##### 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, 2008ORo

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 filero
    (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


27Item 1B.


Unresolved Staff Comments


39Item 2.


Properties


40Item 3.


Legal Proceedings


41Item 4.


Submission of Matters to a Vote of Security
    Holders


41PART IIItem 5.


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


41Item 6.


Selected Consolidated Financial Data


44Item 7.


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


47Item 7A.


Quantitative and Qualitative Disclosures about
    Market Risk


81Item 8.


Consolidated Financial Statements and
    Supplementary Data


83Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


83Item 9A.


Controls and Procedures


83Item 9B.


Other Information


84PART IIIItem 10.


Directors and Executive Officers of the
    Registrant


84Item 11.


Executive Compensation


84Item 12.


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


84Item 13.


Certain Relationships and Related Transactions


84Item 14.


Principal Accounting Fees and Services


84PART IVItem 15.


Exhibits and Financial Statement Schedules


85Signature(s) Page


89Contents of Consolidated Financial Statements


F-1EX-10.62EX-10.63EX-10.64EX-10.65EX-10.66EX-10.67EX-12.1EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1




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##### Table of Contents



PART I  Item 1.
    Business  The
    Company
      Recent
    Developments
       1




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2




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##### Table of Contents



2008
    Developments
      2007
    Developments
     3




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Strategy
    Expand and diversify loan portfolio.
  Expand deposit base.
  Expand noninterest income.
     4




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Number ofBanking CentersCompany Subsidiaries

Headquarters

Market Area

or OfficesBanks:Midwest Bank and Trust Company

Elmwood Park, IL

Algonquin, Bensenville, Bloomingdale, Buffalo Grove, Chicago,
    Des Plaines, Downers Grove, Elgin, Elmwood Park, Franklin Park,
    Glenview, Hinsdale, Inverness, Island Lake, Lakemoor, Long
    Grove, McHenry, Melrose Park, Mount Prospect, Naperville,
    Norridge, North Barrington, Roselle, and Union


27Non-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 InvestmentServices, 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 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. Royal American had total assets of
    $561.2 million.
    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. Northwest Suburban
    had total assets of $546.2 million.
    During December 2008, the Company closed two unprofitable
    branches located in Addison and Lake Zurich, Illinois. The
    Company also took steps to relocate its Bucktown and Michigan
    Avenue Chicago branches and to open a second branch in the
    downtown Chicago business district. 5




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##### Table of Contents



Non-bank
    Subsidiaries
          Mandatory

OptionalRedemption

RedemptionIssuer

Issue Date

Amount


Rate

Date

Date(1)(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     (1)
    
    Redeemable at option of the Company.  Markets
  10-20 mile
  Competition
   6




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Products
    and Services
  Deposit
    Products
    Checking and Interest-bearing Checking
    Accounts.
  Savings and Money Market Accounts.
  Time Deposits.
  Lending
    Services
    Commercial Loans.
 7




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Construction Loans.
  Commercial Real Estate Loans.
  Consumer Real Estate Loans.
    Consumer Loans.
    ATMs
    Trust Activities
    Insurance
    and Securities Brokerage
   8




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Employees
    Available
    Information
  www.midwestbanc.com. Forms 10-K, 10-Q, 8-K,
  1-800-SEC-0330. http://www.sec.gov.
  www.midwestbanc.com
  
    Asset/Liability Committee Charter
    Code of Business Conduct and Ethics
    Director Independence Standards
    Audit Committee Charter
    Compensation Committee Charter
    Corporate Governance and Nominating Committee Charter
    Enterprise Risk Management Committee Charter
    Strategic Opportunities Committee Charter  SUPERVISION
    AND REGULATION
    Recent
    Developments
   9




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and/or and/or
   10




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Bank
    Holding Company Regulation
         11




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12




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13




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Form 10-K.
        Bank
    Regulation
    and/or
      Financial
    Institution Regulation
  Transactions with Affiliates.
 14




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Dividend Limitations.
    Capital Requirements.
    Standards for Safety and Soundness.
   15




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##### Table of Contents



Prompt Corrective Action.
  FDIC Insurance Premiums on Deposit
    Accounts.
       16




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risk-based
  Initial
    Base Assessment Rates
  Risk

Risk

Risk

RiskCategory

Category

Category

CategoryI

II

III

IV12-16

22

32

45       Total
    Base Assessment Rates
  Risk

Risk

Risk

RiskCategory

Category

Category

CategoryI

II

III

IVInitial Base Assessment Rate

12-16

22

32

45Unsecured Debt Adjustment

-5-0

-5-0

-5-0

-5-0Secured Liability Adjustment

0-8

0-11

0-16

0-22.5Brokered Deposit Adjustment



0-10

0-10

0-10Total Base Assessment Rate

7-24.0

17-43.0

27-58.0

40-77.5   risk-based
 17




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Federal Reserve System.
  Community Reinvestment.
  Brokered Deposits.
 18




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Enforcement Actions.
  Bank Secrecy Act and USA Patriot Act.
      Interstate Banking and Branching
    Legislation.
  de novo
  Insurance Powers.
   19




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##### Table of Contents



Securities Brokerage.
  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.
 20




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Real Estate Settlement Procedures Act.
  Truth in Lending Act.
             21




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Fair Credit Reporting Act
    Federal Home Loan Bank System 1 20
      Monetary
    Policy and Economic Conditions
     22




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EXECUTIVE
    OFFICERS OF THE REGISTRANT
                     23




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24




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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 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;
    Operational risks, including data processing system failures or
    fraud; 25




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
    Liquidity risks;
    The ability to successfully acquire low cost deposits or funding;
    The ability to successfully execute strategies to increase
    noninterest income;
    Changes in the economic environment, competition, or other
    factors that may influence the anticipated growth rate of loans
    and deposits and the quality of the loan portfolio and loan and
    deposit pricing;
    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;
    The ability of the Bank to pay dividends to the Company;
    The Companys ability to pay cash dividends on its common
    and preferred stock;
    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;
    The impact of possible future non-cash goodwill impairment
    charges;
    The effects of increased deposit insurance premiums;
    Acts of war or terrorism; and
    Other economic, competitive, governmental, regulatory, and
    technical factors affecting the Companys operations,
    products, services, and prices.     26




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##### Table of Contents



Item 1A.
    Risk
    Factors    Changes
    in economic conditions, in particular a continued 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, including its construction loans, and an adverse
    change in the real estate market may result in losses and
    adversely affect its profitability.
         27




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The
    Companys allowance for loan losses may not be sufficient
    to cover actual loan losses, 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;
    managements internal review of the loan portfolio; and
    results of examinations of its loan portfolio by regulatory
    agencies.          While the
    Company attempts to manage the risk from changes in market
    interest rates, interest rate risk management techniques are not
    exact. In addition, the Company may not be able to economically
    hedge its interest rate risk. A rapid or substantial increase or
    decrease in interest rates could adversely affect its net
    interest income and results of operations.
   28




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Conditions
    in the financial markets may limit the Companys access to
    additional funding to meet its liquidity needs.
     29




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The
    Companys cost of funds for banking operations may increase
    as a result of general economic conditions, interest rates and
    competitive pressures.
      The
    Company is party to loan agreements that require it to observe
    certain covenants that limit its flexibility in operating its
    business.
           30




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Markets
    have experienced, and may continue to experience, periods of
    high volatility accompanied by reduced liquidity.
    Concern
    of the Companys customers over deposit insurance may cause
    a decrease in deposits.
   31




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The
    Companys deposit insurance premium could be substantially
    higher in the future, which could have a material adverse effect
    on our future earnings.
        Defaults
    by another financial institution could adversely affect
    financial markets generally.
        The
    widespread effect of falling housing prices on financial markets
    could adversely affect the Companys profitability,
    liquidity, and financial condition.
   32




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The value
    of securities in the Companys investment securities
    portfolio may be negatively affected by continued disruptions in
    securities markets.
    If the
    Company is required to write down goodwill or other intangible
    assets or if it is required to mark-to-market certain of its
    assets or reduce its deferred tax assets by a valuation
    allowance, its financial condition and results of operations
    would be negatively affected.
          
    Significant adverse change in business climate;
    Significant unanticipated loss of clients/assets under
    management;
    Unanticipated loss of key personnel;
    Sustained periods of poor investment performance;
    Significant loss of deposits or loans;
    Significant reductions in profitability; or
    Significant changes in loan credit quality.   33




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If the
    Companys investment in the common stock of the Federal
    Home Loan Bank of Chicago is other than temporarily impaired,
    its financial condition and results of operations could be
    materially impaired.
      No. 01-6, SOP 01-6
 34




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As a bank
    holding company that conducts substantially all of the
    Companys operations through its subsidiaries, its ability
    to pay dividends, repurchase its shares, or to repay its
    indebtedness depends upon liquid assets held by the bank holding
    company as well as the results of operations of the
    Companys subsidiaries; the Company and its subsidiaries
    are subject to other restrictions.
            Future
    dividend payments and common stock repurchases are restricted by
    the terms of the U.S. Treasurys equity investment in the
    Company.
   35




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The
    Company may elect or be compelled to seek additional capital in
    the future, but capital may not be available when it is
    needed.
      The
    Companys effective tax rates may be adversely affected by
    changes in federal and state tax laws.
      An
    interruption in or breach in security of the Companys
    information systems may result in a loss of customer
    business.
       36




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The
    Company continually encounters technological change.
    The
    Companys business may be adversely affected by the highly
    regulated environment in which it operates.
    There can
    be no assurance that the recently enacted Emergency Economic
    Stabilization Act of 2008, the American Recovery and
    Reinvestment Act of 2009 and other recently enacted government
    programs will help stabilize the U.S. financial
    system.
     37




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The
    limitations on incentive compensation contained in the ARRA may
    adversely affect the Companys ability to retain its
    highest performing employees.
    The
    Company is subject to claims and litigation pertaining to
    fiduciary responsibility.
  and/or
 38




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The
    Company is exposed to risk of environmental liabilities with
    respect to properties to which we take title.
  clean-up
  Severe
    weather, natural disasters, acts of war or terrorism and other
    external events could significantly impact our
    business.
  and/or
  Non-Compliance
    with USA PATRIOT Act, Bank Secrecy Act, or Other Laws and
    Regulations Could Result in Fines or Sanctions, and Curtail
    Expansion Opportunities
    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   39




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Item 2.
    Properties    Date


Net Book Value at


Leased orLocation

Acquired


December 31, 2008


Owned(In thousands)Principal Office of the Company and Midwest Bank and Trust
    Company Banking Office501 West North Avenue 
    Melrose Park, Illinois 60160


1987


$
1,139



OwnedOther Midwest Bank and Trust Company Banking Offices1606 North Harlem Avenue 
    Elmwood Park, Illinois 60607


1959



3,228



Owned2045 East Algonquin Road 
    Algonquin, Illinois 60102


1994



580



Owned1000 Tower Lane #125 
    Bensenville, Illinois 60106


2006



4



Leased236 West Lake Street 
    Bloomingdale, Illinois 60108


2006



477



Leased1001 Johnson Drive 
    Buffalo Grove, Illinois 60089


2006



55



Leased300 South Michigan Avenue 
    Chicago, Illinois 60604


1986



119



Leased4012 North Pulaski Road 
    Chicago, Illinois 60641


1993



756



Owned7227 West Addison Street 
    Chicago, Illinois 60634


1996



997



Owned1601 North Milwaukee Avenue 
    Chicago, Illinois 60647


2003



2



Leased1545 Ellinwood Ave 
    Des Plaines, Illinois 60016


2007



5,242



Owned927 Curtiss Street 
    Downers Grove, Illinois 60515


1996



101



Leased645 Tollgate Road 
    Elgin, Illinois 60123


2006







Leased9668 Franklin Avenue 
    Franklin Park, Illinois 60131


2006



151



Leased1441 Waukegan Road 
    Glenview, Illinois 60025


2003



409



Leased500 West Chestnut Street 
    Hinsdale, Illinois 60521


1991



1,308



Owned1604 West Colonial Parkway 
    Inverness, Illinois 60067


2006







Leased204 E. State Road 
    Island Lake, Illinois 60042


1998



306



Owned274444 W. Route 120 
    Lakemoor, Illinois 60050


2007



2,262



Leased1190 Old McHenry Road 
    Long Grove, Illinois 60047


2003







Leased5555 Bull Valley Road
    McHenry, Illinois 60050


1998



1,028



Owned50 N. Main Street 
    Mount Prospect, Illinois 60056


2007



5,141



Owned1730 Park Street 
    Naperville, Illinois 60563


2006



524



Owned8301 West Lawrence 
    Norridge, Illinois 60656


2003



280




*444 N. Rand Road 
    North Barrington, Illinois 60010


2007



4,567



Owned505 North Roselle Road 
    Roselle, Illinois 60172


1999



1,996



Owned17622 Depot Street 
    Union, Illinois 60180


1987



64



Owned     *
    
    Land is leased and building is owned. 40




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Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders    
    To authorize the issuance by the Company of up to
    $85.5 million of fixed rate, cumulative perpetual preferred
    stock, Series T to the U.S. Treasury:  Votes For:


13,211Against:


99Abstain:


49  PART II  Item 5.
    Market
    for the Registrants Common Equity and Related Stockholder
    Matters and Issuer Purchases of Equity Securities    Dividends DeclaredHigh


Low


Per Common Share2007First 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



0.132008First Quarter

$
13.93


$
9.63


$
0.13Second Quarter


13.21



4.87



0.13Third Quarter


7.50



2.90



Fourth Quarter


4.50



1.30



  41




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Issuer
    Purchases of Equity Securities
    Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters
    Issuance
    of Preferred Stock  Use of Proceeds
   42




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Performance
    Graph
    
 43




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##### Table of Contents



Item 6.
    Selected
    Consolidated Financial Data    Year Ended December 31,2008


2007


2006


2005


2004(Dollars in thousands, except per share data)Statement of Income Data:Total interest income

$
187,661


$
193,869


$
159,262


$
112,244


$
91,962Total interest expense


100,695



111,237



83,980



50,797



41,780Net interest income


86,966



82,632



75,282



61,447



50,182Provision for loan losses


71,765



4,891



12,050



2,589



3,400Noninterest income (loss)


(50,596
)


15,477



14,551



(6,245
)


(88
)Noninterest expenses


177,951



71,395



58,615



60,527



46,491Income (loss) before income taxes and discontinued operations


(213,346
)


21,823



19,168



(7,914
)


203Provision (benefit) for income taxes


(55,073
)


3,246



1,422



(6,325
)


(2,869
)Income (loss) from continuing operations


(158,273
)


18,577



17,746



(1,589
)


3,072Income (loss) from discontinued operations














7,533



(696
)Net income (loss)


(158,273
)


18,577



17,746



5,944



2,376Preferred stock dividends


3,728



204











Net income available to common stockholders

$
(162,001
)

$
18,373


$
17,746


$
5,944


$
2,376Per Common Share Data:Earnings per share (basic) from continuing operations

$
(5.82
)

$
0.72


$
0.76


$
(0.08
)

$
0.17Earnings per share (basic) from discontinued operations














0.38



(0.04
)Earnings per share (basic)


(5.82
)


0.72



0.76



0.30



0.13Earnings per share (diluted) from continuing operations


(5.82
)


0.72



0.75



(0.08
)


0.17Earnings per share (diluted) from discontinued operations














0.38



(0.04
)Earnings per share (diluted)


(5.82
)


0.72



0.75



0.30



0.13Cash dividends declared


0.26



0.52



0.51



0.48



0.48Book value at end of period


6.56



11.94



11.65



9.91



7.66Tangible book value at end of period (non-GAAP measure)(10)


3.21



5.56



7.97



9.78



7.49 44




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##### Table of Contents



Year Ended December 31,2008


2007


2006


2005


2004(Dollars in thousands, except per share data)Selected Financial Ratios:Return on average assets from continuing operations(1)


(4.32
)%


0.58
%


0.67
%


(0.07
)%


0.13
%Return on average equity from continuing operations(2)


(46.65
)


6.13



7.04



(0.95
)


2.17Dividend payout ratio


N/M



73.04



67.95



162.38



279.59Average equity to average assets


9.27



9.53



9.57



7.29



6.12Tier 1 risk-based capital


8.30



9.21



11.92



16.97



13.27Total risk-based capital


10.07



10.17



12.97



18.07



14.65Net interest margin (tax equivalent)(3)(4)(5)


2.75



3.02



3.32



3.31



2.82Loan to deposit ratio(5)


104.02



100.66



99.44



88.62



73.07Net overhead expense to average assets(5)(6)


4.00



1.76



1.67



2.14



1.58Efficiency ratio(5)(7)


144.87



68.29



60.55



75.44



72.79Loan Quality Ratios(5):Allowance for loan losses to total loans at the end of year


1.77



1.08



1.19



1.32



1.48Provision for loan losses to total loans


2.86



0.20



0.62



0.19



0.31Net loans charged off to average total loans


2.18



0.20



0.59



0.09



0.17Nonaccrual loans to total loans at the end of year(8)


2.43



1.99



2.20



0.59



0.85Nonperforming assets to total assets(9)


2.36



1.39



1.55



0.83



0.78Allowance for loan losses to nonaccrual loans


0.73
x


0.54
x


0.54
x


2.25
x


1.74
xBalance Sheet Data:Total assets

$
3,570,212


$
3,692,782


$
2,942,046


$
2,307,608


$
2,236,813Total earning assets(5)


3,195,408



3,266,461



2,617,894



2,126,227



1,807,609Average assets


3,661,209



3,181,990



2,635,138



2,305,086



2,310,594Loans(5)


2,509,759



2,474,327



1,946,816



1,349,996



1,097,299Allowance for loan losses(5)


44,432



26,748



23,229



17,760



16,217Deposits(5)


2,412,791



2,458,148



1,957,810



1,523,384



1,501,646Borrowings(5)


817,041



821,063



652,774



538,480



320,636Stockholders equity


305,834



375,164



287,242



216,126



137,423Tangible stockholders equity(non-GAAP measure)(5)(10)


212,289



197,713



196,481



213,447



134,315     (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. 45




---



##### Table of Contents



(4)
    
    The following table reconciles reported net interest income on a
    fully tax-equivalent basis for the periods presented:  2008


2007


2006


2005


2004Net interest income

$
86,966


$
82,632


$
75,282


$
61,447


$
50,182Tax-equivalent adjustment to net interest income


2,621



3,612



4,286



2,628



2,399Net interest income, fully tax-equivalent basis

$
89,587


$
86,244


$
79,568


$
64,075


$
52,581     (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 and all other loans 90 days or
    more past due, trouble-debt restructured loans and foreclosed
    properties.(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:  2008


2007


2006


2005


2004Stockholders equity

$
305,834


$
375,164


$
287,242


$
216,126


$
137,423Core deposit intangible and other intangibles, net


14,683



17,044



11,273



1,788



2,217Goodwill


78,862



160,407



79,488



891



891Tangible stockholders equity

$
212,289


$
197,713


$
196,481


$
213,447


$
134,315  46




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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:
 47




---



##### Table of Contents



Income Taxes:
      Evaluation of Securities for
    Impairment:
 48




---



##### Table of Contents



Accounting
    Pronouncements
    No. FAS 157-2, 157-3, No. 157-3), No. 157-3
    No. 07-5, No. 07-5). No. 07-5 No. 07-5
 49




---



##### Table of Contents



No. 07-5 No. 07-5.
  FAS 140-4 No. FAS 140-4 No. FAS 140-4 140-4 No. FAS 140-4
  Recent
    Developments
         50




---



##### Table of Contents



51




---



##### Table of Contents



2008
    Developments
        2007
    Developments
     52




---



##### Table of Contents



Consolidated
    Results of Operations
  2008
    Compared to 2007
    
    Net loss was $158.3 million for the year ended
    December 31, 2008 compared to net income of
    $18.6 million for the prior year.
    Basic and diluted (loss) earnings per share for the year ended
    December 31, 2008 were both $(5.82) compared to $0.72 for
    2007.
    The return on average assets was (4.32)% for 2008 compared to a
    0.58% for 2007.
    The return on average equity was (46.65)% in 2008 compared to a
    6.13% in 2007.
    Top line revenue (net interest income plus noninterest income)
    decreased by $61.7 million, or 62.9%, to $36.4 million
    for 2008 compared to $98.1 million in the prior year.
    Excluding the gains, losses and impairment charges on securities
    and the gain on sale of property, top line revenue increased
    5.2%, or $5.1 million.  Net Interest Income.
    
    Interest income decreased $7.2 million to
    $190.3 million in 2008 compared to $197.5 million in
    2007. Average earning assets increased by $398.4 million
    ($498.3 million of earning assets were acquired through the
    Northwest Suburban acquisition on October 1, 2007) but
    average yields decreased by 107 basis points.
    Interest income on loans decreased $4.0 million to
    $151.4 million in 2008 from $155.3 million in 2007 due
    to a 134 basis point drop in yield despite an increase of
    $394.4 million in average loans; $439.2 million in
    loans were acquired in the Northwest Suburban acquisition on
    October 1, 2007. The decline in loan yield was primarily
    due to the re-pricing of variable-rate loans resulting from
    decreases in the prime rate as well as the increase in
    nonaccrual loans. Most new and renewing loans beginning in the
    fourth quarter of 2008 have floors in place which will help
    mitigate future margin contraction.
    Interest income on securities decreased $2.6 million to
    $37.8 million in 2008 from $40.4 million in 2007 as a
    result of a decrease in yields from 5.55% in 2007 to 5.20% while
    average securities increased slightly. The 53




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##### Table of Contents



decline in securities yield was primarily due to the decrease in
    dividends on FNMA and FHLMC preferred stock in the second half
    of the year.  
    Dividend income on FHLB stock was $333,000 in 2007 compared to
    none in 2008.    
    Interest expense decreased $10.5 million to
    $100.7 million in 2008 from $111.2 million in 2007.
    Average balances on interest-bearing liabilities increased by
    $398.1 million in 2008 to $3.0 billion compared to
    $2.6 billion in the prior year while rates paid decreased
    94 basis points to 3.40% during 2008 compared to 4.34% in
    2007.
    Interest expense on deposits decreased by $10.7 million to
    $66.0 million in 2008 from $76.7 million in 2007.
    Average interest-bearing deposits increased $240.2 million
    to $2.1 billion in 2008 compared to $1.9 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 decreased by 98 basis points to 3.15% in 2008
    compared to 4.13% in the prior year.  
    Average interest-bearing core deposits (interest-bearing demand
    deposit, money market, and savings accounts) increased
    $16.4 million in 2008 compared to 2007 and average rates
    paid decreased 115 basis points.
    Average certificates of deposit less than $100,000 increased by
    $21.8 million and average rates paid decreased by
    90 basis points. Average certificates of deposit greater
    than $100,000 increased $202.0 million in 2008 and average
    rates paid decreased 109 basis points. Average brokered
    deposits increased by $144.8 million in 2008 compared to
    the prior year.  
    Interest expense on borrowings increased slightly to
    $34.7 million in 2008 from $34.5 million in 2007.
    Average borrowings increased by $157.9 million to
    $866.7 million in 2008 compared to $708.8 million in
    the prior year, primarily as a result of the Companys
    asset growth exceeding deposit growth and the $81.2 million
    cash used for the Northwest Suburban acquisition in October 2007.
    Interest expense on Federal funds purchased and securities sold
    under agreements to repurchase increased by $2.2 million in
    2008 as a result of the increases in average balances of
    $86.1 million, even as the average rates decreased
    39 basis points.
    Interest expense on FHLB advances decreased by $2.9 million
    in 2008 compared to the prior year while average balances
    increased by $17.8 million during the same period. Average
    rates paid on FHLB advances dropped by 113 basis points in
    2008 to 3.53% compared to 4.66% in 2007. In March 2008, the
    Company prepaid $130.0 million of FHLB advances at a
    weighted average rate of 4.94% and recognized a loss on the
    early extinguishment of debt of $7.1 million. The Company
    replaced these borrowings at a weighted average rate of 2.57% in
    the second quarter of 2008.
    Average junior subordinated debentures decreased by
    $5.4 million in 2008 compared to the prior year while rates
    paid decreased by 190 basis points. The Company acquired
    $10.3 million in junior subordinated debentures at LIBOR
    plus 2.70% through the Northwest Suburban acquisition on
    October 1, 2007, but redeemed $15.5 million at LIBOR
    plus 3.45% in November 2007.
    Average notes payable, including revolving, term and
    subordinated notes, increased by $59.3 million in 2008
    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.
    Short-term LIBOR rates, to which many of the Companys
    borrowings are indexed, did not decline as quickly as prime and
    other short-term rates which dropped quickly in late 2008 as the
    economy faltered.  Provision for Loan Losses.
 54




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##### Table of Contents



Noninterest Income.
  
    $1.0 million increase in service charges on deposits as a
    result of the increased deposit base from the Northwest Suburban
    acquisition;
    $446,000 increase in the cash surrender value of life insurance
    reflecting the addition of $12.9 million of such insurance
    acquired with Northwest Suburban;
    $234,000 decrease in trust income due mostly to the drop in
    trust asset values from the difficult economy and the departure
    of trust customers;
    $263,000 decrease in insurance and brokerage commissions mostly
    attributable to the difficult economy and the departure of
    employees; and
    $518,000 decrease in gains on sale of loans resulting from the
    outsourcing of residential mortgage origination operations in
    mid-2007.  Noninterest Expense.
  
