*10
.4

Form of Transitional Employment Agreements (incorporated by
    reference to Registrants Registration Statement on
    Form S-1,
    Registration
    No. 333-42827).10
.5

Lease dated as of December 24, 1958, between Western
    National Bank of Cicero and Midwest Bank and Trust Company,
    as amended (incorporated by reference to Registrants
    Registration Statement on
    Form S-1,
    Registration
    No. 333-42827).10
.6

Britannica Centre Lease, dated as of May 1, 1994, between
    Chicago Title and Trust Company, as Trustee under
    Trust Agreement dated November 2, 1977 and known as
    Trust No. 1070932 and Midwest Bank and
    Trust Company (incorporated by reference to
    Registrants Registration Statement on
    Form S-1,
    Registration
    No. 333-42827).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). 75




---



##### Table of Contents



10
.8

Office Lease, undated, between Grove Lodge No. 824 Ancient
    Free and Accepted Masons and Midwest Bank of Hinsdale
    (incorporated by reference to Registrants Registration
    Statement on
    Form S-1,
    Registration
    No. 333-42827).*10
.15

Form of 2001 Supplemental Executive Retirement Agreement
    (incorporated by reference to Registrants
    Form 10-Q
    for the quarter ended September 30, 2001, File
    No. 001-13735).*10
.16

Form of Transitional Employment Agreement (Executive Officer
    Group) (incorporated by reference to Registrants
    Form 10-Q
    for the quarter ended September 30, 2001, File
    No. 001-13735).*10
.17

Form of Restricted Stock Award Agreement for Officers,
    Restricted Stock Grant Notice for Officers, Incentive and
    Nonqualified Stock Options Award Agreements, and Stock Option
    Grant Notice for Officers (incorporated by reference to
    Registrants Report on
    Form 8-K
    filed August 29, 2005, File
    No. 001-13735).*10
.18

Form of 2005 Supplemental Executive Retirement Agreement
    (incorporated by reference to Registrants Report on
    Form 8-K
    filed October 28, 2005, File
    No. 001-13735).*10
.19

Form of Restricted Stock Award Agreement for Non-employee
    Directors and Restricted Stock Grant Notice for Non-employee
    Directors (incorporated by reference to Registrants Report
    on
    Form 8-K
    filed October 28, 2005, File
    No. 001-13735).10
.21

Lease dated as of April 29, 1976, between Joseph C. and
    Grace Ann Sanfilippo and Fairfield Savings and Loan Association,
    as amended (incorporated by reference to Registrants
    Form 10-K
    for the year ended December 31, 2003, File
    No. 001-13735).10
.22

Lease dated as of August 28, 2002 between Glen Oak Plaza
    and Midwest Bank and Trust Company (incorporated by
    reference to Registrants
    Form 10-K
    for the year ended December 31, 2003, File
    No. 001-13735).10
.24

Loan Agreement as of April 4, 2007, between the Company and
    M&I Marshall & Ilsley Bank (incorporated by
    reference to Registrants Report on
    Form 8-K
    filed April 6, 2007, File
    No. 001-13735).*10
.25

Employment Agreement as of September 28, 2004 between the
    Company and the Chief Executive Officer (incorporated by
    reference to Registrants
    Form 10-Q
    for the quarter ended September 30, 2004, File
    No. 001-13735).*10
.27

Midwest Banc Holdings, Inc. Severance Policy as of June 28,
    2005 (incorporated by reference to Registrants
    Form 8-K
    dated June 28, 2005, File
    No. 001-13735).10
.29

Midwest Banc Holdings, Inc. Directors Deferred Compensation Plan
    (incorporated by reference to Registrants Report on
    Form 8-K
    filed December 16, 2005, File
    No. 001-13735).*10
.30

Amendment to Employment Agreement as of September 28, 2004
    between the Company and the Chief Executive Officer
    (incorporated by reference to Registrants Report on
    Form 8-K
    filed March 24, 2006, File
    No. 001-13735).*10
.31

Amended and Restated Employment Agreement dated February 8,
    2006 by and between Royal American Bank and Jay Fritz, assumed
    by the Company as of July 1, 2006 (incorporated by
    reference to Registrants Report on
    Form 8-K
    filed July 7, 2006, File
    No. 001-13735).10
.32

Lease dated April 1, 1993, by and between Royal American
    Bank and LaSalle National Trust, N.A., as amended, assumed by
    the Company as of July 1, 2006 (incorporated by reference
    to Registrants
    Form 10-Q
    for the quarter ended September 30, 2006, File
    No. 001-13735).10
.33

Lease dated April 19, 1993 by and between Royal American
    Bank and Hamilton Forsythe 1000 Tower Lane LLC,
    successor-in-interest
    to Bensenville Office Venture, as amended, assumed by the
    Company as of July 1, 2006 (incorporated by reference to
    Registrants
    Form 10-Q
    for the quarter ended September 30, 2006, File
    No. 001-13735).10
.34

Sublease dated January 31, 2006 by and between Royal
    American Bank and JPMorgan Chase Bank, National Association,
    assumed by the Company as of July 1, 2006 (incorporated by
    reference to Registrants
    Form 10-Q
    for the quarter ended September 30, 2006, File
    No. 001-13735).10
.35

Lease dated January 20, 2006 by and between Royal American
    Bank and MEG Associates Limited Partnership, assumed by the
    Company as of July 1, 2006 (incorporated by reference to
    Registrants
    Form 10-Q
    for the quarter ended September 30, 2006, File
    No. 001-13735). 76




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##### Table of Contents



10
.36

Lease dated October 28, 1996 by and between Royal American
    Bank and Tiffany Pointe, Inc./Marquette Bank, as amended,
    assumed by the Company as of July 1, 2006 (incorporated by
    reference to Registrants
    Form 10-Q
    for the quarter ended September 30, 2006, File
    No. 001-13735).10
.37

Lease dated September 24, 1999, by and between Royal
    American Bank and Moats Office Properties, Inc., as amended,
    assumed by the Company as of July 1, 2006 (incorporated by
    reference to Registrants
    Form 10-Q
    for the quarter ended September 30, 2006, File
    No. 001-13735).10
.38

Lease dated July 14, 2006 by and between Midwest Bank and
    Trust Company and William C. Moran (incorporated by
    reference to Registrants
    Form 10-Q
    for the quarter ended September 30, 2006, File
    No. 001-13735).*10
.39

First Amendment to the Form of 2001 Supplemental Executive
    Retirement Agreement (incorporated by reference to
    Registrants Report on
    Form 8-K
    filed October 28, 2005, File
    No. 001-13735).*10
.40

Second Amendment to the Form of 2001 Supplemental Executive
    Retirement Agreement (incorporated by reference to
    Registrants
    Form 10-Q
    for the quarter ended September 30, 2006, File
    No. 001-13735).*10
.41

Form of 2006 Supplemental Executive Retirement Agreement
    (incorporated by reference to Registrants
    Form 10-Q
    for the quarter ended September 30, 2006, File
    No. 001-13735).*10
.42

First Amendment to the Form of 2005 Supplemental Executive
    Retirement Agreement (incorporated by reference to
    Registrants
    Form 10-Q
    for the quarter ended September 30, 2006, File
    No. 001-13735).10
.43

Lease dated November 9, 2005 by and between Midwest Bank
    and Trust Company and Crossings Commercial, LLC
    (incorporated by reference to Registrants
    Form 10-Q
    for the quarter ended September 30, 2006, File
    No. 001-13735).10
.44

Lease dated August 17, 2005 by and between Royal American
    Bank and L.F.A.J.J. Partners, LLC, assumed by the Company as of
    July 1, 2006 (incorporated by reference to
    Registrants
    Form 10-Q
    for the quarter ended March 31, 2007, File
    No. 001-13735).10
.45

