##### 









SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


|   |  |                                                                                                                                                 
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------
|  
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
    For the fiscal year ended December 31, 2005        
|OR
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
    For the transition period
    from           to

Commission file number 001-13735


Midwest Banc Holdings, Inc.


(Exact name of Registrant as specified in its charter)


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

501 West North Avenue, Melrose Park, Illinois 60160


(Address of principal executive offices including ZIP
Code)


(708) 865-1053


(Registrants telephone number including Area Code)


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


Common Stock, $0.01 par value, Nasdaq National Market


(Title of Class)


o þ


o þ


þ o


S-K 10-K 10-K. o


12b-2


o þ o


12b-2 o þ






DOCUMENTS INCORPORATED BY REFERENCE












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##### 










MIDWEST BANC HOLDINGS, INC.


FORM 10-K


INDEX


|                                                  |  |                                                                                                    |     |      |    | 
|------------------------------------------------- |  | -------------------------------------------------------------------------------------------------- | --- | ---- | -- | 
|                                                  |  |                                                                                                    |     | Page |   
|                                                  |  |                                                                                                    |     | No.  |   
|                                                  |  |                                                                                                    |     |      |   
|PART I                                           
|Item 1.                                           |  | Business                                                                                           |     |      | 1  | 
|Item 1A.                                          |  | Risk Factors                                                                                       |     |      | 17 | 
|Item 1B.                                          |  | Unresolved Staff Comments                                                                          |     |      | 20 | 
|Item 2.                                           |  | Properties                                                                                         |     |      | 21 | 
|Item 3.                                           |  | Legal Proceedings                                                                                  |     |      | 21 | 
|Item 4.                                           |  | Submission of Matters to a Vote of Security
    Holders                                            |     |      | 22 | 
|PART II                                          
|Item 5.                                           |  | Market for the Registrants Common
    Equity and Related Stockholder Matters                      |     |      | 22 | 
|Item 6.                                           |  | Selected Consolidated Financial Data                                                               |     |      | 23 | 
|Item 7.                                           |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations          |     |      | 25 | 
|Item 7A.                                          |  | Quantitative and Qualitative Disclosures
    about Market Risk                                     |     |      | 54 | 
|Item 8.                                           |  | Consolidated Financial Statements and
    Supplementary Data                                       |     |      | 56 | 
|Item 9.                                           |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure           |     |      | 56 | 
|Item 9A.                                          |  | Controls and Procedures                                                                            |     |      | 57 | 
|Item 9B.                                          |  | Other Information                                                                                  |     |      | 58 | 
|PART III                                         
|Item 10.                                          |  | Directors and Executive Officers of the
    Registrant                                             |     |      | 59 | 
|Item 11.                                          |  | Executive Compensation                                                                             |     |      | 59 | 
|Item 12.                                          |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters |     |      | 59 | 
|Item 13.                                          |  | Certain Relationships and Related
    Transactions                                                 |     |      | 59 | 
|Item 14.                                          |  | Principal Accounting Fees and Services                                                             |     |      | 59 | 
|PART IV                                          
|Item 15.                                          |  | Exhibits and Financial Statement
    Schedules                                                     |     |      | 60 | 
|Signature(s) Page                                 |  |                                                                                                    | 63  |     
|Contents of Consolidated Financial
    Statements |  |                                                                                                    | F-1 |     



---



##### 



PART I







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

The Company




small-to


Recent Developments




Sale of Midwest Bank of Western Illinois.


Exit from Regulatory Process.


Issuance of 3,450,000 shares of common stock.


Company repositioning.


1



---



##### 



Expansion of management depth.


Board of Directors Alignment.




Strategy




Expand and diversify loan portfolio.


Expand deposit base.


Expand footprint in Chicago market.


Expand noninterest income.




2



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##### 





|                                        |               |              |                  |                  |             |                                                                                                                                                                    |            |  |    |   | 
|--------------------------------------- | ------------- | ------------ | ---------------- | ---------------- | ----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------- |  | -- | - | 
|                                        |               |              |                  |                  |             | Number of                                                                                                                                                          |           
|                                        |               |              |                  |                  |             | Banking Centers                                                                                                                                                    |           
|Company Subsidiaries                    |               | Headquarters |                  |                  | Market Area |                                                                                                                                                                    | or Offices | 
|                                        |               |              |                  |                  |             |                                                                                                                                                                    |            | 
|Banks:                                  |               |              |                  |                  |             |                                                                                                                                                                    |            |  |    |  
|Midwest Bank and Trust Company          |               |              | Elmwood Park, IL |                  |             | Addison, Algonquin, Chicago, Downers Grove, Elmwood Park,
    Glenview, Hinsdale, Island Lake, Long Grove, Melrose Park,
    McHenry, Norridge, Roselle, and Union |            |  | 17 |  
|Nonbanks:                               |               |              |                  |                  |             |                                                                                                                                                                    |            |  |    |  
|Midwest Bank Insurance Services, L.L.C. |               |              | Algonquin, IL    |                  |             | *                                                                                                                                                                  |            |  | 1  |  
|MBTC Investment Company                 |               |              | Las Vegas, NV    |                  |             | **                                                                                                                                                                 |            |  | 2  |  
|MBHI Capital Trust II                   |               |              | Melrose Park, IL |                  |             | ***                                                                                                                                                                |            |  |   |  
|MBHI Capital Trust III                  |               |              | Melrose Park, IL |                  |             | ***                                                                                                                                                                |            |  |   |  
|MBHI Capital Trust IV                   |               |              | Melrose Park, IL |                  |             | ***                                                                                                                                                                |            |  |   |  
|MBHI Capital Trust V                    |               |              | Melrose Park, IL |                  |             | ***                                                                                                                                                                |            |  |   |  
|Midwest Financial and Investment        |               |              |                  |                  |             |                                                                                                                                                                    |            |  |    |  
|                                        | Services, Inc |              |                  | Elmwood Park, IL |             |                                                                                                                                                                    | ****       |  |    | 4 | 






|     |                                                                                             
|---- | --------------------------------------------------------------------------------------------
|*    | Provides insurance products.                                                                
|    
|**   | Provides additional investment portfolio management to the Bank.                            
|    
|***  | The trust is a statutory business trust formed as a financing
    subsidiary of the Company.
|    
|**** | Provides securities brokerage services.                                                     

History




| |         
| | --------
| | The Bank





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | On January 3, 2003, the Company completed the acquisition
    of Big Foot Financial Corp. (BFFC). BFFC was the
    holding company for Fairfield Savings Bank, F.S.B. with
    approximately $200 million in total assets at
    December 31, 2002, and three branches in Chicago, Long
    Grove, and Norridge which were merged into the Bank. The Company
    issued a total of 1,599,088 shares in the transaction.
|
| |  | In 2004, the Bank added new branches in Addison and Glenview,
    Illinois.                                                                                                                                                                                                                                                                                                                                              
|
| |  | In September 2005, the Company sold Midwest Bank of Western
    Illinois and its insurance agency subsidiary in order to focus
    on the Chicago metropolitan area.                                                                                                                                                                                                                                                     
|
| |  | The Company plans to open an additional branch in Franklin Park,
    Illinois in 2006, pending regulatory approval.                                                                                                                                                                                                                                                                                                      
|
| |  | On February 8, 2006, the Company entered into an agreement
    and plan of merger with Royal American Corporation (Royal
    American), a bank holding company with approximately
    $500 million in assets and six bank branches, pursuant to
    which the Company will acquire all of the shares outstanding of
    Royal American in exchange for cash and common stock of the
    Company. The                   

3



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##### 



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Company expects to issue approximately 2.9 million common
    shares and pay $64.3 million in cash for an estimated total
    purchase price of $130.2 million. The Companys stock
    will comprise up to 51% of the purchase price, at an exchange
    ratio of 3.58429 shares for each Royal American common
    share, and the remainder will be paid in cash at the rate of
    $80 per Royal American common share. This transaction is
    expected to close in mid-2006, pending regulatory approval as
    well as Royal American stockholder approval.





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













|                       |  |            |                   |  |        |   |            |            |  |  |             |  |  |      |                   |  |  |  |                   | 
|---------------------- |  | ---------- | ----------------- |  | ------ | - | ---------- | ---------- |  |  | ----------- |  |  | ---- | ----------------- |  |  |  | ----------------- | 
|                       |  |            |                   |  |        |   |            | Mandatory  |  |  | Optional    | 
|                       |  |            |                   |  |        |   |            | Redemption |  |  | Redemption  | 
|Issuer                 |  | Issue Date |                   |  | Amount |   |            | Rate       |  |  | Date        |  |  | Date |                  
|                       |  |            |                   |  |        |   |            |            |  |  |             |  |  |      |                  
|MBHI Capital Trust II  |  |            | October 29, 2002  |  |        | $ | 15,000,000 |            |  |  | LIBOR+3.45% |  |  |      | November 7, 2032  |  |  |  | November 7, 2007  | 
|MBHI Capital Trust III |  |            | December 19, 2003 |  |        | $ | 9,000,000  |            |  |  | LIBOR+3.00% |  |  |      | December 30, 2033 |  |  |  | December 30, 2008 | 
|MBHI Capital Trust IV  |  |            | December 19, 2003 |  |        | $ | 10,000,000 |            |  |  | LIBOR+2.85% |  |  |      | January 23, 2034  |  |  |  | January 23, 2009  | 
|MBHI Capital Trust V   |  |            | June 7, 2005      |  |        | $ | 20,000,000 |            |  |  | LIBOR+1.77% |  |  |      | June 15, 2035     |  |  |  | June 15, 2010     | 

Markets




4



---



##### 



low-to


Competition












Products and Services




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



Checking and Interest-bearing Checking Accounts. 91-day


Savings and Money Market Accounts.


Time Deposits.


5



---



##### 





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



Commercial Loans.


Construction Loans.


Commercial Real Estate Loans.


Consumer Real Estate Loans.


Consumer Loans.








| |     
| | ----
| | ATMs

sf Surcharge-Free




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



6



---



##### 





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





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



Employees




Available Information


www.midwestbanc.com. 10-K, 10-Q, 8-K,


1-800-SEC-0330. http://www.sec.gov.


SUPERVISION AND REGULATION




Bank Holding Company Regulation




7



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##### 

















8



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Bank Regulation










9



---



##### 



Financial Institution Regulation


Transactions with Affiliates.


Dividend Limitations.




Capital Requirements.




Standards for Safety and Soundness.


10



---



##### 









Prompt Corrective Action.


Insurance of Deposit Accounts.


11



---



##### 







Federal Reserve System.


Community Reinvestment.


Consumer Compliance.


Brokered Deposits.


Enforcement Actions.


Interstate Banking and Branching Legislation.


12



---



##### 





de novo


Insurance Powers.






Securities Brokerage.


Monetary Policy and Economic Conditions






Regulatory Developments






SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES


LITIGATION REFORM ACT OF 1995




13



---



##### 



10-K,










| |   |                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Managements ability to reduce and effectively manage
    interest rate risk and the impact of interest rates in general
    on the volatility of the Companys net interest income;                                                                                                                                                                        
|
| |  | Fluctuations in the value of the Companys investment
    securities;                                                                                                                                                                                                                                                                                       
|
| |  | The ability to attract and retain senior management experienced
    in banking and financial services;                                                                                                                                                                                                                                                      
|
| |  | The sufficiency of allowances for loan losses to absorb the
    amount of actual losses inherent in the existing portfolio of
    loans;                                                                                                                                                                                                                    
|
| |  | The Companys ability to adapt successfully to
    technological changes to compete effectively in the marketplace;                                                                                                                                                                                                                                         
|
| |  | Credit risks and risks from concentrations (by geographic area
    and by industry) within the 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
    allowances for loan losses and estimation of values of
    collateral and various financial assets and liabilities;                                                                                                                                                                          
|
| |  | Volatility of rate sensitive deposits;                                                                                                                                                                                                                                                                                                                      
|
| |  | Operational risks, including data processing system failures or
    fraud;                                                                                                                                                                                                                                                                                  
|
| |  | Asset/liability matching risks and liquidity risks;                                                                                                                                                                                                                                                                                                         
|
| |  | The ability to successfully acquire low cost deposits or funding;                                                                                                                                                                                                                                                                                           
|
| |  | The ability to successfully execute strategies to increase
    noninterest income;                                                                                                                                                                                                                                                                          

14



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##### 





| |   |                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The ability to successfully to grow non-commercial real estate
    loans;                                                                                                                                                                                                                                                                               
|
| |  | The ability of the Company to consummate the acquisition of
    Royal American Corporation and to successfully integrate the
    Royal American Corporation acquisition once closed;                                                                                                                                                                    
|
| |  | The ability of the Company to fully realize expected cost
    savings and revenues in connection with the Royal American
    Corporation acquisition, or the ability to realize them on a
    timely basis;                                                                                                                                             
|
| |  | The risk of borrower, depositor, and other customer attrition
    after the Royal American Corporation acquisition is completed;                                                                                                                                                                                                                        
|
| |  | Changes in the economic environment, competition, or other
    factors that may influence the anticipated growth rate of loans
    and deposits, the quality of the loan portfolio and loan and
    deposit pricing, and the Companys ability to successfully
    pursue acquisition and expansion strategies and integrate any
    acquired companies;
|
| |  | The impact from liabilities arising from legal or administrative
    proceedings on the financial condition of the Company;                                                                                                                                                                                                                             
|
| |  | Possible administrative or enforcement actions of banking
    regulators in connection with any material failure of the Bank
    to comply with banking laws, rules or regulations;                                                                                                                                                                     
|
| |  | Possible administrative or enforcement actions of the Securities
    and Exchange Commission (the SEC) in connection with
    the SEC inquiry of the restatement of the Companys
    September 30, 2002 financial statements;                                                                                                                        
|
| |  | Governmental monetary and fiscal policies, as well as
    legislative and regulatory changes, that may result in the
    imposition of costs and constraints on the Company through
    higher FDIC insurance premiums, significant fluctuations in
    market interest rates, increases in capital requirements, and
    operational limitations;      
|
| |  | Changes in general economic or industry conditions, nationally
    or in the communities in which the Company conducts business;                                                                                                                                                                                                                        
|
| |  | Changes in accounting principles, policies, or guidelines
    affecting the businesses conducted by the Company;                                                                                                                                                                                                                                        
|
| |  | Acts of war or terrorism; and                                                                                                                                                                                                                                                                                                                           
|
| |  | Other economic, competitive, governmental, regulatory, and
    technical factors affecting the Companys operations,
    products, services, and prices.                                                                                                                                                                                                





EXECUTIVE OFFICERS OF THE REGISTRANT






15



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16



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|         |             
|-------- | ------------
|Item 1A. | Risk Factors



Changes in economic conditions, in particular an economic
slowdown in Chicago, Illinois, could hurt the Companys
business materially.






| |   |                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | loan delinquencies may increase;                                                                                                                                                                                                     
|
| |  | problem assets and foreclosures may increase;                                                                                                                                                                                        
|
| |  | demand for its products and services may decline;                                                                                                                                                                                    
|
| |  | low cost or noninterest bearing deposits may decrease; and                                                                                                                                                                           
|
| |  | collateral for loans made by us, especially real estate, may
    decline in value, in turn reducing customers borrowing
    power, and reducing the value of assets and collateral
    associated with the Companys existing loans.

A large percentage of the Companys loans are
collateralized by real estate, and an adverse change in the real
estate market may result in losses and adversely affect its
profitability.




The Companys business is subject to interest rate risk
and fluctuations in interest rates may adversely affect its
earnings.




17



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##### 









| |   |                                                                                      
| | - | -------------------------------------------------------------------------------------
| |  | inflation;                                                                           
|
| |  | recession;                                                                           
|
| |  | changes in unemployment;                                                             
|
| |  | the money supply; and                                                                
|
| |  | international disorder and instability in domestic and foreign
    financial markets.



The Companys allowance for loan losses may not be
sufficient to cover actual loan losses, which could adversely
affect its results of operations.






| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | current economic conditions and their estimated effects on
    specific borrowers;                                        
|
| |  | an evaluation of the existing relationships among loans,
    potential loan losses and the present level of the allowance;
|
| |  | results of examinations of the Companys loan portfolios by
    regulatory agencies; and                                  
|
| |  | managements internal review of the loan portfolio.                                                                       



An interruption in or breach in security of the
Companys information systems may result in a loss of
customer business.




18



---



##### 





The Companys ability to pay dividends and make payment
on its debt securities is dependent on the earnings of its
subsidiaries and is subject to other restrictions.








The Companys business may be adversely affected by the
highly regulated environment in which it operates.




The Company could encounter difficulties or unexpected
developments related to any future acquisitions.




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.




19



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##### 












|         |                          
|-------- | -------------------------
|Item 1B. | Unresolved Staff Comments



20



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##### 








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



|                                               |  |                |      |  |                   |   |       |           |  |  |        | 
|---------------------------------------------- |  | -------------- | ---- |  | ----------------- | - | ----- | --------- |  |  | ------ | 
|                                               |  | Date           |      |  | Net Book Value at |   |       | Leased or | 
|Location                                       |  | Acquired       |      |  | December 31, 2005 |   |       | Owned     | 
|                                               |  |                |      |  |                   |   |       |           | 
|                                               |  | (In thousands) |     
|Principal Office                               |  |                |      |  |                   |   |       |           |  |  |        | 
|501 West North Avenue                          |  |                | 1987 |  |                   | $ | 734   |           |  |  | Owned  | 
|Melrose Park, Illinois 60160                   |  |                |      |  |                   |   |       |           |  |  |        | 
|Midwest Bank and Trust Company Banking Offices |  |                |      |  |                   |   |       |           |  |  |        | 
|1606 North Harlem Avenue                       |  |                | 1959 |  |                   |   | 1,549 |           |  |  | Owned  | 
|Elmwood Park, Illinois 60607                   |  |                |      |  |                   |   |       |           |  |  |        | 
|300 South Michigan Avenue                      |  |                | 1986 |  |                   |   |      |           |  |  | Leased | 
|Chicago, Illinois 60604                        |  |                |      |  |                   |   |       |           |  |  |        | 
|4012 North Pulaski Road                        |  |                | 1993 |  |                   |   | 875   |           |  |  | Owned  | 
|Chicago, Illinois 60641                        |  |                |      |  |                   |   |       |           |  |  |        | 
|7227 West Addison Street                       |  |                | 1996 |  |                   |   | 1,087 |           |  |  | Owned  | 
|Chicago, Illinois 60634                        |  |                |      |  |                   |   |       |           |  |  |        | 
|1601 North Milwaukee Avenue                    |  |                | 2003 |  |                   |   | 3,001 |           |  |  | Owned  | 
|Chicago, Illinois 60647                        |  |                |      |  |                   |   |       |           |  |  |        | 
|8301 West Lawrence                             |  |                | 2003 |  |                   |   | 124   |           |  |  | *      | 
|Norridge, Illinois 60656                       |  |                |      |  |                   |   |       |           |  |  |        | 
|245 South Addison Road                         |  |                | 2002 |  |                   |   | 927   |           |  |  | Owned  | 
|Addison, Illinois 60101                        |  |                |      |  |                   |   |       |           |  |  |        | 
|1441 Waukegan Road                             |  |                | 2003 |  |                   |   | 11    |           |  |  | Leased | 
|Glenview, Illinois 60025                       |  |                |      |  |                   |   |       |           |  |  |        | 
|500 West Chestnut Street                       |  |                | 1991 |  |                   |   | 1,492 |           |  |  | Owned  | 
|Hinsdale, Illinois 60521                       |  |                |      |  |                   |   |       |           |  |  |        | 
|927 Curtiss Street                             |  |                | 1996 |  |                   |   | 2     |           |  |  | Leased | 
|Downers Grove, Illinois 60515                  |  |                |      |  |                   |   |       |           |  |  |        | 
|505 North Roselle Road                         |  |                | 1999 |  |                   |   | 1,945 |           |  |  | Owned  | 
|Roselle, Illinois 60172                        |  |                |      |  |                   |   |       |           |  |  |        | 
|17622 Depot Street                             |  |                | 1987 |  |                   |   | 45    |           |  |  | Owned  | 
|Union, Illinois 60180                          |  |                |      |  |                   |   |       |           |  |  |        | 
|2045 East Algonquin Road                       |  |                | 1994 |  |                   |   | 663   |           |  |  | Owned  | 
|Algonquin, Illinois 60102                      |  |                |      |  |                   |   |       |           |  |  |        | 
|204 E. State Road                              |  |                | 1998 |  |                   |   | 307   |           |  |  | Owned  | 
|Island Lake, Illinois 60042                    |  |                |      |  |                   |   |       |           |  |  |        | 
|5555 Bull Valley Road                          |  |                | 1998 |  |                   |   | 1,175 |           |  |  | Owned  | 
|McHenry, Illinois 60050                        |  |                |      |  |                   |   |       |           |  |  |        | 
|1190 Old McHenry Road                          |  |                | 2003 |  |                   |   | 4,310 |           |  |  | Owned  | 
|Long Grove, Illinois 60047                     |  |                |      |  |                   |   |       |           |  |  |        | 






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








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



21



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##### 










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



PART II







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

over-the


|     |                |      |   |       |     |                    |   |                  |  |  |   |      | 
|---- | -------------- | ---- | - | ----- | --- | ------------------ | - | ---------------- |  |  | - | ---- | 
|     |                |      |   |       |     | Dividends Declared |  
|     |                | High |   |       | Low |                    |   | Per Common Share | 
|     |                |      |   |       |     |                    |   |                  | 
|2004 |                |      |   |       |     |                    |   |                  |  |  |   |     
|     | First Quarter  |      | $ | 25.00 |     |                    | $ | 22.08            |  |  | $ | 0.12 | 
|     | Second Quarter |      |   | 24.39 |     |                    |   | 21.31            |  |  |   | 0.12 | 
|     | Third Quarter  |      |   | 22.25 |     |                    |   | 17.96            |  |  |   | 0.12 | 
|     | Fourth Quarter |      |   | 23.17 |     |                    |   | 19.20            |  |  |   | 0.12 | 
|2005 |                |      |   |       |     |                    |   |                  |  |  |   |     
|     | First Quarter  |      | $ | 22.80 |     |                    | $ | 19.55            |  |  | $ | 0.12 | 
|     | Second Quarter |      |   | 20.20 |     |                    |   | 17.92            |  |  |   | 0.12 | 
|     | Third Quarter  |      |   | 24.24 |     |                    |   | 19.13            |  |  |   | 0.12 | 
|     | Fourth Quarter |      |   | 23.50 |     |                    |   | 21.00            |  |  |   | 0.12 | 