    Salaries and employee benefits increased $8.2 million or
    19.4% reflecting the additions to management and employees from
    the Northwest Suburban acquisition, some key additions to the
    management team and separation benefits of $1.2 million
    Occupancy and equipment increased $3.2 million in 2008
    compared to the prior year reflecting the five additional
    branches acquired in the Northwest Suburban acquisition;
    Professional services increased $3.1 in 2008 due to an increase
    in loan workout legal fees and consulting expense;
    Marketing expenses increased by $397,000 or 17.2% in 2008
    compared to the prior year as deposit retention and Company
    image campaigns were increased;
    Foreclosed properties expense increased by $298,000 in 2008
    compared to the prior year as a result of the increase in
    properties;
    Amortization of intangible assets increased by $659,000 as a
    direct result of the increase in intangible assets from the
    Northwest Suburban acquisition in October 2007; and
    Non-capitalized merger related expense was $271,000 in 2008
    compared to $1.3 million in 2007; and
    Other expense increased $4.6 million or 51.8% in 2008
    compared to the prior year. The Company was granted a one-time
    credit to offset FDIC premiums as a result of the Federal
    Deposit Insurance Reform Act of 2005 (Reform Act).
    This one-time credit artificially reduced the Companys
    2007 FDIC insurance expense, but the credit was fully utilized
    by the end of 2007, and as a result of the expiration of that
    credit and the addition of the Northwest Suburban deposits in
    late 2007, the Company incurred an FDIC insurance expense
    increase of $2.4 million in 2008. Additions to reserves for
    off-balance sheet losses related to letters of credit were
    $877,000 for 2008 compared to none for 2007. 55




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##### Table of Contents



Federal and State Income Tax.
  Year Ended December 31,2008


2007(Dollars in thousands)Income taxes computed at the statutory rate

$
(74,671
)


35.0
%

$
7,638



35.0
%Tax-exempt interest income on securities and loans


(802
)


0.4



(771
)


(3.5
)General business credits


(661
)


0.3



(643
)


(2.9
)State income taxes, net of federal tax benefit due to state
    operating loss


(4,419
)


2.1



(1,027
)


(4.7
)Life insurance cash surrender value increase, net of premiums


(1,195
)


0.6



(1,072
)


(4.9
)Dividends received deduction


(642
)


0.3



(1,214
)


(5.6
)Goodwill impairment


27,733



(13.0
)






Annuity proceeds










267



1.2Nondeductible costs and other, net


(416
)


0.2



68



0.3Total provision (benefit) for income taxes

$
(55,073
)


25.8
%

$
3,246



14.9
%   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.
    Basic and diluted earnings per share for the year ended
    December 31, 2007 were both $0.72 compared to basic
    earnings per share of $0.76 and diluted of $0.75 for 2006.
    The return on average assets was 0.58% for 2007 compared to a
    0.67% for 2006.
    The return on average equity was 6.13% in 2007 compared to a
    7.04% in 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 continued 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.
    
    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. 56




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##### Table of Contents




    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 decreased by
    $34.0 million while average rates paid increased by
    65 basis points. Average certificates of deposit greater
    than $100,000 increased $247.1 million in 2007 and average
    rates paid increased 27 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.  Provision for Loan Losses.
   57




---



##### Table of Contents



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 $700,000; and
    Professional services increased $499,000 in 2007 due to an
    increase in loan workout legal fees and consulting expense.   58




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##### Table of Contents



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
)Annuity proceeds


267



1.2







Merger related expenses










(278
)


(1.5
)Stock based compensation, net










56



0.3Other


68



0.3



(18
)


(0.0
)Total provision for income taxes

$
3,246



14.9
%

$
1,422



7.4
%  59




---



##### Table of Contents



Interest-Earning
    Assets and Interest-Bearing Liabilities
    Year Ended December 31,2008


2007


2006Average





Average


Average





Average


Average





AverageBalance


Interest


Rate


Balance


Interest


Rate


Balance


Interest


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

$
17,320


$
327



1.89
%

$
17,124


$
839



4.90
%

$
10,009


$
506



5.06
%Securities:Taxable(1)


667,324



34,282



5.14



669,154



36,901



5.51



613,485



32,593



5.31Exempt from federal income taxes(1)


60,704



3,563



5.87



58,844



3,491



5.93



93,347



5,492



5.88Total securities


728,028



37,845



5.20



727,998



40,392



5.55



706,832



38,085



5.39FRB and FHLB stock


29,975



741



2.47



24,697



839



3.40



18,105



693



3.83Loans held for sale














1,450



89



6.14



2,028



125



6.16Loans:Commercial loans(1)(3)(4)


513,321



31,475



6.13



452,438



34,105



7.54



296,533



23,219



7.83Commercial real estate loans(1)(3)(4)(6)


1,639,442



102,112



6.23



1,336,421



100,954



7.55



1,110,828



83,891



7.55Agricultural loans(1)(3)(4)


6,287



403



6.41



3,406



268



7.87



2,456



191



7.78Consumer real estate loans(3)(4)(6)


314,917



16,754



5.32



285,999



19,207



6.72



240,601



16,207



6.74Consumer installment loans(3)(4)


9,103



625



6.87



10,432



788



7.55



8,502



631



7.42Total loans


2,483,070



151,369



6.10



2,088,696



155,322



7.44



1,658,920



124,139



7.48Total interest-earning assets

$
3,258,393


$
190,282



5.84
%

$
2,859,965


$
197,481



6.91
%

$
2,395,894


$
163,548



6.83
%Noninterest-Earning Assets:Cash

$
57,303










$
57,185










$
61,519Premises and equipment, net


39,018











27,093











21,706Allowance for loan losses


(28,093
)










(24,977
)










(22,115
)Other assets


334,588











262,724











178,134Total noninterest-earning assets


402,816











322,025











239,244Total assets

$
3,661,209










$
3,181,990










$
2,635,138Interest-Bearing Liabilities:Deposits:Interest-bearing demand deposits

$
200,869


$
1,977



0.98
%

$
182,276


$
3,366



1.85
%

$
150,503


$
1,759



1.17
%Money-market demand accounts and savings accounts


384,496



4,994



1.30



386,722



9,949



2.57



346,933



7,571



2.18Time deposits less than $100,000


619,828



25,106



4.05



598,012



29,603



4.95



631,993



27,202



4.30Time deposits of $100,000 or more


891,354



33,948



3.81



689,335



33,774



4.90



442,199



20,455



4.63Public funds


























11,703



531



4.54Total interest-bearing deposits


2,096,547



66,025



3.15



1,856,345



76,692



4.13



1,583,331



57,518



3.63Borrowings:Federal funds purchased and repurchase agreements


390,399



15,326



3.93



304,269



13,131



4.32



255,843



11,913



4.66FHLB advance


335,039



11,824



3.53



317,232



14,769



4.66



228,811



9,808



4.29Junior subordinated debt


60,758



3,696



6.08



66,114



5,275



7.98



60,776



4,741



7.80Revolving note payable


10,550



474



4.49



3,007



186



6.19











Term note payable


58,689



2,643



4.50



18,205



1,184



6.50











Subordinated note payable


11,311



707



6.25























Total borrowings


866,746



34,670



4.00



708,827



34,545



4.87



545,430



26,462



4.85Total interest-bearing liabilities

$
2,963,293


$
100,695



3.40
%

$
2,565,172


$
111,237



4.34
%

$
2,128,761


$
83,980



3.95
%Noninterest-Bearing Liabilities:Demand deposits

$
326,104










$
274,819










$
220,706Other liabilities


32,551











38,804











33,495Total noninterest-bearing liabilities


358,655











313,623











254,201Stockholders equity


339,261











303,195











252,176Total liabilities and stockholders equity

$
3,661,209










$
3,181,990










$
2,635,138Net interest income (tax equivalent)(1)(5)





$
89,587



2.44
%





$
86,244



2.57
%





$
79,568



2.88
%Net interest margin (tax equivalent)(1)










2.75
%










3.02
%










3.32
%Net interest income(2)(5)





$
86,966










$
82,632










$
75,282Net interest margin(2)










2.67
%










2.89
%










3.14
%Average interest-earning assets to interest-bearing liabilities


109.96
%










111.49
%










112.53
%     (1)
    
    Adjusted for 35% tax rate and adjusted for the
    dividends-received deduction where applicable. 60




---



##### Table of Contents



(2)
    
    Not adjusted for 35% tax rate or for the dividends-received
    deduction.(3)
    
    Nonaccrual loans are included in the average balances; however,
    these loans are not earning any interest.(4)
    
    Includes loan fees (in thousands) of $2,866, $2,747, and $3,113
    for 2008, 2007, and 2006, respectively.(5)
    
    The following table reconciles reported net interest income on a
    tax equivalent basis for the periods presented (in thousands):  2008


2007


2006Net interest income

$
86,966


$
82,632


$
75,282Tax-equivalent adjustment to net interest income


2,621



3,612



4,286Net interest income, fully tax-equivalent basis

$
89,587


$
86,244


$
79,568   (6)
    
    Includes construction loans.  Changes
    in Interest Income and Expense
   61




---



##### Table of Contents



Year Ended December 31,2008 Compared to 2007


2007 Compared to 2006Change Due to


Change Due toNet


Volume


Rate


Net


Volume


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

$
(512
)

$
9


$
(521
)

$
333


$
349


$
(16
)Securities taxable


(2,619
)


(101
)


(2,518
)


4,308



3,037



1,271Securities exempt from federal income taxes


72



109



(37
)


(2,001
)


(2,047
)


46FRB and FHLB stock


(98
)


158



(256
)


146



231



(85
)Loans held for sale


(89
)


(89
)






(36
)


(35
)


(1
)Commercial loans


(2,630
)


4,231



(6,861
)


10,886



11,782



(896
)Commercial real estate loans


1,158



20,626



(19,468
)


17,063



17,041



22Agricultural loans


135



192



(57
)


77



75



2Consumer real estate loans


(2,453
)


1,810



(4,263
)


3,000



3,049



(49
)Consumer installment loans


(163
)


(95
)


(68
)


157



146



11Total interest-earning assets

$
(7,199
)

$
26,850


$
(34,049
)

$
33,933


$
33,628


$
305Interest-Bearing Liabilities:Interest-bearing demand deposits

$
(1,389
)

$
315


$
(1,704
)

$
1,607


$
429


$
1,178Money market demand accounts and savings accounts


(4,955
)


(57
)


(4,898
)


2,378



929



1,449Time deposits of less than $100,000


(4,497
)


1,047



(5,544
)


2,401



(1,520
)


3,921Time deposits of $100,000 or more


174



8,646



(8,472
)


13,319



12,044



1,275Public funds














(531
)


(531
)


Federal funds purchased and repurchase agreements


2,195



3,462



(1,267
)


1,218



2,136



(918
)FHLB advances


(2,945
)


791



(3,736
)


4,961



4,057



904Junior subordinated debentures


(1,579
)


(402
)


(1,177
)


534



424



110Revolving note payable


288



351



(63
)


186



186



Term note payable


1,459



1,922



(463
)


1,184



1,184



Subordinated note payable


707



707















Total interest-bearing liabilities

$
(10,542
)

$
15,822


$
(26,364
)

$
27,257


$
19,338


$
7,919Net interest

$
3,343


$
11,028


$
(7,685
)

$
6,676


$
14,290


$
(7,614
)   Financial
    Condition
    
    Total assets decreased $122.6 million, or 3.3%, mainly as a
    result of the securities and goodwill impairment charges as well
    as loan charge-offs. 62




---



##### Table of Contents




    Loans increased $35.4 million, or 1.4%, reflecting internal
    growth. Without charged off loans of $55.8 million and
    transfers of $10.4 million into foreclosed properties, loan
    growth would have been $101.6 million, or 4.1%.
    Securities decreased by $96.3 million, or 12.9%, following
    impairment charges on certain FHLMC and FNMA preferred equity
    securities.
    Deposits decreased by $45.4 million, or 1.9%.    
    The allowance for loan losses was 1.77% of total loans at
    December 31, 2008 versus 1.08% at December 31, 2007.
    The allowance for loan losses increased by $17.7 million,
    reflecting managements updated assessments of impaired
    loans and concerns about the continued deterioration of economic
    conditions.
    Nonaccrual loans increased to 2.43% of total loans at
    December 31, 2008 from 1.99% at December 31, 2007. The
    Large Problem Credit accounted for $6.1 million, or 10.0%,
    of the $61.1 million in nonaccrual loans at
    December 31, 2008.
    Allowance to nonaccrual loans coverage 0.73x for 2008 compared
    to 0.54x for 2007.
    Net loans charged off to average total loans were 2.18% for 2008
    compared to 0.20% for 2007.  Loans
    December 31,2008(1)


2007(1)(2)


2006(3)


2005(3)


2004(3)(In thousands)Commercial

$
1,090,078


$
1,079,631


$
376,944


$
201,284


$
184,558Construction


366,178



464,583



424,181



358,785



270,836Commercial real estate


729,729



627,928



761,742



496,819



411,535Home equity


194,673



142,158



147,366



115,429



100,322Other consumer


6,332



10,689



9,373



4,273



4,377Residential mortgage


123,161



149,703



227,762



174,184



126,047Total loans, gross


2,510,151



2,474,692



1,947,368



1,350,774



1,097,675Net deferred fees


(392
)


(365
)


(552
)


(778
)


(376
)Total loans


2,509,759



2,474,327



1,946,816



1,349,996



1,097,299Allowance for loan losses


(44,432
)


(26,748
)


(23,229
)


(17,760
)


(16,217
)Net loans

$
2,465,327


$
2,447,579


$
1,923,587


$
1,332,236


$
1,081,082Loans held for sale:Consumer real estate

$



$



$
2,672


$
1,912


$
693     (1)
    