Loan Agreement dated as of September 28, 2007 and amendment
    of loan agreement dated April 4, 2007, between the Company
    and M&I Marshall & Ilsley Bank (incorporated by
    reference to Registrants Report on
    Form 8-K
    filed October 1, 2007, File
    No. 001-13735).*10
.46

Form of 2007 Transitional Employment Agreement (incorporated by
    reference to Registrants Report on
    Form 8-K
    filed October 1, 2007, File
    No. 001-13735).*10
.47

Form of 2007 Supplemental Executive Retirement Agreement
    (incorporated by reference to Registrants Report on
    Form 8-K
    filed October 1, 2007, File
    No. 001-13735).*10
.48

First Amendment to the Midwest Banc Holdings, Inc. Stock and
    Incentive Plan (incorporated by reference to Registrants
    Report on
    Form 8-K
    filed October 1, 2007, File
    No. 001-13735).10
.49

Lease dated December 27, 2007 by and between Midwest Bank
    and Trust Company and George Garner and Barbara Garner.*10
.50

Mutual Agreement RE Severance and Retirement dated
    January 14, 2008 between the Company and John Eilering.21
.1

Subsidiaries.23
.1

Consent of PricewaterhouseCoopers LLP.31
.1

Rule 13a-14(a)
    Certification of Principal Executive Officer.31
.2

Rule 13a-14(a)
    Certification of Principal Financial Officer.32
.1

Certification Pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002, from the Companys Chief Executive Officer and
    Chief Accounting Officer.     *
    
    Indicates management contracts or compensatory plans or
    arrangements required to be filed as an exhibit. 77




---



##### Table of Contents



SIGNATURES    Midwest Banc Holdings,
    Inc.
   By:
    /s/  James
    J. Giancola   President and Chief Executive Officer
      Form 10-K,
  Signature

Title

Date/s/  Homer
    J. Livingston, Jr.Homer
    J. Livingston, Jr.

Chairman of the Board, Director

March 14, 2008/s/  James
    J. GiancolaJames
    J. Giancola

President, Chief Executive Officer, and Director

March 14, 2008/s/  Angelo
    A. DiPaoloAngelo
    A. DiPaolo

Director

March 14, 2008/s/  Barry
    I. ForresterBarry
    I. Forrester

Director

March 14, 2008/s/  Robert
    J. GenetskiRobert
    J. Genetski

Director

March 14, 2008/s/  Gerald
    F. HartleyGerald
    F. Hartley

Director

March 14, 2008/s/  J.
    J. FritzJ.
    J. Fritz

Executive Vice President and Director

March 14, 2008 78




---



##### Table of Contents



Signature

Title

Date/s/  Dennis
    M. OHaraDennis
    M. OHara

Director

March 14, 2008/s/  Joseph
    RizzaJoseph
    Rizza

Director

March 14, 2008/s/  Thomas
    A. RosenquistThomas
    A. Rosenquist

Director

March 14, 2008/s/  E.V.
    SilveriE.V.
    Silveri

Director

March 14, 2008/s/  Kenneth
    VeloKenneth
    Velo

Director

March 14, 2008/s/  Leon
    WolinLeon
    Wolin

Director

March 14, 2008/s/  Jan
    R. ThiryJan
    R. Thiry

Senior Vice President and Chief
    Accounting Officer

March 14, 2008  79




---



##### 



MIDWEST
    BANC HOLDINGS, INC.CONSOLIDATED FINANCIAL STATEMENTS 
    CONTENTS
   
 FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEETS


F-2CONSOLIDATED STATEMENTS OF INCOME


F-3CONSOLIDATED STATEMENTS OF STOCKHOLDERS
    EQUITY


F-4CONSOLIDATED STATEMENTS OF CASH FLOWS


F-5NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


F-7REPORT OF INDEPENDENT REGISTERED PUBLIC
    ACCOUNTING FIRM


F-41   F-1




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.



CONSOLIDATED
    BALANCE SHEETS  December 31,2007


2006(In thousands, except share and per share data)ASSETSCash

$
70,111


$
91,630Federal funds sold and other short-term investments


14,388



8,902Total cash and cash equivalents


84,499



100,532Securities available-for-sale, at fair value


710,881



589,981Securities held-to-maturity, at amortized cost (fair value:
    $36,912 at December 31, 2007 and $44,687 at
    December 31, 2006).


37,601



45,931Total securities


748,482



635,912Federal Reserve Bank and Federal Home Loan Bank stock, at cost


29,264



23,592Loans held for sale






2,672Loans


2,474,327



1,946,816Allowance for loan losses


(26,748
)


(23,229
)Net loans


2,447,579



1,923,587Cash surrender value of life insurance


81,166



65,220Premises and equipment, net


41,821



21,960Foreclosed properties


2,220



2,640Core deposit and other intangibles, net


17,044



11,273Goodwill


160,407



79,488Other assets


80,300



75,170Total assets

$
3,692,782


$
2,942,046LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesDepositsNoninterest-bearing

$
321,317


$
276,381Interest-bearing


2,136,831



1,681,429Total deposits


2,458,148



1,957,810Federal funds purchased


81,000



66,000Securities sold under agreements to repurchase


283,400



201,079Advances from the Federal Home Loan Bank


323,439



319,883Junior subordinated debentures


60,724



65,812Notes payable


72,500



Due to broker


1,539



Other liabilities


36,868



44,220Total liabilities


3,317,618



2,654,804Commitments and contingencies (see note 19)Stockholders EquityPreferred stock, $0.01 par value, $2,500 liquidation
    preference, 1,000,000 shares authorized; 17,250 shares
    issued and outstanding at December 31, 2007 and none issued
    at December 31, 2006






Common stock, $0.01 par value, 64,000,000 shares
    authorized; 29,275,687 shares issued and 27,803,794
    outstanding at December 31, 2007 and 25,504,095 shares
    issued and 24,663,417 outstanding at December 31, 2006


293



255Additional paid-in capital


300,762



200,797Retained earnings


102,762



97,807Accumulated other comprehensive loss


(13,917
)


(6,273
)Treasury stock, at cost (1,471,893 shares at
    December 31, 2007 and 840,678 shares at
    December 31, 2006)


(14,736
)


(5,344
)Total stockholders equity


375,164



287,242Total liabilities and stockholders equity

$
3,692,782


$
2,942,046    F-2




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##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.



CONSOLIDATED
    STATEMENTS OF INCOME  Year Ended December 31,2007


2006


2005(In thousands, except per share data)Interest incomeLoans

$
155,044


$
123,854


$
79,900Loans held for sale


89



125



47SecuritiesTaxable


34,787



30,325



29,429Exempt from federal income taxes


2,269



3,570



1,248Trading securities


2



189



388Dividend income from Federal Reserve Bank and Federal Home Loan
    Bank stock


839



693



727Federal funds sold and other short-term investments


839



506



505Total interest income


193,869



159,262



112,244Interest expenseDeposits


76,692



57,518



34,067Federal funds purchased


1,829



1,526



1,016Securities sold under agreements to repurchase


11,302



10,387



6,213Advances from the Federal Home Loan Bank


14,769



9,808



5,701Junior subordinated debentures


5,275



4,741



3,791Notes payable


1,370







9Total interest expense


111,237



83,980



50,797Net interest income


82,632



75,282



61,447Provision for loan losses


4,891



12,050



2,589Net interest income after provision for loan losses


77,741



63,232



58,858Noninterest incomeService charges on deposit accounts


6,697



5,733



5,139Net gains (losses) on securities transactions


32



(153
)