22



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##### 








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



|                           |                                                               |                                               |   |         |      |  |   |        |   |  |      |        |   |      |   |        |  |  |   |        |  
|-------------------------- | ------------------------------------------------------------- | --------------------------------------------- | - | ------- | ---- |  | - | ------ | - |  | ---- | ------ | - | ---- | - | ------ |  |  | - | ------ | -
|                           |                                                               | Year Ended December 31,                       |  
|                           |                                                               |                                               |  
|                           |                                                               | 2005                                          |   |         | 2004 |  |   | 2003   |   |  | 2002 |        |   | 2001 |  
|                           |                                                               |                                               |   |         |      |  |   |        |   |  |      |        |   |      |  
|                           |                                                               | (Dollars in thousands, except per share data) |  
|Statement of Income Data:  |                                                               |                                               |   |         |      |  |   |        |   |  |      |        |   |      |   |        |  |  |   |       
|                           | Total interest income                                         |                                               | $ | 112,244 |      |  | $ | 91,962 |   |  | $    | 98,108 |   |      | $ | 97,420 |  |  | $ | 97,483 |  
|                           | Total interest expense                                        |                                               |   | 50,797  |      |  |   | 41,780 |   |  |      | 43,260 |   |      |   | 45,460 |  |  |   | 56,248 |  
|                           |                                                               |                                               |   |         |      |  |   |        |   |  |      |        |   |      |  
|                           | Net interest income                                           |                                               |   | 61,447  |      |  |   | 50,182 |   |  |      | 54,848 |   |      |   | 51,960 |  |  |   | 41,235 |  
|                           | Provision for loan losses                                     |                                               |   | 2,589   |      |  |   | 3,400  |   |  |      | 9,455  |   |      |   | 17,360 |  |  |   | 1,920  |  
|                           | Noninterest income                                            |                                               |   | (6,245  | )    |  |   | (88    | ) |  |      | 19,829 |   |      |   | 11,422 |  |  |   | 10,622 |  
|                           | Noninterest expenses                                          |                                               |   | 60,527  |      |  |   | 46,491 |   |  |      | 38,099 |   |      |   | 29,040 |  |  |   | 26,567 |  
|                           |                                                               |                                               |   |         |      |  |   |        |   |  |      |        |   |      |  
|                           | Income (loss) before income taxes and discontinued operations |                                               |   | (7,914  | )    |  |   | 203    |   |  |      | 27,123 |   |      |   | 16,981 |  |  |   | 23,370 |  
|                           | Provision (benefit) for income taxes                          |                                               |   | (6,325  | )    |  |   | (2,869 | ) |  |      | 7,779  |   |      |   | 3,682  |  |  |   | 7,741  |  
|                           |                                                               |                                               |   |         |      |  |   |        |   |  |      |        |   |      |  
|                           | Income (loss) from continuing operations                      |                                               |   | (1,589  | )    |  |   | 3,072  |   |  |      | 19,344 |   |      |   | 13,299 |  |  |   | 15,629 |  
|                           | Income (loss) from discontinued operations                    |                                               |   | 7,533   |      |  |   | (696   | ) |  |      | 3,437  |   |      |   | 3,009  |  |  |   | 2,253  |  
|                           |                                                               |                                               |   |         |      |  |   |        |   |  |      |        |   |      |  
|                           | Net income                                                    |                                               | $ | 5,944   |      |  | $ | 2,376  |   |  | $    | 22,781 |   |      | $ | 16,308 |  |  | $ | 17,882 |  
|                           |                                                               |                                               |   |         |      |  |   |        |   |  |      |        |   |      |  
|Per Share Data(1):         |                                                               |                                               |   |         |      |  |   |        |   |  |      |        |   |      |   |        |  |  |   |       
|                           | Earnings per share (basic) from continuing operations         |                                               | $ | (0.08   | )    |  | $ | 0.17   |   |  | $    | 1.09   |   |      | $ | 0.82   |  |  | $ | 0.97   |  
|                           | Earnings per share (basic) from Discontinued operations       |                                               |   | 0.38    |      |  |   | (0.04  | ) |  |      | 0.19   |   |      |   | 0.19   |  |  |   | 0.14   |  
|                           | Earnings per share (basic)                                    |                                               |   | 0.30    |      |  |   | 0.13   |   |  |      | 1.28   |   |      |   | 1.01   |  |  |   | 1.11   |  
|                           | Earnings per share (diluted) from continuing operations       |                                               |   | (0.08   | )    |  |   | 0.17   |   |  |      | 1.06   |   |      |   | 0.81   |  |  |   | 0.96   |  
|                           | Earnings per share (diluted) from Discontinued operations     |                                               |   | 0.38    |      |  |   | (0.04  | ) |  |      | 0.19   |   |      |   | 0.18   |  |  |   | 0.14   |  
|                           | Earnings per share (diluted)                                  |                                               |   | 0.30    |      |  |   | 0.13   |   |  |      | 1.25   |   |      |   | 0.99   |  |  |   | 1.10   |  
|                           | Cash dividends declared                                       |                                               |   | 0.48    |      |  |   | 0.48   |   |  |      | 0.44   |   |      |   | 0.40   |  |  |   | 0.40   |  
|                           | Book value at end of year                                     |                                               |   | 9.91    |      |  |   | 7.66   |   |  |      | 8.01   |   |      |   | 7.12   |  |  |   | 5.99   |  
|                           | Tangible book value at end of year                            |                                               |   | 9.87    |      |  |   | 7.61   |   |  |      | 7.96   |   |      |   | 7.06   |  |  |   | 5.98   |  
|Selected Financial Ratios: |                                                               |                                               |   |         |      |  |   |        |   |  |      |        |   |      |   |        |  |  |   |       
|                           | Return on average assets from continuing operations(2)        |                                               |   | (0.07   | )%   |  |   | 0.13%  |   |  |      | 0.87   | % |      |   | 0.70%  |  |  |   | 0.98   | %
|                           | Return on average equity from continuing operations(3)        |                                               |   | (0.95   | )    |  |   | 2.17   |   |  |      | 13.12  |   |      |   | 12.08  |  |  |   | 17.04  |  
|                           | Dividend payout ratio                                         |                                               |   | 162.38  |      |  |   | 279.59 |   |  |      | 40.55  |   |      |   | 48.57  |  |  |   | 41.21  |  
|                           | Average equity to average assets                              |                                               |   | 7.29    |      |  |   | 6.12   |   |  |      | 6.60   |   |      |   | 5.83   |  |  |   | 5.75   |  
|                           | Tier 1 risk-based capital                                     |                                               |   | 16.97   |      |  |   | 13.27  |   |  |      | 13.68  |   |      |   | 10.49  |  |  |   | 9.93   |  
|                           | Total risk-based capital                                      |                                               |   | 18.07   |      |  |   | 14.65  |   |  |      | 14.74  |   |      |   | 11.74  |  |  |   | 10.82  |  
|                           | Net interest margin (tax equivalent)(4)(5)(6)                 |                                               |   | 3.31    |      |  |   | 2.82   |   |  |      | 3.19   |   |      |   | 3.49   |  |  |   | 3.33   |  
|                           | Loan to deposit ratio(6)                                      |                                               |   | 88.74   |      |  |   | 73.12  |   |  |      | 67.34  |   |      |   | 83.52  |  |  |   | 84.44  |  
|                           | Net overhead expense to average assets(6)(7)                  |                                               |   | 2.14    |      |  |   | 1.58   |   |  |      | 1.01   |   |      |   | 0.99   |  |  |   | 1.15   |  
|                           | Efficiency ratio(6)(8)                                        |                                               |   | 75.44   |      |  |   | 72.79  |   |  |      | 49.56  |   |      |   | 44.58  |  |  |   | 51.10  |  

23



---



##### 



|                        |                                                             |                                               |   |           |      |  |   |           |   |  |      |           |   |      |   |           |   |  |   |           | 
|----------------------- | ----------------------------------------------------------- | --------------------------------------------- | - | --------- | ---- |  | - | --------- | - |  | ---- | --------- | - | ---- | - | --------- | - |  | - | --------- | 
|                        |                                                             | Year Ended December 31,                       |  
|                        |                                                             |                                               |  
|                        |                                                             | 2005                                          |   |           | 2004 |  |   | 2003      |   |  | 2002 |           |   | 2001 |  
|                        |                                                             |                                               |   |           |      |  |   |           |   |  |      |           |   |      |  
|                        |                                                             | (Dollars in thousands, except per share data) |  
|Loan Quality Ratios(6): |                                                             |                                               |   |           |      |  |   |           |   |  |      |           |   |      |   |           |   |  |   |          
|                        | Allowance for loan losses to total loans at the end of year |                                               |   | 1.31      |      |  |   | 1.48      |   |  |      | 1.51      |   |      |   | 1.92      |   |  |   | 1.00      | 
|                        | Provision for loan losses to total loans                    |                                               |   | 0.19      |      |  |   | 0.31      |   |  |      | 0.99      |   |      |   | 1.71      |   |  |   | 0.22      | 
|                        | Net loans charged off to average total loans                |                                               |   | 0.09      |      |  |   | 0.17      |   |  |      | 0.82      |   |      |   | 0.69      |   |  |   | 0.07      | 
|                        | Nonaccruing loans to total loans at the end of year(9)      |                                               |   | 0.58      |      |  |   | 0.85      |   |  |      | 1.56      |   |      |   | 2.75      |   |  |   | 0.19      | 
|                        | Nonperforming assets to total assets(10)                    |                                               |   | 0.83      |      |  |   | 0.78      |   |  |      | 0.96      |   |      |   | 1.40      |   |  |   | 0.11      | 
|                        | Allowance for loan losses to nonaccruing loans              |                                               |   | 2.25      | x    |  |   | 1.74      | x |  |      | 0.97      | x |      |   | 0.70      | x |  |   | 5.28x     | 
|Balance Sheet Data:     |                                                             |                                               |   |           |      |  |   |           |   |  |      |           |   |      |   |           |   |  |   |          
|                        | Total assets                                                |                                               | $ | 2,307,608 |      |  | $ | 2,236,813 |   |  | $    | 2,264,149 |   |      | $ | 2,009,047 |   |  | $ | 1,810,422 | 
|                        | Total earning assets(6)                                     |                                               |   | 2,126,227 |      |  |   | 1,807,609 |   |  |      | 1,807,207 |   |      |   | 1,651,917 |   |  |   | 1,477,518 | 
|                        | Year-to-date average assets                                 |                                               |   | 2,305,086 |      |  |   | 2,310,594 |   |  |      | 2,234,293 |   |      |   | 1,889,511 |   |  |   | 1,593,939 | 
|                        | Total loans(6)                                              |                                               |   | 1,351,908 |      |  |   | 1,097,992 |   |  |      | 956,951   |   |      |   | 1,016,505 |   |  |   | 887,114   | 
|                        | Allowance for loan losses(6)                                |                                               |   | 17,760    |      |  |   | 16,217    |   |  |      | 14,459    |   |      |   | 19,540    |   |  |   | 8,858     | 
|                        | Total deposits(6)                                           |                                               |   | 1,523,384 |      |  |   | 1,501,646 |   |  |      | 1,421,027 |   |      |   | 1,217,101 |   |  |   | 1,050,562 | 
|                        | Total borrowings(6)                                         |                                               |   | 538,480   |      |  |   | 320,636   |   |  |      | 418,797   |   |      |   | 385,659   |   |  |   | 378,162   | 
|                        | Stockholders equity                                        |                                               |   | 216,126   |      |  |   | 137,423   |   |  |      | 143,081   |   |      |   | 114,951   |   |  |   | 96,214    | 
|                        | Tangible stockholders equity(6)(11)                        |                                               |   | 215,235   |      |  |   | 136,532   |   |  |      | 142,190   |   |      |   | 114,060   |   |  |   | 96,084    | 






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

|                                                 |  |      |        |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|------------------------------------------------ |  | ---- | ------ |  | ---- | - | ------ | ---- |  | - | ------ |  |  | ---- | ------ |  |  | - | ------ | 
|                                                 |  | 2005 |        |  | 2004 |   |        | 2003 |  |   | 2002   |  |  | 2001 |       
|                                                 |  |      |        |  |      |   |        |      |  |   |        |  |  |      |       
|Net interest income                              |  | $    | 61,447 |  |      | $ | 50,182 |      |  | $ | 54,848 |  |  | $    | 51,960 |  |  | $ | 41,235 | 
|Tax-equivalent adjustment to net interest income |  |      | 2,628  |  |      |   | 2,399  |      |  |   | 3,511  |  |  |      | 2,365  |  |  |   | 2,144  | 
|                                                 |  |      |        |  |      |   |        |      |  |   |        |  |  |      |       
|Net interest income, fully tax-equivalent basis  |  | $    | 64,075 |  |      | $ | 52,581 |      |  | $ | 58,359 |  |  | $    | 54,325 |  |  | $ | 43,379 | 
|                                                 |  |      |        |  |      |   |        |      |  |   |        |  |  |      |       






|    |                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6) | Reflects continuing operations due to the sale of bank
    subsidiary on September 30, 2005.                                                                                                                     
|   
|(7) | Noninterest expense less noninterest income, excluding security
    gains or losses, divided by average assets.                                                                                                  
|   
|(8) | Noninterest income, excluding security gains or losses, plus net
    interest income on a fully tax-equivalent basis divided by
    noninterest expense excluding amortization and other real estate
    expense.
|   
|(9) | Includes total nonaccrual, impaired and all other loans
    90 days or more past due.                                                                                                                            



|     |                                                                                                                                                                     
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Includes total nonaccrual, all other loans 90 days or more
    past due, and other real estate owned.                                                               
|    
|(11) | Stockholders equity less goodwill. The following table
    reconciles reported stockholders equity to tangible
    stockholders equity for the periods presented:

|                              |  |      |         |  |      |   |         |      |  |   |         |  |  |      |         |  |  |   |        | 
|----------------------------- |  | ---- | ------- |  | ---- | - | ------- | ---- |  | - | ------- |  |  | ---- | ------- |  |  | - | ------ | 
|                              |  | 2005 |         |  | 2004 |   |         | 2003 |  |   | 2002    |  |  | 2001 |        
|                              |  |      |         |  |      |   |         |      |  |   |         |  |  |      |        
|Stockholders equity          |  | $    | 216,126 |  |      | $ | 137,423 |      |  | $ | 143,081 |  |  | $    | 114,951 |  |  | $ | 96,214 | 
|Goodwill                      |  |      | 891     |  |      |   | 891     |      |  |   | 891     |  |  |      | 891     |  |  |   | 130    | 
|                              |  |      |         |  |      |   |         |      |  |   |         |  |  |      |        
|Tangible stockholders equity |  | $    | 215,235 |  |      | $ | 136,532 |      |  | $ | 142,190 |  |  | $    | 114,060 |  |  | $ | 96,084 | 
|                              |  |      |         |  |      |   |         |      |  |   |         |  |  |      |        

24



---



##### 








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

Overview








Critical Accounting Policies and Estimates




Allowance for Loan Losses:




25



---



##### 









Evaluation of Securities for Impairment: held-to held-to


Fair Value of Financial Instruments and Derivatives:


Recent Developments




26



---



##### 











Consolidated Results of Operations




| |                      
| | ---------------------
| | 2005 Compared to 2004





| |   |                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Total assets increased $70.8 million, or 3.2%, to
    $2.3 billion as of December 31, 2005 from
    December 31, 2004 or increased $353.3 million after
    giving consideration to the sale of MBWI on September 30,
    2005 which had assets of $282.5 million.                                                                       
|
| |  | In June 2005, the Company completed its balance sheet
    repositioning which included the sale of low-yielding, long
    duration U.S. government-sponsored entity notes, the
    prepayment of long-term high cost FHLB advances, and the
    redemption of 10% trust preferred securities with after-tax
    charges of $21.0 million.
|
| |  | Loans increased $253.9 million, or 23.1%, to
    $1.4 billion as of December 31, 2005 compared to
    December 31, 2004.                                                                                                                                                                                                                 
|
| |  | Net loans charged off to average total loans were 0.09% at
    December 31, 2005 compared to 0.17% in the prior year.                                                                                                                                                                                                                    
|
| |  | Securities increased by $221.4 million, or 42.1%, in 2005
    compared to 2004 as a result of investing federal funds sold and
    other short-term investments of $169.8 million held at
    December 31, 2004.                                                                                                                         
|
| |  | Allowance to nonaccruing loans coverage increased to 2.25x in
    2005 from 1.74x in 2004.                                                                                                                                                                                                                                               
|
| |  | Loss from continuing operations was $1.6 million for the
    year ended December 31, 2005 compared to income from
    continuing operations of $3.1 million for the prior year.                                                                                                                                                          
|
| |  | Core income from continuing operations (defined as income from
    continuing operations excluding charges from the balance sheet
    repositioning and retirement benefit obligation as reconciled
    below in                                                                                                                         

27



---



##### 



| |   |                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | Supplemental Information) was $17.4 million for the
    year ended December 31, 2005 or 75.6% higher compared to
    core income from continuing operations of $9.9 million for
    the year ended December 31, 2004.           
|
| |  | The return on average assets from continuing operations was a
    negative 0.07% for 2005 and a positive 0.13% for 2004; core
    return on average assets from continuing operations was 0.76%
    for 2005 and 0.43% for 2004.
|
| |  | The return on average equity from continuing operations
    decreased to a negative 0.95% in 2005 from 2.17% in 2004; core
    return on average equity from continuing operations was 10.37%
    for 2005 and 7.01% for 2004.  

Net Interest Income.






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Interest income on a fully tax-equivalent basis increased
    $20.5 million to $114.9 in 2005 compared to
    $94.4 million in 2004. Average earning assets increased by
    $74.8 million, and average yields increased by
    87 basis points.                                                                                                                                                                               
|
| |  | Interest income on loans on a fully tax-equivalent basis
    increased $20.6 million to $80.3 million in 2005 from
    $59.7 million in 2004 due to an increase in average rates
    paid on loans from 6.06% to 6.62% and an increase of
    $225.5 million in average loans.                                                                                                                                                 
|
| |  | Interest income on securities on a fully tax-equivalent basis
    increased $1.1 million to $33.4 million in 2005 from
    $32.3 million in 2004 as a result of an increase of yields
    on securities from 4.33% in 2004 to 4.81% in 2005 despite a
    $50.3 million decrease in average securities. The duration
    of the securities portfolio decreased to 3.8 years at
    December 31, 2005 from 5.0 years a year ago.



| |   |                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Consistent with its 2005 strategy, the Company has changed the
    mix of its securities portfolio through the sale of
    U.S. government-sponsored entity notes in the fourth
    quarter of 2004 and the first half 2005 and the investment in
    mortgage-backed securities described below.                                                                                         
|
| |  | During 2005, the Company invested $342.4 million in 5/1,
    7/1, and 10/1 adjustable rate mortgage-backed securities with a
    weighted average yield of 4.84% as well as $201.4 million
    in 15-year fixed
    mortgage-backed securities with a weighted average yield of
    4.87%. The Company expects these securities to provide added
    liquidity to fund future loan growth.



| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | Average cash equivalents decreased by $98.4 million
    compared to 2004 due to more proactive funds management.





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Interest expense on interest-bearing liabilities increased
    $9.0 million to $50.8 million in 2005 from
    $41.8 million in 2004, or 21.6%, due primarily to the
    increase in interest expense on deposits. Average balances on
    interest-bearing liabilities increased by $44.8 million in
    2005 to $1.8 billion.                                                                                                                                                                                                                                         
|
| |  | Interest expense on interest-bearing deposits increased by
    $6.4 million to $34.1 million in 2005 from
    $27.7 million in 2004, or 23.2%. This is mainly the result
    of the increase in average rates paid on certificates of
    deposits and public funds of 58 basis points in 2005 and
    increase in average balances of $32.8 million. Average
    interest-bearing core deposits (interest-bearing demand deposit,
    money market, and savings accounts) increased $9.9 million
    compared to 2004, while rates paid increased 13 basis
    points.

28



---



##### 





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company also experienced a migration of balances in core
    interest-bearing deposits (interest-bearing demand, money
    market, and savings accounts) to certificates of deposits as a
    result of the upward movement in rates.                                                                                                                                                                                 
|
| |  | Interest expense on borrowings increased by $2.6 million to
    $16.7 million in 2005 from $14.1 million in 2004, or
    18.4%. Included in 2004s interest expense is a purchase
    accounting adjustment of $2.1 million which reduced the
    interest expense on FHLB advances.                                                                                                                                      
|
| |  | Interest expense on Federal funds purchased and securities sold
    under agreements to repurchase increased by $2.9 million in
    2005 as a result of the increase in rates of 40 basis
    points and average balances of $73.0 million. This increase
    in Federal funds purchased and securities sold under agreements
    to repurchase was a result of the Companys difficulty in
    raising low cost deposits.
|
| |  | The Company prepaid $121.5 million of FHLB advances with an
    average rate of 5.47%, unwound the interest rate swaps
    associated with those advances, and replaced them with
    $150.0 million in new advances with an average rate of
    3.48%.                                                                                                                                                                   
|
| |  | The Company also redeemed $20.6 million of its junior
    subordinated debt at a rate of 10.00% during June 2005 and
    replaced it with another issuance for the same amount at LIBOR
    plus 177 basis points adjusting quarterly.                                                                                                                                                                                    

Provision for Loan Losses.


Noninterest Income.




| |   |                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $116,000 decrease in service charges on deposits mainly due to
    the decrease in overdraft and noninterest-bearing demand deposit
    service charges of $266,000 partially offset by the increase in
    ATM and debit card fees of $113,000;
|
| |  | $204,000 increase in trading profits:                                                                                                                                                                                                           



| |   |                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------
| |  | covered call options were written to provide incremental revenue
    enhancement when market conditions provided such
    opportunities, and   
|
| |  | compared to 2004, trading activities have been curtailed with
    reductions in the volume of securities traded and number of
    transactions;



| |   |                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $95,000 increase in insurance and brokerage commissions;                                                                                                                            
|
| |  | $315,000 increase in the cash surrender value of life insurance
    (reflecting the additional investment of $20.0 million in
    July of 2004 and the increase in crediting rates);
|
| |  | $180,000 decrease in gains on sale of loans (as a result of a
    lower level of mortgage refinancing volume and the retention of
    variable rate mortgages in the portfolio); and
|
| |  | A life insurance benefit was received in the third quarter of
    2005 in the amount of $789,000.                                                                                   



Noninterest Expenses.