    Source of repayment classification.(2)
    
    Amounts have been reclassified to conform to current period
    presentation.(3)
    
    Collateral-based classification.  and/or
 63




---



##### Table of Contents



loan-by-loan
    
    Total loans increased $35.4 million, or 1.4%. Without
    charged off loans of $55.8 million and transfers of
    $10.4 million into foreclosed properties, loan growth would
    have been $101.6 million, or 4.1%.
    Commercial loans increased $10.4 million, or 1.0%.
    Construction loans decreased by $98.4 million, or 21.2%.
    A reduction in construction lending that began earlier in the
    2008 continued throughout the year with construction and land
    development loans declining to 14.6% of the total loan
    portfolio, down from 18.8% one year ago.
    Commercial real estate loans rose by $101.8 million, or
    16.2%.
    Home equity loans increased $52.5 million, or 36.9%.
    Consumer loans decreased $4.4 million, or 40.8%.
    Residential mortgage loans decreased $26.5 million, or
    17.7%.
    The Company had loan growth in the latter part of the fourth
    quarter of 2008 which was facilitated by the new capital raised
    in December 2008 under the TARP program. In addition, most new
    and renewing loans beginning in the fourth quarter of 2008 have
    floors in place which will help mitigate future margin
    contraction.      
    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.   64




---



##### Table of Contents



Loan
    Maturities
    One Year


1-5 Years


Over 5 YearsOr Less


Fixed


Variable


Fixed


Variable


Total(In thousands)Commercial

$
498,986


$
453,690


$
56,074


$
61,859


$
19,469


$
1,090,078Construction


324,696



10,442



31,040











366,178Commercial real estate


265,978



410,443



38,823



14,485







729,729Home equity


7,237



13,403



7,821



225



101,987



194,673Other consumer


2,636



3,274



422











6,332Residential mortgage


8,457



23,975



417



44,443



45,869



123,161Total loans, gross


1,107,990



915,227



198,597



121,012



167,325



2,510,151Net deferred fees






















(392
)Total loans

$
1,107,990


$
915,227


$
198,597


$
121,012


$
167,325


$
2,509,759   Nonaccrual
    Loans
      case-by-case
   65




---



##### Table of Contents



December 31,2008


2007


2006


2005


2004(Dollars in thousands)Impaired and other loans 90 days past due and accruing

$



$



$
34


$
4


$
21Nonaccrual and impaired loans not accruing

$
61,104


$
49,173


$
42,826


$
7,905


$
9,296Troubled-debt restructuring


11,006















Foreclosed properties


12,018



2,220



2,640



11,154



8,064Total nonperforming assets

$
84,128


$
51,393


$
45,466


$
19,059


$
17,360Total nonaccrual loans to total loans


2.43
%


1.99
%


2.20
%


0.59
%


0.85
%Total nonperforming assets to total loans and foreclosed
    properties


3.34



2.08



2.33



1.40



1.57Total nonperforming assets to total assets


2.36



1.39



1.55



0.83



0.78              66




---



##### Table of Contents



Analysis
    of Allowance for Loan Losses
           67




---



##### Table of Contents



Year Ended December 31,2008


2007


2006


2005


2004(Dollars in thousands)Average total loans

$
2,483,070


$
2,088,696


$
1,658,920


$
1,210,873


$
984,976Total loans at end of year

$
2,509,759


$
2,474,327


$
1,946,816


$
1,349,996


$
1,097,299Total nonaccrual loans

$
61,104


$
49,173


$
42,826


$
7,905


$
9,296Allowance at beginning of year

$
26,748


$
23,229


$
17,760


$
16,217


$
14,459Addition resulting from acquisition






2,767



3,244







Charge-offs:Commercial loans


11,475



5,092



5,912



1,668



819Consumer real estate loans(1)


3,846



458



360



15



37Commercial real estate loans(1)


40,389



336



4,401



772



1,162Agricultural loans


















Consumer installment loans


139



89



136



64



130Total charge-offs


55,849



5,975



10,809



2,519



2,148Recoveries:Commercial loans


1,149



885



616



1,448



163Consumer real estate loans(1)


91



9



4



5



32Commercial real estate loans(1)


508



927



339



6



261Agricultural loans


















Consumer installment loans


20



15



25



14



50Total recoveries


1,768



1,836



984



1,473



506Net charge-offs


54,081



4,139



9,825



1,046



1,642Provision for loan losses


71,765



4,891



12,050



2,589



3,400Allowance at end of the year

$
44,432


$
26,748


$
23,229


$
17,760


$
16,217Net charge-offs to average total loans


2.18
%


0.20
%


0.59
%


0.09
%


0.17
%Allowance to total loans at end of year


1.77



1.08



1.19



1.32



1.48Allowance to nonaccrual loans


0.73
x


0.54
x


0.54
x


2.25
x


1.74x     (1)
    
    Includes construction loans.     68




---



##### Table of Contents



December 31,2008


2007


2006


2005


2004Loan





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

$
8,829



20.80
%

$
6,369



21.52
%

$
6,156



19.87
%

$
7,727



14.54
%

$
8,124



16.72
%Commercial real estate


24,518



65.79



19,336



65.15



16,166



65.35



7,807



69.24



6,837



68.92Agricultural


171



0.29



2



0.20



3



0.13



3



0.15







0.11Consumer real estate


6,258



12.67



603



12.64



352



14.10



864



15.76



385



13.90Consumer installment


302



0.25



81



0.49



90



0.55



46



0.31



438



0.35Unallocated


4,354







357







462







1,313







44



Total allowance for loan losses

$
44,432



100.00
%

$
26,748



100.00
%

$
23,229



100.00
%

$
17,760



100.00
%

$
16,217



100.00
%       Special Mention:
  and/or
    Substandard:
 69




---



##### Table of Contents



Doubtful:
      03-3, (SOP 03-3), SOP 03-3 SOP 03-3 SOP 03-3,
  Securities
   70




---



##### Table of Contents



December 31, 2008Held-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

$



$



$
263,483


$
265,435


$
263,483


$
265,435



40.3
%Obligations of states and political subdivisions


1,251



1,263



57,309



56,664



58,560



57,927



9.0Mortgage-backed securities


29,016



29,124



281,592



283,679



310,608



312,803



47.4Equity securities










2,749



930



2,749



930



0.4Other bonds










19,176



15,241



19,176



15,241



2.9Total

$
30,267


$
30,387


$
624,309


$
621,949


$
654,576


$
652,336



100.0
%   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



23.6
%Obligations of states and political subdivisions


1,254



1,268



60,985



61,400



62,239



62,668



8.1Mortgage-backed securities


36,347



35,644



383,633



379,040



419,980



414,684



54.4Equity securities










85,139



65,979



85,139



65,979



11.0Other bonds










22,095



20,849



22,095



20,849



2.9Total

$
37,601


$
36,912


$
733,835


$
710,881


$
771,436


$
747,793



100.0
%   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



1.1
%Obligations of states and political subdivisions


1,686



1,697



97,167



96,987



98,853



98,684



15.3Mortgage-backed securities


44,245



42,990



444,392



434,108



488,637



477,098



75.5Equity securities










41,131



41,521



41,131



41,521



6.4Other bonds










11,034



10,407



11,034



10,407



1.7Total

$
45,931


$
44,687


$
600,682


$
589,981


$
646,613


$
634,668



100.0
%      71




---



##### Table of Contents




    U.S. Treasury and obligations of
    U.S. government-sponsored entities increased by
    $81.8 million to $265.4 million, or 40.3% of the
    securities portfolio, at December 31, 2008 compared to
    $183.6 million at year end 2007.
    U.S. government agency and government-sponsored entity
    mortgage-backed securities decreased 25.2%, or
    $95.4 million, from $379.0 million at
    December 31, 2007 to $283.7 million at
    December 31, 2008.
    As noted above, the Company recognized a impairment charges of
    $65.4 million on the FHLMC and FNMA preferred equities in
    2008 bringing the amortized cost to $2.7 million. During
    2008, $16.9 million in equity securities were sold at a
    loss of $16.7 million. Equity securities were $930,000 at
    December 31, 2008 compared to $66.0 million at
    December 31, 2007. Equity securities included capital
    securities of U.S. government-sponsored entities.
    Obligations of state and political subdivisions decreased
    $4.7 million to $56.7 million at December 31,
    2008 from $61.4 million at December 31, 2007.
    Other bonds decreased by $5.6 million to $15.2 million
    at December 31, 2008 compared to $20.8 million at
    December 31, 2007. Other bonds include high grade corporate
    bonds primarily issued by financial institutions.     72




---



##### Table of Contents



Investment
    Maturities and Yields
    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

$
7,687



2.81
%

$
52,617



3.43
%

$
205,131



5.34
%

$





%

$
265,435



4.90
%Obligations of states and political subdivisions


682



3.61



8,135



3.60



36,034



3.74



11,813



4.08



56,664



3.79Mortgage-backed securities


27,795



5.40



255,884



4.09



















283,679



4.23Equity securities(1)


























930







930



Other bonds










3,745



4.53



3,063



4.39



8,433



1.91



15,241



2.96Total

$
36,164



4.82
%

$
320,381



3.98
%

$
244,228



5.09
%

$
21,176



3.04
%

$
621,949



4.44
%Held-to-Maturity Securities:Obligations of states and political subdivisions

$





%

$
451



4.31
%

$
800



3.85
%

$





%

$
1,251



4.02
%Mortgage-backed securities










29,016



4.42



















29,016



4.42Total

$





%

$
29,467



4.42
%

$
800



3.85
%

$





%

$
30,267



4.40
%     (1)
    
    Equity securities, although they do not have a maturity date,
    are included in the after ten years column.  Deposits
    December 31,2008


2007(Dollars in thousands)Noninterest-bearing demand

$
334,495


$
321,317Interest-bearing demand


176,224



226,225Money market


208,484



291,501Savings


129,101



129,476Certificates of deposit less than $100,000


689,896



633,022Certificates of deposit over $100,000


435,687



511,743Brokered certificates of deposit


438,904



344,864Total interest-bearing deposits


2,078,296



2,136,831Total deposits

$
2,412,791


$
2,458,148Total core deposits(1)

$
848,304


$
968,519     (1)
    
    Includes noninterest-bearing and interest-bearing demand, money
    market, and savings. 73




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##### Table of Contents




    Deposits decreased by $45.4 million, or 1.8%;
    noninterest-bearing deposits increased by $13.2 million
    while interest-bearing deposits decreased by $58.5 million.
    Core deposits, which include noninterest-bearing demand,
    interest-bearing demand, money market, and savings deposits,
    decreased $120.2 million, or 12.4%.
    Certificates of deposits less than $100,000 increased 9.0% or
    $56.9 million.
    Certificates of deposit over $100,000 decreased
    $76.1 million, or 14.9%.
    Brokered certificates of deposit increased $94.0 million,
    or 27.3%. The Company purchased brokered certificates of deposit
    in order to move away from purchasing Federal funds during the
    financial system disruption. The underlying certificates of
    deposits of the brokered certificates of deposit are in
    denominations of less than $100,000.           74




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##### Table of Contents



Year Ended December 31,2008


2007


2006Average


Percent of





Average


Percent of





Average


Percent ofBalance


Deposits


Rate


Balance


Deposits


Rate


Balance


Deposits


Rate(Dollars in thousands)Noninterest-bearing demand deposits

$
326,104



13.46
%


0.00
%

$
274,819



12.90
%


0.00
%

$
220,706



12.23
%


0.00
%Interest-bearing demand deposits


200,869



8.29



0.98



182,276



8.55



1.85



150,503



8.34



1.17Savings and money market accounts


384,496



15.87



1.30



386,722



18.15



2.57



346,933



19.23



2.18Time Deposits:Certificates of deposit, less than $100,000(1)


619,829



25.58



4.05



598,012



28.06



4.95



631,993



35.03



4.30Certificates of deposit, over $100,000(1)(2)


891,354



36.80



3.81



689,335



32.34



4.90



442,199



24.51



4.63Public funds


























11,703



0.65



4.54Total time deposits


1,511,183



62.38



3.91



1,287,347



60.40



4.92



1,085,895



60.19



4.44Total deposits

$
2,422,652



100.00
%


2.73
%

$
2,131,164



100.00
%


3.60
%

$
1,804,037



100.00
%


3.19
%     (1)
    
    Certificates of deposit exclusive of public funds.(2)
    
    Includes brokered deposits.    December 31,2008


2007


2006(In thousands)Three months or less

$
402,122


$
308,259


$
271,994Over three months through six months


172,417



241,765



63,168Over six months through twelve months


229,867



230,985



160,478Over twelve months


70,185



75,598



58,020Total

$
874,591


$
856,607


$
553,660   Borrowings
    December 31,2008


2007


2006(In thousands)Federal funds purchased

$



$
81,000


$
66,000Revolving note payable


8,600



2,500



Securities sold under agreements to repurchase


297,650



283,400



201,079Advances from the Federal Home Loan Bank


380,000



323,439



319,883Junior subordinated debentures


60,791



60,724



65,812Subordinated debt


15,000







Term note payable


55,000



70,000



Total

$
817,041


$
821,063


$
652,774  75




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##### Table of Contents



Year Ended December 31,2008


2007


2006(Dollars in thousands)Federal funds purchased:Balance at end of year

$



$
81,000


$
66,000Weighted average interest rate at end of year



%


4.15
%


5.30
%Maximum amount outstanding(1)