(17,440
)Net trading profits






624



413Gains on sale of loans


443



760



357Insurance and brokerage commissions


2,287



1,990



1,519Trust


1,857



919



303Increase in cash surrender value of life insurance


3,063



2,394



1,765Life insurance benefit










789Gain on extinguishment of debt






1,250



Other


1,098



1,034



910Total noninterest income


15,477



14,551



(6,245
)Noninterest expenseSalaries and employee benefits


42,215



34,476



26,693Occupancy and equipment


9,482



7,076



5,584Professional services


5,470



4,971



4,723Loss on extinguishment of debt










13,125Marketing


2,309



2,049



1,755Foreclosed properties


34



311



2,551Amortization of intangible assets


1,918



1,223



1,193Merger related


1,312



1,595



Other


8,655



6,914



4,903Total noninterest expense


71,395



58,615



60,527Income (loss) before income taxes and discontinued operations


21,823



19,168



(7,914
)Provision (benefit) for income taxes


3,246



1,422



(6,325
)Income (loss) from continuing operations


18,577



17,746



(1,589
)Discontinued operationsIncome from discontinued operations before income taxes










9,236Provision for income taxes










1,703Income from discontinued operations










7,533Net income


18,577



17,746



5,944Preferred stock dividends


(204
)






Net income available to common stockholders

$
18,373


$
17,746


$
5,944Basic earnings per share from continuing operations

$
0.72


$
0.76


$
(0.08
)Basic earnings per share from discontinued operations










0.38Basic earnings per share


0.72



0.76



0.30Diluted earnings per share from continuing operations


0.72



0.75



(0.08
)Diluted earnings per share from discontinued operations










0.38Diluted earnings per share


0.72



0.75



0.30Cash dividends declared per common share


0.52



0.51



0.48    F-3




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##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.



CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY


AccumulatedOther





TotalPreferred


Common





Retained


Restricted


Comprehensive


Treasury


StockholdersStock


Stock


Surplus


Earnings


Stock


Income (Loss)


Stock


Equity(In thousands, except share and per share data)Balance, December 31, 2004

$



$
187


$
65,781


$
95,829


$
(2,642
)

$
(16,457
)

$
(5,275
)

$
137,423Cash dividends declared ($0.48 per share)














(9,652
)














(9,652
)Issuance of 3,450,000 shares of stock, net of issuance costs






34



67,901



















67,935Issuance of common stock upon exercise of 397,051 stock options,
    net of tax benefits










606















4,146



4,752Issuance of 63,700 shares of restricted stock, net of
    forfeiture










569







(1,244
)






675



Stock-based compensation expense


















873











873Comprehensive incomeNet income














5,944















5,944Net increase in fair value of securities classified as
    available-for-sale, net of income taxes and reclassification
    adjustments






















8,851







8,851Total comprehensive income






























14,795Balance, December 31, 2005






221



134,857



92,121



(3,013
)


(7,606
)


(454
)


216,126Cash dividends declared ($0.51 per share)














(12,060
)














(12,060
)Issuance of 2,865,933 shares of stock upon acquisition






29



63,738



















63,767Issuance of common stock upon exercise of 151,894 stock options,
    net of tax benefits






2



2,551



















2,553Purchase of 204,188 treasury shares


























(4,770
)


(4,770
)Reclassification of restricted stock in conjunction with the
    adoption of FAS 123(R)










(3,013
)






3,013











Issuance of 347,179 shares of restricted stock






3



(3
)


















Forfeiture of 9,250 shares of restricted stock










120















(120
)


Stock-based compensation expense










2,547



















2,547Comprehensive incomeNet income














17,746















17,746Net increase in fair value of securities classified as
    available-for-sale, net of income taxes and reclassification
    adjustments






















1,333







1,333Total comprehensive income






























19,079Balance, December 31, 2006






255



200,797



97,807







(6,273
)


(5,344
)


287,242Cash dividends declared ($0.52 per share) on common stock














(13,418
)














(13,418
)Cash dividends declared ($11.84 per share) on preferred stock














(204
)














(204
)Issuance of 17,250 shares of preferred stock, net of
    issuance costs










41,441



















41,441Issuance of 3,680,725 shares of stock upon acquisition






37



54,953



















54,990Issuance of common stock upon exercise of 36,443 stock options,
    net of tax benefits










429



















429Purchase of 661,500 treasury shares


























(9,392
)


(9,392
)Issuance of 59,700 shares of restricted stock






1



(1
)


















Stock-based compensation expense










3,143



















3,143Comprehensive incomeNet income














18,577















18,577Net decrease in fair value of securities classified as
    available-for-sale, net of income taxes and reclassification
    adjustments






















(7,644
)






(7,644
)Total comprehensive income






























10,933Balance, December 31, 2007

$



$
293


$
300,762


$
102,762


$



$
(13,917
)

$
(14,736
)

$
375,164    F-4




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##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.



CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Year Ended December 31,2007


2006


2005(In thousands)Cash flows from continuing operating activitiesNet income

$
18,577


$
17,746


$
5,944(Income) loss from discontinued operations










(7,533
)Adjustments to reconcile net income to net cash provided by
    operating activitiesDepreciation


3,288



2,546



2,324Provision for loan losses


4,891



12,050



2,589Amortization of other intangibles


912



933



429Proceeds from sales of trading securities, net






624



597Amortization of premiums and discounts on securities, net


819



832



1,967Realized (gain) loss on sales of available-for-sale securities


(32
)


153



17,440Net gain on sales of trading securities






(624
)


(413
)Net gain on sales of mortgage loans


(443
)


(760
)


(357
)Originations of loans held for sale


(40,800
)


(61,163
)


(27,302
)Proceeds from sales of loans held for sale


43,915



61,163



26,083Increase in cash surrender value of life insurance


(3,063
)


(2,394
)


(1,765
)Life insurance benefit










(789
)Deferred income taxes


(323
)


5,373



2,685Loss (gain) on sale of other real estate, net


12







(89
)Amortization of unearned stock based compensation


3,085



2,501



873Change in other assets


7,602



(15,943
)


(25,927
)Change in other liabilities


(14,569
)


10,978



3,780Net cash provided by continuing operating activities


23,871



34,015



536Cash flows from continuing investing activitiesSales of securities available-for-sale


189,495



101,730



357,303Redemption of Federal Reserve Bank and Federal Home Loan Bank
    stock


499



1,427



148Sales of securities held-to maturity


2,039







Maturities of securities available-for-sale


93,571



16,500



123,070Principal payments on securities available-for-sale


69,254



77,164



56,122Purchases of securities available-for-sale


(428,468
)


(80,771
)


(793,034
)Purchases of Federal Reserve Bank and Federal Home Loan Bank
    stock


(3,128
)


(8,931
)


(979
)Purchases of securities held-to-maturity










(1,010
)Maturities of securities held-to-maturity


430



4,435



3,635Principal payments on securities held-to-maturity


5,665



8,829



26,081Purchase of mortgage loans


(5,776
)


(10,014
)


Loan originations and principal collections, net


(85,378
)


(98,312
)


(257,360
)Proceeds from sale/leaseback of branch property






4,403



Disposition of subsidiary, net










35,621Cash paid, net of cash and cash equivalents in acquisition


(71,658
)


(41,044
)


Proceeds from sale of other real estate


225



8,779



1,350Return of life insurance premium and benefit










1,351Investment in life insurance






(5,926
)


Additions to property and equipment


(3,869
)


(5,178
)


(1,083
)Net cash used in continuing investing activities


(237,099
)


(26,909
)


(448,785
)Cash flows from continuing financing activitiesNet increase (decrease) in deposits


29,324



(32,218
)


21,738Issuance of junior subordinated debt owed to unconsolidated
    trusts, net of debt issuance costs










20,619Payments of junior subordinated debt owed to unconsolidated
    trusts


(15,000
)






(20,619
)Proceeds from borrowings


192,500



365,000



152,000Repayments on borrowings


(120,000
)


(200,000
)


(123,500
)Common cash dividends paid


(13,004
)


(11,439
)


(9,164
)Preferred cash dividends paid


(204
)






Change in federal funds purchased and securities sold under
    agreements to repurchase


91,151



(95,729
)


185,923Issuance of common stock










68,453Issuance of preferred stock


41,441







Repurchase of common stock


(9,392
)


(4,770
)