29



---



##### 







| |   |                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Salaries and employee benefits increased $2.4 million
    reflecting additions of new management personnel;                                                                   
|
| |  | Occupancy and equipment decreased $406,000 in 2005 compared to
    the prior year mainly due to a decrease in real estate taxes;                                              
|
| |  | Professional services increased $51,000 for 2005 compared to
    2004 due to an increase in audit and ATM processing fees and a
    decrease in legal and consulting expenses;
|
| |  | A $2.4 million write down of other real estate owned was
    taken in the second quarter of 2005; and                                                                         
|
| |  | The loss on extinguishment of debt (FHLB advances, as mentioned
    above) was $13.1 million in 2005.                                                                         



Federal and State Income Tax.


|                                                   |                                |                |        |        |      |   |        |        |  
|-------------------------------------------------- | ------------------------------ | -------------- | ------ | ------ | ---- | - | ------ | ------ | -
|                                                   |                                | Year Ended     |       
|                                                   |                                | December 31,   |       
|                                                   |                                |                |       
|                                                   |                                | 2005           |        |        | 2004 |  
|                                                   |                                |                |        |        |      |  
|                                                   |                                | (In thousands) |       
|Income taxes computed at the statutory rate        |                                | $              | (2,770 | )      |      | $ | 71     |       
|Tax-exempt interest income on securities and loans |                                |                | (563   | )      |      |   | (404   | )     
|General business credits                           |                                |                | (255   | )      |      |   | (100   | )     
|State income taxes, net of federal tax benefit     |                                |                | (952   | )      |      |   | (1,105 | )     
|Cash surrender value increase, net of premiums     |                                |                | (615   | )      |      |   | (503   | )     
|Life insurance benefit                             |                                |                | (276   | )      |      |   |       |       
|Dividends received deduction                       |                                |                | (868   | )      |      |   | (1,053 | )     
|Other                                              |                                |                | (26    | )      |      |   | 225    |       
|                                                   |                                |                |        |        |      |  
|                                                   | Total benefit for income taxes |                | $      | (6,325 | )    |   | $      | (2,869 | )
|                                                   |                                |                |        |        |      |  

30



---



##### 



Supplemental Information.


|                                                                 |  |      |        |   |      |   |       | 
|---------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ----- | 
|                                                                 |  | 2005 |        |   | 2004 |  
|                                                                 |  |      |        |   |      |  
|Income (loss) from continuing operations                         |  | $    | (1,589 | ) |      | $ | 3,072 | 
|Loss on U.S. government-sponsored entity notes, net of tax       |  |      | 10,595 |   |      |   |      | 
|Charge from prepayment of FHLB advances, net of tax              |  |      | 5,886  |   |      |   | 2,158 | 
|Charge from unwinding of swaps, net of tax                       |  |      | 2,206  |   |      |   |      | 
|Charge from redemption of trust preferred securities, net of tax |  |      | 318    |   |      |   |      | 
|Impairment loss on equity securities, net of tax                 |  |      |       |   |      |   | 3,786 | 
|Retirement benefit obligation, net of tax                        |  |      |       |   |      |   | 902   | 
|                                                                 |  |      |        |   |      |  
|Core income from continuing operations                           |  | $    | 17,416 |   |      | $ | 9,918 | 
|                                                                 |  |      |        |   |      |  



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





| |   |                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Total assets decreased $27.3 million, or 1.2%, to
    $2.2 billion as of December 31, 2004 from
    December 31, 2003.                                                                                                                    
|
| |  | Loans increased $141.0 million, or 14.7%, to
    $1.1 billion as of December 31, 2004 compared to
    December 31, 2003.                                                                                                                  
|
| |  | Net loans charged off to average total loans were 0.17% at
    December 31, 2004 compared to 0.82% the prior year.                                                                                                                        
|
| |  | Securities decreased by $191.7 million, or 26.7%, in 2004
    compared to 2003 as the Company initiated its steps to change
    the mix of its securities portfolio.                                                                      
|
| |  | Allowance to nonaccruing loans coverage increased to 1.74x in
    2004 from 0.97x in 2003.                                                                                                                                                
|
| |  | Income from continuing operations decreased $16.3 million,
    or 84.1%, to $3.1 million for the year ended
    December 31, 2004 compared to $19.3 million for the
    year ended December 31, 2003.                                     
|
| |  | In the fourth quarter of 2004, the Company began its balance
    sheet repositioning which included the sale of securities to
    prepay long-term high cost FHLB advances incurring a loss on
    extinguishment of debt of $3.6 million.
|
| |  | A retirement benefit obligation of $1.5 million and
    severance expense of $359,000 was taken in 2004.                                                                                                                                  
|
| |  | Non-cash impairment loss on equity securities of
    $6.2 million as of December 31, 2004.                                                                                                                                                
|
| |  | The return on average assets from continuing operations was
    0.13% for 2004 and 0.87% for 2003.                                                                                                                                        
|
| |  | The return on average equity from continuing operations
    decreased to 2.17% in 2004 from 13.12% in 2003 due to the
    decrease in earnings.                                                                                           
|
| |  | The Company exited hedge accounting on certain
    U.S. government-sponsored entity notes as of
    December 31, 2004.                                                                                                                    

Net Interest Income.


31



---



##### 











| |   |                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Sold $289.3 million of U.S. government-sponsored
    entity notes and corporate bonds with a weighted average yield
    of 3.29% in order to prepay $92.0 million of FHLB advances
    with a weighted average yield of 5.52% as well as to invest in
    securities with shorter duration.
|
| |  | Purchased $172.2 million in mortgage-backed securities with
    a weighted average yield of 4.53% and duration of 3.6 years
    in January 2005:                                                                                                                                           



| |   |                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $152.2 million of these purchases are 5/1, 7/1, and 10/1
    adjustable rate mortgage-backed securities with yields ranging
    between 4.24% to 4.80% and duration from 2.9 to
    4.0 years and
|
| |  | $20.0 million was invested in a 15 year
    mortgage-backed securities with a yield of 4.54% and duration of
    4.3 years.                                                                      





Provision for Loan Losses.


Noninterest Income.




| |   |                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |  | $8.1 million decrease in net gains or losses on securities
    transactions, which includes $5.2 million in hedge
    ineffectiveness;
|
| |  | $6.2 million non-cash impairment charge on equity
    securities;                                                                     
|
| |  | $5.8 million decrease in trading profits; and                                                                                         
|
| |  | Gains on sale of loans and insurance and brokerage commissions
    decreased by $484,000 and $168,000, respectively.                  

32



---



##### 





Noninterest Expenses.




| |   |                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Salaries and employee benefits increased $3.4 million due
    to a retirement benefit obligation of $1.5 million and
    severance expense of $359,000 as well as an increase in
    full-time staff positions and annual merit increases;
|
| |  | Occupancy and equipment increased $342,000 in 2004 compared to
    the prior year;                                                                                                                                                        
|
| |  | Professional services increased $357,000 for 2004 compared to
    2003 due to legal, consulting, and Sarbanes-Oxley
    Section 404 compliance expenses; and                                                                              
|
| |  | Prepayment penalties associated with the FHLB advances, as
    mentioned above, were $3.6 million.                                                                                                                                        



Federal and State Income Tax.


33



---



##### 



Interest-Earning Assets and Interest-Bearing Liabilities




|                                                                |                                          |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |        |         |  |  |          |      |  |      |           |         |  |   |         |        |  |  |      |      | 
|--------------------------------------------------------------- | ---------------------------------------- | ------------------------------- | --------- | ------- | -------- | - | ------- | ------ |  | ------- | ------- | ---- |  | -------- | --------- | ------- | ---- | ------- | ------ | ------- |  |  | -------- | ---- |  | ---- | --------- | ------- |  | - | ------- | ------ |  |  | ---- | ---- | 
|                                                                |                                          | For the Year Ended December 31, |          
|                                                                |                                          |                                 |          
|                                                                |                                          | 2005                            |           |         | 2004     |   |         | 2003   | 
|                                                                |                                          |                                 |           |         |          |   |         |        | 
|                                                                |                                          | Average                         |           |         |          |   | Average |        |  | Average |         |      |  |          | Average   |         |      | Average |        |         |  |  | Average  |     
|                                                                |                                          | Balance                         |           |         | Interest |   |         | Rate   |  |         | Balance |      |  | Interest |           |         | Rate |         |        | Balance |  |  | Interest |      |  | Rate |          
|                                                                |                                          |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |        |         |  |  |          |      |  |      |          
|                                                                |                                          | (Dollars in thousands)          |          
|Interest-Earning Assets:                                        |                                          |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |        |         |  |  |          |      |  |      |           |         |  |   |         |        |  |  |      |     
|Federal funds sold and interest-bearing deposits due from banks |                                          | $                               | 18,576    |         |          | $ | 505     |        |  |         | 2.72    | %    |  | $        | 116,963   |         |      | $       | 1,331  |         |  |  | 1.14     | %    |  | $    | 23,056    |         |  | $ | 227     |        |  |  | 0.98 | %   
|Securities:                                                     |                                          |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |        |         |  |  |          |      |  |      |           |         |  |   |         |        |  |  |      |     
|                                                                | Taxable(1)                               |                                 |           | 662,100 |          |   |         | 31,448 |  |         |         | 4.75 |  |          |           | 730,059 |      |         |        | 31,306  |  |  |          | 4.29 |  |      |           | 735,356 |  |   |         | 31,698 |  |  |      | 4.31 | 
|                                                                | Exempt from federal income taxes(1)      |                                 |           | 31,801  |          |   |         | 1,920  |  |         |         | 6.04 |  |          |           | 14,165  |      |         |        | 946     |  |  |          | 6.68 |  |      |           | 58,880  |  |   |         | 3,931  |  |  |      | 6.68 | 
|                                                                |                                          |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |        |         |  |  |          |      |  |      |          
|Total securities                                                |                                          |                                 | 693,901   |         |          |   | 33,368  |        |  |         | 4.81    |      |  |          | 744,224   |         |      |         | 32,252 |         |  |  | 4.33     |      |  |      | 794,236   |         |  |   | 35,629  |        |  |  | 4.49 |     
|FRB and FHLB stock                                              |                                          |                                 | 14,081    |         |          |   | 727     |        |  |         | 5.16    |      |  |          | 16,106    |         |      |         | 1,058  |         |  |  | 6.57     |      |  |      | 16,999    |         |  |   | 1,076   |        |  |  | 6.33 |     
|Loans:                                                          |                                          |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |        |         |  |  |          |      |  |      |           |         |  |   |         |        |  |  |      |     
|                                                                | Commercial loans(1)(3)(4)                |                                 |           | 183,553 |          |   |         | 12,194 |  |         |         | 6.64 |  |          |           | 164,391 |      |         |        | 9,157   |  |  |          | 5.57 |  |      |           | 196,043 |  |   |         | 11,455 |  |  |      | 5.84 | 
|                                                                | Commercial real estate loans(1)(3)(4)(6) |                                 |           | 842,889 |          |   |         | 57,130 |  |         |         | 6.78 |  |          |           | 707,860 |      |         |        | 44,271  |  |  |          | 6.25 |  |      |           | 684,781 |  |   |         | 45,634 |  |  |      | 6.66 | 
|                                                                | Agricultural loans(1)(3)(4)              |                                 |           | 1,615   |          |   |         | 116    |  |         |         | 7.18 |  |          |           | 1,374   |      |         |        | 83      |  |  |          | 6.04 |  |      |           | 1,219   |  |   |         | 76     |  |  |      | 6.23 | 
|                                                                | Consumer real estate loans(3)(4)(6)      |                                 |           | 179,787 |          |   |         | 10,539 |  |         |         | 5.86 |  |          |           | 108,209 |      |         |        | 5,886   |  |  |          | 5.44 |  |      |           | 110,062 |  |   |         | 7,089  |  |  |      | 6.44 | 
|                                                                | Consumer installment loans(3)(4)         |                                 |           | 3,834   |          |   |         | 293    |  |         |         | 7.64 |  |          |           | 4,333   |      |         |        | 323     |  |  |          | 7.45 |  |      |           | 5,524   |  |   |         | 433    |  |  |      | 7.84 | 
|                                                                |                                          |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |        |         |  |  |          |      |  |      |          
|Total loans                                                     |                                          |                                 | 1,211,678 |         |          |   | 80,272  |        |  |         | 6.62    |      |  |          | 986,167   |         |      |         | 59,720 |         |  |  | 6.06     |      |  |      | 997,629   |         |  |   | 64,687  |        |  |  | 6.48 |     
|                                                                |                                          |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |        |         |  |  |          |      |  |      |          
|Total interest-earning assets                                   |                                          | $                               | 1,938,236 |         |          | $ | 114,872 |        |  |         | 5.93    | %    |  | $        | 1,863,460 |         |      | $       | 94,361 |         |  |  | 5.06     | %    |  | $    | 1,831,920 |         |  | $ | 101,619 |        |  |  | 5.55 | %   
|                                                                |                                          |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |        |         |  |  |          |      |  |      |          
|Interest-Bearing Liabilities:                                   |                                          |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |        |         |  |  |          |      |  |      |           |         |  |   |         |        |  |  |      |     
|Deposits:                                                       |                                          |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |        |         |  |  |          |      |  |      |           |         |  |   |         |        |  |  |      |     
|Interest-bearing demand deposits                                |                                          | $                               | 176,355   |         |          | $ | 2,147   |        |  |         | 1.22    | %    |  | $        | 187,684   |         |      | $       | 2,483  |         |  |  | 1.32     | %    |  | $    | 141,139   |         |  | $ | 1,764   |        |  |  | 1.25 | %   
|Money-market demand accounts and savings accounts               |                                          |                                 | 347,792   |         |          |   | 5,718   |        |  |         | 1.64    |      |  |          | 326,544   |         |      |         | 4,579  |         |  |  | 1.40     |      |  |      | 303,110   |         |  |   | 3,544   |        |  |  | 1.17 |     
|Time deposits less than $100,000                                |                                          |                                 | 747,611   |         |          |   | 23,814  |        |  |         | 3.19    |      |  |          | 714,787   |         |      |         | 19,042 |         |  |  | 2.66     |      |  |      | 655,530   |         |  |   | 18,300  |        |  |  | 2.79 |     
|Time deposits of $100,000 or more                               |                                          |                                 | 60,405    |         |          |   | 1,950   |        |  |         | 3.23    |      |  |          | 64,237    |         |      |         | 1,389  |         |  |  | 2.16     |      |  |      | 93,033    |         |  |   | 2,123   |        |  |  | 2.28 |     
|Public funds                                                    |                                          |                                 | 13,943    |         |          |   | 438     |        |  |         | 3.14    |      |  |          | 10,156    |         |      |         | 160    |         |  |  | 1.58     |      |  |      | 40,463    |         |  |   | 856     |        |  |  | 2.12 |     
|                                                                |                                          |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |        |         |  |  |          |      |  |      |          
|Total interest-bearing deposits                                 |                                          |                                 | 1,346,106 |         |          |   | 34,067  |        |  |         | 2.53    |      |  |          | 1,303,408 |         |      |         | 27,653 |         |  |  | 2.12     |      |  |      | 1,233,275 |         |  |   | 26,587  |        |  |  | 2.16 |     
|Borrowings:                                                     |                                          |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |        |         |  |  |          |      |  |      |           |         |  |   |         |        |  |  |      |     
|Federal funds purchased and repurchase agreements               |                                          |                                 | 232,326   |         |          |   | 7,229   |        |  |         | 3.11    |      |  |          | 159,305   |         |      |         | 4,316  |         |  |  | 2.71     |      |  |      | 171,345   |         |  |   | 4,870   |        |  |  | 2.84 |     
|FHLB advances(7)                                                |                                          |                                 | 134,194   |         |          |   | 5,701   |        |  |         | 4.25    |      |  |          | 204,915   |         |      |         | 6,244  |         |  |  | 3.05     |      |  |      | 217,466   |         |  |   | 9,044   |        |  |  | 4.16 |     
|Notes payable and other borrowings                              |                                          |                                 | 55,874    |         |          |   | 3,800   |        |  |         | 6.80    |      |  |          | 56,038    |         |      |         | 3,567  |         |  |  | 6.37     |      |  |      | 41,848    |         |  |   | 2,759   |        |  |  | 6.59 |     
|                                                                |                                          |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |        |         |  |  |          |      |  |      |          
|Total borrowings                                                |                                          |                                 | 422,394   |         |          |   | 16,730  |        |  |         | 3.96    |      |  |          | 420,258   |         |      |         | 14,127 |         |  |  | 3.36     |      |  |      | 430,659   |         |  |   | 16,673  |        |  |  | 3.87 |     
|                                                                |                                          |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |        |         |  |  |          |      |  |      |          
|Total interest-bearing liabilities                              |                                          | $                               | 1,768,500 |         |          | $ | 50,797  |        |  |         | 2.87    | %    |  | $        | 1,723,666 |         |      | $       | 41,780 |         |  |  | 2.42     | %    |  | $    | 1,663,934 |         |  | $ | 43,260  |        |  |  | 2.60 | %   
|                                                                |                                          |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |        |         |  |  |          |      |  |      |          
|Net interest income (tax equivalent)(1)(5)                      |                                          |                                 |           |         |          | $ | 64,075  |        |  |         | 3.05    | %    |  |          |           |         |      | $       | 52,581 |         |  |  | 2.64     | %    |  |      |           |         |  | $ | 58,359  |        |  |  | 2.95 | %   
|                                                                |                                          |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |        |         |  |  |          |      |  |      |          
|Net interest margin (tax equivalent)(1)                         |                                          |                                 |           |         |          |   |         |        |  |         | 3.31    | %    |  |          |           |         |      |         |        |         |  |  | 2.82     | %    |  |      |           |         |  |   |         |        |  |  | 3.19 | %   
|Net interest income(2)(5)                                       |                                          |                                 |           |         |          | $ | 61,447  |        |  |         |         |      |  |          |           |         |      | $       | 50,182 |         |  |  |          |      |  |      |           |         |  | $ | 54,848  |        |  |  |      |     
|                                                                |                                          |                                 |           |         |          |   |         |        |  |         |         |      |  |          |           |         |      |         |        |         |  |  |          |      |  |      |          
|Net interest margin(2)                                          |                                          |                                 |           |         |          |   |         |        |  |         | 3.17    | %    |  |          |           |         |      |         |        |         |  |  | 2.69     | %    |  |      |           |         |  |   |         |        |  |  | 2.99 | %   

34



---



##### 








|    |                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------
|(1) | Adjusted for 35% tax rate in 2005, 2004, and 2003 and adjusted
    for the dividends-received deduction where applicable.
|   
|(2) | Not adjusted for 35% tax rate in 2005, 2004, and 2003 or for the
    dividends-received deduction.                       
|   
|(3) | Nonaccrual loans are included in the average balance; however,
    these loans are not earning any interest.             
|   
|(4) | Includes loan fees which are immaterial.                                                                                 
|   
|(5) | The following table reconciles reported net interest income on a
    tax equivalent basis for the periods presented:     

|                                                 |  |      |        |  |      |   |        |      |  |   |        | 
|------------------------------------------------ |  | ---- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                                 |  | 2005 |        |  | 2004 |   |        | 2003 | 
|                                                 |  |      |        |  |      |   |        |      | 
|Net interest income                              |  | $    | 61,447 |  |      | $ | 50,182 |      |  | $ | 54,848 | 
|Tax-equivalent adjustment to net interest income |  |      | 2,628  |  |      |   | 2,399  |      |  |   | 3,511  | 
|                                                 |  |      |        |  |      |   |        |      | 
|Net interest income, fully tax-equivalent basis  |  | $    | 64,075 |  |      | $ | 52,581 |      |  | $ | 58,359 | 
|                                                 |  |      |        |  |      |   |        |      | 



|    |                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|(6) | Includes construction loans.                                                                                                                        
|   
|(7) | 2004 includes $2.1 million purchase accounting adjustment
    resulting from the prepayment of the FHLB advances which reduced
    interest expense.

Changes in Interest Income and Expense






|                         |                                                        |                                 |   |        |                       |  |   |        |   |  |     |        |   |        |   |        |      |  |   |        |   |  |   |        |  
|------------------------ | ------------------------------------------------------ | ------------------------------- | - | ------ | --------------------- |  | - | ------ | - |  | --- | ------ | - | ------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                         |                                                        | For the Year Ended December 31, |  
|                         |                                                        |                                 |  
|                         |                                                        | 2005 Compared to 2004           |   |        | 2004 Compared to 2003 | 
|                         |                                                        | Change Due to                   |   |        | Change Due to         | 
|                         |                                                        |                                 |   |        |                       | 
|                         |                                                        | Net                             |   |        | Volume                |  |   | Rate   |   |  | Net |        |   | Volume |   |        | Rate | 
|                         |                                                        |                                 |   |        |                       |  |   |        |   |  |     |        |   |        |   |        |      | 
|Interest-Earning Assets: |                                                        |                                 |   |        |                       |  |   |        |   |  |     |        |   |        |   |        |      |  |   |        |   |  |   |       
|                         | Federal funds sold and interest-bearing due from banks |                                 | $ | (826   | )                     |  | $ | (1,706 | ) |  | $   | 880    |   |        | $ | 1,104  |      |  | $ | 1,063  |   |  | $ | 41     |  
|                         | Securities taxable                                     |                                 |   | 142    |                       |  |   | (3,060 | ) |  |     | 3,202  |   |        |   | (392   | )    |  |   | (228   | ) |  |   | (164   | )
|                         | Securities exempt from federal income taxes            |                                 |   | 974    |                       |  |   | 1,073  |   |  |     | (99    | ) |        |   | (2,985 | )    |  |   | (2,986 | ) |  |   | 1      |  
|                         | FRB and FHLB stock                                     |                                 |   | (331   | )                     |  |   | (122   | ) |  |     | (209   | ) |        |   | (18    | )    |  |   | (58    | ) |  |   | 40     |  
|                         | Commercial loans                                       |                                 |   | 3,037  |                       |  |   | 1,145  |   |  |     | 1,892  |   |        |   | (2,298 | )    |  |   | (1,782 | ) |  |   | (516   | )
|                         | Commercial real estate loans                           |                                 |   | 12,859 |                       |  |   | 8,936  |   |  |     | 3,923  |   |        |   | (1,363 | )    |  |   | 1,505  |   |  |   | (2,868 | )
|                         | Agricultural loans                                     |                                 |   | 33     |                       |  |   | 16     |   |  |     | 17     |   |        |   | 7      |      |  |   | 9      |   |  |   | (2     | )
|                         | Consumer real estate loans                             |                                 |   | 4,653  |                       |  |   | 4,164  |   |  |     | 489    |   |        |   | (1,203 | )    |  |   | (118   | ) |  |   | (1,085 | )
|                         | Consumer installment loans                             |                                 |   | (30    | )                     |  |   | (38    | ) |  |     | 8      |   |        |   | (110   | )    |  |   | (90    | ) |  |   | (20    | )
|                         |                                                        |                                 |   |        |                       |  |   |        |   |  |     |        |   |        |   |        |      | 
|                         | Total interest-earning assets                          |                                 | $ | 20,511 |                       |  | $ | 10,408 |   |  | $   | 10,103 |   |        | $ | (7,258 | )    |  | $ | (2,685 | ) |  | $ | (4,573 | )
|                         |                                                        |                                 |   |        |                       |  |   |        |   |  |     |        |   |        |   |        |      | 