$
184,500


$
109,000


$
95,000Average amount outstanding


77,000



35,630



29,474Weighted average interest rate during year(2)


2.62
%


5.13
%


5.18
%     (1)
    
    Based on amounts outstanding at each month end during the year.(2)
    
    During 2008, the federal funds target rate decreased by
    225 basis points.  Year Ended December 31,2008


2007


2006(Dollars in thousands)Securities sold under repurchase agreements:Balance at end of year

$
297,650


$
283,400


$
201,079Weighted average interest rate at end of year


4.29
%


4.21
%


4.40
%Maximum amount outstanding(1)

$
394,764


$
317,118


$
294,599Average amount outstanding


311,346



268,639



226,369Weighted average interest rate during year


4.26
%


4.21
%


4.59
%     (1)
    
    Based on amount outstanding at month end during each year.      Year Ended December 31,2008


2007


2006(Dollars in thousands)FHLB advances:Balance at end of year

$
380,000


$
323,439


$
319,883Weighted average interest rate at end of year


3.38
%


4.49
%


4.54
%Maximum amount outstanding(1)

$
380,000


$
323,439


$
319,883Average amount outstanding


335,039



317,232



228,811Weighted average interest rate during year


3.53
%


4.66
%


4.29
%     (1)
    
    Based on amount outstanding at month end during each year.     76




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##### Table of Contents



December 31,2008


2007




Mandatory

OptionalIssuer

Issue Date

Amount


Amount


Rate

Redemption Date

Redemption Date(1)(In thousands)MBHI 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


10,310



10,310


6.62% until July

July 23, 2034

July 23, 200923, 2009; thenLIBOR+2.75%Unamortized purchase accounting adjustment




(37
)


(104
)Northwest Suburban Capital Trust I

May 18, 2004


10,310



10,310


LIBOR+2.70%

July 23, 2034

July 23, 2009Total



$
60,791


$
60,724     (1)
    
    Redeemable at option of the Company.  Capital
    Resources
   77




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##### Table of Contents



Risk-Based Capital Ratios December 31,2008


2007


2006Amount


Ratio


Amount


Ratio


Amount


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

$
238,873



8.30
%

$
258,862



9.21
%

$
266,753



11.92
%Tier 1 capital minimum requirement


115,123



4.00



112,457



4.00



89,492



4.00Total capital to risk-weighted assets


289,967



10.07



285,843



10.17



290,158



12.97Total capital minimum requirements


230,247



8.00



224,914



8.00



178,984



8.00Total risk-weighted assets


2,878,087







2,811,423







2,237,305           Liquidity
         78




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##### Table of Contents



Securities Risk Factors
      Contractual
    Obligations, Commitments, and Off-Balance Sheet
    Arrangements
  December 31, 2008Payments Due By PeriodWithin








After1 Year


2-3 Years


4-5 Years


5 Years


Other(1)


Total(In thousands)Deposits without a stated maturity

$
848,304


$



$



$



$



$
848,304Consumer and brokered certificates of deposits


1,406,407



143,367



14,702



11







1,564,487Revolving note payable


8,600



















8,600Securities sold under agreements to repurchase














297,650







297,650FHLB advances


40,000











340,000







380,000Junior subordinated debentures














60,791







60,791Subordinated debt














15,000







15,000Term note payable


10,000



45,000















55,000Operating leases


1,530



2,749



2,381



14,141







20,801FIN 48 liability


















2,378



2,378Total contractual cash obligations

$
2,314,841


$
191,116


$
17,083


$
727,593


$
2,378


$
3,253,011     (1)
    
    Duration of liability is not determinable. 79




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##### Table of Contents



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

$
104,884


$
13,098


$
5,319


$
133


$
123,434Consumer real estate


26,757



37,496



33,252



54,481



151,986Consumer














2,220



2,220Commercial


235,855



18,364



1,765



3,238



259,222Letters of credit


43,934



11,602



3,496







59,032Commitments to extend credit


68,213















68,213Total commitments

$
479,643


$
80,560


$
43,832


$
60,072


$
664,107   Asset/Liability
    Management
         80




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##### Table of Contents



Effects
    of Inflation
    Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    Change in Net Interest Income Over One Year HorizonGuidelineDecember 31, 2008


December 31, 2007


MaximumDollar


%


Dollar


%


%Change


Change


Change


Change


Change(Dollars in thousands)+200 bp

$
6,274



8.23
%

$
(2,161
)


(2.36
)%


(10.0
)%+100 bp


2,850



3.74



694



0.76



−100 bp


N/A



N/A



(225
)


(0.25
)


−200 bp


N/A



N/A



(3,507
)


(3.83
)


(10.0
)        81




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##### 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

$
1,735


$



$



$



$
1,735Securities available-for-sale, at fair value


224,510



106,857



186,407



104,175



621,949Securities held-to-maturity, at amortized cost


1,659



4,378



13,947



10,283



30,267Federal Reserve Bank and Federal Home Loan Bank stock


31,698















31,698Loans


1,211,502



338,705



876,678



82,874



2,509,759Total interest-earning assets

$
1,471,104


$
449,940


$
1,077,032


$
197,332


$
3,195,408INTEREST-BEARING LIABILITIES:Interest-bearing demand deposits

$
15,860


$
47,580


$



$
112,784


$
176,224Money market deposits


18,764



56,291







133,429



208,484Savings deposits


11,619



34,857







82,625



129,101Time deposits


524,127



883,728



156,621



11



1,564,487Total interest-bearing deposits


570,370



1,022,456



156,621



328,849



2,078,296Federal funds purchased


















Revolving note payable


8,600















8,600Securities sold under agreements to repurchase














297,650



297,650Advances from the Federal Home Loan Bank


40,000











340,000



380,000Junior subordinated debentures


50,481



10,310











60,791Subordinated debt


15,000















15,000Term note payable


55,000















55,000Total borrowings


169,081



10,310







637,650



817,041Total interest-bearing liabilities

$
739,451


$
1,032,766


$
156,621


$
966,499


$
2,895,337Interest sensitivity gap

$
731,653


$
(582,826
)

$
920,411


$
(769,167
)

$
300,071Cumulative interest sensitivity gap

$
731,653


$
148,827


$
1,069,238


$
300,071Interest sensitivity gap to total assets


20.5
%


(16.3
)%


25.8
%


(21.5
)%Cumulative interest sensitivity gap to total assets


20.5
%


4.2
%


29.9
%


8.4
%    82




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##### 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)
   83




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##### Table of Contents



Item 9B.
    Other
    Information    PART III  Item 10.
    Directors
    and Executive Officers and Corporate Governance            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, and Director
    Independence    Item 14.
    Principal
    Accountant Fees and Services   84




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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

Letter Agreement, dated December 5, 2008, between the Company
    and United States Department of the Treasury (incorporated by
    reference to Registrants Report on Form 8-K filed December
    8, 2008, 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 (incorporated by reference to
    Registrants Report on Form 8-K filed March 2, 2009, File
    No. 001-13735).3
.3

Certificate of Designation for the Series T Preferred Stock
    (incorporated by reference to Registrants Report on Form
    8-K filed December 8, 2008, 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 Series A 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
.1.3

Form of Certificate for the Series T Preferred Stock
    (incorporated by reference to Registrants Report on Form
    8-K filed December 8, 2008, File No. 001-13735).4
.1.4

Warrant for Purchase of Shares of Common Stock, Dated December
    5, 2008 (incorporated by reference to Registrants Report
    on Form 8-K filed December 8, 2008, 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
.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). 85




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##### Table of Contents



10
.6

Britannica Centre Lease, dated as of May 1, 1994, between
    Chicago Title and Trust Company, as Trustee under Trust
    Agreement dated November 2, 1977 and known as Trust No. 1070932
    and Midwest Bank and Trust Company (incorporated by reference to
    Registrants Registration Statement on Form S-1,
    Registration No. 333-42827).10
.7

Lease dated as of March 20, 1996 between Grove Lodge No. 824
    Ancient Free and Accepted Masons and Midwest Bank of Hinsdale
    (incorporated by reference to Registrants Registration
    Statement on Form S-1, Registration No. 333-42827)10
.8

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

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

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

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

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

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

Lease dated as of April 29, 1976, between 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 19, 2008, 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). 86




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##### Table of Contents



10
.34

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

Lease dated January 20, 2006 by and between Royal American Bank
    and MEG Associates Limited Partnership, assumed by the Company
    as of July 1, 2006 (incorporated by reference to
    Registrants Form 10-Q for the quarter ended September 30,
    2006, File No. 001-13735).10
.36

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

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

Lease dated July 14, 2006 by and between Midwest Bank and Trust
    Company and William C. Moran (incorporated by reference to
    Registrants Form 10-Q for the quarter ended September 30,
    2006, File No. 001-13735).*10
.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 (incorporated
    by reference to Registrants Form 10-K for the year ended
    December 31, 2007, File No. 001-13735).*10
.51

Second amendment to 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 March 31, 2008, File No. 001-13735).*10
.52

Second amendment to the 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 Form 10-Q for
    the quarter ended March 31, 2008, File No. 001-13735).10
.53

Agreement of Purchase and Sale as of March 10, 2008 between the
    Company and PGG, LLC (incorporated by reference to
    Registrants Form 10-Q for the quarter ended March 31,
    2008, File No. 001-13735).10
.54

First Amendment to Real Estate Purchase Agreement as of March
    26, 2008 between the Company and PGG, LLC (incorporated by
    reference to Registrants Form 10-Q for the quarter ended
    March 31, 2008, File No. 001-13735). 87




---



##### Table of Contents



10
.55

Post-closing Occupancy Agreement as of March 28, 2008 between
    the Company and NMD Investments, LLC (incorporated by reference
    to Registrants Form 10-Q for the quarter ended March 31,
    2008, File No. 001-13735).10
.56

Amendment to Loan Agreement dated as of September 28, 2007 and
    Loan Agreement dated March 31, 2008, between the Company and
    M&I Marshall & Ilsley Bank (incorporated by reference
    to Registrants Form 10-Q for the quarter ended March 31,
    2008, File No. 001-13735).10
.57

Second Amendment of Loan Agreement dated April 4, 2007, between
    the Company and M&I Marshall & Ilsley Bank
    (incorporated by reference to Registrants Form 10-Q for
    the quarter ended March 31, 2008, File No. 001-13735).*10
.58

Midwest Banc Holdings, Inc. Management Incentive Plan
    (incorporated by reference to Registrants Form 10-Q for
    the quarter ended March 31, 2008, File No. 001-13735).*10
.59

Midwest Banc Holdings, Inc. Employee Stock Purchase Plan
    (incorporated by reference to Registrants Proxy Statement
    filed April 7, 2008, File No. 001-13735).*10
.60

Form of Waiver, executed by each of the Senior Executive
    Officers (incorporated by reference to Registrants Report
    on Form 8-K filed December 8, 2008, File No. 001-13735).*10
.61

EESA Amendment to Officer Employment Benefits executed by each
    of the Senior Executive Officers (incorporated by reference to
    Registrants Report on Form 8-K filed December 8, 2008,
    File No. 001-13735).*10
.62

Settlement Agreement between the Company and James J. Giancola.10
.63

Lease dated August 7, 2008 by and between Midwest Bank and Trust
    Company and Buckingham Master Tenant, LLC.10
.64

Lease dated November 18, 2008 by and between Midwest Bank and
    Trust Company and Broadway 500 West Monroe Fee LLC.10
.65

Lease dated December 1, 2008 by and between Midwest Bank and
    Trust Company and 2150 I Corporation.*10
.66

Letter agreement dated January 30, 2009 by and between the
    Company and the Chief Financial Officer.10
.67

M&I Marshall & Ilsley Bank Loan Agreement Covenant
    Waiver Letter dated March 4, 2009.12
.1

Ratios of Earnings To Fixed Charges and Preferred Stock
    Dividends.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. 88




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##### Table of Contents



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

Title

Date/s/  Percy
    L. BergerPercy
    L. Berger

Chairman of the Board, Director

March 11, 2009/s/  J.
    J. FritzJ.
    J. Fritz

President, Chief Executive Officer, and Director

March 11, 2009/s/  Angelo
    A. DiPaoloAngelo
    A. DiPaolo

Director

March 11, 2009/s/  Barry
    I. ForresterBarry
    I. Forrester

Director

March 11, 2009/s/  Robert
    J. GenetskiRobert
    J. Genetski

Director

March 11, 2009/s/  Gerald
    F. HartleyGerald
    F. Hartley

Director

March 11, 2009/s/  Dennis
    M. OHaraDennis
    M. OHara

Director

March 11, 2009 89




---



##### Table of Contents



Signature

Title

Date/s/  Joseph
    RizzaJoseph
    Rizza

Director

March 11, 2009/s/  Thomas
    A. RosenquistThomas
    A. Rosenquist

Director

March 11, 2009/s/  E.V.
    SilveriE.V.
    Silveri

Director

March 11, 2009/s/  Kenneth
    VeloKenneth
    Velo

Director

March 11, 2009/s/  JoAnn
    Sannasardo LilekJoAnn
    Sannasardo Lilek

Executive Vice President and Chief Financial Officer

March 11, 2009/s/  Jan
    R. ThiryJan
    R. Thiry

Senior Vice President and Chief Accounting Officer

March 11, 2009  90




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##### Table of Contents



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


F-2CONSOLIDATED STATEMENTS OF OPERATIONS


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-48  F-1




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##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2008