Proceeds from issuance of treasury stock under stock option plan


378



1,983



4,374Net cash provided by (used in) continuing financing activities


197,194



22,827



299,824 F-5




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS  (Continued)
  Year Ended December 31,2007


2006


2005(In thousands)Cash flows from discontinued operationsNet cash provided by operating activities of discontinued
    operations










4,641Net cash used in investing activities of discontinued operations










(29,161
)Net cash provided by financing activities of discontinued
    operations










113Net cash used in discontinued operations










(24,407
)(Decrease) increase in cash and cash equivalents


(16,034
)


29,933



(172,832
)Cash and cash equivalents at beginning of year(1)


100,532



70,599



243,431Cash and cash equivalents at end of year

$
84,499


$
100,532


$
70,599(1) Includes following balances from discontinued operations

$



$



$
24,407Supplemental disclosuresCash paid during the year for:Interest

$
109,483


$
80,191


$
54,494Income taxes


10,100



2,811



3,219Dividends declared not paid

$
3,672


$
3,258


$
2,638AcquisitionNoncash assets acquired

$
624,270


$
619,835


$
Liabilities assumed


497,622


$
515,024


$
Net noncash assets acquired

$
126,648


$
104,811


$
Cash and cash equivalents acquired

$
10,066


$
24,363


$



F-6




---



##### 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 and Cash Equivalents:
  Securities:
 F-7




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Loans:
  Deferred Loan Fees and Costs:
  Allowance for Loan Losses:
        Cash Surrender Value of Life Insurance:
  Premises and Equipment:
 F-8




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Foreclosed Properties:
  Core Deposit and Other Intangibles:
  Goodwill:
  Income Taxes:
  Securities Sold Under Agreements to
    Repurchase:
  Transfers of Financial Assets:
  Fair Value of Financial Instruments and
    Derivatives:
  Stock Compensation:
  Comprehensive Income:
 F-9




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Earnings Per Common Share:
  Dividend Restriction:
  Reclassifications:
  Accounting Pronouncements:
         F-10




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Note 3 
    Business
    Combinations  Northwest
    Suburban Bancorp,
    Inc.
     F-11




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (In thousands)Purchase price of Northwest Suburban:Market value of the Companys stock issued

$
55,137Cash paid


81,163Total consideration


136,300Capitalized costs


414Total cost

$
136,714Historical net assets of Northwest Suburban

$
52,388Fair market value adjustments:Securities available-for-sale


(323
)Loans


(970
)Goodwill


80,550Core deposit intangible


8,061Premises and equipment


1,726Deposits


(2,140
)Severance


(88
)Deferred taxes on purchase accounting adjustment


(2,490
)Total adjustments to record the transaction

$
136,714  F-12




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Fair MarketNorthwest


Value


AsSuburban


Adjustment


Adjusted(In thousands)Assets acquired:Cash and cash equivalents

$
10,066


$



$
10,066Securities available-for-sale


57,920



(323
)


57,597Federal Reserve Bank and Federal Home Loan Bank stock


1,503







1,503Loans, net


437,452



(970
)


436,482Cash value of life insurance


12,884







12,884Premises and equipment, net


17,553



1,726



19,279Core deposit intangible, net






8,061



8,061Goodwill






80,550



80,550Other assets


7,914







7,914Total assets acquired


545,292



89,044



634,336Liabilities assumed:Deposits


468,520



2,140



470,660Federal funds purchased


6,170







6,170Advances from the Federal Home Loan Bank


3,500







3,500Junior subordinated debentures


10,310







10,310Other liabilities (including severance)


4,404



2,578



6,982Total liabilities assumed


492,904



4,718



497,622Assets acquired less liabilities assumed

$
52,388


$
84,326


$
136,714   03-3, (SOP 03-3) SOP 03-3 SOP 03-3 SOP 03-3,
 F-13




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (In thousands)Commercial

$
726Construction


211Commercial real estate


2,736Home equity


Residential mortgage


260Total carrying value

$
3,933     (In thousands)Balance at beginning of year

$
Additions


393Accretion


(144
)Balance at end of year

$
249     (In thousands)Contractually required payments receivable at acquisition:Commercial

$
1,299Construction


296Commercial real estate


4,293Home equity


102Residential mortgage


430Total

$
6,420Cash flows expected to be collected at acquisition

$
4,504Basis in acquired loans at acquisition


3,933   Royal
    American Corporation
     F-14




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      (In thousands)Purchase price of Royal American:Market value of the Companys stock issued

$
63,767Cash paid


64,612Total consideration


128,379Capitalized costs


795Total cost

$
129,174Historical net assets of Royal American

$
44,606Fair market value adjustments:Loans


(2,837
)Goodwill


78,597Core deposit intangible


10,488Premises and equipment


41Deposits


1,867Federal Home Loan Bank Advance


146Junior subordinated debenture


204Deferred taxes on purchase accounting adjustment


(3,938
)Total adjustments to record the transaction

$
129,174  F-15




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Fair MarketRoyal


Value


AsAmerican


Adjustment


Adjusted(In thousands)Assets acquired:Cash and cash equivalents

$
24,363


$



$
24,363Securities available-for-sale


16,487







16,487Federal Reserve Bank and Federal Home Loan Bank stock


1,427







1,427Loans, net


497,376



(2,837
)


494,539Cash value of life insurance


12,467







12,467Premises and equipment, net


1,254



41



1,295Core deposit intangible, net






10,488



10,488Goodwill






78,597



78,597Other assets


4,535







4,535Total assets acquired


557,909



86,289



644,198Liabilities assumed:Deposits


467,878



(1,867
)


466,011Federal funds purchased


30,000







30,000Advances from the Federal Home Loan Bank


5,000



(146
)


4,854Junior subordinated debentures


10,310



(204
)


10,106Other liabilities


115



3,938



4,053Total liabilities assumed


513,303



1,721



515,024Assets acquired less liabilities assumed

$
44,606


$
84,568


$
129,174     2007


2006


2005(In thousands, except per share data)Net interest income

$
96,429


$
106,061


$
99,065Income from continuing operations


16,983



20,386



7,543Net income


16,983



20,386



15,076Basic earnings per share from continuing operations


0.60



0.72



0.29Basic earnings per share


0.60



0.72



0.58Diluted earnings per share form continuing operations


0.60



0.71



0.29Diluted earnings per share


0.60



0.71



0.57   change-in-control
 F-16




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 4 
    Discontinued
    Operations      2005Interest income

$
10,386Interest expense


4,427Net interest income


5,959Provision for loan losses


(183
)Net interest income after provision for loan losses


6,142Noninterest income


(1,301
)Noninterest expense


4,345Income before income taxes


496Benefit for income taxes


(156
)Operating income from discontinued operations


652Gain on sale of discontinued operations


8,740Tax on gain on sale of discontinued operations


1,859Gain on sale of discontinued operations, net of tax


6,881Income from discontinued operations

$
7,533   Note 5 
    Securities    December 31, 2007Gross


GrossAmortized


Unrealized


UnrealizedCost


Gains


Losses


Fair Value(In thousands)Securities available-for-saleObligations of U.S. government-sponsored entities

$
181,983


$
1,630


$



$
183,613Obligations of states and political subdivisions


60,985



550



(135
)


61,400Mortgage-backed securities


383,633



58



(4,651
)


379,040Equity securities


85,139







(19,160
)


65,979Corporate and other debt securities


22,095







(1,246
)


20,849Total securities available-for-sale

$
733,835


$
2,238


$
(25,192
)

$
710,881Securities held-to-maturityObligations of states and political subdivisions

$
1,254


$
14


$



$
1,268Mortgage-backed securities


36,347



8



(711
)


35,644Total securities held-to-maturity

$
37,601


$
22


$
(711
)

$
36,912   F-17




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  December 31, 2006Gross


GrossAmortized


Unrealized


UnrealizedCost


Gains


Losses


Fair Value(In thousands)Securities available-for-saleObligations of U.S. government-sponsored entities