35



---



##### 



|                              |                                                   |                                 |        |       |                       |   |       |        |   |   |       |       |   |        |        |        |      |   |        |       |   |   |        |        |  
|----------------------------- | ------------------------------------------------- | ------------------------------- | ------ | ----- | --------------------- | - | ----- | ------ | - | - | ----- | ----- | - | ------ | ------ | ------ | ---- | - | ------ | ----- | - | - | ------ | ------ | -
|                              |                                                   | For the Year Ended December 31, |       
|                              |                                                   |                                 |       
|                              |                                                   | 2005 Compared to 2004           |        |       | 2004 Compared to 2003 |  
|                              |                                                   | Change Due to                   |        |       | Change Due to         |  
|                              |                                                   |                                 |        |       |                       |  
|                              |                                                   | Net                             |        |       | Volume                |   |       | Rate   |   |   | Net   |       |   | Volume |        |        | Rate |  
|                              |                                                   |                                 |        |       |                       |   |       |        |   |   |       |       |   |        |        |        |      |  
|Interest-Bearing Liabilities: |                                                   |                                 |        |       |                       |   |       |        |   |   |       |       |   |        |        |        |      |   |        |       |   |   |        |       
|                              | Interest-bearing demand deposits                  |                                 | $      | (336  | )                     |   | $     | (145   | ) |   | $     | (191  | ) |        | $      | 719    |      |   | $      | 611   |   |   | $      | 108    |  
|                              | Money market demand accounts and savings accounts |                                 |        | 1,139 |                       |   |       | 312    |   |   |       | 827   |   |        |        | 1,035  |      |   |        | 289   |   |   |        | 746    |  
|                              | Time deposits of less than $100,000               |                                 |        | 4,772 |                       |   |       | 907    |   |   |       | 3,865 |   |        |        | 742    |      |   |        | 1,604 |   |   |        | (862   | )
|                              | Time deposits of $100,000 or more                 |                                 |        | 561   |                       |   |       | (87    | ) |   |       | 648   |   |        |        | (734   | )    |   |        | (628  | ) |   |        | (106   | )
|                              | Public funds                                      |                                 |        | 278   |                       |   |       | 76     |   |   |       | 202   |   |        |        | (696   | )    |   |        | (519  | ) |   |        | (177   | )
|                              | Federal funds purchased and repurchase agreements |                                 |        | 2,913 |                       |   |       | 2,200  |   |   |       | 713   |   |        |        | (554   | )    |   |        | (333  | ) |   |        | (221   | )
|                              | FHLB advances                                     |                                 |        | (543  | )                     |   |       | (2,552 | ) |   |       | 2,009 |   |        |        | (2,800 | )    |   |        | (497  | ) |   |        | (2,303 | )
|                              | Notes payable and other borrowings                |                                 |        | 233   |                       |   |       | (10    | ) |   |       | 243   |   |        |        | 808    |      |   |        | 906   |   |   |        | (98    | )
|                              |                                                   |                                 |        |       |                       |   |       |        |   |   |       |       |   |        |        |        |      |  
|                              | Total interest-bearing liabilities                |                                 | $      | 9,017 |                       |   | $     | 701    |   |   | $     | 8,316 |   |        | $      | (1,480 | )    |   | $      | 1,433 |   |   | $      | (2,913 | )
|                              |                                                   |                                 |        |       |                       |   |       |        |   |   |       |       |   |        |        |        |      |  
|Net interest                  |                                                   | $                               | 11,494 |       |                       | $ | 9,707 |        |   | $ | 1,787 |       |   | $      | (5,778 | )      |      | $ | (4,118 | )     |   | $ | (1,660 | )     
|                              |                                                   |                                 |        |       |                       |   |       |        |   |   |       |       |   |        |        |        |      |  

Financial Condition




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



|                          |                      |                |         |           |         |   |         |           |         |   |         |         |        |      |         |           |        |   |         |         |        | 
|------------------------- | -------------------- | -------------- | ------- | --------- | ------- | - | ------- | --------- | ------- | - | ------- | ------- | ------ | ---- | ------- | --------- | ------ | - | ------- | ------- | ------ | 
|                          |                      | December 31,   |        
|                          |                      |                |        
|                          |                      | 2005           |         |           | 2004    |   |         | 2003      |         |   | 2002    |         |        | 2001 |        
|                          |                      |                |         |           |         |   |         |           |         |   |         |         |        |      |        
|                          |                      | (In thousands) |        
|Commercial                |                      | $              | 201,284 |           |         | $ | 184,558 |           |         | $ | 182,344 |         |        | $    | 203,374 |           |        | $ | 182,944 |        
|Construction              |                      |                | 358,785 |           |         |   | 270,836 |           |         |   | 253,951 |         |        |      | 310,263 |           |        |   | 268,709 |        
|Commercial real estate    |                      |                | 496,819 |           |         |   | 411,535 |           |         |   | 359,047 |         |        |      | 356,167 |           |        |   | 282,808 |        
|Consumer                  |                      |                |         |           |         |   |         |           |         |   |         |         |        |      |         |           |        |   |         |        
|                          |                      | Home equity    |         |           | 115,429 |   |         |           | 100,322 |   |         |         | 77,772 |      |         |           | 67,572 |   |         |         | 55,007 | 
|                          |                      | Other consumer |         |           | 4,273   |   |         |           | 4,377   |   |         |         | 5,062  |      |         |           | 8,107  |   |         |         | 9,747  | 
|                          |                      |                |         |           |         |   |         |           |         |   |         |         |        |      |        
|                          | Total consumer       |                |         | 119,702   |         |   |         | 104,699   |         |   |         | 82,834  |        |      |         | 75,679    |        |   |         | 64,754  |       
|Residential mortgage(1)   |                      |                | 176,096 |           |         |   | 126,740 |           |         |   | 79,487  |         |        |      | 78,013  |           |        |   | 89,098  |        
|                          |                      |                |         |           |         |   |         |           |         |   |         |         |        |      |        
|                          | Total loans, gross   |                |         | 1,352,686 |         |   |         | 1,098,368 |         |   |         | 957,663 |        |      |         | 1,023,496 |        |   |         | 888,313 |       
|Net deferred fees         |                      |                | (778    | )         |         |   | (376    | )         |         |   | (712    | )       |        |      | (970    | )         |        |   | (1,199  | )      
|                          |                      |                |         |           |         |   |         |           |         |   |         |         |        |      |        
|                          | Total loans          |                |         | 1,351,908 |         |   |         | 1,097,992 |         |   |         | 956,951 |        |      |         | 1,022,526 |        |   |         | 887,114 |       
|Allowance for loan losses |                      |                | (17,760 | )         |         |   | (16,217 | )         |         |   | (14,459 | )       |        |      | (19,540 | )         |        |   | (8,858  | )      
|                          |                      |                |         |           |         |   |         |           |         |   |         |         |        |      |        
|                          | Net loans            |                | $       | 1,334,148 |         |   | $       | 1,081,775 |         |   | $       | 942,492 |        |      | $       | 1,002,986 |        |   | $       | 878,256 |       
|                          |                      |                |         |           |         |   |         |           |         |   |         |         |        |      |        
|Loans held for sale:      |                      |                |         |           |         |   |         |           |         |   |         |         |        |      |         |           |        |   |         |        
|                          | Consumer real estate |                | $       | 1,912     |         |   | $       | 693       |         |   | $       | 1,571   |        |      | $       | 4,394     |        |   | $       | 3,172   |       
|                          |                      |                |         |           |         |   |         |           |         |   |         |         |        |      |        






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

36



---



##### 







| |   |                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Commercial loans increased $16.7 million to
    $201.3 million as of December 31, 2005 from
    $184.6 million as of December 31, 2004.                                                                                                                        
|
| |  | Construction loans increased by $87.9 million to
    $358.8 million as of December 31, 2005 from
    $270.8 million at December 31, 2004.                                                                                                                      
|
| |  | Commercial real estate loans rose to $496.8 million at
    December 31, 2005, an increase of 20.7% from
    December 31, 2004 reflecting the addition of lending
    personnel to assist in the growth in this primary area of focus.                          
|
| |  | Consumer loans increased $15.0 million, or 14.3%, as of
    December 31, 2005 compared to December 31, 2004.                                                                                                                                                   
|
| |  | Residential mortgage loans increased $49.4 million to
    $176.1 million as of December 31, 2005 from
    $126.7 million as of December 31, 2004, as conforming
    adjustable-rate and hybrid mortgages are retained rather than
    sold in secondary market.







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



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



|                       |                |                |         |           |       |   |              |          |  |   |         |         |  |          |        |        |       |   |        |        |  |   |           |           | 
|---------------------- | -------------- | -------------- | ------- | --------- | ----- | - | ------------ | -------- |  | - | ------- | ------- |  | -------- | ------ | ------ | ----- | - | ------ | ------ |  | - | --------- | --------- | 
|                       |                |                |         | 1-5 Years |       |   | Over 5 Years |          |  |  
|                       |                | One Year       |         |           |       |   |              |          |  |   |        
|                       |                | Or Less        |         |           | Fixed |   |              | Variable |  |   | Fixed   |         |  | Variable |        |        | Total |  
|                       |                |                |         |           |       |   |              |          |  |   |         |         |  |          |        |        |       |  
|                       |                | (In thousands) |        
|Commercial             |                | $              | 141,399 |           |       | $ | 35,634       |          |  | $ | 16,154  |         |  | $        | 8,000  |        |       | $ | 97     |        |  | $ | 201,284   |          
|Construction           |                |                | 279,045 |           |       |   | 14,307       |          |  |   | 65,234  |         |  |          |       |        |       |   | 199    |        |  |   | 358,785   |          
|Commercial real estate |                |                | 145,855 |           |       |   | 295,929      |          |  |   | 24,834  |         |  |          | 29,043 |        |       |   | 1,158  |        |  |   | 496,819   |          
|Consumer               |                |                |         |           |       |   |              |          |  |   |         |         |  |          |        |        |       |   |        |        |  |   |           |          
|                       | Home equity    |                |         | 25,641    |       |   |              | 6,642    |  |   |         | 25,942  |  |          |        | 6,534  |       |   |        | 50,670 |  |   |           | 115,429   | 
|                       | Other consumer |                |         | 2,410     |       |   |              | 1,863    |  |   |         |        |  |          |        |       |       |   |        |       |  |   |           | 4,273     | 
|                       |                |                |         |           |       |   |              |          |  |   |         |         |  |          |        |        |       |  
|Total consumer         |                |                | 28,051  |           |       |   | 8,505        |          |  |   | 25,942  |         |  |          | 6,534  |        |       |   | 50,670 |        |  |   | 119,702   |          
|Residential mortgage   |                |                | 56,605  |           |       |   | 24,748       |          |  |   | 2,725   |         |  |          | 52,310 |        |       |   | 39,708 |        |  |   | 176,096   |          
|                       |                |                |         |           |       |   |              |          |  |   |         |         |  |          |        |        |       |  
|Total loans, gross     |                |                | 650,955 |           |       |   | 379,123      |          |  |   | 134,889 |         |  |          | 95,887 |        |       |   | 91,832 |        |  |   | 1,352,686 |          
|Net deferred fees(1)   |                |                | (778    | )         |       |   |             |          |  |   |        |         |  |          |       |        |       |   |       |        |  |   | (778      | )        
|                       |                |                |         |           |       |   |              |          |  |   |         |         |  |          |        |        |       |  
|                       | Total loans    |                | $       | 650,177   |       |   | $            | 379,123  |  |   | $       | 134,889 |  |          | $      | 95,887 |       |   | $      | 91,832 |  |   | $         | 1,351,908 | 
|                       |                |                |         |           |       |   |              |          |  |   |         |         |  |          |        |        |       |  






|    |                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The deferral period for net deferred fees typically matches the
    loans scheduled maturity. The Companys data
    processing system currently limits its ability to break them out
    over the timeframes in the table.

37



---



##### 





| |                  
| | -----------------
| | Nonaccruing Loans











|                                                                |                            |                        |        |        |      |   |       |        |  |   |        |        |  |      |        |        |  |   |       |       | 
|--------------------------------------------------------------- | -------------------------- | ---------------------- | ------ | ------ | ---- | - | ----- | ------ |  | - | ------ | ------ |  | ---- | ------ | ------ |  | - | ----- | ----- | 
|                                                                |                            | December 31,           |       
|                                                                |                            |                        |       
|                                                                |                            | 2005                   |        |        | 2004 |   |       | 2003   |  |   | 2002   |        |  | 2001 |       
|                                                                |                            |                        |        |        |      |   |       |        |  |   |        |        |  |      |       
|                                                                |                            | (Dollars in thousands) |       
|Impaired and other loans 90 days past due and accruing          |                            | $                      | 4      |        |      | $ | 21    |        |  | $ | 11     |        |  | $    | 1,842  |        |  | $ | 447   |      
|Nonaccrual and impaired loans not accruing                      |                            | $                      | 7,905  |        |      | $ | 9,296 |        |  | $ | 14,916 |        |  | $    | 27,946 |        |  | $ | 1,677 |      
|Other real estate                                               |                            |                        | 11,154 |        |      |   | 8,064 |        |  |   | 6,712  |        |  |      | 84     |        |  |   | 355   |      
|                                                                |                            |                        |        |        |      |   |       |        |  |   |        |        |  |      |       
|                                                                | Total nonperforming assets |                        | $      | 19,059 |      |   | $     | 17,360 |  |   | $      | 21,628 |  |      | $      | 28,030 |  |   | $     | 2,032 | 
|                                                                |                            |                        |        |        |      |   |       |        |  |   |        |        |  |      |       
|Total nonaccruing loans to total loans                          |                            |                        | 0.58   | %      |      |   | 0.85  | %      |  |   | 1.56   | %      |  |      | 2.75   | %      |  |   | 0.19  | %    
|Total nonperforming assets to total loans and other real estate |                            |                        | 1.40   |        |      |   | 1.57  |        |  |   | 2.24   |        |  |      | 2.76   |        |  |   | 0.23  |      
|Total nonperforming assets to total assets                      |                            |                        | 0.83   |        |      |   | 0.78  |        |  |   | 0.96   |        |  |      | 1.40   |        |  |   | 0.11  |      







38



---



##### 







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











39



---



##### 





|                                                         |                              |                         |           |       |       |   |           |       |       |   |         |       |       |      |           |       |       |   |         |     |     | 
|-------------------------------------------------------- | ---------------------------- | ----------------------- | --------- | ----- | ----- | - | --------- | ----- | ----- | - | ------- | ----- | ----- | ---- | --------- | ----- | ----- | - | ------- | --- | --- | 
|                                                         |                              | Year Ended December 31, |          
|                                                         |                              |                         |          
|                                                         |                              | 2005                    |           |       | 2004  |   |           | 2003  |       |   | 2002    |       |       | 2001 |          
|                                                         |                              |                         |           |       |       |   |           |       |       |   |         |       |       |      |          
|                                                         |                              | (Dollars in thousands)  |          
|Average total loans                                      |                              | $                       | 1,211,678 |       |       | $ | 986,167   |       |       | $ | 997,629 |       |       | $    | 971,851   |       |       | $ | 809,585 |    
|                                                         |                              |                         |           |       |       |   |           |       |       |   |         |       |       |      |          
|Total loans at end of year                               |                              | $                       | 1,351,908 |       |       | $ | 1,097,992 |       |       | $ | 956,951 |       |       | $    | 1,016,505 |       |       | $ | 887,114 |    
|                                                         |                              |                         |           |       |       |   |           |       |       |   |         |       |       |      |          
|Total nonaccruing loans                                  |                              | $                       | 7,905     |       |       | $ | 9,296     |       |       | $ | 14,916  |       |       | $    | 27,946    |       |       | $ | 1,677   |    
|                                                         |                              |                         |           |       |       |   |           |       |       |   |         |       |       |      |          
|Allowance at beginning of year                           |                              | $                       | 16,217    |       |       | $ | 14,459    |       |       | $ | 19,540  |       |       | $    | 8,858     |       |       | $ | 7,481   |    
|Allowance from acquired bank                             |                              |                         |          |       |       |   |          |       |       |   | 300     |       |       |      |          |       |       |   |        |    
|Allowance adjustment for loan sale by related parties(1) |                              |                         |          |       |       |   |          |       |       |   | (6,685  | )     |       |      |          |       |       |   |        |    
|Charge-offs:                                             |                              |                         |           |       |       |   |           |       |       |   |         |       |       |      |           |       |       |   |         |    
|                                                         | Commercial loans             |                         |           | 1,668 |       |   |           | 819   |       |   |         | 7,645 |       |      |           | 6,512 |       |   |         | 392 |    
|                                                         | Consumer real estate loans   |                         |           | 15    |       |   |           | 37    |       |   |         | 48    |       |      |           | 3     |       |   |         | 49  |    
|                                                         | Commercial real estate loans |                         |           | 772   |       |   |           | 1,162 |       |   |         | 1,500 |       |      |           | 105   |       |   |         | 231 |    
|                                                         | Agricultural loans           |                         |           |      |       |   |           |      |       |   |         |      |       |      |           |      |       |   |         |    |    
|                                                         | Consumer installment loans   |                         |           | 64    |       |   |           | 130   |       |   |         | 77    |       |      |           | 268   |       |   |         | 37  |    
|                                                         |                              |                         |           |       |       |   |           |       |       |   |         |       |       |      |          
|                                                         |                              | Total charge-offs       |           |       | 2,519 |   |           |       | 2,148 |   |         |       | 9,270 |      |           |       | 6,888 |   |         |     | 709 | 
|Recoveries:                                              |                              |                         |           |       |       |   |           |       |       |   |         |       |       |      |           |       |       |   |         |    
|                                                         | Commercial loans             |                         |           | 1,448 |       |   |           | 163   |       |   |         | 1,072 |       |      |           | 134   |       |   |         | 157 |    
|                                                         | Consumer real estate loans   |                         |           | 5     |       |   |           | 32    |       |   |         | 2     |       |      |           | 47    |       |   |         | 1   |    
|                                                         | Commercial real estate loans |                         |           | 6     |       |   |           | 261   |       |   |         | 10    |       |      |           | 4     |       |   |         |    |    
|                                                         | Agricultural loans           |                         |           |      |       |   |           |      |       |   |         |      |       |      |           |      |       |   |         |    |    
|                                                         | Consumer installment loans   |                         |           | 14    |       |   |           | 50    |       |   |         | 35    |       |      |           | 25    |       |   |         | 8   |    
|                                                         |                              |                         |           |       |       |   |           |       |       |   |         |       |       |      |          
|                                                         |                              | Total recoveries        |           |       | 1,473 |   |           |       | 506   |   |         |       | 1,119 |      |           |       | 210   |   |         |     | 166 | 
|                                                         |                              |                         |           |       |       |   |           |       |       |   |         |       |       |      |          
|Net charge-offs                                          |                              |                         | 1,046     |       |       |   | 1,642     |       |       |   | 8,151   |       |       |      | 6,678     |       |       |   | 543     |    
|Provision for loan losses                                |                              |                         | 2,589     |       |       |   | 3,400     |       |       |   | 9,455   |       |       |      | 17,360    |       |       |   | 1,920   |    
|                                                         |                              |                         |           |       |       |   |           |       |       |   |         |       |       |      |          
|Allowance at end of the year                             |                              | $                       | 17,760    |       |       | $ | 16,217    |       |       | $ | 14,459  |       |       | $    | 19,540    |       |       | $ | 8,858   |    
|                                                         |                              |                         |           |       |       |   |           |       |       |   |         |       |       |      |          
|Net charge-off to average total loans                    |                              |                         | 0.09      | %     |       |   | 0.17      | %     |       |   | 0.82    | %     |       |      | 0.69      | %     |       |   | 0.07    | %  
|Allowance to total loans at end of year                  |                              |                         | 1.31      |       |       |   | 1.48      |       |       |   | 1.51    |       |       |      | 1.92      |       |       |   | 1.00    |    
|Allowance to nonaccruing loans                           |                              |                         | 2.25      | x     |       |   | 1.74      | x     |       |   | 0.97    | x     |       |      | 0.70      | x     |       |   | 5.28x   |    






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Adjustment made following the Banks receipt of
    $13.3 million of proceeds from an entity indirectly owned
    by certain directors and family members of directors relating to
    the sale of previously classified loans, of which
    $12.5 million was applied to outstanding principal,
    $750,000 to fund a letter of credit, and $67,000 applied to
    accrued interest income and late charges on March 26, 2003.
    As a consequence, the Bank recognized a $4.0 million
    after-tax capital contribution as a result of the sale of these
    loans to the related parties. As of December 31, 2002,
    $6.3 million of the $12.5 million outstanding
    principal amount of these loans was considered impaired



40



---



##### 









|                       |                                 |                        |       |          |       |  |       |        |          |   |       |        |  |          |       |        |       |   |          |        |  |  |       |          |   |        |        |        |       |  |       |        |   |   |       |       |  |  |       |        |  
|---------------------- | ------------------------------- | ---------------------- | ----- | -------- | ----- |  | ----- | ------ | -------- | - | ----- | ------ |  | -------- | ----- | ------ | ----- | - | -------- | ------ |  |  | ----- | -------- | - | ------ | ------ | ------ | ----- |  | ----- | ------ | - | - | ----- | ----- |  |  | ----- | ------ | -
|                       |                                 | December 31,           |      
|                       |                                 |                        |      
|                       |                                 | 2005                   |       |          | 2004  |  |       | 2003   |          |   | 2002  |        |  | 2001     |      
|                       |                                 |                        |       |          |       |  |       |        |          |   |       |        |  |          |      
|                       |                                 |                        |       | Loan     |       |  |       |        | Loan     |   |       |        |  | Loan     |       |        |       |   | Loan     |        |  |  |       | Loan     |  
|                       |                                 |                        |       | Category |       |  |       |        | Category |   |       |        |  | Category |       |        |       |   | Category |        |  |  |       | Category |  
|                       |                                 |                        |       | To       |       |  |       |        | To       |   |       |        |  | To       |       |        |       |   | To       |        |  |  |       | To       |  
|                       |                                 |                        |       | Gross    |       |  |       |        | Gross    |   |       |        |  | Gross    |       |        |       |   | Gross    |        |  |  |       | Gross    |  
|                       |                                 | Amount                 |       |          | Loans |  |       | Amount |          |   | Loans |        |  | Amount   |       |        | Loans |   |          | Amount |  |  | Loans |          |   | Amount |        |        | Loans | 
|                       |                                 |                        |       |          |       |  |       |        |          |   |       |        |  |          |       |        |       |   |          |        |  |  |       |          |   |        |        |        |       | 
|                       |                                 | (Dollars in thousands) |      
|Commercial             |                                 | $                      | 7,727 |          |       |  | 14.54 | %      |          | $ | 8,124 |        |  |          | 16.72 | %      |       | $ | 6,479    |        |  |  | 18.57 | %        |   | $      | 15,062 |        |       |  | 20.12 | %      |   | $ | 5,020 |       |  |  | 21.34 | %     
|Commercial real estate |                                 |                        | 7,807 |          |       |  | 69.24 |        |          |   | 6,837 |        |  |          | 68.92 |        |       |   | 7,101    |        |  |  | 72.04 |          |   |        | 3,096  |        |       |  | 70.03 |        |   |   | 2,348 |       |  |  | 67.06 |       
|Agricultural           |                                 |                        | 3     |          |       |  | 0.15  |        |          |   |      |        |  |          | 0.11  |        |       |   |         |        |  |  | 0.09  |          |   |        | 21     |        |       |  | 0.12  |        |   |   | 474   |       |  |  | 0.16  |       
|Consumer real estate   |                                 |                        | 864   |          |       |  | 15.76 |        |          |   | 385   |        |  |          | 13.90 |        |       |   | 257      |        |  |  | 8.81  |          |   |        | 134    |        |       |  | 9.12  |        |   |   | 300   |       |  |  | 10.90 |       
|Consumer installment   |                                 |                        | 46    |          |       |  | 0.31  |        |          |   | 438   |        |  |          | 0.35  |        |       |   | 360      |        |  |  | 0.49  |          |   |        | 348    |        |       |  | 0.61  |        |   |   | 114   |       |  |  | 0.54  |       
|Unallocated            |                                 |                        | 1,313 |          |       |  |      |        |          |   | 44    |        |  |          |      |        |       |   | 262      |        |  |  |      |          |   |        | 879    |        |       |  |      |        |   |   | 602   |       |  |  |      |       
|                       |                                 |                        |       |          |       |  |       |        |          |   |       |        |  |          |       |        |       |   |          |        |  |  |       |          |   |        |        |        |       | 
|                       | Total allowance for loan losses |                        | $     | 17,760   |       |  |       | 100.00 | %        |   | $     | 16,217 |  |          |       | 100.00 | %     |   | $        | 14,459 |  |  |       | 100.00   | % |        | $      | 19,540 |       |  |       | 100.00 | % |   | $     | 8,858 |  |  |       | 100.00 | %
|                       |                                 |                        |       |          |       |  |       |        |          |   |       |        |  |          |       |        |       |   |          |        |  |  |       |          |   |        |        |        |       | 





| |   |                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Net commercial loan charge-offs were $220,000 in 2005 compared
    to $657,000 in 2004.                                                                                                       
|
| |  | Net commercial real estate loan charge-offs were $767,000 in
    2005 compared to 2004.                                                                                                       
|
| |  | Loans subject to adverse classification (Substandard and
    Doubtful, as defined below) have decreased to $24.8 million
    at December 31, 2005 from $38.3 million at
    December 31, 2004.