2007(In thousands, except share and per share data)ASSETSCash

$
61,330


$
70,111Federal funds sold and other short-term investments


1,735



14,388Total cash and cash equivalents


63,065



84,499Securities available-for-sale, at fair value


621,949



710,881Securities held-to-maturity, at amortized cost (fair value:$30,387 at December 31, 2008 and $36,912 at
    December 31, 2007)


30,267



37,601Total securities


652,216



748,482Federal Reserve Bank and Federal Home Loan Bank stock, at cost


31,698



29,264Loans


2,509,759



2,474,327Allowance for loan losses


(44,432
)


(26,748
)Net loans


2,465,327



2,447,579Cash surrender value of life insurance


84,675



81,166Premises and equipment, net


38,313



41,821Foreclosed properties


12,018



2,220Core deposit and other intangibles, net


14,683



17,044Goodwill


78,862



160,407Other assets


129,355



80,300Total assets

$
3,570,212


$
3,692,782LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesDepositsNoninterest-bearing

$
334,495


$
321,317Interest-bearing


2,078,296



2,136,831Total deposits


2,412,791



2,458,148Federal funds purchased






81,000Revolving note payable


8,600



2,500Securities sold under agreements to repurchase


297,650



283,400Advances from the Federal Home Loan Bank


380,000



323,439Junior subordinated debentures


60,791



60,724Subordinated debt


15,000



Term note payable


55,000



70,000Other liabilities


34,546



38,407Total liabilities


3,264,378



3,317,618Commitments and contingencies (see note 18)Stockholders EquityPreferred stock, $0.01 par value, 1,000,000 shares
    authorized;Series A, $2,500 liquidation preference, 17,250 shares
    issued and outstanding at December 31, 2008 and 2007
    Series T, $1,000 liquidation preference, 84,784 shares
    issued and outstanding at December 31, 2008 and none issued
    at December 31, 2007


1



Common stock, $0.01 par value, 64,000,000 shares
    authorized; 29,530,878 shares issued and 27,892,578
    outstanding at December 31, 2008 and 29,275,687 shares
    issued and 27,803,794 outstanding at December 31, 2007


296



293Additional paid-in capital


383,491



300,762Warrant


5,229



(Accumulated deficit) retained earnings


(66,325
)


102,762Accumulated other comprehensive loss


(2,122
)


(13,917
)Treasury stock, at cost (1,638,300 shares at
    December 31, 2008 and 1,471,893 shares at
    December 31, 2007)


(14,736
)


(14,736
)Total stockholders equity


305,834



375,164Total liabilities and stockholders equity

$
3,570,212


$
3,692,782    F-2




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##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Year Ended December 31,2008


2007


2006(In thousands, except per share data)Interest incomeLoans

$
151,120


$
155,044


$
123,854Loans held for sale






89



125SecuritiesTaxable


33,157



34,787



30,325Exempt from federal income taxes


2,316



2,269



3,570Trading securities






2



189Dividend income from Federal Reserve Bank and Federal Home Loan
    Bank stock


741



839



693Federal funds sold and other short-term investments


327



839



506Total interest income


187,661



193,869



159,262Interest expenseDeposits


66,025



76,692



57,518Federal funds purchased and FRB discount window advances


2,064



1,829



1,526Revolving note payable


474



186Securities sold under agreements to repurchase


13,262



11,302



10,387Advances from the Federal Home Loan Bank


11,824



14,769



9,808Junior subordinated debentures


3,696



5,275



4,741Subordinated debt


707







Term note payable


2,643



1,184



Total interest expense


100,695



111,237



83,980Net interest income


86,966



82,632



75,282Provision for loan losses


71,765



4,891



12,050Net interest income after provision for loan losses


15,201



77,741



63,232Noninterest incomeService charges on deposit accounts


7,742



6,697



5,733Net (losses) gains on securities transactions


(16,596
)


32



(153
)Impairment loss on securities


(65,387
)Net trading profits










624(Loss) gains on sale of loans


(75
)


443



760Insurance and brokerage commissions


2,024



2,287



1,990Trust


1,623



1,857



919Increase in cash surrender value of life insurance


3,509



3,063



2,394Gain on sale of property


15,196







Gain on extinguishment of debt










1,250Other


1,368



1,098



1,034Total noninterest (loss) income


(50,596
)


15,477



14,551Noninterest expenseSalaries and employee benefits


50,389



42,215



34,476Occupancy and equipment


12,714



9,482



7,076Professional services


8,590



5,470



4,971Goodwill impairment


80,000







Loss on extinguishment of debt


7,121







Marketing


2,706



2,309



2,049Foreclosed properties


332



34



311Amortization of intangible assets


2,361



1,702



1,002Merger related


271



1,312



1,595Other


13,467



8,871



7,135Total noninterest expense


177,951



71,395



58,615(Loss) income before income taxes


(213,346
)


21,823



19,168(Benefit) provision for income taxes


(55,073
)


3,246



1,422Net (loss) income


(158,273
)


18,577



17,746Preferred stock dividends


3,728



204



Net (loss) income available to common stockholders

$
(162,001
)

$
18,373


$
17,746Basic (loss) earnings per share

$
(5.82
)

$
0.72


$
0.76Diluted (loss) earnings per share

$
(5.82
)

$
0.72


$
0.75Cash dividends declared per common share

$
0.26


$
0.52


$
0.51    F-3




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY


(Accumulated





AccumulatedAdditional





Deficit)





Other





TotalPreferred


Common


Paid in





Retained


Restricted


Comprehensive


Treasury


StockholdersStock


Stock


Capital


Warrant


Earnings


Stock


Loss


Stock


Equity(In thousands, except share and per share data)Balance, 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 ($11.84 per share) on preferred stock


















(204
)














(204
)Cash dividends declared ($0.52 per share) on common stock


















(13,418
)














(13,418
)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
)


375,164Cash dividends declared ($193.75 per share) on preferred stock


















(3,342
)














(3,342
)Cash dividends declared ($0.26 per share) on common stock


















(7,404
)














(7,404
)Issuance of 84,784 shares of preferred stock


1







79,554























79,555Issuance of warrant to purchase 4,282,020 shares of common
    stock














5,229



















5,229Issuance of common stock upon exercise of 16,500 stock options,
    net of tax benefits










178























178Issuance of 24,168 shares of common stock to employee stock
    purchase plan










35























35Issuance of 278,324 shares of restricted stock






3



(3
)






















Accreted discount on preferred stock










68







(68
)














Stock-based compensation expense










2,897























2,897Comprehensive incomeNet loss


















(158,273
)














(158,273
)Prior service cost resulting from the application of
    SFAS No. 87, net of income taxes


























(433
)






(433
)Net decrease in the projected benefit obligation, net of income
    taxes


























(240
)






(240
)Net increase in fair value of securities classified as
    available-for-sale, net of income taxes and reclassification
    adjustments


























12,468







12,468Total comprehensive loss


































(146,478
)Balance, December 31, 2008

$
1


$
296


$
383,491


$
5,229


$
(66,325
)

$



$
(2,122
)

$
(14,736
)

$
305,834    F-4




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Year Ended December 31,2008


2007


2006(In thousands)Cash flows from operating activitiesNet (loss) income

$
(158,273
)

$
18,577


$
17,746Adjustments to reconcile net (loss) income to net cash provided
    by operating activitiesDepreciation


4,206



3,288



2,546Provision for loan losses


71,765



4,891



12,050Amortization of other intangibles and purchase accounting
    adjustments


989



912



933Goodwill impairment charge


80,000







Proceeds from sales of trading securities, net










624Amortization of premiums and discounts on securities, net


630



819



832Realized loss(gain) on sales of securities


16,596



(32
)


153Impairment loss on securities


65,387







Net gain on sales of trading securities










(624
)Net gain on sales of mortgage loans






(443
)


(760
)Originations of loans held for sale






(40,800
)


(61,163
)Proceeds from sales of loans held for sale






43,915



61,163Loss on sale of loans


75







Gain on sale of property


(15,196
)






Loss of early extinguishment of debt


7,121







Increase in cash surrender value of life insurance


(3,509
)


(3,063
)


(2,394
)Deferred income taxes


(43,757
)


(323
)


5,373Loss on sale of other real estate, net


222



12



Amortization of unearned stock based compensation


2,897



3,085



2,501Change in other assets


(12,122
)


7,602



(15,943
)Change in other liabilities


(15
)


(14,569
)


10,978Net cash provided by operating activities


17,016



23,871



34,015Cash flows from investing activitiesSales of securities available-for-sale


108,770



189,495



101,730Redemption of Federal Reserve Bank and Federal Home Loan Bank
    stock


1,000



499



1,427Sales of securities held-to maturity


4,262



2,039



Maturities of securities available-for-sale


137,725



93,571



16,500Principal payments on securities available-for-sale


50,875



69,254



77,164Purchases of securities available-for-sale


(270,533
)


(428,468
)


(80,771
)Purchases of Federal Reserve Bank and Federal Home Loan Bank
    stock


(4,974
)


(3,128
)


(8,931
)Maturities of securities held-to-maturity






430



4,435Principal payments on securities held-to-maturity


2,966



5,665



8,829Purchase of mortgage loans






(5,776
)


(10,014
)Proceeds from sale of mortgages


5,789







Loan originations and principal collections, net


(103,298
)


(85,378
)


(98,312
)Proceeds from sale of branch property


18,259







4,403Cash paid, net of cash and cash equivalents in acquisition






(71,658
)


(41,044
)Proceeds from sale of other real estate


244



225



8,779Investment in life insurance










(5,926
)Additions to property and equipment


(3,889
)


(3,869
)


(5,178
)Net cash used in investing activities


(52,804
)


(237,099
)


(26,909
) F-5




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS  (Continued)
  Year Ended December 31,2008


2007


2006(In thousands)Cash flows from financing activitiesNet (decrease) increase in deposits


(44,997
)


29,324



(32,218
)Payments of junior subordinated debt owed to unconsolidated
    trusts






(15,000
)


Proceeds from borrowings


289,600



192,500



365,000Repayments on borrowings


(234,075
)


(120,000
)


(200,000
)Preferred cash dividends paid


(3,342
)


(204
)


Common cash dividends paid


(11,076
)


(13,004
)


(11,439
)Change in federal funds purchased and securities sold under
    agreements to repurchase


(66,750
)


91,151



(95,729
)Issuance of common stock to employee stock purchase plan


35







Issuance of preferred stock and warrant


84,784



41,441



Repurchase of common stock






(9,392
)


(4,770
)Proceeds from issuance of treasury stock under stock option plan


175



379



1,983Net cash provided by financing activities


14,354



197,195



22,827(Decrease) increase in cash and cash equivalents


(21,434
)


(16,033
)


29,933Cash and cash equivalents at beginning of year


84,499



100,532



70,599Cash and cash equivalents at end of year

$
63,065


$
84,499


$
100,532Supplemental disclosuresCash paid during the year for:Interest

$
103,436


$
109,483


$
80,191Income taxes


2,700



10,100



2,811Dividends declared not paid

$



$
3,672


$
3,258AcquisitionNoncash assets acquired

$



$
624,270


$
619,835Liabilities assumed






497,622


$
515,024Net noncash assets acquired

$



$
126,648


$
104,811Cash 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:
  Loans:
 F-7




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##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    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:
      No. FAS 157-2, 157-3, No. 157-3), No. 157-3
 F-10




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    No. 07-5, No. 07-5). No. 07-5 No. 07-5 No. 07-5 No. 07-5.
  FAS 140-4 No. FAS 140-4 No. FAS 140-4 No. FAS 140-4 No. FAS 140-4
  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   Royal
    American Corporation
     F-13




---



##### 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-14




---



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

$
96,429


$
106,061Net income


16,983



20,386Basic earnings per share


0.60



0.72Diluted earnings per share


0.60



0.71   change-in-control
 F-15




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 4 
    Securities    December 31, 2008Gross


GrossAmortized


Unrealized


UnrealizedCost


Gains


Losses


Fair Value(In thousands)Securities available-for-saleObligations of U.S. Treasury and U.S. government-sponsored
    entities(1)

$
263,483


$
1,952


$



$
265,435Obligations of states and political subdivisions


57,309



241



(886
)


56,664Mortgage-backed securities(1)(2)


281,592



3,363



(1,276
)


283,679Equity securities(3)


2,749







(1,819
)


930Corporate and other debt securities


19,176







(3,935
)


15,241Total securities available-for-sale

$
624,309


$
5,556


$
(7,916
)