$
6,958


$



$



$
6,958Obligations of states and political subdivisions


97,167



316



(496
)


96,987Mortgage-backed securities


444,392



18



(10,302
)


434,108Equity securities


41,131



533



(143
)


41,521Corporate and other debt securities


11,034







(627
)


10,407Total securities available-for-sale

$
600,682


$
867


$
(11,568
)

$
589,981Securities held-to-maturityObligations of states and political subdivisions

$
1,686


$
12


$
(1
)

$
1,697Mortgage-backed securities


44,245







(1,255
)


42,990Total securities held-to-maturity

$
45,931


$
12


$
(1,256
)

$
44,687     December 31, 2007Less Than 12 Months


12 Months or More


TotalFair


Unrealized


Fair


Unrealized


Fair


UnrealizedValue


Losses


Value


Losses


Value


Losses(In thousands)Securities available-for-saleObligations of states and political subdivisions

$
5,121


$
(35
)

$
9,900


$
(100
)

$
15,021


$
(135
)Mortgage-backed securitiesU.S. government-sponsored entities(1)


39,127



(182
)


331,054



(4,469
)


370,181



(4,651
)Equity securities(2)


65,979



(19,160
)










65,979



(19,160
)Corporate and other debt securities


10,479



(603
)


10,370



(643
)


20,849



(1,246
)Total securities available-for-sale


120,706



(19,980
)


351,324



(5,212
)


472,030



(25,192
)Securities held-to-maturityMortgage-backed securitiesU.S. government agencies(3)










8,105



(54
)


8,105



(54
)U.S. government-sponsored entities(1)










26,394



(657
)


26,394



(657
)Total securities held-to-maturity










34,499



(711
)


34,499



(711
)Total temporarily impaired securities

$
120,706


$
(19,980
)

$
385,823


$
(5,923
)

$
506,529


$
(25,903
)     (1)
    
    Includes obligations of the Federal Home Loan Mortgage
    Corporation (FHLMC) and Federal National Mortgage Association
    (FNMA).(2)
    
    Includes issues from government-sponsored entities (FNMA and
    FHLMC).(3)
    
    Includes obligations of the Government National Mortgage
    Association (GNMA). F-18




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   December 31, 2006Less Than 12 Months


12 Months or More


TotalFair


Unrealized


Fair


Unrealized


Fair


UnrealizedValue


Losses


Value


Losses


Value


Losses(In thousands)Securities available-for-saleObligations of U.S. government-sponsored entities(1)

$
1,997


$



$



$



$
1,997


$
Obligations of states and political subdivisions


43,452



(305
)


12,500



(191
)


55,952



(496
)Mortgage-backed securitiesU.S. government agencies(2)










564



(9
)


564



(9
)U.S. government-sponsored entities(1)










432,749



(10,293
)


432,749



(10,293
)Equity securities(3)


18,876



(143
)










18,876



(143
)Corporate and other debt securities










10,407



(627
)


10,407



(627
)Total securities available-for-sale


64,325



(448
)


456,220



(11,120
)


520,545



(11,568
)Securities held-to-maturityObligations of states and political subdivisions


516



(1
)










516



(1
)Mortgage-backed securitiesU.S. government agencies(2)


883



(11
)


8,767



(160
)


9,650



(171
)U.S. government-sponsored entities(1)


32







33,308



(1,084
)


33,340



(1,084
)Total securities held-to-maturity


1,431



(12
)


42,075



(1,244
)


43,506



(1,256
)Total temporarily impaired securities

$
65,756


$
(460
)

$
498,295


$
(12,364
)

$
564,051


$
(12,824
)     (1)
    
    Includes obligations of the Federal Home Loan Mortgage
    Corporation (FHLMC) and Federal National Mortgage Association
    (FNMA).(2)
    
    Includes obligations of the Government National Mortgage
    Association (GNMA).(3)
    
    Includes issues from government-sponsored entities (FNMA and
    FHLMC).   F-19




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  
    The unrealized losses on U.S. government-sponsored entities
    mortgage-backed securities relate primarily to debt securities
    issued by FNMA and FHLMC and are rated AAA; each security has a
    stated maturity date. FNMA is rated Aa3, AA- and A+ by
    Moodys, S&P and Fitch, respectively. FHLMC is rated
    Aa3 and AA- by Moodys and Fitch, respectively. The
    mortgage-backed securities are notes with a weighted average
    maturity of approximately 22 years and a weighted average
    interest rate of 5.02%.
    The unrealized losses on corporate and other debt securities
    relate to securities which were rated A- or better by either
    Moodys or S&P at December 31, 2007 and 2006.
    These debt securities have a weighted average maturity of
    approximately 18 years and a weighted average interest rate
    of 5.36%.
    The unrealized losses on equity securities relate to perpetual
    preferred equity securities issued by FNMA and FHLMC which were
    rated AA- or better by either Moodys or S&P at
    December 31, 2007 and 2006, and carry tax-equivalent yields
    averaging 8.22%. The unrealized losses on these securities
    increased significantly in late 2007, peaking in mid-November as
    a result of unfavorable economic news, mostly related to
    declines in the sub-prime mortgage market, the housing slump,
    and a series of major corrections in the marketplace. Both of
    these government-sponsored entities raised substantial new
    equity capital through the issuance of additional preferred
    stock in late 2007, which the Company believes shows
    investors confidence in the issuers strength,
    long-term viability and ability to fund dividends. Despite the
    period of time these securities have been impaired and the
    magnitude of the decline in value, the Company believes it is
    too soon as of December 31, 2007 to conclude that the
    unrealized losses are other-than-temporary in nature and further
    believes as of December 31, 2007 that the market
    fluctuations that precipitated the steep drop in values in late
    2007 will reverse over time. The price performance of these
    securities subsequent to year-end 2007 has, however, been
    choppy. As indicated above, if a pattern of recovery does not
    appear in the near future, the Company would be required to
    recognize impairment losses.   F-20




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    AmortizedCost


Fair Value(In thousands)Securities available-for-saleDue in one year or less

$
2,132


$
2,145Due after one year through five years


1,843



1,867Due after five years through ten years


234,123



235,536Due after ten years


26,965



26,314265,063



265,862Mortgage-backed securities


383,633



379,040Total debt securities


648,696



644,902Equity securities


85,139



65,979Total securities available-for-sale

$
733,835


$
710,881Securities held-to-maturityDue in one year or less

$



$
Due after one year through five years


452



458Due after five years through ten years


802



8101,254



1,268Mortgage-backed securities


36,347



35,644Total securities held-to-maturity

$
37,601


$
36,912     Year Ended December 31,2007


2006


2005(In thousands)Proceeds from sales

$
189,495


$
101,730


$
357,303Gross realized gains

$
893


$
341


$
825Gross realized losses


(831
)


(494
)


(18,265
)Net gains (losses) on securities transactions

$
62


$
(153
)

$
(17,440
)    F-21




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 6 
    Loans    December 31,2007(1)


2006(2)% of Gross





% of GrossAmount


Loans


Amount


Loans(Dollars in thousands)Commercial

$
1,015,799



41.0
%

$
376,944



19.4
%Construction


444,613



18.0



424,181



21.8Commercial real estate


600,451



24.3



761,742



39.0Home equity


157,987



6.4



147,366



7.6Other consumer


10,968



0.4



9,373



0.5Residential mortgage


244,874



9.9



227,762



11.7Total loans, gross


2,474,692



100.0
%


1,947,368



100.0
%Net deferred fees


(365
)






(552
)Total loans,net

$
2,474,327






$
1,946,816     (1)
    
    Source of repayment classification.(2)
    
    Collateral-based classification.  and/or loan-by-loan
  Source of Repayment


Collateral-Based% of Gross





% of GrossAmount


Loans


Amount


Loans(Dollars in thousands)Commercial

$
1,015,799



41.0
%

$
464,902



18.8
%Construction


444,613



18.0



451,103



18.2Commercial real estate


600,451



24.3



1,087,876



44.0Home equity


157,987



6.4



193,506



7.8Other consumer


10,968



0.4



10,968



0.4Residential mortgage


244,874



9.9



266,337



10.8Total loans, gross


2,474,692



100.0
%


2,474,692



100.0
%Net deferred fees


(365
)