|                 |                                      |                |        |        |      |   |        |        | 
|---------------- | ------------------------------------ | -------------- | ------ | ------ | ---- | - | ------ | ------ | 
|                 |                                      | December 31,   |       
|                 |                                      |                |       
|                 |                                      | 2005           |        |        | 2004 |  
|                 |                                      |                |        |        |      |  
|                 |                                      | (In thousands) |       
|Special mention  |                                      | $              | 38,205 |        |      | $ | 22,535 |       
|                 |                                      |                |        |        |      |  
|Substandard      |                                      |                | 24,610 |        |      |   | 36,797 |       
|Doubtful         |                                      |                | 177    |        |      |   | 1,472  |       
|                 |                                      |                |        |        |      |  
|Total classified |                                      |                | 24,787 |        |      |   | 38,269 |       
|                 |                                      |                |        |        |      |  
|                 | Total special mention and classified |                | $      | 62,992 |      |   | $      | 60,804 | 
|                 |                                      |                |        |        |      |  

Special Mention:


41



---



##### 









Substandard:




Doubtful:






42



---



##### 







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





held-to


|                                                                        |  |                        |        |  |                    |   |        |           |  |   |         |  |  |           |         |  |       |   |         |           |  |   |         |  |  |  |        |  
|----------------------------------------------------------------------- |  | ---------------------- | ------ |  | ------------------ | - | ------ | --------- |  | - | ------- |  |  | --------- | ------- |  | ----- | - | ------- | --------- |  | - | ------- |  |  |  | ------ | -
|                                                                        |  | December 31, 2005      |       
|                                                                        |  |                        |       
|                                                                        |  | Held-to-Maturity       |        |  | Available-for-Sale |   |        | Total     | 
|                                                                        |  |                        |        |  |                    |   |        |           | 
|                                                                        |  | Amortized              |        |  | Fair               |   |        | Amortized |  |   | Fair    |  |  | Amortized |         |  | Fair  |   |         | % of      | 
|                                                                        |  | Cost                   |        |  | Value              |   |        | Cost      |  |   | Value   |  |  | Cost      |         |  | Value |   |         | Portfolio | 
|                                                                        |  |                        |        |  |                    |   |        |           |  |   |         |  |  |           |         |  |       |   |         |           | 
|                                                                        |  | (Dollars in thousands) |       
|U.S. Treasury and obligations of
    U.S. government-sponsored entities |  | $                      |       |  |                    | $ |       |           |  | $ | 24,866  |  |  | $         | 24,719  |  |       | $ | 24,866  |           |  | $ | 24,719  |  |  |  | 3.27   | %
|Obligations of states and political subdivisions                        |  |                        | 6,138  |  |                    |   | 6,182  |           |  |   | 79,463  |  |  |           | 78,350  |  |       |   | 85,601  |           |  |   | 84,532  |  |  |  | 11.26  |  
|Mortgage-backed securities                                              |  |                        | 53,313 |  |                    |   | 52,150 |           |  |   | 521,896 |  |  |           | 511,312 |  |       |   | 575,209 |           |  |   | 563,462 |  |  |  | 75.66  |  
|Equity securities                                                       |  |                        |       |  |                    |   |       |           |  |   | 63,574  |  |  |           | 62,930  |  |       |   | 63,574  |           |  |   | 62,930  |  |  |  | 8.36   |  
|Other bonds                                                             |  |                        |       |  |                    |   |       |           |  |   | 11,054  |  |  |           | 10,626  |  |       |   | 11,054  |           |  |   | 10,626  |  |  |  | 1.45   |  
|                                                                        |  |                        |        |  |                    |   |        |           |  |   |         |  |  |           |         |  |       |   |         |           | 
|Total                                                                   |  | $                      | 59,451 |  |                    | $ | 58,332 |           |  | $ | 700,853 |  |  | $         | 687,937 |  |       | $ | 760,304 |           |  | $ | 746,269 |  |  |  | 100.00 | %
|                                                                        |  |                        |        |  |                    |   |        |           |  |   |         |  |  |           |         |  |       |   |         |           | 

|                                                                        |  |                        |        |  |                    |   |        |           |  |   |         |  |  |           |         |  |       |   |         |           |  |   |         |  |  |  |        |  
|----------------------------------------------------------------------- |  | ---------------------- | ------ |  | ------------------ | - | ------ | --------- |  | - | ------- |  |  | --------- | ------- |  | ----- | - | ------- | --------- |  | - | ------- |  |  |  | ------ | -
|                                                                        |  | December 31, 2004      |       
|                                                                        |  |                        |       
|                                                                        |  | Held-to-Maturity       |        |  | Available-for-Sale |   |        | Total     | 
|                                                                        |  |                        |        |  |                    |   |        |           | 
|                                                                        |  | Amortized              |        |  | Fair               |   |        | Amortized |  |   | Fair    |  |  | Amortized |         |  | Fair  |   |         | % of      | 
|                                                                        |  | Cost                   |        |  | Value              |   |        | Cost      |  |   | Value   |  |  | Cost      |         |  | Value |   |         | Portfolio | 
|                                                                        |  |                        |        |  |                    |   |        |           |  |   |         |  |  |           |         |  |       |   |         |           | 
|                                                                        |  | (Dollars in thousands) |       
|U.S. Treasury and obligations of
    U.S. government-sponsored entities |  | $                      |       |  |                    | $ |       |           |  | $ | 334,870 |  |  | $         | 311,144 |  |       | $ | 334,870 |           |  | $ | 311,144 |  |  |  | 60.81  | %
|Obligations of states and political subdivisions                        |  |                        | 8,799  |  |                    |   | 9,043  |           |  |   | 320     |  |  |           | 320     |  |       |   | 9,119   |           |  |   | 9,363   |  |  |  | 1.66   |  
|Mortgage-backed securities                                              |  |                        | 80,159 |  |                    |   | 79,967 |           |  |   | 34,455  |  |  |           | 33,844  |  |       |   | 114,614 |           |  |   | 113,811 |  |  |  | 20.82  |  
|Equity securities                                                       |  |                        |       |  |                    |   |       |           |  |   | 80,924  |  |  |           | 81,089  |  |       |   | 80,924  |           |  |   | 81,089  |  |  |  | 14.70  |  
|Other bonds                                                             |  |                        |       |  |                    |   |       |           |  |   | 11,074  |  |  |           | 10,653  |  |       |   | 11,074  |           |  |   | 10,653  |  |  |  | 2.01   |  
|                                                                        |  |                        |        |  |                    |   |        |           |  |   |         |  |  |           |         |  |       |   |         |           | 
|Total                                                                   |  | $                      | 88,958 |  |                    | $ | 89,010 |           |  | $ | 461,643 |  |  | $         | 437,050 |  |       | $ | 550,601 |           |  | $ | 526,060 |  |  |  | 100.00 | %
|                                                                        |  |                        |        |  |                    |   |        |           |  |   |         |  |  |           |         |  |       |   |         |           | 

43



---



##### 



|                                                                        |  |                        |        |  |                    |   |        |           |  |   |         |  |  |           |         |  |       |   |         |           |  |   |         |  |  |  |        |  
|----------------------------------------------------------------------- |  | ---------------------- | ------ |  | ------------------ | - | ------ | --------- |  | - | ------- |  |  | --------- | ------- |  | ----- | - | ------- | --------- |  | - | ------- |  |  |  | ------ | -
|                                                                        |  | December 31, 2003      |       
|                                                                        |  |                        |       
|                                                                        |  | Held-to-Maturity       |        |  | Available-for-Sale |   |        | Total     | 
|                                                                        |  |                        |        |  |                    |   |        |           | 
|                                                                        |  | Amortized              |        |  | Fair               |   |        | Amortized |  |   | Fair    |  |  | Amortized |         |  | Fair  |   |         | % of      | 
|                                                                        |  | Cost                   |        |  | Value              |   |        | Cost      |  |   | Value   |  |  | Cost      |         |  | Value |   |         | Portfolio | 
|                                                                        |  |                        |        |  |                    |   |        |           |  |   |         |  |  |           |         |  |       |   |         |           | 
|                                                                        |  | (Dollars in thousands) |       
|U.S. Treasury and obligations of
    U.S. government-sponsored entities |  | $                      |       |  |                    | $ |       |           |  | $ | 318,245 |  |  | $         | 296,912 |  |       | $ | 318,245 |           |  | $ | 296,912 |  |  |  | 42.95  | %
|Obligations of states and political subdivisions                        |  |                        | 11,946 |  |                    |   | 12,530 |           |  |   | 29,494  |  |  |           | 31,197  |  |       |   | 41,440  |           |  |   | 43,727  |  |  |  | 5.59   |  
|Mortgage-backed securities                                              |  |                        | 43,233 |  |                    |   | 43,771 |           |  |   | 133,601 |  |  |           | 134,406 |  |       |   | 176,834 |           |  |   | 178,177 |  |  |  | 23.87  |  
|Equity securities                                                       |  |                        |       |  |                    |   |       |           |  |   | 117,040 |  |  |           | 114,262 |  |       |   | 117,040 |           |  |   | 114,262 |  |  |  | 15.80  |  
|Other bonds                                                             |  |                        |       |  |                    |   |       |           |  |   | 87,402  |  |  |           | 85,793  |  |       |   | 87,402  |           |  |   | 85,793  |  |  |  | 11.80  |  
|                                                                        |  |                        |        |  |                    |   |        |           |  |   |         |  |  |           |         |  |       |   |         |           | 
|Total                                                                   |  | $                      | 55,179 |  |                    | $ | 56,301 |           |  | $ | 685,782 |  |  | $         | 662,570 |  |       | $ | 740,961 |           |  | $ | 718,871 |  |  |  | 100.00 | %
|                                                                        |  |                        |        |  |                    |   |        |           |  |   |         |  |  |           |         |  |       |   |         |           | 







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company has changed the mix of its securities portfolio
    through the sale of U.S. government-sponsored entity notes
    in the fourth quarter of 2004 and the first half of 2005 and the
    investment in mortgage-backed securities to increase liquidity
    to fund loans as described below. A new chief investment officer
    started in January 2005. The Company has established a limit on
    the duration of all purchases to a maximum of 7 years and
    on the premium paid to a maximum of 1% of the underlying
    principal (price of $101) for mortgage-backed securities. These
    limits were set to reduce the prepayment risk in a declining
    interest rate environment.                                                                                                                     
|
| |  | During 2005, the Company invested $342.4 million in 5/1,
    7/1, and 10/1 adjustable rate mortgage-backed securities with a
    weighted average yield of 4.84% as well as $201.4 million
    in 15-year fixed
    mortgage-backed securities with a weighted average yield of
    4.87%. The Company expects these securities to provide added
    liquidity to fund future loan growth. Accordingly,
    U.S. government and government-sponsored entity
    mortgage-backed securities increased $477.5 million, from
    $33.8 million at December 31, 2004 to
    $511.3 million at December 31, 2005. At
    December 31, 2004, approximately $169.8 million of cash
    equivalents were proceeds received during December from
    liquidated securities sold during the initial balance sheet
    repositioning step.
|
| |  | As a result of changing the mix of the securities portfolio, the
    duration decreased to 3.8 years at December 31, 2005
    compared to 5.0 years a year ago, and the average yield
    increased 48 basis points to 4.81% at December 31,
    2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Equity securities decreased $18.2 million, following the
    sale of the FNMA Series F perpetual preferred equity
    securities, from $81.1 million at December 31, 2004 to
    $62.9 million at December 31, 2005. Equity securities
    included capital securities of U.S. government-sponsored
    entities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Obligations of state and political subdivisions increased
    $78.0 million to $78.4 million at December 31,
    2005 from $320,000 at December 31, 2004. During 2005, the
    Company built up its tax-exempt securities portfolio as part of
    its tax planning strategy.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Other bonds decreased $27,000 to $10.6 million at
    December 31, 2005 compared to $10.7 million at
    December 31, 2004. Other bonds include high grade corporate
    bonds primarily issued by financial institutions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

44



---



##### 



held-to










10-year






45



---



##### 







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

held-to


|                                                                        |       |                        |       |               |            |  |                |           |   |   |           |         |  |        |      |      |       |   |         |         |  |  |       |      |   |        |        |        |       |  |      |      |   |   |         |         |  |  |      |      |  
|----------------------------------------------------------------------- | ----- | ---------------------- | ----- | ------------- | ---------- |  | -------------- | --------- | - | - | --------- | ------- |  | ------ | ---- | ---- | ----- | - | ------- | ------- |  |  | ----- | ---- | - | ------ | ------ | ------ | ----- |  | ---- | ---- | - | - | ------- | ------- |  |  | ---- | ---- | -
|                                                                        |       | Maturing               |      
|                                                                        |       |                        |      
|                                                                        |       |                        |       | After One But |            |  | After Five But |           |   |   |           |        
|                                                                        |       | Within One             |       |               | Within     |  |                | Within    |   |   | After     |         |  |       
|                                                                        |       | Year                   |       |               | Five Years |  |                | Ten Years |   |   | Ten Years |         |  | Total  |     
|                                                                        |       |                        |       |               |            |  |                |           |   |   |           |         |  |        |     
|                                                                        |       | Amount                 |       |               | Yield      |  |                | Amount    |   |   | Yield     |         |  | Amount |      |      | Yield |   |         | Amount  |  |  | Yield |      |   | Amount |        |        | Yield | 
|                                                                        |       |                        |       |               |            |  |                |           |   |   |           |         |  |        |      |      |       |   |         |         |  |  |       |      |   |        |        |        |       | 
|                                                                        |       | (Dollars in thousands) |      
|Available-for-Sale-Securities:                                          |       |                        |       |               |            |  |                |           |   |   |           |         |  |        |      |      |       |   |         |         |  |  |       |      |   |        |        |        |       |  |      |      |   |   |         |         |  |  |      |     
|U.S. Treasury and obligations of
    U.S. government-sponsored entities |       | $                      |      |               |            |  | 0.00           | %         |   | $ | 24,719    |         |  |        | 4.21 | %    |       | $ |        |         |  |  | 0.00  | %    |   | $      |       |        |       |  | 0.00 | %    |   | $ | 24,719  |         |  |  | 4.21 | %   
|Obligations of states and political subdivisions                        |       |                        |      |               |            |  | 0.00           |           |   |   | 250       |         |  |        | 4.00 |      |       |   | 53,806  |         |  |  | 3.78  |      |   |        | 24,294 |        |       |  | 3.81 |      |   |   | 78,350  |         |  |  | 3.79 |     
|Mortgage-backed securities                                              |       |                        |      |               |            |  | 0.00           |           |   |   | 315,154   |         |  |        | 4.81 |      |       |   | 196,158 |         |  |  | 4.92  |      |   |        |       |        |       |  | 0.00 |      |   |   | 511,312 |         |  |  | 4.85 |     
|Equity securities(1)                                                    |       |                        |      |               |            |  | 0.00           |           |   |   |          |         |  |        | 0.00 |      |       |   |        |         |  |  | 0.00  |      |   |        | 62,930 |        |       |  | 5.65 |      |   |   | 62,930  |         |  |  | 5.65 |     
|Other bonds                                                             |       |                        |      |               |            |  | 0.00           |           |   |   |          |         |  |        | 0.00 |      |       |   | 10,626  |         |  |  | 4.46  |      |   |        |       |        |       |  | 0.00 |      |   |   | 10,626  |         |  |  | 4.46 |     
|                                                                        |       |                        |       |               |            |  |                |           |   |   |           |         |  |        |      |      |       |   |         |         |  |  |       |      |   |        |        |        |       | 
|                                                                        | Total |                        | $     |              |            |  |                | 0.00      | % |   | $         | 340,123 |  |        |      | 4.77 | %     |   | $       | 260,590 |  |  |       | 4.66 | % |        | $      | 87,224 |       |  |      | 5.14 | % |   | $       | 687,937 |  |  |      | 4.78 | %
|                                                                        |       |                        |       |               |            |  |                |           |   |   |           |         |  |        |      |      |       |   |         |         |  |  |       |      |   |        |        |        |       | 
|Held-to-Maturity Securities:                                            |       |                        |       |               |            |  |                |           |   |   |           |         |  |        |      |      |       |   |         |         |  |  |       |      |   |        |        |        |       |  |      |      |   |   |         |         |  |  |      |     
|Obligations of states and political subdivisions                        |       | $                      | 4,446 |               |            |  | 4.18           | %         |   | $ | 684       |         |  |        | 4.26 | %    |       | $ | 1,008   |         |  |  | 3.74  | %    |   | $      |       |        |       |  | 0.00 | %    |   | $ | 6,138   |         |  |  | 4.12 | %   
|Mortgage-backed securities                                              |       |                        |      |               |            |  | 0.00           |           |   |   | 1,869     |         |  |        | 6.66 |      |       |   | 51,444  |         |  |  | 5.48  |      |   |        |       |        |       |  | 0.00 |      |   |   | 53,313  |         |  |  | 5.52 |     
|                                                                        |       |                        |       |               |            |  |                |           |   |   |           |         |  |        |      |      |       |   |         |         |  |  |       |      |   |        |        |        |       | 
|                                                                        | Total |                        | $     | 4,446         |            |  |                | 4.18      | % |   | $         | 2,553   |  |        |      | 6.02 | %     |   | $       | 52,452  |  |  |       | 5.45 | % |        | $      |       |       |  |      | 0.00 | % |   | $       | 59,451  |  |  |      | 5.38 | %
|                                                                        |       |                        |       |               |            |  |                |           |   |   |           |         |  |        |      |      |       |   |         |         |  |  |       |      |   |        |        |        |       | 






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



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





| |   |                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Total deposits were $1.5 billion at December 31,
    2005,1.5% or $21.7 million greater than at
    December 31, 2004.                                                                                                                                                                                                                           
|
| |  | Average total deposits were $1.5 billion for the year ended
    December 31, 2005, 3.4% or $48.7 million greater than
    at December 31, 2004                                                                                                                                                                                                   
|
| |  | Non-interest-bearing deposits were $158.4 million as of
    December 31, 2005, approximately $4.2 million lower
    than the $162.6 million level as of December 31, 2004.                                                                                                                                                                       
|
| |  | Interest-bearing deposits increased 1.9% or $25.9 million
    to $1.4 billion as of December 31, 2005.                                                                                                                                                                                                                                           
|
| |  | Core deposits, which include demand, interest-bearing demand,
    money market, and savings deposits, decreased $97.8 million
    to $621.0 million at December 31, 2005 compared to
    $718.8 million at December 31, 2004; the balances in
    core deposits have migrated to certificates of deposits as
    result of the movement in rates.