$
621,949Securities held-to-maturityObligations of states and political subdivisions

$
1,251


$
12


$



$
1,263Mortgage-backed securities(1)(2)


29,016



138



(30
)


29,124Total securities held-to-maturity

$
30,267


$
150


$
(30
)

$
30,387     (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).  December 31, 2007Gross


GrossAmortized


Unrealized


UnrealizedCost


Gains


Losses


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

$
181,983


$
1,630


$



$
183,613Obligations of states and political subdivisions


60,985



550



(135
)


61,400Mortgage-backed securities(1)(2)


383,633



58



(4,651
)


379,040Equity securities(3)


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(1)(2)


36,347



8



(711
)


35,644Total securities held-to-maturity

$
37,601


$
22


$
(711
)

$
36,912     (1)
    
    Includes obligations of the FHLMC and FNMA. F-16




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (2)
    
    Includes obligations of the GNMA.(3)
    
    Includes issues from government-sponsored entities (FNMA and
    FHLMC).    December 31, 2008Less 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

$
34,293


$
(886
)

$



$



$
34,293


$
(886
)Mortgage-backed securitiesU.S. government-sponsored entities(1)


60,117



(198
)


39,778



(1,078
)


99,895



(1,276
)Equity securities(2)


899



(1,819
)










899



(1,819
)Corporate and other debt securities


3,746



(287
)


11,495



(3,648
)


15,241



(3,935
)Total securities available-for-sale


99,055



(3,190
)


51,273



(4,726
)


150,328



(7,916
)Securities held-to-maturityObligations of states and political subdivisions


250















250



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










20,521



(30
)


20,521



(30
)Total securities held-to-maturity


250







20,521



(30
)


20,771



(30
)Total temporarily impaired securities

$
99,305


$
(3,190
)

$
71,794


$
(4,756
)

$
171,099


$
(7,946
)     (1)
    
    Includes obligations of the FHLMC and FNMA.(2)
    
    Includes issues from government-sponsored entities (FNMA and
    FHLMC).  F-17




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  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 FHLMC and FNMA.(2)
    
    Includes issues from government-sponsored entities (FNMA and
    FHLMC).(3)
    
    Includes obligations of the GNMA.    
    The unrealized loss for U.S. government-sponsored
    entities mortgage-backed securities relate primarily to
    debt securities issued by FNMA and FHLMC. Each of these
    securities has a stated maturity date. FNMA has an issuer rating
    of Aaa by Moodys and a long-term issuer default rating of
    AAA by Fitch. FHLMC has senior secured and unsecured debt
    ratings of Aaa by Moodys and a long-term issuer default
    rating of AAA by Fitch. These mortgage-backed securities are
    notes with a weighted average maturity of approximately
    26 years and a weighted average interest rate of 4.06%.
    The unrealized losses on corporate and other debt securities
    relate to securities which were rated A- or better by either
    Moodys or S&P as of December 31, 2008. These
    debt securities have a weighted average maturity of
    approximately 19 years and a weighted average interest rate
    of 3.35%. F-18




---



##### 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

$
8,243


$
8,369Due after one year through five years


63,791



64,497Due after five years through ten years


244,611



244,228Due after ten years


23,323



20,246339,968



337,340Mortgage-backed securities


281,592



283,679Total debt securities


621,560



621,019Equity securities


2,749



930Total securities available-for-sale

$
624,309


$
621,949Securities held-to-maturityDue in one year or less

$



$
Due after one year through five years


451



455Due after five years through ten years


800



8081,251



1,263Mortgage-backed securities


29,016



29,124Total securities held-to-maturity

$
30,267


$
30,387  F-19




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2008


2007


2006(In thousands)Proceeds from sales

$
108,770


$
189,495


$
101,730Gross realized gains

$
325


$
893


$
341Gross realized losses


(17,111
)


(831
)


(494
)Net gains (losses) on securities transactions

$
(16,786
)

$
62


$
(153
)     Note 5 
    Loans    December 31,2008


2007(1)% of Gross





% of GrossAmount


Loans


Amount


Loans(Dollars in thousands)Commercial

$
1,090,078



43.3
%

$
1,079,631



43.6
%Construction


366,178



14.6



464,583



18.8Commercial real estate


729,729



29.1



627,928



25.4Home equity


194,673



7.8



142,158



5.8Other consumer


6,332



0.3



10,689



0.4Residential mortgage


123,161



4.9



149,703



6.0Total loans, gross


2,510,151



100.0
%


2,474,692



100.0
%Net deferred fees


(392
)






(365
)Total loans,net

$
2,509,759






$
2,474,327     (1)
    
    Amounts have been reclassified to conform to current period
    presentation.  and/or loan-by-loan
 F-20




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    03-3, (SOP 03-3) SOP 03-3 SOP 03-3 SOP 03-3,
  SOP 03-3:
  December 31,


December 31,2008


2007(In thousands)Commercial

$
531


$
726Construction






211Commercial real estate






2,736Residential mortgage


247



260Total carrying value

$
778


$
3,933     2008


2007(In thousands)Balance at beginning of period

$
249


$
Additions






393Accretion


(216
)


(144
)Balance at end of period

$
33


$
249   SOP 03-3,
  Note 6 
    Related
    Party Transactions    (In thousands)Balance at December 31, 2007

$
40,984New loans


12,213Repayments


(5,822
)Balance at December 31, 2008

$
47,375  F-21




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 7 
    Allowance
    for Loan Losses    Year Ended December 31,2008


2007(In thousands)Balance at beginning of year

$
26,748


$
23,229Addition resulting from acquisition






2,767Provision for loan losses


71,765



4,891Loans charged off


(55,849
)


(5,975
)Recoveries on loans previously charged off


1,768



1,836Net loans charged off


(54,081
)


(4,139
)Balance at end of year

$
44,432


$
26,748     Year Ended December 31,2008


2007(In thousands)Impaired loans for which no allowance for loan losses is
    allocated

$
21,784


$
15,490Impaired loans with an allocation of the allowance for loan
    losses


43,180



43,652Total impaired loans

$
64,964


$
59,142Allowance for loan losses allocated to impaired loans

$
4,546


$
14,029   Year Ended December 31,2008


2007(In thousands)Average impaired loans

$
57,058


$
54,956Interest income recognized on impaired loans on a cash basis


836



1,432      F-22




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 8 
    Premises
    and Equipment    December 31,2008


2007(In thousands)Land and improvements

$
14,456


$
15,609Buildings and improvements


33,992



35,686Furniture and equipment


28,696



26,509Total cost


77,144



77,804Accumulated depreciation


(38,831
)


(35,983
)Premises and equipment, net

$
38,313


$
41,821   1617-1622
  Note 9 
    Goodwill
    and Core Deposit Intangibles    December 31, 2008


December 31, 2007Gross








Gross





NetCarrying


Accumulated


Net Carrying


Carrying


Accumulated


CarryingAmount


Amortization


Amount


Amount


Amortization


AmountAmortizing intangible assets:Core deposit intangibles

$
21,091


$
(6,408
)

$
14,683


$
21,091


$
(4,047
)

$
17,044    F-23




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2008


2007Core Deposit





Core Depositand Other





and OtherGoodwill


Intangibles


Goodwill


IntangiblesBalance at beginning of year

$
160,407


$
17,044


$
79,488


$
11,273Addition resulting from acquisition










80,550



8,061Impairment


(80,000
)










Amortization






(2,361
)






(1,702
)Purchase price adjustment(1)


(1,545
)






369



Core deposit intangible retired(1)














(588
)Balance at end of year

$
78,862


$
14,683


$
160,407


$
17,044     (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. Goodwill was reduced in the second
    quarter of 2008 by the remaining fair value adjustment of a loan
    accounted for under
    SOP 03-3
    for which full contractual payment was received. Goodwill was
    also adjusted in the third quarter of 2008 for the final
    purchase price allocation for the Northwest Suburban acquisition.    Note 10 
    Time
    Deposits   F-24




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (In thousands)2009

$
1,406,4072010


104,6172011


38,7512012


13,7422013


959Thereafter


11$
1,564,487   Note 11 
    Securities
    Sold Under Agreements to Repurchase    2008


2007(In thousands)Outstanding at end of year

$
297,650


$
283,400Weighted average interest rate at year end


4.29
%


4.21
%Maximum amount outstanding as of any month end

$
394,764


$
317,118Average amount outstanding


311,346



268,639Approximate weighted average rate during the year


4.26
%


4.21
%     CollateralU.S. Government-SponsoredEntities Obligations andMortgage-BackedSecuritiesRepurchase


Weighted Average


AmortizedOriginal Term

Liability


Interest Rate


Cost


Fair Value(In thousands)Over 3 years

$
297,650



4.29
%

$
365,449


$
368,714  F-25




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 12 
    Advances
    from the Federal Home Loan Bank    December 31, 2008WeightedAverageRate


Amount(In thousands)Advances from the Federal Home Loan Bank due2009


2.12
%

$
40,0002010






2011






2012






2013






Thereafter


3.53



340,000Total


3.38
%

$
380,000     Note 13 
    Junior
    Subordinated Debentures      Mandatory

OptionalDecember 31,




Redemption

RedemptionIssuer

Issue Date

2008


2007


Rate

Date

Date(1)(In thousands)MBHI 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


10,310



10,310


6.62% until July

July 23, 2034

July 23, 200923, 2009; thenLIBOR+2.75%Unamortized purchase accounting adjustment




(37
)


(104
)Northwest Suburban Capital Trust I

May 18, 2004


10,310



10,310


LIBOR+2.70%

July 23, 2034

July 23, 2009Total



$
60,791


$
60,724     (1)
    
    Redeemable at option of the Company. F-26




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Note 14 
    Credit
    Agreements                    Note 15 
    Preferred
    Stock and Warrant  Series T
 F-27




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Warrant 10-year
  Series A
        Note 16 
    Capital
    Requirements   F-28




---



##### Table of Contents



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


December 31,2008


2007(In thousands)Risk-weighted assets

$
2,878,087


$
2,811,423Average assets


3,590,313



3,721,444Capital components:Stockholders equity

$
305,834


$
375,164Plus: Guaranteed trust preferred securities


59,000



59,000Less: Core deposit and other intangibles, net


(14,683
)


(17,044
)Less: Goodwill


(78,862
)


(160,407
)Less: Disallowed deferred tax assets


(32,748
)


Plus: Unrealized losses on securities, net of tax


1,449



13,917Less: Unrealized losses on equity securities, net of tax


(1,117
)


(11,768
)Tier I capital


238,873



258,862Allowance for loan losses


44,432



26,748Reserve for unfunded commitments


1,068



233Disallowed allowance for loan losses


(9,406
)


Qualifying subordinated debt


15,000



Total risk-based capital

$
289,967


$
285,843  F-29




---



##### 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, 2008Total Capital (to risk-weighted assets)Company

$
289,967



10.1
%

$
230,247



8.0
%


n/a



n/aBank


301,993



10.5



229,244



8.0



286,555



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


238,873



8.3



115,123



4.0



n/a



n/aBank


236,054



8.2



114,622



4.0



171,933



6.0Tier 1 Capital (to average assets)Company


238,873



6.7



143,613



4.0



n/a



n/aBank


236,054



6.6



143,000



4.0



178,750



5.0As 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



5.0   Note 17 
    Fair
    Value of Financial Instruments    
    Level 1: Quoted prices (unadjusted) for identical
    assets or liabilities in active markets that the entity has the
    ability to access as of the measurement date.
    Level 2: Significant other observable inputs other
    than Level 1 prices, such as quoted prices for similar
    assets or liabilities, quoted prices in markets that are not
    active, and other inputs that are observable or can be
    corroborated by observable market data.
    Level 3: Significant unobservable inputs that
    reflect a companys own assumptions about the assumptions
    that market participants would use in pricing an asset or
    liability.  available-for-sale available-for-sale
 F-30




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  available-for-sale
  Total


Quoted Prices or


Significant


SignificantFair Value


Identical Assets in


Other Observable


Unobservableat December 31,


Active Markets


Inputs


Inputs2008


(Level 1)


(Level 2)


(Level 3)(In thousands)Assets:Available-for-sale
    securities

$
621,949


$
930


$
612,586


$
8,433   available-for-sale
  (In thousands)Beginning balance

$
10,479Paydowns received


(35
)Total gains or losses (realized/unrealized):Included in earnings


Included in other comprehensive income


(2,011
)Ending balance

$
8,433       Quoted Prices or


Significant


SignificantIdentical Assets in


Other Observable


UnobservableDecember 31,


Active Markets


Inputs


Inputs2008


(Level 1)


(Level 2)