(365
)Total loans, net

$
2,474,327






$
2,474,327  F-22




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 7 
    Related
    Party Transactions    (In thousands)Balance at December 31, 2006

$
32,619New loans


29,275Repayments


(20,910
)Balance at December 31, 2007

$
40,984   Note 8 
    Allowance
    for Loan Losses    Year Ended December 31,2007


2006(In thousands)Balance at beginning of year

$
23,229


$
17,760Addition resulting from acquisition


2,767



3,244Provision for loan losses


4,891



12,050Loans charged off


(5,975
)


(10,809
)Recoveries on loans previously charged off


1,836



984Net loans charged off


(4,139
)


(9,825
)Balance at end of year

$
26,748


$
23,229     Year Ended December 31,2007


2006(In thousands)Impaired loans for which no allowance for loan losses is
    allocated

$
15,490


$
10,317Impaired loans with an allocation of the allowance for loan
    losses


43,652



41,845Total impaired loans

$
59,142


$
52,162Allowance for loan losses allocated to impaired loans

$
14,029


$
13,247   Year Ended December 31,2007


2006(In thousands)Average impaired loans

$
54,956


$
44,792Interest income recognized on impaired loans on a cash basis


1,432



2,920    F-23




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Note 9 
    Premises
    and Equipment    December 31,2007


2006(In thousands)Land and improvements

$
15,609


$
7,834Buildings and improvements


35,686



23,362Furniture and equipment


26,509



19,865Total cost


77,804



51,061Accumulated depreciation


(35,983
)


(29,101
)Premises and equipment, net

$
41,821


$
21,960   Note 10 
    Goodwill
    and Core Deposit Intangibles    December 31, 2007


December 31, 2006Gross








Gross





NetCarrying


Accumulated


Net Carrying


Carrying


Accumulated


CarryingAmount


Amortization


Amount


Amount


Amortization


AmountAmortizing intangible assets:Core deposit intangibles

$
21,091


$
(4,047
)

$
17,044


$
13,618


$
(2,345
)

$
11,273       2007


2006Core Deposit





Core Depositand Other





and OtherGoodwill


Intangibles


Goodwill


IntangiblesBalance at beginning of year

$
79,488


$
11,273


$
891


$
1,788Addition resulting from acquisition


80,550



8,061



78,597



10,488Amortization






(1,702
)






(1,003
)Purchase price adjustment


369











Core deposit intangible retired(1)






(588
)






Balance at end of year

$
160,407


$
17,044


$
79,488


$
11,273  F-24




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (1)
    
    On January 3, 2003, the Company purchased Big Foot
    Financial Corp. As a result of this acquisition, the Company had
    unrecognized tax benefits related to employee severance payments
    and acquisition costs. These unrecognized tax benefits were
    recognized in the first quarter of 2007, when the statute of
    limitations for Internal Revenue Service (IRS) audit
    of the final short period return closed. These unrecognized tax
    benefits, totaling $429,000, were credited to the core deposit
    intangible created as a result of the acquisition. A reversal of
    $283,000 in tax liability established on the date of acquisition
    was also credited to the core deposit intangible in the first
    quarter of 2007. During the third quarter of 2007, the core
    deposit intangible was increased by $124,000 due to an
    adjustment related the estimated tax liability established on
    the date of acquisition.  Note 11 
    Time
    Deposits      (In thousands)2008

$
1,372,6242009


75,7092010


17,7622011


9,2432012


14,291Thereafter


$
1,489,629   Note 12 
    Securities
    Sold Under Agreements to Repurchase    2007


2006(In thousands)Outstanding at end of year

$
283,400


$
201,079Weighted average interest rate at year end


4.21
%


4.40
%Maximum amount outstanding as of any month end

$
317,118


$
294,599Average amount outstanding


268,639



226,369Approximate weighted average rate during the year


4.21
%


4.59
%     CollateralU.S. Government-SponsoredEntities Obligations andMortgage-BackedSecuritiesRepurchase


Weighted Average


AmortizedOriginal Term

Liability


Interest Rate


Cost


Fair Value(In thousands)Over 3 years

$
283,400



4.21
%

$
295,836


$
295,710  F-25




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 13 
    Advances
    from the Federal Home Loan Bank    December 31,2007


2006Weighted Average





Weighted AverageRate


Amount


Rate


Amount(In thousands)Advances from the Federal Home Loan Bank due2008


4.80
%

$
3,500




%

$
2009


4.16



4,939



4.16



4,8832010


4.99



100,000



4.51



150,0002011


4.65



25,000



4.85



75,0002012














Thereafter


4.20



190,000



4.37



90,000Total


4.49
%

$
323,439



4.54
%

$
319,883     Note 14 
    Junior
    Subordinated Debentures      December 31,




Mandatory

OptionalIssuer

Issue Date

2007


2006


Rate

Redemption Date

Redemption DateMBHI Capital Trust II

October 29, 2002

$



$
15,464


LIBOR+3.45%

November 7, 2032

November 7, 2007MBHI Capital Trust III

December 19, 2003


9,279



9,279


LIBOR+3.00%

December 30, 2033

December 30, 2008MBHI Capital Trust IV

December 19, 2003


10,310



10,310


LIBOR+2.85%

January 23, 2034

January 23, 2009MBHI Capital Trust V

June 7, 2005


20,619



20,619


LIBOR+1.77%

June 15, 2035

June 15, 2010Royal Capital Trust I

April 30, 2004


10,206



10,140


6.62% until July 23, 2009;

July 23, 2034

July 23, 2009then LIBOR+2.75%Northwest SuburbanCapital Trust I

May 18, 2004


10,310






LIBOR+2.70%

July 23, 2034

July 23, 2009Total



$
60,724


$
65,812    F-26




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 15 
    Notes
    Payable        Note 16 
    Preferred
    Stock  th
        Note 17 
    Capital
    Requirements     F-27




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        December 31,


December 31,2007


2006(In thousands)Risk-weighted assets

$
2,811,423


$
2,237,305Average assets


3,721,444



2,946,366Capital components:Stockholders equity

$
375,164


$
287,242Plus: Guaranteed trust preferred securities


59,000



64,000Less: Core deposit and other intangibles, net


(17,044
)


(11,273
)Less: Goodwill


(160,407
)


(79,488
)Plus: Unrealized losses on securities, net of tax


13,917



6,273Less: Unrealized losses on equity securities, net of tax


(11,768
)


Tier I capital


258,862



266,754Allowance for loan losses


26,748



23,229Reserve for unfunded commitments


233



Unrealized gains on equity securities, net of tax






175Total risk-based capital

$
285,843


$
290,158  F-28




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Minimum RequiredFor Capital


To Be WellActual


Adequacy Purposes


CapitalizedAmount


Ratio


Amount


Ratio


Amount


Ratio(Dollars in thousands)As of December 31, 2007Total Capital (to risk-weighted assets)Company