46



---



##### 





| |   |                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Certificates of deposits less than $100,000 increased 5.8% or
    $41.4 million to $752.0 million at December 31,
    2005 compared to $710.7 million in 2004.                                                                                                                                                                                         
|
| |  | Certificates of deposit over $100,000 increased
    $67.3 million from December 31, 2004 to
    $131.4 million at December 31, 2005, and public funds
    certificates of deposits increased by $10.9 million or
    136.3%. Brokered certificates of deposit were $35.1 million
    at December 31, 2005 compared to $30.0 million the
    prior year.





|                                     |                                            |                                 |         |         |            |  |       |       |        |         |         |      |            |          |         |         |           |         |       |         |            |   |          |      |      |      |         |         |           |  |       |       |        |   |      |      |      |  
|------------------------------------ | ------------------------------------------ | ------------------------------- | ------- | ------- | ---------- |  | ----- | ----- | ------ | ------- | ------- | ---- | ---------- | -------- | ------- | ------- | --------- | ------- | ----- | ------- | ---------- | - | -------- | ---- | ---- | ---- | ------- | ------- | --------- |  | ----- | ----- | ------ | - | ---- | ---- | ---- | -
|                                     |                                            | For the Year Ended December 31, |        
|                                     |                                            |                                 |        
|                                     |                                            | 2005                            |         |         | 2004       |  |       | 2003  |       
|                                     |                                            |                                 |         |         |            |  |       |       |       
|                                     |                                            | Average                         |         |         | Percent of |  |       |       |        | Average |         |      | Percent of |          |         |         |           | Average |       |         | Percent of |   |          |     
|                                     |                                            | Balance                         |         |         | Deposits   |  |       | Rate  |        |         | Balance |      |            | Deposits |         |         | Rate      |         |       | Balance |            |   | Deposits |      |      | Rate |        
|                                     |                                            |                                 |         |         |            |  |       |       |        |         |         |      |            |          |         |         |           |         |       |         |            |   |          |      |      |      |        
|                                     |                                            | (Dollars in thousands)          |        
|Non-interest-bearing demand deposits |                                            | $                               | 154,180 |         |            |  | 10.28 | %     |        |         | 0.00    | %    |            | $        | 148,173 |         |           |         | 10.21 | %       |            |   | 0.00     | %    |      | $    | 137,085 |         |           |  | 10.00 | %     |        |   | 0.00 | %   
|Interest-bearing demand deposits     |                                            |                                 | 176,355 |         |            |  | 11.75 |       |        |         | 1.22    |      |            |          | 187,684 |         |           |         | 12.93 |         |            |   | 1.32     |      |      |      | 141,138 |         |           |  | 10.30 |       |        |   | 1.25 |     
|Savings and money market accounts    |                                            |                                 | 347,792 |         |            |  | 23.18 |       |        |         | 1.64    |      |            |          | 326,544 |         |           |         | 22.50 |         |            |   | 1.40     |      |      |      | 303,110 |         |           |  | 22.12 |       |        |   | 1.17 |     
|Time Deposits:                       |                                            |                                 |         |         |            |  |       |       |        |         |         |      |            |          |         |         |           |         |       |         |            |   |          |      |      |      |         |         |           |  |       |       |        |   |      |     
|                                     | Certificates of deposit, under $100,000(1) |                                 |         | 747,611 |            |  |       | 49.83 |        |         |         | 3.19 |            |          |         | 714,787 |           |         |       | 49.24   |            |   |          | 2.66 |      |      |         | 655,531 |           |  |       | 47.84 |        |   |      | 2.79 |     
|                                     | Certificates of deposit, over $100,000(1)  |                                 |         | 60,405  |            |  |       | 4.03  |        |         |         | 3.23 |            |          |         | 64,237  |           |         |       | 4.43    |            |   |          | 2.16 |      |      |         | 93,034  |           |  |       | 6.79  |        |   |      | 2.28 |     
|                                     | Public funds                               |                                 |         | 13,943  |            |  |       | 0.93  |        |         |         | 3.14 |            |          |         | 10,156  |           |         |       | 0.70    |            |   |          | 1.57 |      |      |         | 40,463  |           |  |       | 2.95  |        |   |      | 2.12 |     
|                                     |                                            |                                 |         |         |            |  |       |       |        |         |         |      |            |          |         |         |           |         |       |         |            |   |          |      |      |      |        
|                                     |                                            | Total time deposits             |         |         | 821,960    |  |       |       | 54.79  |         |         |      | 3.19       |          |         |         | 789,180   |         |       |         | 54.37      |   |          |      | 2.61 |      |         |         | 789,028   |  |       |       | 57.58  |   |      |      | 2.70 |  
|                                     |                                            |                                 |         |         |            |  |       |       |        |         |         |      |            |          |         |         |           |         |       |         |            |   |          |      |      |      |        
|                                     |                                            | Total deposits                  |         | $       | 1,500,286  |  |       |       | 100.00 | %       |         |      | 2.27       | %        |         | $       | 1,451,581 |         |       |         | 100.00     | % |          |      | 1.90 | %    |         | $       | 1,370,361 |  |       |       | 100.00 | % |      |      | 1.94 | %
|                                     |                                            |                                 |         |         |            |  |       |       |        |         |         |      |            |          |         |         |           |         |       |         |            |   |          |      |      |      |        






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



47



---



##### 





|                                      |       |                                 |         |         |      |   |        |         |  |   |        |         | 
|------------------------------------- | ----- | ------------------------------- | ------- | ------- | ---- | - | ------ | ------- |  | - | ------ | ------- | 
|                                      |       | For the Year Ended December 31, |        
|                                      |       |                                 |        
|                                      |       | 2005                            |         |         | 2004 |   |        | 2003    | 
|                                      |       |                                 |         |         |      |   |        |         | 
|                                      |       | (In thousands)                  |        
|Three months or less                  |       | $                               | 131,607 |         |      | $ | 50,433 |         |  | $ | 65,727 |        
|Over three months through six months  |       |                                 | 29,278  |         |      |   | 79,512 |         |  |   | 49,558 |        
|Over six months through twelve months |       |                                 | 74,054  |         |      |   | 27,656 |         |  |   | 68,072 |        
|Over twelve months                    |       |                                 | 11,848  |         |      |   | 540    |         |  |   | 1,040  |        
|                                      |       |                                 |         |         |      |   |        |         | 
|                                      | Total |                                 | $       | 246,787 |      |   | $      | 158,141 |  |   | $      | 184,397 | 
|                                      |       |                                 |         |         |      |   |        |         | 

Borrowings




|                                               |       |                |         |         |      |   |         |         |  |   |         |         | 
|---------------------------------------------- | ----- | -------------- | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                                               |       | December 31,   |        
|                                               |       |                |        
|                                               |       | 2005           |         |         | 2004 |   |         | 2003    | 
|                                               |       |                |         |         |      |   |         |         | 
|                                               |       | (In thousands) |        
|Federal funds purchased                        |       | $              | 68,000  |         |      | $ |        |         |  | $ |        |        
|Securities sold under agreements to repurchase |       |                | 264,808 |         |      |   | 146,885 |         |  |   | 148,093 |        
|Notes payable                                  |       |                |        |         |      |   |        |         |  |   | 2,000   |        
|Junior subordinated debt                       |       |                | 55,672  |         |      |   | 55,672  |         |  |   | 54,000  |        
|FHLB advances                                  |       |                | 150,000 |         |      |   | 118,079 |         |  |   | 214,704 |        
|                                               |       |                |         |         |      |   |         |         | 
|                                               | Total |                | $       | 538,480 |      |   | $       | 320,636 |  |   | $       | 418,797 | 
|                                               |       |                |         |         |      |   |         |         | 





|                         |                                               |                         |   |        |      |  |   |        |   |  |   |        |  
|------------------------ | --------------------------------------------- | ----------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                         |                                               | Year Ended December 31, |  
|                         |                                               |                         |  
|                         |                                               | 2005                    |   |        | 2004 |  |   | 2003   |  
|                         |                                               |                         |   |        |      |  |   |        |  
|                         |                                               | (Dollars in thousands)  |  
|Federal funds purchased: |                                               |                         |   |        |      |  |   |        |   |  |   |       
|                         | Balance at end of year                        |                         | $ | 68,000 |      |  | $ |       |   |  | $ |       |  
|                         | Weighted average interest rate at end of year |                         |   | 4.26   | %    |  |   | 0.00   | % |  |   | 0.00   | %
|                         | Maximum amount outstanding(1)                 |                         | $ | 73,000 |      |  | $ | 37,000 |   |  | $ | 24,000 |  
|                         | Average amount outstanding                    |                         |   | 27,888 |      |  |   | 3,322  |   |  |   | 8,714  |  
|                         | Weighted average interest rate during year(2) |                         |   | 3.64   | %    |  |   | 2.05   | % |  |   | 1.39   | %

48



---



##### 








|    |                                                                              
|--- | -----------------------------------------------------------------------------
|(1) | Based on amount outstanding at month end during each year.                   
|   
|(2) | During 2005, there were eight increases in the federal funds
    target rate.

|                                             |                                               |                         |   |         |      |  |   |         |   |  |   |         |  
|-------------------------------------------- | --------------------------------------------- | ----------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                             |                                               | Year Ended December 31, |  
|                                             |                                               |                         |  
|                                             |                                               | 2005                    |   |         | 2004 |  |   | 2003    |  
|                                             |                                               |                         |   |         |      |  |   |         |  
|                                             |                                               | (Dollars in thousands)  |  
|Securities sold under repurchase agreements: |                                               |                         |   |         |      |  |   |         |   |  |   |        
|                                             | Balance at end of year                        |                         | $ | 264,808 |      |  | $ | 146,885 |   |  | $ | 148,093 |  
|                                             | Weighted average interest rate at end of year |                         |   | 3.83    | %    |  |   | 2.67    | % |  |   | 3.09    | %
|                                             | Maximum amount outstanding(1)                 |                         | $ | 264,808 |      |  | $ | 264,007 |   |  | $ | 188,098 |  
|                                             | Average amount outstanding                    |                         |   | 204,438 |      |  |   | 155,983 |   |  |   | 162,631 |  
|                                             | Weighted average interest rate during year    |                         |   | 3.04    | %    |  |   | 2.72    | % |  |   | 2.92    | %






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











|               |                                                  |                         |   |         |      |  |   |         |   |  |   |         |  
|-------------- | ------------------------------------------------ | ----------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|               |                                                  | Year Ended December 31, |  
|               |                                                  |                         |  
|               |                                                  | 2005                    |   |         | 2004 |  |   | 2003    |  
|               |                                                  |                         |   |         |      |  |   |         |  
|               |                                                  | (Dollars in thousands)  |  
|FHLB advances: |                                                  |                         |   |         |      |  |   |         |   |  |   |        
|               | Balance at end of year                           |                         | $ | 150,000 |      |  | $ | 118,079 |   |  | $ | 214,704 |  
|               | Weighted average interest rate at end of year(2) |                         |   | 3.48    | %    |  |   | 4.55    | % |  |   | 4.24    | %
|               | Maximum amount outstanding(1)                    |                         | $ | 150,000 |      |  | $ | 214,461 |   |  | $ | 216,032 |  
|               | Average amount outstanding                       |                         |   | 134,194 |      |  |   | 204,915 |   |  |   | 217,466 |  
|               | Weighted average interest rate during year(2)    |                         |   | 4.25    | %    |  |   | 3.05    | % |  |   | 4.16    | %






|    |                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Based on amount outstanding at month end during each year.                                                                                                                                                                
|   
|(2) | Includes the impact of the interest rate swaps and purchase
    accounting adjustment for 2004. The purchase accounting
    adjustment of $2.1 million reduced the weighted average
    interest rate from 4.08% to 3.05%.

49



---



##### 





|                 |                                               |                         |   |       |      |  |   |       |   |  |   |       |  
|---------------- | --------------------------------------------- | ----------------------- | - | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                 |                                               | Year Ended December 31, |  
|                 |                                               |                         |  
|                 |                                               | 2005                    |   |       | 2004 |  |   | 2003  |  
|                 |                                               |                         |   |       |      |  |   |       |  
|                 |                                               | (Dollars in thousands)  |  
|Lines of Credit: |                                               |                         |   |       |      |  |   |       |   |  |   |      
|                 | Balance at end of year                        |                         | $ |      |      |  | $ |      |   |  | $ | 2,000 |  
|                 | Weighted average interest rate at end of year |                         |   | 0.00  | %    |  |   | 0.00  | % |  |   | 2.11  | %
|                 | Maximum amount outstanding(1)                 |                         | $ | 2,000 |      |  | $ | 2,000 |   |  | $ | 7,500 |  
|                 | Average amount outstanding                    |                         |   | 202   |      |  |   | 366   |   |  |   | 6,171 |  
|                 | Weighted average interest rate during year    |                         |   | 4.33  | %    |  |   | 2.32  | % |  |   | 2.76  | %






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









|                       |  |            |                   |  |        |   |            |           |  |  |                 |  |  |                 |                   |  |  |  |                   | 
|---------------------- |  | ---------- | ----------------- |  | ------ | - | ---------- | --------- |  |  | --------------- |  |  | --------------- | ----------------- |  |  |  | ----------------- | 
|                       |  |            |                   |  |        |   |            | Mandatory |  |  | Optional        | 
|Issuer                 |  | Issue Date |                   |  | Amount |   |            | Rate      |  |  | Redemption Date |  |  | Redemption Date |                  
|                       |  |            |                   |  |        |   |            |           |  |  |                 |  |  |                 |                  
|MBHI Capital Trust II  |  |            | October 29, 2002  |  |        | $ | 15,464,000 |           |  |  | LIBOR+3.45%     |  |  |                 | November 7, 2032  |  |  |  | November 7, 2007  | 
|MBHI Capital Trust III |  |            | December 19, 2003 |  |        | $ | 9,279,000  |           |  |  | LIBOR+3.00%     |  |  |                 | December 30, 2033 |  |  |  | December 30, 2008 | 
|MBHI Capital Trust IV  |  |            | December 19, 2003 |  |        | $ | 10,310,000 |           |  |  | LIBOR+2.85%     |  |  |                 | January 23, 2034  |  |  |  | January 23, 2009  | 
|MBHI Capital Trust V   |  |            | June 7, 2005      |  |        | $ | 20,619,000 |           |  |  | LIBOR+1.77%     |  |  |                 | June 15, 2035     |  |  |  | June 15, 2010     | 

Capital Resources




50



---



##### 





|                                       |  |                                        |           |  |       |  |       |        |  |   |           |  |  |        |       |   |       |   |           |  |  |  |       |  
|-------------------------------------- |  | -------------------------------------- | --------- |  | ----- |  | ----- | ------ |  | - | --------- |  |  | ------ | ----- | - | ----- | - | --------- |  |  |  | ----- | -
|                                       |  | Risk-Based Capital Ratios December 31, |          
|                                       |  |                                        |          
|                                       |  | 2005                                   |           |  | 2004  |  |       | 2003   | 
|                                       |  |                                        |           |  |       |  |       |        | 
|                                       |  | Amount                                 |           |  | Ratio |  |       | Amount |  |   | Ratio     |  |  | Amount |       |   | Ratio |  
|                                       |  |                                        |           |  |       |  |       |        |  |   |           |  |  |        |       |   |       |  
|                                       |  | (Dollars in thousands)                 |          
|Tier 1 capital to risk-weighted assets |  | $                                      | 274,408   |  |       |  | 16.97 | %      |  | $ | 198,597   |  |  |        | 13.27 | % |       | $ | 201,105   |  |  |  | 13.68 | %
|Tier 1 capital minimum requirement     |  |                                        | 64,691    |  |       |  | 4.00  |        |  |   | 59,879    |  |  |        | 4.00  |   |       |   | 58,823    |  |  |  | 4.00  |  
|Total capital to risk-weighted assets  |  |                                        | 292,168   |  |       |  | 18.07 |        |  |   | 219,343   |  |  |        | 14.65 |   |       |   | 216,819   |  |  |  | 14.74 |  
|Total capital minimum requirements     |  |                                        | 129,381   |  |       |  | 8.00  |        |  |   | 119,758   |  |  |        | 8.00  |   |       |   | 117,647   |  |  |  | 8.00  |  
|Total risk-weighted assets             |  |                                        | 1,617,267 |  |       |  |       |        |  |   | 1,496,978 |  |  |        |       |   |       |   | 1,470,587 |  |  |  |       |  



Liquidity














51



---



##### 



Contractual Obligations, Commitments, and Off-Balance Sheet
Arrangements


|                                                       |  |                        |           |  |           |   |         |           |  |   |         |  |  |       |         |  |  |   |           | 
|------------------------------------------------------ |  | ---------------------- | --------- |  | --------- | - | ------- | --------- |  | - | ------- |  |  | ----- | ------- |  |  | - | --------- | 
|                                                       |  | December 31, 2005      |          
|                                                       |  |                        |          
|                                                       |  | Payments Due By Period |          
|                                                       |  |                        |          
|                                                       |  | Within                 |           |  |           |   | After   |           |  |  
|                                                       |  | 1 Year                 |           |  | 2-3 Years |   |         | 4-5 Years |  |   | 5 Years |  |  | Total |        
|                                                       |  |                        |           |  |           |   |         |           |  |   |         |  |  |       |        
|                                                       |  | (In thousands)         |          
|Deposits without a stated maturity                     |  | $                      | 621,050   |  |           | $ |        |           |  | $ |        |  |  | $     |        |  |  | $ | 621,050   | 
|Consumer and brokered certificates of deposits         |  |                        | 788,851   |  |           |   | 110,196 |           |  |   | 3,287   |  |  |       |        |  |  |   | 902,334   | 
|Securities sold under agreements to repurchase         |  |                        | 206,808   |  |           |   | 20,000  |           |  |   | 38,000  |  |  |       |        |  |  |   | 264,808   | 
|FHLB advances                                          |  |                        |          |  |           |   |        |           |  |   |        |  |  |       | 150,000 |  |  |   | 150,000   | 
|Junior subordinated debt owed to unconsolidated trusts |  |                        |          |  |           |   |        |           |  |   |        |  |  |       | 55,672  |  |  |   | 55,672    | 
|Operating leases                                       |  |                        | 460       |  |           |   | 894     |           |  |   | 424     |  |  |       | 1,760   |  |  |   | 3,538     | 
|                                                       |  |                        |           |  |           |   |         |           |  |   |         |  |  |       |        
|Total contractual cash obligations                     |  | $                      | 1,617,169 |  |           | $ | 131,090 |           |  | $ | 41,711  |  |  | $     | 207,432 |  |  | $ | 1,997,402 | 
|                                                       |  |                        |           |  |           |   |         |           |  |   |         |  |  |       |        



|                             |                        |                                            |         |         |           |   |        |           |  |   |         |        |  |       |        |        |  |   |         |         | 
|---------------------------- | ---------------------- | ------------------------------------------ | ------- | ------- | --------- | - | ------ | --------- |  | - | ------- | ------ |  | ----- | ------ | ------ |  | - | ------- | ------- | 
|                             |                        | Amount of Commitment Expiration Per Period |        
|                             |                        |                                            |        
|                             |                        | Within                                     |         |         |           |   | After  |           |  |  
|                             |                        | 1 Year                                     |         |         | 2-3 Years |   |        | 4-5 Years |  |   | 5 Years |        |  | Total |       
|                             |                        |                                            |         |         |           |   |        |           |  |   |         |        |  |       |       
|                             |                        | (In thousands)                             |        
|Lines of Credit:             |                        |                                            |         |         |           |   |        |           |  |   |         |        |  |       |        |        |  |   |         |        
|                             | Commercial real estate |                                            | $       | 162,506 |           |   | $      | 50,654    |  |   | $       | 1,397  |  |       | $      | 43     |  |   | $       | 214,600 | 
|                             | Consumer real estate   |                                            |         | 16,988  |           |   |        | 5,234     |  |   |         | 10,292 |  |       |        | 37,405 |  |   |         | 69,919  | 
|                             | Consumer               |                                            |         |        |           |   |        |          |  |   |         |       |  |       |        | 1,821  |  |   |         | 1,821   | 
|                             | Commercial             |                                            |         | 62,644  |           |   |        | 972       |  |   |         | 238    |  |       |        | 1,251  |  |   |         | 65,105  | 
|Letters of credit            |                        |                                            | 42,824  |         |           |   | 8,927  |           |  |   | 65      |        |  |       | 375    |        |  |   | 52,191  |        
|Commitments to extend credit |                        |                                            | 118,326 |         |           |   |       |           |  |   |        |        |  |       |       |        |  |   | 118,326 |        
|                             |                        |                                            |         |         |           |   |        |           |  |   |         |        |  |       |       
|Total commercial commitments |                        | $                                          | 403,288 |         |           | $ | 65,787 |           |  | $ | 11,992  |        |  | $     | 40,895 |        |  | $ | 521,962 |        
|                             |                        |                                            |         |         |           |   |        |           |  |   |         |        |  |       |       

Asset/ Liability Management








52



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##### 







Effects of Inflation






53



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##### 








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



|        |  |                                                     |        |   |                   |           |       |         |  |   |        |  |  |        |      |   |  |  |       |   
|------- |  | --------------------------------------------------- | ------ | - | ----------------- | --------- | ----- | ------- |  | - | ------ |  |  | ------ | ---- | - |  |  | ----- | --
|        |  | Change in Net Interest Income Over One Year Horizon |       
|        |  |                                                     |       
|        |  |                                                     |        |   |                   | Guideline |      
|        |  | December 31, 2005                                   |        |   | December 31, 2004 |           |       |         | 
|        |  |                                                     |        |   |                   |           |       | Maximum | 
|        |  | Dollar                                              |        |   | %                 |           |       | Dollar  |  |   | %      |  |  | %      |     
|        |  | Change                                              |        |   | Change            |           |       | Change  |  |   | Change |  |  | Change |     
|        |  |                                                     |        |   |                   |           |       |         |  |   |        |  |  |        |     
|        |  | (Dollars in thousands)                              |       
|+200 bp |  | $                                                   | 167    |   |                   |           | 0.26  | %       |  | $ | 251    |  |  |        | 0.43 | % |  |  | (15.0 | )%
|+100 bp |  |                                                     | 99     |   |                   |           | 0.15  |         |  |   | 29     |  |  |        | 0.05 |   |  |  | (15.0 | ) 
|-100 bp |  |                                                     | 696    |   |                   |           | 1.09  |         |  |   | 329    |  |  |        | 0.56 |   |  |  | (15.0 | ) 
|-200 bp |  |                                                     | (3,481 | ) |                   |           | (5.44 | )       |  |   | n/a    |  |  |        | n/a  |   |  |  | (15.0 | ) 





91-day 91-day






54



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##### 





|                                                                               |  |                        |           |      |        |   |          |           |      |   |         |    |  |       |         |   |  |   |           | 
|------------------------------------------------------------------------------ |  | ---------------------- | --------- | ---- | ------ | - | -------- | --------- | ---- | - | ------- | -- |  | ----- | ------- | - |  | - | --------- | 
|                                                                               |  |                        |           | 4-12 |        |   |          |           | Over |   |         |   
|                                                                               |  | 0-3 Months             |           |      | Months |   |          | 1-5 Years |      |   | 5 Years |    |  | Total |        
|                                                                               |  |                        |           |      |        |   |          |           |      |   |         |    |  |       |        
|                                                                               |  | (Dollars in thousands) |          
|INTEREST-EARNING ASSETS:                                                       |  |                        |           |      |        |   |          |           |      |   |         |    |  |       |         |   |  |   |           | 
|Federal funds sold                                                             |  | $                      | 11,000    |      |        | $ |         |           |      | $ |        |    |  | $     |        |   |  | $ | 11,000    | 
|Interest-bearing due from banks                                                |  |                        | 1,270     |      |        |   |         |           |      |   |        |    |  |       |        |   |  |   | 1,270     | 
|Securities                                                                     |  |                        | 46,228    |      |        |   | 127,181  |           |      |   | 365,052 |    |  |       | 223,588 |   |  |   | 762,049   | 
|Loans                                                                          |  |                        | 844,295   |      |        |   | 62,365   |           |      |   | 382,075 |    |  |       | 63,173  |   |  |   | 1,351,908 | 
|                                                                               |  |                        |           |      |        |   |          |           |      |   |         |    |  |       |        
|Total interest-bearing assets                                                  |  | $                      | 902,793   |      |        | $ | 189,546  |           |      | $ | 747,127 |    |  | $     | 286,761 |   |  | $ | 2,126,227 | 
|                                                                               |  |                        |           |      |        |   |          |           |      |   |         |    |  |       |        
|INTEREST-BEARING LIABILITIES:                                                  |  |                        |           |      |        |   |          |           |      |   |         |    |  |       |         |   |  |   |           | 
|Interest-bearing demand deposits                                               |  | $                      | 155,403   |      |        | $ |         |           |      | $ |        |    |  | $     |        |   |  | $ | 155,403   | 
|Money markets                                                                  |  |                        | 196,695   |      |        |   |         |           |      |   |        |    |  |       |        |   |  |   | 196,695   | 
|Savings deposits                                                               |  |                        | 2,664     |      |        |   | 7,992    |           |      |   | 42,624  |    |  |       | 57,266  |   |  |   | 110,546   | 
|Time deposits                                                                  |  |                        | 317,594   |      |        |   | 471,257  |           |      |   | 113,483 |    |  |       |        |   |  |   | 902,334   | 
|                                                                               |  |                        |           |      |        |   |          |           |      |   |         |    |  |       |        
|Total interest-bearing deposits                                                |  | $                      | 672,356   |      |        | $ | 479,249  |           |      | $ | 156,107 |    |  | $     | 57,266  |   |  | $ | 1,364,978 | 
|                                                                               |  |                        |           |      |        |   |          |           |      |   |         |    |  |       |        
|Securities sold under agreements to repurchase and federal funds
    purchased |  | $                      | 294,808   |      |        | $ |         |           |      | $ | 38,000  |    |  | $     |        |   |  | $ | 332,808   | 
|FHLB advances                                                                  |  |                        |          |      |        |   |         |           |      |   | 150,000 |    |  |       |        |   |  |   | 150,000   | 
|Junior subordinated debt                                                       |  |                        | 55,672    |      |        |   |         |           |      |   |        |    |  |       |        |   |  |   | 55,672    | 
|Note payable                                                                   |  |                        |          |      |        |   |         |           |      |   |        |    |  |       |        |   |  |   |          | 
|                                                                               |  |                        |           |      |        |   |          |           |      |   |         |    |  |       |        
|Total borrowings                                                               |  |                        | 350,480   |      |        |   |         |           |      |   | 188,000 |    |  |       |        |   |  |   | 538,480   | 
|                                                                               |  |                        |           |      |        |   |          |           |      |   |         |    |  |       |        
|Total interest-bearing liabilities                                             |  | $                      | 1,022,836 |      |        | $ | 479,249  |           |      | $ | 344,107 |    |  | $     | 57,266  |   |  | $ | 1,903,458 | 
|                                                                               |  |                        |           |      |        |   |          |           |      |   |         |    |  |       |        
|Interest sensitivity gap                                                       |  | $                      | (120,043  | )    |        | $ | (289,703 | )         |      | $ | 403,020 |    |  | $     | 229,495 |   |  | $ | 222,769   | 
|Cumulative gap                                                                 |  | $                      | (120,043  | )    |        | $ | (409,746 | )         |      | $ | (6,726  | )  |  | $     | 222,769 |   |  |   |           | 
|Interest sensitivity gap to total assets                                       |  |                        | (5.20     | )%   |        |   | (12.55   | )%        |      |   | 17.46   | %  |  |       | 9.95    | % |  |   |           | 
|Cumulative sensitivity gap to total assets                                     |  |                        | (5.20     | )%   |        |   | (17.76   | )%        |      |   | (0.29   | )% |  |       | 9.65    | % |  |   |           | 







55



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##### 










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








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

8-K 8-K/


S-K.