(Level 3)(In thousands)Assets:Impaired loans

$
37,098


$



$



$
37,098      F-31




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      December 31,2008


2007Carrying


Estimated


Carrying


EstimatedAmount


Fair Value


Amount


Fair Value(In thousands)Financial assetsCash and cash equivalents

$
63,065


$
63,065


$
84,499


$
84,499Securities
    available-for-sale


621,949



621,949



710,881



710,881Securities
    held-to-maturity


30,267



30,387



37,601



36,912Federal Reserve Bank and Federal Home Loan Bank stock


31,698



31,698



29,264



29,264Loans, net of allowance for loan losses


2,465,327



2,485,011



2,447,579



2,452,466Accrued interest receivable


13,302



13,302



14,519



14,519Financial liabilitiesDepositsNoninterest-bearing


334,495



334,495



321,317



321,317Interest-bearing


2,078,296



2,008,100



2,136,831



2,000,618Federal funds purchased










81,000



81,000Revolving note payable


8,600



8,600



2,500



2,500Securities sold under agreements to repurchase


297,650



369,376



283,400



305,394Advances from Federal Home Loan Bank


380,000



410,992



323,439



339,108Junior subordinated debentures


60,791



56,572



60,724



61,154Subordinated debt


15,000



15,000







Term note payable


55,000



55,000



70,000



70,000Accrued interest payable


8,553



8,553



11,014



11,014      F-32




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 18 
    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

$
104,884


$
13,098


$
5,319


$
133


$
123,434Consumer real estate


26,757



37,496



33,252



54,481



151,986Consumer














2,220



2,220Commercial


235,855



18,364



1,765



3,238



259,222Letters of credit


43,934



11,602



3,496







59,032Commitments to extend credit


68,213















68,213Total commercial commitments

$
479,643


$
80,560


$
43,832


$
60,072


$
664,107       Note 19 
    Leases    (In thousands)2009

$
1,5292010


1,4512011


1,2982012


1,1842013


1,197Thereafter


14,142$
20,801    F-33




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 20 
    Stock
    Compensation and Restricted Stock Awards        Weighted Average


Weighted AverageNumber of


Exercise Price


Grant-Date FairOptions


Per Share


Value Per ShareOutstanding 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



4.63Granted during 2008










Exercised during 2008


(16,500
)


10.61



3.01Forfeited during 2008


(83,281
)


13.56



4.17Outstanding at December 31, 2008


379,371



14.28



4.80     Weighted AverageNumber of


Exercise PriceOptions


Per Share2006


475,548


$
13.452007


451,652



13.702008


355,871



13.94  F-34




---



##### Table of Contents



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


ExercisableRemaining





Weighted AverageRange of Exercise Price

Number


Contractual Life


Number


Exercise Price$8.83-10.59


157,121



1.57



157,121


$
9.66$10.75-14.90


93,750



1.74



93,750



13.71$18.34-22.03


128,500



5.33



105,000



20.57Outstanding at year end


379,371



3.04



355,871



13.94       2005Fair value

$
5.50Risk-free interest rate


4.05
%Expected option life


5 yearsExpected stock price volatility


22.06
%      F-35




---



##### 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, 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



20.87Granted


278,324



9.45Vested


(42,996
)


17.77Forfeited


(73,821
)


16.40Outstanding at December 31, 2008


609,901



16.42     Note 21 
    Other
    Employee Benefit Plans       F-36




---



##### Table of Contents



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

$
3,477Service cost


611Interest cost


224Amendment(1)


192Prior service cost


776Benefits paid


(10
)Actuarial loss


391Pre-application of SFAS No. 87 expense


742Ending balance

$
6,403     (1)
    
    Reflects acceleration of benefits to a participant.    (In thousands)Service cost

$
611Interest cost


224Amortization of prior service cost


71Amendment


192Pre-application of SFAS No. 87 expense


742Net periodic benefit cost

$
1,840     Discount rateNet periodic pension cost


6.00
%Benefit obligation


5.75Rate of compensation increase


4.00      F-37




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (In thousands)2009

$
1252010


1732011


2802012


4302013


486Years 2014  2018

$
4,239     Note 22 
    Income
    Taxes    Year Ended December 31,2008


2007


2006(In thousands)CurrentFederal

$
(11,316
)

$
2,923


$
7,307State










DeferredFederal


(36,756
)


1,903



(4,846
)State


(7,001
)


(1,580
)


(1,039
)Total (benefit) provision for income taxes

$
(55,073
)

$
3,246


$
1,422  F-38




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2008


2007


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

$
(74,671
)


35.0
%

$
7,638



35.0
%

$
6,709



35.0
%Tax-exempt interest income on securities and loans


(802
)


0.4



(771
)


(3.5
)


(1,171
)


(6.1
)General business credits


(661
)


0.3



(643
)


(2.9
)


(665
)


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


(4,419
)


2.1



(1,027
)


(4.7
)


(676
)


(3.5
)Income tax reserve adjustment


















(591
)


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


(1,195
)


0.6



(1,072
)


(4.9
)


(838
)


(4.4
)Dividends received deduction


(642
)


0.3



(1,214
)


(5.6
)


(1,106
)


(5.8
)Goodwill impairment


27,733



(13.0
)














Annuity proceeds










267



1.2







Merger related expenses


















(278
)


(1.5
)Stock based compensation, net


















56



0.3Nondeductible costs and other, net


(416
)


0.2



68



0.3



(18
)


(0.0
)Total (benefit) provision for income taxes

$
(55,073
)


25.8
%

$
3,246



14.9
%

$
1,422



7.4
%  F-39




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2008


2007(In thousands)Gross deferred tax assetsUnrealized loss on securities
    available-for-sale

$
911


$
8,742Allowance for loan losses


17,543



10,519Deferred compensation


4,675



3,116Net operating loss carryforward


13,446



3,999Income from partnerships






51Deferred tax credits


1,351



786Nonaccrual loan interest






2,326Impairment charges


25,816



Other


433



Total gross deferred tax assets


64,175



29,539Gross deferred tax liabilitiesDepreciation


(612
)


(1,087
)FHLB stock dividends


(1,526
)


(1,536
)Amortizing intangible assets


(4,729
)


(5,960
)Loss from partnerships


(812
)


Other






(810
)Total gross deferred tax liabilities


(7,679
)


(9,393
)Net deferred tax asset

$
56,496


$
20,146       Unrecognized IncomeTax Benefits2008


2007(In thousands)Balance, at beginning of period

$
1,122


$
1,238Additions based on tax positions taken in current year


304



481Additions (reductions) based on tax positions taken in prior
    year additions


1,835



(168
)Reductions due to statute of limitations






(429
)Balance, at end of period

$
3,261


$
1,122    F-40




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       F-41




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 23 
    Earnings
    Per Share  Year Ended December 31,2008


2007


2006(In thousands, except per share data)Net (loss) income

$
(158,273
)

$
18,577


$
17,746Series A preferred stock dividends


3,342



204



Series T preferred stock dividends


318







Series T discount accretion


68







Total preferred stock dividends


3,728



204



Net (loss) income available to common stockholders

$
(162,001
)

$
18,373


$
17,746BasicWeighted average common shares outstanding


27,854



25,426



23,348Basic (loss) earnings per share

$
(5.82
)

$
0.72


$
0.76DilutedWeighted average common shares outstanding


27,854



25,426



23,348Dilutive effect of stock options(1)






98



200Dilutive effect of restricted stock(1)






56



242Dilutive effect of warrant(1)










Diluted average common shares


27,854



25,580



23,790Diluted (loss) earnings per share

$
(5.82
)

$
0.72


$
0.75     (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.   F-42




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 24 
    Other
    Comprehensive Income    Year Ended December 31,2008


2007


2006(In thousands)Unrealized holding losses on securities
    available-for-sale

$
(61,540
)

$
(12,221
)

$
(2,063
)Reclassification adjustment for losses(gains) recognized in
    income


16,747



(32
)


153Reclassification adjustment for impairment losses recognized in
    income


65,387







Accretion of unrealized gains on securities transferred from
    available-for-sale
    to
    held-to-maturity


(295
)


(7
)


(7
)Net unrealized gains (losses)


20,299



(12,260
)


2,209Tax effect


(7,831
)


4,616



(876
)Net increase (decrease) in fair value of securities classified
    as
    available-for-sale,
    net of income taxes and reclassification adjustments


12,468



(7,644
)


1,333Prior service cost related to benefit obligation


(776
)






Amortization of prior service cost


71







Actuarial loss related to the projected benefit obligation


(391
)






Tax effect


423







Net changes in benefit obligation


(673
)






Other comprehensive income(loss)

$
11,795


$
(7,644
)

$
1,333  F-43




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 25 
    Parent
    Company Financial Statements    CONDENSED
    BALANCE SHEETS
  December 31,2008


2007(In thousands)ASSETSCash and cash equivalents

$
43,469


$
2,118Investment in subsidiaries


358,480



501,292Loan to subsidiary


30,000



Other assets


15,820



10,010Total assets

$
447,769


$
513,420LIABILITIES AND STOCKHOLDERS EQUITYRevolving note payable

$
8,600


$
2,500Subordinated debt


15,000



Term note payable


55,000



70,000Junior subordinated debentures


60,791



60,724Other liabilities


2,544



5,032Total liabilities


141,935



138,256Stockholders equity


305,834



375,164Total liabilities and stockholders equity

$
447,769


$
513,420   CONDENSED
    STATEMENTS OF OPERATIONS
  Year Ended December 31,2008


2007


2006(In thousands)Operating incomeDividends from subsidiaries

$
22,311


$
4,032


$
10,477Interest from subsidiaries


16







Fees from subsidiaries


1,103



1,103



1,000Noninterest income


(51
)


(162
)


240Interest expense


(7,519
)


(6,645
)


(4,741
)Noninterest expense


(8,037
)


(3,330
)


(5,662
)Income (loss) before income taxes and equity in undistributed
    income of subsidiaries


7,823



(5,002
)


1,314Income tax benefit


7,599



3,377



3,904Equity in undistributed income of subsidiaries


(173,695
)


20,202



12,528Net (loss) income

$
(158,273
)

$
18,577


$
17,746  F-44




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    STATEMENTS OF CASH FLOWS
  Year Ended December 31,2008


2007


2006(In thousands)Cash flows from operating activitiesNet (loss) income

$
(158,273
)

$
18,577


$
17,746Adjustments to reconcile net (loss) income to net cash provided
    by (used in) operating activitiesEquity in undistributed income of subsidiaries


173,695



(20,202
)


(12,528
)Depreciation


43



70



85Amortization of stock-based compensation


899



22



2,501Amortization of intangibles


67



67



34Change in other assets


(5,794
)


2,971



(159
)Change in other liabilities


1,039



(3,766
)


3,752Net cash provided by (used in) operating activities


11,676



(2,261
)


11,431Cash flows from investing activitiesCash paid, net of cash and cash equivalents in acquisition






(67,557
)


(65,286
)Investment in subsidiaries


(17,000
)


(20,000
)


Loan advances to subsidiary


(30,000
)






Property and equipment expenditures






(75
)


(17
)Net cash used in continuing investing activities


(47,000
)


(87,632
)


(65,303
)Cash flows from financing activitiesPayments of junior subordinated debentures






(15,000
)


Proceeds from revolving note payable


24,600



75,000



Proceeds from term note payable






17,500



Repayments on revolving note payable


(18,500
)


(15,000
)


Repayments on term note payable






(5,000
)


Cash common dividends paid


(11,076
)


(13,003
)


(11,439
)Cash preferred dividends paid


(3,342
)


(204
)


Issuance of common stock


35







Issuance of preferred stock and warrant


84,784



41,441



Repurchase of common stock






(9,392
)


(4,770
)Proceeds from issuance of common and treasury stock under stock
    option plan


174



378



1,983Net cash provided by (used in) financing activities


76,675



(76,720
)


(14,226
)Increase (decrease) in cash and cash equivalents


41,351



(13,173
)


(68,098
)Cash and cash equivalents at beginning of year


2,118



15,291



83,389Cash and cash equivalents at end of year

$
43,469


$
2,118


$
15,291  F-45




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 26 
    Quarterly
    Results of Operations (Unaudited)  Three Months Ended,


Year Ended,2008

March 31


June 30


September 30


December 31


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

$
50,795


$
47,244


$
45,888


$
43,734


$
187,661Interest expense


28,579



24,479



23,735



23,902



100,695Net interest income


22,216



22,765



22,153



19,832



86,966Provision for loan losses


5,400



4,415



41,950



20,000



71,765Noninterest income (loss)


1,790



4,394



(60,512
)


3,732



(50,596
)Noninterest expense


28,609



20,368



103,296



25,678



177,951(Loss) income before income taxes


(10,003
)


2,376



(183,605
)


(22,114
)


(213,346
)Benefit for income taxes


(4,587
)


(52
)


(23,891
)


(26,543
)


(55,073
)Net (loss) income


(5,416
)


2,428



(159,714
)


4,429



(158,273
)Preferred stock dividends


835



836



835



1,222



3,728Net (loss) income available to common stockholders

$
(6,251
)

$
1,592


$
(160,549
)

$
3,207


$
(162,001
)(Loss) earnings per common share(a)Basic

$
(0.22
)

$
0.06


$
(5.76
)

$
0.12


$
(5.82
)Diluted


(0.22
)


0.06



(5.76
)


0.12



(5.82
)   other-than-temporary
    F-46




---



##### Table of Contents



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



204Net 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     (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-47




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##### Table of Contents



Report of
    Independent Registered Public Accounting Firm    Internal Control  Integrated Framework
           F-48