$
285,843



10.2
%

$
224,814



8.0
%


n/a



n/aBank


351,352



12.6



223,959



8.0



279,949



10.0Tier 1 Capital (to risk-weighted assets)Company


258,862



9.2



112,457



4.0



n/a



n/aBank


324,370



11.6



111,980



4.0



167,969



6.0Tier 1 Capital (to average assets)Company


258,862



7.0



148,858



4.0



n/a



n/aBank


324,370



8.7



148,407



4.0



185,508



5.0As of December 31, 2006Total Capital (to risk-weighted assets)Company

$
290,158



13.0
%

$
178,984



8.0
%


n/a



n/aBank


272,619



12.2



178,113



8.0



222,641



10.0Tier 1 Capital (to risk-weighted assets)Company


266,754



11.9



89,492



4.0



n/a



n/aBank


249,214



11.2



89,056



4.0



133,584



6.0Tier 1 Capital (to average assets)Company


266,754



9.1



117,855



4.0



n/a



n/aBank


249,214



8.5



117,140



4.0



146,425



5.0   Note 18 
    Fair
    Value of Financial Instruments     F-29




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2007


2006Carrying


Estimated


Carrying


EstimatedAmount


Fair Value


Amount


Fair Value(In thousands)Financial assetsCash and cash equivalents

$
84,499


$
84,499


$
100,532


$
100,532Securities available-for-sale


710,881



710,881



589,981



589,981Securities held-to-maturity


37,601



36,912



45,931



44,687Federal Reserve Bank and Federal Home Loan Bank stock


29,264



29,264



23,592



23,592Loans held for sale










2,672



2,672Loans, net of allowance for loan losses


2,447,579



2,452,466



1,923,587



1,914,196Accrued interest receivable


14,519



14,519



12,331



12,331Financial liabilitiesDepositsNoninterest-bearing


321,317



321,317



276,381



276,381Interest-bearing


2,136,831



2,000,618



1,681,429



1,682,140Federal funds purchased


81,000



81,000



66,000



66,000Securities sold under agreements to repurchase


283,400



305,394



201,079



197,214Advances from Federal Home Loan Bank


323,439



339,108



319,883



323,259Junior subordinated debentures


60,724



61,154



65,812



65,960Notes payable


72,500



72,500







Accrued interest payable


11,014



11,014



8,023



8,023Due to broker


1,539



1,539







      F-30




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 19 
    Off-Balance-Sheet
    Risk and Concentrations of Credit Risk    Amount of Commitment Expiration Per PeriodWithin








After1 Year


1-3 Years


4-5 Years


5 Years


Total(In thousands)Lines of credit:Commercial real estate

$
172,355


$
33,859


$
11,907


$
307


$
218,428Consumer real estate


42,943



30,395



42,725



49,444



165,507Consumer














2,213



2,213Commercial


259,149



6,120



1,467



2,867



269,603Letters of credit


39,873



23,496



2,602







65,971Commitments to extend credit


97,365















97,365Total commercial commitments

$
611,685


$
93,870


$
58,701


$
54,831


$
819,087       Note 20 
    Derivative
    Instruments  10-year
    Note 21 
    Stock
    Compensation and Restricted Stock Awards   F-31




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Weighted Average


Weighted AverageNumber of


Exercise Price


Grant-Date FairOptions


Per Share


Value Per ShareOutstanding at December 31, 2004


1,115,086


$
12.88


$
3.42Granted during 2005


30,500



19.43



5.50Exercised during 2005


(397,051
)


11.02



3.43Forfeited during 2005


(60,593
)


17.57



6.15Outstanding at December 31, 2005


687,942



13.83



4.57Granted during 2006










Exercised during 2006


(151,894
)


13.03



4.26Forfeited during 2006


(19,000
)


18.46



6.82Outstanding at December 31, 2006


517,048



13.90



4.58Granted during 2007










Exercised during 2007


(36,443
)


10.38



3.19Forfeited during 2007


(1,453
)


15.21



5.57Outstanding at December 31, 2007


479,152



14.03



4.63     Weighted AverageNumber of


Exercise PriceOptions


Per Share2005


588,190


$
13.182006


475,548



13.452007


451,652



13.70     OutstandingWeighted Average


ExercisableRemaining





Weighted AverageRange of Exercise Price

Number


Contractual Life


Number


Exercise Price$8.83-10.59


188,702



2.60



188,072


$
9.67$10.75-14.90


145,830



2.77



145,830



13.37$18.34-22.03


145,250



6.33



117,750



20.56Outstanding at year end


479,152



3.78



451,652



13.70  F-32




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      2005


2003Fair value

$
5.50


$
7.31Risk-free interest rate


4.05
%


3.40
%Expected option life


5 years



7.6 yearsExpected stock price volatility


22.06
%


28.53
%       Year EndedDecember 31,2005(In thousands,except pershare data)Net income as reported

$
5,944Deduct: Stock-based compensation expense determined under fair
    value-based method, net of tax


583Pro forma net income

$
5,361Basic earnings per share from continuing operations as reported

$
0.30Pro forma basic earnings per share


0.27Diluted earnings per share from continuing operations as reported


0.30Pro forma diluted earnings per share


0.27      F-33




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Number of


Weighted AverageRestricted


Grant-Date Fair ValueShares


Per ShareOutstanding at December 31, 2004


150,000


$
18.71Granted


64,700



19.53Vested


(35,000
)


18.88Forfeited


(1,000
)


19.43Outstanding at December 31, 2005


178,700



18.97Granted


347,179



22.61Vested


(36,000
)


18.97Forfeited


(9,250
)


19.43Outstanding at December 31, 2006


480,629



21.59Granted


59,700



14.99Vested


(84,709
)


20.85Forfeited


(7,226
)


20.77Outstanding at December 31, 2007


448,394



20.87     Note 22 
    Other
    Employee Benefit Plans   F-34




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Note 23 
    Income
    Taxes    Year Ended December 31,2007


2006


2005(In thousands)CurrentFederal

$
2,923


$
7,307


$
(9,010
)State










Deferred


323



(5,885
)


2,685Total provision (benefit) for income taxes

$
3,246


$
1,422


$
(6,325
)     Year Ended December 31,2007


2006


2005(Dollars in thousands)Income taxes computed at the statutory rate

$
7,638



35.0
%

$
6,709



35.0
%

$
(2,770
)


(35.0
)%Tax-exempt interest income on securities and loans


(771
)


(3.5
)


(1,171
)


(6.1
)


(563
)


(7.1
)General business credits


(643
)


(2.9
)


(665
)


(3.5
)


(255
)


(3.2
)State income taxes, net of federal tax benefit due to state
    operating loss


(1,027
)


(4.7
)


(676
)


(3.5
)


(952
)


(12.0
)Income tax reserve adjustment










(591
)


(3.1
)






Life insurance cash surrender value increase, net of premiums


(1,072
)


(4.9
)


(838
)


(4.4
)


(615
)


(7.8
)Life insurance death benefit


















(276
)


(3.5
)Dividends received deduction


(1,214
)


(5.6
)


(1,106
)


(5.8
)


(868
)


(11.0
)Nondeductible meals and entertainment


45



0.2



27



0.2



13



0.2Annuity proceeds


267



1.2















Merger related expenses










(278
)


(1.5
)






Stock based compensation, net










56



0.3







Other


23



0.1



(45
)


(0.2
)


(39
)


(0.5
)Total provision (benefit) for income taxes

$
3,246



14.9
%

$
1,422



7.4
%

$
(6,325
)


(79.9
)%  F-35




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2007


2006(In thousands)Gross deferred tax assetsUnrealized loss on securities available-for-sale

$
8,742


$
4,127Allowance for loan losses


10,519



9,232Deferred compensation


3,116



1,583Net operating loss carryforward


3,999



5,278Income from partnerships


51



58Deferred tax credits


786



2,101Nonaccrual loan interest


2,326



1,236Capital loss






293Foreclosed properties writedowns






966Total gross deferred tax assets


29,539



24,874Gross deferred tax liabilitiesDepreciation


(1,087
)


(1,582
)FHLB stock dividends


(1,536
)


(1,499
)Amortizing intangible assets


(5,960
)


(4,043
)Other


(810
)


(630
)Total gross deferred tax liabilities


(9,393
)


(7,754
)Net deferred tax asset

$
20,146


$
17,120       UnrecognizedIncomeTax Benefits(In thousands)Balance, at beginning of period

$
1,238Current year additions


481Prior year reductions


(168
)Reductions due to statute of limitations


(429
)Balance, at end of period

$
1,122    F-36




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       F-37




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 24 
    Earnings
    Per Share  Year Ended December 31,2007