S-K










56



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##### 











S-K. 8-K







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



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

13a-15(e)).




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

13a-15(f)




57



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##### 










Item 9B. Other Information




58



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##### 



PART III







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








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








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










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








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



59



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##### 



PART IV







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

Index to Financial Statements


10-K


Financial Statement Schedules


10-K


Exhibits




| |     |    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --- | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2   | .1 |  | Stock Purchase Agreement between Western Illinois Bancshares,
    Inc. and Midwest Banc Holdings, Inc. (incorporated by reference
    to Registrants report on Form 8-K filed June 1,
    2005, File No. 001-13735).                                                                                                                                                                                                                     
| | 2   | .2 |  | Amendment to Stock Purchase Agreement between Western Illinois
    Bancshares, Inc. and Midwest Banc Holdings, Inc. (incorporated
    by reference to Registrants Form 10-Q for the quarter
    ended June 30, 2005, File No. 001-13735).                                                                                                                                                                                                
| | 2   | .3 |  | Second Amendment to Stock Purchase Agreement between Western
    Illinois Bancshares, Inc. and Midwest Banc Holdings, Inc.
    (incorporated by reference to Registrants report on
    Form 8-K filed August 29, 2005, File No. 001-13735).                                                                                                                                                                                              
| | 2   | .4 |  | Third Amendment to Stock Purchase Agreement between Western
    Illinois Bancshares, Inc. and Midwest Banc Holdings, Inc.
    (incorporated by reference to Registrants report on
    Form 8-K filed October 5, 2005, File No. 001-13735).                                                                                                                                                                                               
| | 2   | .5 |  | Fourth Amendment to Stock Purchase Agreement between Western
    Illinois Bancshares, Inc. and Midwest Banc Holdings, Inc.
    (incorporated by reference to Registrants report on
    Form 8-K filed November 3, 2005, File No. 001-13735).                                                                                                                                                                                             
| | 2   | .6 |  | Agreement and Plan of Merger, dated as of February 8, 2006,
    by and between Midwest Banc Holdings, Inc. and Royal American
    Corporation (incorporated by reference to Registrants
    report on Form 8-K filed February 8, 2006, File No.
    001-13735).                                                                                                                                                                          
| | 2   | .7 |  | Form of Stockholder Voting Agreement, dated as of
    February 8, 2006, by and among Midwest Banc Holdings, Inc.
    and certain stockholders of Royal American Corporation
    (incorporated by reference to Registrants report on
    Form 8-K filed February 8, 2006, File No. 001-13735).                                                                                                                                            
| | 3   | .1 |  | Amended and Restated Certificate of Incorporation, as amended
    (incorporated by reference to Registrants Form 10-Q
    for the quarter ended June 30, 2005, File No. 001-13735).                                                                                                                                                                                                                                                      
| | 3   | .2 |  | Amended and Restated By-laws, filed September 27, 2005
    (incorporated by reference to Registrants Report on
    Form 8-K filed September 27, 2005, File No. 001-13735).                                                                                                                                                                                                                                                               
| | 4   | .1 |  | Specimen Common Stock Certificate (incorporated by reference to
    Registrants Registration Statement on Form S-1,
    Registration No. 333-42827).                                                                                                                                                                                                                                                                                     
| | 4   | .2 |  | Certain instruments defining the rights of the holders of
    long-term debt of the Company and certain of its subsidiaries,
    none of which authorize a total amount of indebtedness in excess
    of 10% of the total assets of the Company and its subsidiaries
    on a consolidated basis, have not been filed as Exhibits. The
    Company hereby agrees to furnish a copy of any of these
    agreements to the SEC upon request.
| | *10 | .1 |  | Midwest Banc Holdings, Inc. Stock and Incentive Plan
    (incorporated by reference to Registrants Proxy Statement
    filed April 13, 2005, Registration No. 001-13735).                                                                                                                                                                                                                                                                

60



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##### 



| |     |     |  |                                                                                                                                                                                                                                                                                                                                                     
| | --- | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | *10 | .4  |  | Form of Transitional Employment Agreements (incorporated by
    reference to Registrants Registration Statement on
    Form S-1, Registration No. 333-42827).                                                                                                                                                                                      
| | 10  | .5  |  | Lease dated as of December 24, 1958, between Western
    National Bank of Cicero and Midwest Bank and Trust Company, as
    amended (incorporated by reference to Registrants
    Registration Statement on Form S-1, Registration
    No. 333-42827).                                                                                             
| | 10  | .6  |  | Britannica Centre Lease, dated as of May 1, 1994, between
    Chicago Title and Trust Company, as Trustee under Trust
    Agreement dated November 2, 1977 and known as Trust
    No. 1070932 and Midwest Bank and Trust Company
    (incorporated by reference to Registrants Registration
    Statement on Form S-1, Registration No. 333-42827).
| | 10  | .7  |  | Lease dated as of March 20, 1996 between Grove Lodge
    No. 824 Ancient Free and Accepted Masons and Midwest Bank
    of Hinsdale (incorporated by reference to Registrants
    Registration Statement on Form S-1, Registration
    No. 333-42827).                                                                                              
| | 10  | .8  |  | Office Lease, undated, between Grove Lodge No. 824 Ancient
    Free and Accepted Masons and Midwest Bank of Hinsdale
    (incorporated by reference to Registrants Registration
    Statement on Form S-1, Registration No. 333-42827).                                                                                                            
| | *10 | .15 |  | Form of 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 Supplemental Executive Retirement Agreement and First
    Amendment to the Form of Supplemental Executive Retirement
    Agreement (incorporated by reference to Registrants Report
    on Form 8-K filed October 28, 2005, File No.
    001-13735).                                                                                       
| | 10  | .19 |  | Form of Restricted Stock Award Agreement for Non-employee
    Directors and Restricted Stock Grant Notice for Non-employee
    Directors (incorporated by reference to Registrants Report
    on Form 8-K filed October 28, 2005, File No.
    001-13735).                                                                                         
| | 10  | .21 |  | Lease dated as of April 29, 1976, between Sanfilippo,
    Joseph C. and Grace Ann and Fairfield Savings and
    Loan Association, as amended (incorporated by reference to
    Registrants Form 10-K for the year ended
    December 31, 2003, File No. 001-13735).                                                                                
| | 10  | .22 |  | Lease dated as of August 28, 2002 between Glen Oak Plaza
    and Midwest Bank and Trust Company (incorporated by reference to
    Registrants Form 10-K for the year ended
    December 31, 2003, File No. 001-13735).                                                                                                                             
| | 10  | .24 |  | Loan Agreement as of April 8, 2004, between the Company and
    LaSalle Bank National Association (incorporated by reference to
    Registrants Form 10-Q for the quarter ended
    September 30, 2004, File No. 001-13735).                                                                                                                       
| | 10  | .25 |  | Employment Agreement as of September 28, 2004 between the
    Company and the Chief Executive Officer (incorporated by
    reference to Registrants Form 10-Q for the quarter
    ended September 30, 2004, File No. 001-13735).                                                                                                                   
| | 10  | .26 |  | Retirement Agreement as of September 28, 2004 between the
    Company and retiring Chief Executive Officer (incorporated by
    reference to Registrants Form 10-Q for the quarter
    ended September 30, 2004, File No. 001-13735).                                                                                                              
| | 10  | .27 |  | Midwest Banc Holdings, Inc. Severance Policy as of June 28,
    2005 (incorporated by reference to Registrants
    Form 8-K dated June 28, 2005, File No. 001-13735).                                                                                                                                                                              
| | 10  | .28 |  | First amendment to Loan Agreement as of April 8, 2004,
    between the Company and LaSalle Bank National Association
    (incorporated by reference to Registrants Report
    Form 8-K, dated April 28, 2005, File No. 001-13735).                                                                                                                 
| | 10  | .29 |  | Midwest Banc Holdings, Inc. Directors Deferred Compensation Plan
    (incorporated by reference to Registrants report on
    Form 8-K filed December 16, 1005, File
    No. 001-13735).                                                                                                                                                            

61



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##### 



| |    |     |  |                                                                                                                                                                                                                                                
| | -- | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10 | .30 |  | Amendment to Employment Agreement as of September 28, 2004
    between the Company and the Chief Executive Officer
    (incorporated by reference to Registrants Form 10-Q
    for the quarter ended January 4, 2006, File
    No. 001-13735).
| | 10 | .31 |  | Officer Compensation                                                                                                                                                                                                                           
| | 10 | .32 |  | Director Compensation                                                                                                                                                                                                                          
| | 21 | .1  |  | Subsidiaries                                                                                                                                                                                                                                   
| | 23 | .1  |  | Consent of PricewaterhouseCoopers LLP                                                                                                                                                                                                          
| | 23 | .2  |  | Consent of McGladrey & Pullen, 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 Financial Officer.                                    






|  |                                                                                                             
|- | ------------------------------------------------------------------------------------------------------------
|* | Indicates management contracts or compensatory plans or
    arrangements required to be filed as an exhibit.

62



---



##### 






SIGNATURES






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



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

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





attorneys-in 10-K, attorneys-in attorneys-in


|                                                         |  |                                                  |  |                |  | 
|-------------------------------------------------------- |  | ------------------------------------------------ |  | -------------- |  | 
|Signature                                                |  | Title                                            |  | Date          
|                                                         |  |                                                  |  |               
|                                                        
|/s/ E.V. SilveriE.V. Silveri                             |  | Chairman of the Board, Director                  |  | March 15, 2006
|                                                        
|/s/ James J. GiancolaJames J. Giancola                   |  | President, Chief Executive Officer, and Director |  | March 15, 2006
|                                                        
|/s/ Angelo A. DipaoloAngelo A. DiPaolo                   |  | Director                                         |  | March 15, 2006
|                                                        
|/s/ Barry I. ForresterBarry I. Forrester                 |  | Director                                         |  | March 15, 2006
|                                                        
|/s/ Robert J. GenetskiRobert J. Genetski                 |  | Director                                         |  | March 15, 2006
|                                                        
|/s/ Gerald F. HartleyGerald F. Hartley                   |  | Director                                         |  | March 15, 2006
|                                                        
|/s/ Homer J. Livingston,
    Jr.Homer J. Livingston, Jr. |  | Director                                         |  | March 15, 2006

63



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##### 



|                                       |  |                                                                                    |  |                |  | 
|-------------------------------------- |  | ---------------------------------------------------------------------------------- |  | -------------- |  | 
|Signature                              |  | Title                                                                              |  | Date          
|                                       |  |                                                                                    |  |               
|                                      
|/s/ Daniel NagleDaniel Nagle           |  | Director                                                                           |  | March 15, 2006
|                                      
|/s/ Joseph RizzaJoseph Rizza           |  | Director                                                                           |  | March 15, 2006
|                                      
|/s/ Robert D. SmallRobert D. Small     |  | Director                                                                           |  | March 15, 2006
|                                      
|/s/ Kenneth VeloKenneth Velo           |  | Director                                                                           |  | March 15, 2006
|                                      
|/s/ Leon WolinLeon Wolin               |  | Director                                                                           |  | March 15, 2006
|                                      
|/s/ Daniel R. KadolphDaniel R. Kadolph |  | Senior Vice President,
    Chief Financial Officer, Comptroller,
    and Treasurer |  | March 15, 2006

64



---



##### 



MIDWEST BANC HOLDINGS, INC.


CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2005, 2004, and 2003





CONTENTS


|                                                          |                                                 |  |      |     | 
|--------------------------------------------------------- | ----------------------------------------------- |  | ---- | --- | 
|FINANCIAL STATEMENTS                                      |                                                 |  |      |    
|                                                          | CONSOLIDATED BALANCE SHEETS                     |  |      | F-2 | 
|                                                          | CONSOLIDATED STATEMENTS OF INCOME               |  |      | F-3 | 
|                                                          | CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY |  |      | F-5 | 
|                                                          | CONSOLIDATED STATEMENTS OF CASH FLOWS           |  |      | F-6 | 
|                                                          | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      |  |      | F-8 | 
|REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS |                                                 |  | F-39 |    

F-1



---



##### 



MIDWEST BANC HOLDINGS, INC.


CONSOLIDATED BALANCE SHEETS


|                                                                                                                                   |                                                                                                                                                                     |                            |                                            |           |           |           |           |           |           |           | 
|---------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | --------- | --------- | --------- | --------- | --------- | --------- | --------- | 
|                                                                                                                                   |                                                                                                                                                                     | December 31,               |                                           
|                                                                                                                                   |                                                                                                                                                                     |                            |                                           
|                                                                                                                                   |                                                                                                                                                                     | 2005                       |                                            |           | 2004      |          
|                                                                                                                                   |                                                                                                                                                                     |                            |                                            |           |           |          
|                                                                                                                                   |                                                                                                                                                                     | (In thousands except share |                                           
|                                                                                                                                   |                                                                                                                                                                     | and per share data)        |                                           
|ASSETS                                                                                                                            
|Cash                                                                                                                               |                                                                                                                                                                     | $                          | 58,329                                     |           |           | $         | 49,245    |          
|Federal funds sold and other short-term investments                                                                                |                                                                                                                                                                     |                            | 12,270                                     |           |           |           | 169,779   |          
|                                                                                                                                   |                                                                                                                                                                     |                            |                                            |           |           |          
|                                                                                                                                   | Total cash and cash equivalents                                                                                                                                     |                            |                                            | 70,599    |           |           |           | 219,024   |          
|Securities available-for-sale, at fair value                                                                                       |                                                                                                                                                                     |                            | 687,937                                    |           |           |           | 437,050   |          
|Securities held-to-maturity, at amortized cost (fair value:
    $58,332 at December 31, 2005 and $89,010 at
    December 31, 2004) |                                                                                                                                                                     |                            | 59,451                                     |           |           |           | 88,958    |          
|Federal Reserve and Federal Home Loan Bank stock, at cost                                                                          |                                                                                                                                                                     |                            | 14,661                                     |           |           |           | 13,830    |          
|Loans                                                                                                                              |                                                                                                                                                                     |                            | 1,351,908                                  |           |           |           | 1,097,992 |          
|Allowance for loan losses                                                                                                          |                                                                                                                                                                     |                            | (17,760                                    | )         |           |           | (16,217   | )        
|                                                                                                                                   |                                                                                                                                                                     |                            |                                            |           |           |          
|                                                                                                                                   | Net loans                                                                                                                                                           |                            |                                            | 1,334,148 |           |           |           | 1,081,775 |          
|Cash surrender value of life insurance                                                                                             |                                                                                                                                                                     |                            | 44,433                                     |           |           |           | 43,229    |          
|Premises and equipment, net                                                                                                        |                                                                                                                                                                     |                            | 22,247                                     |           |           |           | 23,515    |          
|Other real estate                                                                                                                  |                                                                                                                                                                     |                            | 11,154                                     |           |           |           | 8,064     |          
|Core deposit and other intangibles, net                                                                                            |                                                                                                                                                                     |                            | 1,788                                      |           |           |           | 2,217     |          
|Goodwill                                                                                                                           |                                                                                                                                                                     |                            | 891                                        |           |           |           | 891       |          
|Assets held for sale                                                                                                               |                                                                                                                                                                     |                            |                                           |           |           |           | 274,023   |          
|Other assets                                                                                                                       |                                                                                                                                                                     |                            | 60,299                                     |           |           |           | 44,237    |          
|                                                                                                                                   |                                                                                                                                                                     |                            |                                            |           |           |          
|                                                                                                                                   |                                                                                                                                                                     | Total assets               |                                            | $         | 2,307,608 |           |           | $         | 2,236,813 |          
|                                                                                                                                   |                                                                                                                                                                     |                            |                                            |           |           |          
|                                                                                                                                  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                              
|Liabilities                                                                                                                        |                                                                                                                                                                     |                            |                                            |           |           |           |           |          
|                                                                                                                                   | Deposits                                                                                                                                                            |                            |                                            |           |           |           |           |           |          
|                                                                                                                                   |                                                                                                                                                                     | Non-interest-bearing       |                                            | $         | 158,406   |           |           | $         | 162,610   |          
|                                                                                                                                   |                                                                                                                                                                     | Interest-bearing           |                                            |           | 1,364,978 |           |           |           | 1,339,036 |          
|                                                                                                                                   |                                                                                                                                                                     |                            |                                            |           |           |          
|                                                                                                                                   |                                                                                                                                                                     |                            | Total deposits                             |           |           | 1,523,384 |           |           |           | 1,501,646 | 
|                                                                                                                                   | Federal funds purchased                                                                                                                                             |                            |                                            | 68,000    |           |           |           |          |          
|                                                                                                                                   | Securities sold under agreements to repurchase                                                                                                                      |                            |                                            | 264,808   |           |           |           | 146,885   |          
|                                                                                                                                   | Advances from the Federal Home Loan Bank                                                                                                                            |                            |                                            | 150,000   |           |           |           | 118,079   |          
|                                                                                                                                   | Junior subordinated debt owed to unconsolidated trusts                                                                                                              |                            |                                            | 55,672    |           |           |           | 55,672    |          
|                                                                                                                                   | Due to broker                                                                                                                                                       |                            |                                            | 1,301     |           |           |           |          |          
|                                                                                                                                   | Liabilities held for sale                                                                                                                                           |                            |                                            |          |           |           |           | 250,456   |          
|                                                                                                                                   | Other liabilities                                                                                                                                                   |                            |                                            | 28,317    |           |           |           | 26,652    |          
|                                                                                                                                   |                                                                                                                                                                     |                            |                                            |           |           |          
|                                                                                                                                   |                                                                                                                                                                     |                            | Total liabilities                          |           |           | 2,091,482 |           |           |           | 2,099,390 | 
|                                                                                                                                   |                                                                                                                                                                     |                            |                                            |           |           |          
|Commitments and contingencies (see note 18)                                                                                        |                                                                                                                                                                     |                            |                                            |           |           |           |           |          
|Stockholders Equity                                                                                                               |                                                                                                                                                                     |                            |                                            |           |           |           |           |          
|                                                                                                                                   | Preferred stock, $.01 par value, 1,000,000 shares
    authorized; none issued                                                                                       |                            |                                            |          |           |           |           |          |          
|                                                                                                                                   | Common stock, $.01 par value, 32,000,000 shares
    authorized; 22,139,089 shares issued at December 31,
    2005 and 18,668,140 shares issued at December 31, 2004 |                            |                                            | 221       |           |           |           | 187       |          
|                                                                                                                                   | Additional paid-in capital                                                                                                                                          |                            |                                            | 134,857   |           |           |           | 65,781    |          
|                                                                                                                                   | Retained earnings                                                                                                                                                   |                            |                                            | 92,121    |           |           |           | 95,829    |          
|                                                                                                                                   | Unearned stock-based compensation                                                                                                                                   |                            |                                            | (3,013    | )         |           |           | (2,642    | )        
|                                                                                                                                   | Accumulated other comprehensive loss                                                                                                                                |                            |                                            | (7,606    | )         |           |           | (16,457   | )        
|                                                                                                                                   | Treasury stock, at cost (325,311 shares at
    December 31, 2005 and 586,413 shares at
    December 31, 2004)                                                       |                            |                                            | (454      | )         |           |           | (5,275    | )        
|                                                                                                                                   |                                                                                                                                                                     |                            |                                            |           |           |          
|                                                                                                                                   |                                                                                                                                                                     | Total stockholders equity |                                            |           | 216,126   |           |           |           | 137,423   |          
|                                                                                                                                   |                                                                                                                                                                     |                            |                                            |           |           |          
|                                                                                                                                   |                                                                                                                                                                     |                            | Total liabilities and stockholders equity |           | $         | 2,307,608 |           |           | $         | 2,236,813 | 
|                                                                                                                                   |                                                                                                                                                                     |                            |                                            |           |           |          



F-2



---



##### 



MIDWEST BANC HOLDINGS, INC.