2006


2005(In thousands, except per share data)Income (loss) from continuing operations

$
18,577


$
17,746


$
(1,589
)Income from discontinued operations










7,533Net income


18,577



17,746



5,944Preferred stock dividends


(204
)






Net income available to common stockholders

$
18,373


$
17,746


$
5,944Weighted average common shares outstanding


25,426



23,348



19,573Basic earnings per share from continuing operations

$
0.72


$
0.76


$
(0.08
)Basic earnings per share from discontinued operations

$



$



$
0.38Basic earnings per share

$
0.72


$
0.76


$
0.30Weighted average common shares outstanding


25,426



23,348



19,573Dilutive effect of stock options(1)


98



200



234Dilutive effect of restricted stock(1)


56



242



38Diluted average common shares


25,580



23,790



19,845Diluted average common shares  continuing
    operations(1)


25,580



23,790



19,573Diluted average common shares  discontinued
    operations(1)










19,845Diluted earnings per share from continuing operations

$
0.72


$
0.75


$
(0.08
)Diluted earnings per share from discontinued operations

$



$



$
0.38Diluted earnings per share

$
0.72


$
0.75


$
0.30     (1)
    
    No dilutive shares from stock options or restricted stock were
    included in the computation of diluted earnings per share for
    any period there was a loss from continuing or discontinued
    operations.   F-38




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 25 
    Other
    Comprehensive Income    Year Ended December 31,2007


2006


2005(In thousands)Unrealized holding losses on securities available-for-sale

$
(12,221
)

$
(2,063
)

$
(5,710
)Reclassification adjustment for (gains) losses recognized in
    income from continuing operations


(32
)


153



17,440Reclassification adjustment for losses recognized in income from
    discontinued operations










2,982Accretion of unrealized gains on securities transferred from
    available-for-sale to held-to-maturity


(7
)


(7
)


(40
)Net unrealized gains (losses)


(12,260
)


2,209



14,672Tax effect


4,616



(876
)


(5,821
)Other comprehensive (loss) income

$
(7,644
)

$
1,333


$
8,851   Note 26 
    Parent
    Company Financial Statements    CONDENSED
    BALANCE SHEETS
  December 31,2007


2006(In thousands)ASSETSCash and cash equivalents

$
2,118


$
15,291Investment in subsidiaries with continuing operations


501,292



335,668Other assets


10,010



8,588Total assets

$
513,420


$
359,547LIABILITIES AND STOCKHOLDERS EQUITYJunior subordinated debentures

$
60,724


$
65,812Notes payable


72,500



Other liabilities


5,032



6,493Total liabilities


138,256



72,305Stockholders equity


375,164



287,242Total liabilities and stockholders equity

$
513,420


$
359,547  F-39




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    STATEMENTS OF INCOME
  Year Ended December 31,2007


2006


2005(In thousands)Operating incomeDividends from continuing subsidiaries

$
4,032


$
10,477


$
3,346Fees from continuing subsidiaries


1,103



1,000



1,897Noninterest income


(162
)


240



59Interest expense


(6,645
)


(4,741
)


(3,801
)Noninterest expense


(3,330
)


(5,662
)


(6,733
)Income (loss) before income taxes and equity in undistributed
    income of continuing subsidiaries


(5,002
)


1,314



(5,232
)Income tax benefit


3,377



3,904



3,434Equity in undistributed income of continuing subsidiaries


20,202



12,528



209Income (loss) from continuing operations


18,577



17,746



(1,589
)Income from discontinued operations










7,533Net income

$
18,577


$
17,746


$
5,944  F-40




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    STATEMENTS OF CASH FLOWS
  Year Ended December 31,2007


2006


2005(In thousands)Cash flows from continuing operating activitiesNet income

$
18,577


$
17,746


$
5,944(Income) loss from discontinued operations










(7,533
)Adjustments to reconcile net income to net cash provided by
    (used in) continuing operating activitiesEquity in undistributed income of continuing subsidiaries


(20,202
)


(12,528
)


(209
)Depreciation


70



85



101Amortization of stock-based compensation


22



2,501



873Amortization of intangibles


67



34



Change in other assets


2,971



(159
)


(171
)Change in other liabilities


(3,766
)


3,752



(1,517
)Net cash (used in) provided by continuing operating activities


(2,261
)


11,431



(2,512
)Cash flows from continuing investing activitiesCash paid, net of cash and cash equivalents in acquisition


(67,557
)


(65,286
)


Investment in continuing subsidiaries


(20,000
)






(15,200
)Property and equipment expenditures


(75
)


(17
)


(39
)Disposition of subsidiary










35,621Net cash (used in) provided by continuing investing activities


(87,632
)


(65,303
)


20,382Cash flows from continuing financing activitiesIssuance of junior subordinated debentures, net of debenture
    issuance costs










20,619Payments of junior subordinated debentures


(15,000
)






(20,619
)Proceeds from notes payable


92,500







2,000Repayments on notes payable


(20,000
)






(2,000
)Cash common dividends paid


(13,003
)


(11,439
)


(9,164
)Cash preferred dividends paid


(204
)






Issuance of common stock










68,453Issuance of preferred stock


41,441







Repurchase of common stock


(9,392
)


(4,770
)


Proceeds from issuance of common and treasury stock under stock
    option plan


378



1,983



4,374Net cash (used in) provided by continuing financing activities


(76,720
)


(14,226
)


63,663Cash flows from discontinued operationsNet cash provided by operating activities of discontinued
    operations










187Net cash used in investing activities of discontinued operations










(1,000
)Net cash used in discontinued operations










(813
)(Decrease) increase in cash and cash equivalents


(13,173
)


(68,098
)


80,720Cash and cash equivalents at beginning of year


15,291



83,389



2,669Cash and cash equivalents at end of year

$
2,118


$
15,291


$
83,389  F-41




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##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 27 
    Quarterly
    Results of Operations (Unaudited)  Three Months Ended,


Year Ended,2007

March 31


June 30


September 30


December 31


December 31(In thousands, except per share data)Interest income

$
44,766


$
46,492


$
47,174


$
55,437


$
193,869Interest expense


25,706



26,523



26,827



32,181



111,237Net interest income


19,060



19,969



20,347



23,256



82,632Provision for loan losses


645



1,036



1,800



1,410



4,891Noninterest income


3,720



3,896



3,700



4,161



15,477Noninterest expense


17,081



16,644



16,245



21,425



71,395Income before income taxes


5,054



6,185



6,002



4,582



21,823Provision for income taxes


642



1,078



1,166



360



3,246Net income


4,412



5,107



4,836



4,222



18,577Preferred stock dividends














(204
)


(204
)Net income available to common stockholders

$
4,412


$
5,107


$
4,836


$
4,018


$
18,373Earnings per common share(a)Basic

$
0.18


$
0.21


$
0.20


$
0.14


$
0.72Diluted


0.18



0.21



0.20



0.14



0.72   Three Months Ended,


Year Ended,2006

March 31


June 30


September 30


December 31


December 31(In thousands, except per share data)Interest income

$
33,359


$
35,290


$
45,903


$
44,710


$
159,262Interest expense


16,198



17,737



24,510



25,535



83,980Net interest income


17,161



17,553



21,393



19,175



75,282Provision for loan losses






5,000



1,550



5,500



12,050Noninterest income


3,013



3,601



4,147



3,790



14,551Noninterest expense


11,885



13,041



17,194



16,495



58,615Income before income taxes


8,289



3,113



6,796



970



19,168Provision (benefit) for income taxes


2,348



223



814



(1,963
)


1,422Net income

$
5,941


$
2,890


$
5,982


$
2,933


$
17,746Earnings per common share(a)Basic

$
0.27


$
0.13


$
0.24


$
0.12


$
0.76Diluted


0.27



0.13



0.24



0.12



0.75     (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. F-42




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##### Table of Contents



Report of
    Independent Registered Public Accounting Firm    Internal Control  Integrated Framework
          F-43