CONSOLIDATED STATEMENTS OF INCOME


|                                                              |                                                                           |                                       |        |         |         |   |        |        |        |   |        |        |        | 
|------------------------------------------------------------- | ------------------------------------------------------------------------- | ------------------------------------- | ------ | ------- | ------- | - | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                              |                                                                           | Year Ended December 31,               |       
|                                                              |                                                                           |                                       |       
|                                                              |                                                                           | 2005                                  |        |         | 2004    |   |        | 2003   |       
|                                                              |                                                                           |                                       |        |         |         |   |        |        |       
|                                                              |                                                                           | (In thousands, except per share data) |       
|Interest income                                               |                                                                           |                                       |        |         |         |   |        |        |        |   |        |       
|                                                              | Loans                                                                     |                                       | $      | 79,947  |         |   | $      | 59,370 |        |   | $      | 64,277 |       
|                                                              | Securities                                                                |                                       |        |         |         |   |        |        |        |   |        |        |       
|                                                              |                                                                           | Taxable                               |        |         | 29,429  |   |        |        | 28,028 |   |        |        | 29,957 | 
|                                                              |                                                                           | Exempt from federal income taxes      |        |         | 1,248   |   |        |        | 615    |   |        |        | 2,555  | 
|                                                              | Trading securities                                                        |                                       |        | 388     |         |   |        | 1,560  |        |   |        | 15     |       
|                                                              | Dividend income from Federal Reserve and Federal Home
    Loan Bank stock |                                       |        | 727     |         |   |        | 1,058  |        |   |        | 1,076  |       
|                                                              | Federal funds sold and other short-term investments                       |                                       |        | 505     |         |   |        | 1,331  |        |   |        | 228    |       
|                                                              |                                                                           |                                       |        |         |         |   |        |        |       
|                                                              |                                                                           | Total interest income                 |        |         | 112,244 |   |        |        | 91,962 |   |        |        | 98,108 | 
|                                                              |                                                                           |                                       |        |         |         |   |        |        |       
|Interest expense                                              |                                                                           |                                       |        |         |         |   |        |        |        |   |        |       
|                                                              | Deposits                                                                  |                                       |        | 34,067  |         |   |        | 27,652 |        |   |        | 26,587 |       
|                                                              | Federal funds purchased                                                   |                                       |        | 1,016   |         |   |        | 68     |        |   |        | 121    |       
|                                                              | Securities sold under agreements to repurchase                            |                                       |        | 6,213   |         |   |        | 4,249  |        |   |        | 4,749  |       
|                                                              | Advances from the Federal Home Loan Bank                                  |                                       |        | 5,701   |         |   |        | 6,244  |        |   |        | 9,044  |       
|                                                              | Junior subordinated debt owed to unconsolidated trusts                    |                                       |        | 3,791   |         |   |        | 3,547  |        |   |        | 2,589  |       
|                                                              | Notes payable                                                             |                                       |        | 9       |         |   |        | 20     |        |   |        | 170    |       
|                                                              |                                                                           |                                       |        |         |         |   |        |        |       
|                                                              |                                                                           | Total interest expense                |        |         | 50,797  |   |        |        | 41,780 |   |        |        | 43,260 | 
|                                                              |                                                                           |                                       |        |         |         |   |        |        |       
|Net interest income                                           |                                                                           |                                       | 61,447 |         |         |   | 50,182 |        |        |   | 54,848 |       
|Provision for loan losses                                     |                                                                           |                                       | 2,589  |         |         |   | 3,400  |        |        |   | 9,455  |       
|                                                              |                                                                           |                                       |        |         |         |   |        |        |       
|Net interest income after provision for loan losses           |                                                                           |                                       | 58,858 |         |         |   | 46,782 |        |        |   | 45,393 |       
|                                                              |                                                                           |                                       |        |         |         |   |        |        |       
|Noninterest income                                            |                                                                           |                                       |        |         |         |   |        |        |        |   |        |       
|                                                              | Service charges on deposit accounts                                       |                                       |        | 5,139   |         |   |        | 5,255  |        |   |        | 5,194  |       
|                                                              | Net gains (losses) on securities transactions                             |                                       |        | (17,440 | )       |   |        | (3,786 | )      |   |        | 4,304  |       
|                                                              | Impairment loss on equity securities                                      |                                       |        |        |         |   |        | (6,248 | )      |   |        |       |       
|                                                              | Net trading profits                                                       |                                       |        | 413     |         |   |        | 209    |        |   |        | 6,009  |       
|                                                              | Gains on sale of loans                                                    |                                       |        | 357     |         |   |        | 537    |        |   |        | 1,021  |       
|                                                              | Insurance and brokerage commissions                                       |                                       |        | 1,519   |         |   |        | 1,424  |        |   |        | 1,592  |       
|                                                              | Trust                                                                     |                                       |        | 303     |         |   |        | 304    |        |   |        | 313    |       
|                                                              | Increase in cash surrender value of life insurance                        |                                       |        | 1,765   |         |   |        | 1,450  |        |   |        | 808    |       
|                                                              | Life insurance benefit                                                    |                                       |        | 789     |         |   |        |       |        |   |        |       |       
|                                                              | Other                                                                     |                                       |        | 910     |         |   |        | 767    |        |   |        | 588    |       
|                                                              |                                                                           |                                       |        |         |         |   |        |        |       
|                                                              |                                                                           | Total noninterest income              |        |         | (6,245  | ) |        |        | (88    | ) |        |        | 19,829 | 
|                                                              |                                                                           |                                       |        |         |         |   |        |        |       
|Noninterest expenses                                          |                                                                           |                                       |        |         |         |   |        |        |        |   |        |       
|                                                              | Salaries and employee benefits                                            |                                       |        | 26,693  |         |   |        | 24,284 |        |   |        | 20,917 |       
|                                                              | Occupancy and equipment                                                   |                                       |        | 5,584   |         |   |        | 5,990  |        |   |        | 5,648  |       
|                                                              | Professional services                                                     |                                       |        | 4,723   |         |   |        | 4,672  |        |   |        | 4,315  |       
|                                                              | Loss on extinguishment of debt                                            |                                       |        | 13,125  |         |   |        | 3,560  |        |   |        |       |       
|                                                              | Other                                                                     |                                       |        | 10,402  |         |   |        | 7,985  |        |   |        | 7,219  |       
|                                                              |                                                                           |                                       |        |         |         |   |        |        |       
|                                                              |                                                                           | Total noninterest expenses            |        |         | 60,527  |   |        |        | 46,491 |   |        |        | 38,099 | 
|                                                              |                                                                           |                                       |        |         |         |   |        |        |       
|Income (loss) before income taxes and discontinued operations |                                                                           |                                       | (7,914 | )       |         |   | 203    |        |        |   | 27,123 |       
|Provision (benefit) for income taxes                          |                                                                           |                                       | (6,325 | )       |         |   | (2,869 | )      |        |   | 7,779  |       
|                                                              |                                                                           |                                       |        |         |         |   |        |        |       
|Income (loss) from continuing operations                      |                                                                           |                                       | (1,589 | )       |         |   | 3,072  |        |        |   | 19,344 |       
|                                                              |                                                                           |                                       |        |         |         |   |        |        |       
|Discontinued operations                                       |                                                                           |                                       |        |         |         |   |        |        |        |   |        |       
|                                                              | Income (loss) from discontinued operations before income taxes            |                                       |        | 9,236   |         |   |        | (2,002 | )      |   |        | 4,545  |       
|                                                              | Provision (benefit) for income taxes                                      |                                       |        | 1,703   |         |   |        | (1,306 | )      |   |        | 1,108  |       
|                                                              |                                                                           |                                       |        |         |         |   |        |        |       
|                                                              | Income (loss) from discontinued operations                                |                                       |        | 7,533   |         |   |        | (696   | )      |   |        | 3,437  |       
|                                                              |                                                                           |                                       |        |         |         |   |        |        |       

F-3



---



##### 



|                                                        |  |                                       |       |   |      |   |       |      |  |   |        | 
|------------------------------------------------------- |  | ------------------------------------- | ----- | - | ---- | - | ----- | ---- |  | - | ------ | 
|                                                        |  | Year Ended December 31,               |      
|                                                        |  |                                       |      
|                                                        |  | 2005                                  |       |   | 2004 |   |       | 2003 | 
|                                                        |  |                                       |       |   |      |   |       |      | 
|                                                        |  | (In thousands, except per share data) |      
|Net income                                              |  | $                                     | 5,944 |   |      | $ | 2,376 |      |  | $ | 22,781 | 
|                                                        |  |                                       |       |   |      |   |       |      | 
|Basic earnings per share from continuing operations     |  | $                                     | (0.08 | ) |      | $ | 0.17  |      |  | $ | 1.09   | 
|                                                        |  |                                       |       |   |      |   |       |      | 
|Basic earnings per share from discontinued operations   |  | $                                     | 0.38  |   |      | $ | (0.04 | )    |  | $ | 0.19   | 
|                                                        |  |                                       |       |   |      |   |       |      | 
|Basic earnings per share                                |  | $                                     | 0.30  |   |      | $ | 0.13  |      |  | $ | 1.28   | 
|                                                        |  |                                       |       |   |      |   |       |      | 
|Diluted earnings per share from continuing operations   |  | $                                     | (0.08 | ) |      | $ | 0.17  |      |  | $ | 1.06   | 
|                                                        |  |                                       |       |   |      |   |       |      | 
|Diluted earnings per share from discontinued operations |  | $                                     | 0.38  |   |      | $ | (0.04 | )    |  | $ | 0.19   | 
|                                                        |  |                                       |       |   |      |   |       |      | 
|Diluted earnings per share                              |  | $                                     | 0.30  |   |      | $ | 0.13  |      |  | $ | 1.25   | 
|                                                        |  |                                       |       |   |      |   |       |      | 
|Cash dividends declared per common share                |  | $                                     | 0.48  |   |      | $ | 0.48  |      |  | $ | 0.44   | 
|                                                        |  |                                       |       |   |      |   |       |      | 



F-4



---



##### 



MIDWEST BANC HOLDINGS, INC.


CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


|                                                                                              |                                                                                                                                         |                                                 |     |   |         |   |          |          |  |             |              |        |               |               |        |          |       |   |               |         |   |   |        |   |  |   |         |         |        |  
|--------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | --- | - | ------- | - | -------- | -------- |  | ----------- | ------------ | ------ | ------------- | ------------- | ------ | -------- | ----- | - | ------------- | ------- | - | - | ------ | - |  | - | ------- | ------- | ------ | -
|                                                                                              |                                                                                                                                         |                                                 |     |   |         |   |          |          |  | Accumulated |              |        |               |               |       
|                                                                                              |                                                                                                                                         |                                                 |     |   |         |   |          | Unearned |  |             | Other        |        |               |               |        | Total    |      
|                                                                                              |                                                                                                                                         | Common                                          |     |   |         |   | Retained |          |  | Stock-based |              |        | Comprehensive |               |        | Treasury |       |   | Stockholders |        
|                                                                                              |                                                                                                                                         | Stock                                           |     |   | Surplus |   |          | Earnings |  |             | Compensation |        |               | Income (Loss) |        |          | Stock |   |               | Equity  |  
|                                                                                              |                                                                                                                                         |                                                 |     |   |         |   |          |          |  |             |              |        |               |               |        |          |       |   |               |         |  
|                                                                                              |                                                                                                                                         | (In thousands, except share and per share data) |    
|Balance, January 1, 2003                                                                      |                                                                                                                                         | $                                               | 171 |   |         | $ | 29,366   |          |  | $           | 87,105       |        |               | $             |       |          |       | $ | 7,145         |         |   | $ | (8,836 | ) |  | $ | 114,951 |        
|Cash dividends declared ($.44 per share)                                                      |                                                                                                                                         |                                                 |    |   |         |   |         |          |  |             | (7,845       | )      |               |               |       |          |       |   |              |         |   |   |       |   |  |   | (7,845  | )      
|Issuance of 1,599,088 shares of common stock upon
    acquisition of Big Foot Financial Corp. |                                                                                                                                         |                                                 | 16  |   |         |   | 30,448   |          |  |             |             |        |               |               |       |          |       |   |              |         |   |   |       |   |  |   | 30,464  |        
|Issuance of common stock upon exercise of 108,088 stock options,
    net of tax benefits      |                                                                                                                                         |                                                 |    |   |         |   | 483      |          |  |             |             |        |               |               |       |          |       |   |              |         |   |   | 1,183  |   |  |   | 1,666   |        
|Capital contribution from loan payoff by related parties                                      |                                                                                                                                         |                                                 |    |   |         |   | 4,033    |          |  |             |             |        |               |               |       |          |       |   |              |         |   |   |       |   |  |   | 4,033   |        
|Comprehensive income                                                                          |                                                                                                                                         |                                                 |     |   |         |   |          |          |  |             |              |        |               |               |        |          |       |   |               |         |   |   |        |   |  |   |         |        
|                                                                                              | Net income                                                                                                                              |                                                 |     |  |         |   |          |         |  |             |              | 22,781 |               |               |        |         |       |   |               |        |   |   |        |  |  |   |         | 22,781  |       
|                                                                                              | Net decrease in fair value of securities classified as
    available-for-sale, net of income taxes and reclassification
    adjustments |                                                 |     |  |         |   |          |         |  |             |              |       |               |               |        |         |       |   |               | (22,969 | ) |   |        |  |  |   |         | (22,969 | )     
|                                                                                              |                                                                                                                                         |                                                 |     |   |         |   |          |          |  |             |              |        |               |               |        |          |       |   |               |         |  
|                                                                                              |                                                                                                                                         | Total comprehensive loss                        |     |   |         |   |          |          |  |             |              |        |               |               |        |          |       |   |               |         |   |   |        |   |  |   |         |         | (188   | )
|                                                                                              |                                                                                                                                         |                                                 |     |   |         |   |          |          |  |             |              |        |               |               |        |          |       |   |               |         |  
|Balance, December 31, 2003                                                                    |                                                                                                                                         |                                                 | 187 |   |         |   | 64,330   |          |  |             | 102,041      |        |               |               |       |          |       |   | (15,824       | )       |   |   | (7,653 | ) |  |   | 143,081 |        
|Cash dividends declared ($.48 per share)                                                      |                                                                                                                                         |                                                 |    |   |         |   |         |          |  |             | (8,588       | )      |               |               |       |          |       |   |              |         |   |   |       |   |  |   | (8,588  | )      
|Issuance of common stock upon exercise of 70,521 stock options,
    net of tax benefits       |                                                                                                                                         |                                                 |    |   |         |   | 345      |          |  |             |             |        |               |               |       |          |       |   |              |         |   |   | 677    |   |  |   | 1,022   |        
|Issuance of 150,000 shares of restricted stock from treasury                                  |                                                                                                                                         |                                                 |    |   |         |   | 1,106    |          |  |             |             |        |               |               | (2,807 | )        |       |   |              |         |   |   | 1,701  |   |  |   |        |        
|Stock-based compensation                                                                      |                                                                                                                                         |                                                 |    |   |         |   |         |          |  |             |             |        |               |               | 165    |          |       |   |              |         |   |   |       |   |  |   | 165     |        
|Comprehensive income                                                                          |                                                                                                                                         |                                                 |     |   |         |   |          |          |  |             |              |        |               |               |        |          |       |   |               |         |   |   |        |   |  |   |         |        
|                                                                                              | Net income                                                                                                                              |                                                 |     |  |         |   |          |         |  |             |              | 2,376  |               |               |        |         |       |   |               |        |   |   |        |  |  |   |         | 2,376   |       
|                                                                                              | Net decrease in fair value of securities classified as
    available-for-sale, net of income taxes and reclassification
    adjustments |                                                 |     |  |         |   |          |         |  |             |              |       |               |               |        |         |       |   |               | (633    | ) |   |        |  |  |   |         | (633    | )     
|                                                                                              |                                                                                                                                         |                                                 |     |   |         |   |          |          |  |             |              |        |               |               |        |          |       |   |               |         |  
|                                                                                              |                                                                                                                                         | Total comprehensive income                      |     |   |         |   |          |          |  |             |              |        |               |               |        |          |       |   |               |         |   |   |        |   |  |   |         |         | 1,743  |  
|                                                                                              |                                                                                                                                         |                                                 |     |   |         |   |          |          |  |             |              |        |               |               |        |          |       |   |               |         |  
|Balance, December 31, 2004                                                                    |                                                                                                                                         |                                                 | 187 |   |         |   | 65,781   |          |  |             | 95,829       |        |               |               | (2,642 | )        |       |   | (16,457       | )       |   |   | (5,275 | ) |  |   | 137,423 |        
|Cash dividends declared ($.48 per share)                                                      |                                                                                                                                         |                                                 |    |   |         |   |         |          |  |             | (9,652       | )      |               |               |       |          |       |   |              |         |   |   |       |   |  |   | (9,652  | )      
|Issuance of 3,450,000 shares of stock, net of issuance costs                                  |                                                                                                                                         |                                                 | 34  |   |         |   | 67,901   |          |  |             |             |        |               |               |       |          |       |   |              |         |   |   |       |   |  |   | 67,935  |        
|Issuance of common stock upon exercise of 397,051 stock options,
    net of tax benefits      |                                                                                                                                         |                                                 |    |   |         |   | 606      |          |  |             |             |        |               |               |       |          |       |   |              |         |   |   | 4,146  |   |  |   | 4,752   |        
|Issuance of 63,700 shares of restricted stock, net of
    forfeiture                          |                                                                                                                                         |                                                 |    |   |         |   | 569      |          |  |             |             |        |               |               | (1,244 | )        |       |   |              |         |   |   | 675    |   |  |   |        |        
|Stock-based compensation                                                                      |                                                                                                                                         |                                                 |    |   |         |   |         |          |  |             |             |        |               |               | 873    |          |       |   |              |         |   |   |       |   |  |   | 873     |        
|Comprehensive income                                                                          |                                                                                                                                         |                                                 |     |   |         |   |          |          |  |             |              |        |               |               |        |          |       |   |               |         |   |   |        |   |  |   |         |        
|                                                                                              | Net income                                                                                                                              |                                                 |     |  |         |   |          |         |  |             |              | 5,944  |               |               |        |         |       |   |               |        |   |   |        |  |  |   |         | 5,944   |       
|                                                                                              | Net increase in fair value of securities classified as
    available-for-sale, net of income taxes and reclassification
    adjustments |                                                 |     |  |         |   |          |         |  |             |              |       |               |               |        |         |       |   |               | 8,851   |   |   |        |  |  |   |         | 8,851   |       
|                                                                                              |                                                                                                                                         |                                                 |     |   |         |   |          |          |  |             |              |        |               |               |        |          |       |   |               |         |  
|                                                                                              |                                                                                                                                         | Total comprehensive income                      |     |   |         |   |          |          |  |             |              |        |               |               |        |          |       |   |               |         |   |   |        |   |  |   |         |         | 14,795 |  
|                                                                                              |                                                                                                                                         |                                                 |     |   |         |   |          |          |  |             |              |        |               |               |        |          |       |   |               |         |  
|Balance, December 31, 2005                                                                    |                                                                                                                                         | $                                               | 221 |   |         | $ | 134,857  |          |  | $           | 92,121       |        |               | $             | (3,013 | )        |       | $ | (7,606        | )       |   | $ | (454   | ) |  | $ | 216,126 |        
|                                                                                              |                                                                                                                                         |                                                 |     |   |         |   |          |          |  |             |              |        |               |               |        |          |       |   |               |         |  



F-5



---



##### 



MIDWEST BANC HOLDINGS, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                |                                                                                                    |                                                                    |                                                                |          |         |          |   |          |         |        |   |          |        |        | 
|----------------------------------------------- | -------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | -------------------------------------------------------------- | -------- | ------- | -------- | - | -------- | ------- | ------ | - | -------- | ------ | ------ | 
|                                                |                                                                                                    | Year Ended December 31,                                            |                                                               
|                                                |                                                                                                    |                                                                    |                                                               
|                                                |                                                                                                    | 2005                                                               |                                                                |          | 2004    |          |   | 2003     |        
|                                                |                                                                                                    |                                                                    |                                                                |          |         |          |   |          |        
|                                                |                                                                                                    | (In thousands)                                                     |                                                               
|Cash flows from continuing operating activities |                                                                                                    |                                                                    |                                                                |          |         |          |   |          |         |        |   |         
|                                                | Net income                                                                                         |                                                                    | $                                                              | 5,944    |         |          | $ | 2,376    |         |        | $ | 22,781   |       
|                                                | (Income) loss from discontinued operations                                                         |                                                                    |                                                                | (7,533   | )       |          |   | 696      |         |        |   | (3,437   | )     
|                                                | Adjustments to reconcile net income to net cash provided by
    operating activities               |                                                                    |                                                                |          |         |          |   |          |         |        |   |          |       
|                                                |                                                                                                    | Depreciation                                                       |                                                                |          | 2,324   |          |   |          | 2,322   |        |   |          | 2,080  |       
|                                                |                                                                                                    | Provision for loan losses                                          |                                                                |          | 2,589   |          |   |          | 3,400   |        |   |          | 9,455  |       
|                                                |                                                                                                    | Amortization of other intangibles                                  |                                                                |          | 429     |          |   |          | 362     |        |   |          | 495    |       
|                                                |                                                                                                    | Proceeds (purchases) from sales of trading securities, net         |                                                                |          | 597     |          |   |          | (4,799  | )      |   |          | (42    | )     
|                                                |                                                                                                    | Amortization of premiums and discounts on securities, net          |                                                                |          | 1,967   |          |   |          | 2,361   |        |   |          | 8,633  |       
|                                                |                                                                                                    | Realized loss (gain) on sales of available-for-sale
    securities |                                                                |          | 17,440  |          |   |          | 3,786   |        |   |          | (4,304 | )     
|                                                |                                                                                                    | Impairment loss on equity securities                               |                                                                |          |        |          |   |          | 6,248   |        |   |          |       |       
|                                                |                                                                                                    | Net loss (gain) on sales of trading securities                     |                                                                |          | (413    | )        |   |          | 4,901   |        |   |          | 40     |       
|                                                |                                                                                                    | Net gain on sales of mortgage loans                                |                                                                |          | (357    | )        |   |          | (537    | )      |   |          | (1,021 | )     
|                                                |                                                                                                    | Net change in real estate loans held for sale                      |                                                                |          | (1,219  | )        |   |          | (877    | )      |   |          | 2,823  |       
|                                                |                                                                                                    | Increase in cash surrender value of life insurance                 |                                                                |          | (1,765  | )        |   |          | (1,450  | )      |   |          | (808   | )     
|                                                |                                                                                                    | Life insurance benefit                                             |                                                                |          | (789    | )        |   |          |        |        |   |          |       |       
|                                                |                                                                                                    | Deferred income taxes                                              |                                                                |          | 2,685   |          |   |          | (4,685  | )      |   |          | 577    |       
|                                                |                                                                                                    | Gain on sale of other real estate, net                             |                                                                |          | (89     | )        |   |          | (20     | )      |   |          | 739    |       
|                                                |                                                                                                    | Amortization of unearned stock based compensation                  |                                                                |          | 873     |          |   |          | 165     |        |   |          |       |       
|                                                |                                                                                                    | Change in other assets                                             |                                                                |          | (25,927 | )        |   |          | 127     |        |   |          | (4,294 | )     
|                                                |                                                                                                    | Change in other liabilities                                        |                                                                |          | 3,780   |          |   |          | 4,371   |        |   |          | (4,184 | )     
|                                                |                                                                                                    |                                                                    |                                                                |          |         |          |   |          |        
|                                                |                                                                                                    |                                                                    | Net cash provided by continuing operating activities           |          |         | 536      |   |          |         | 18,747 |   |          |        | 29,533 | 
|                                                |                                                                                                    |                                                                    |                                                                |          |         |          |   |          |        
|Cash flows from continuing investing activities |                                                                                                    |                                                                    |                                                                |          |         |          |   |          |         |        |   |         
|                                                | Sales of securities available-for-sale                                                             |                                                                    |                                                                | 357,303  |         |          |   | 630,067  |         |        |   | 389,398  |       
|                                                | Maturities of securities available-for-sale                                                        |                                                                    |                                                                | 123,218  |         |          |   | 5,874    |         |        |   | 155      |       
|                                                | Principal payments on securities                                                                   |                                                                    |                                                                | 82,203   |         |          |   | 58,058   |         |        |   | 279,617  |       
|                                                | Purchases of securities available-for-sale                                                         |                                                                    |                                                                | (794,013 | )       |          |   | (405,462 | )       |        |   | (834,509 | )     
|                                                | Purchases of securities held-to-maturity                                                           |                                                                    |                                                                | (1,010   | )       |          |   | (66,669  | )       |        |   | (4,437   | )     
|                                                | Maturities of securities held-to-maturity                                                          |                                                                    |                                                                | 3,635    |         |          |   | 3,085    |         |        |   | 4,595    |       
|                                                | Sale of futures contracts                                                                          |                                                                    |                                                                |         |         |          |   | (12,171  | )       |        |   | (7,380   | )     
|                                                | Purchase of mortgage loans                                                                         |                                                                    |                                                                |         |         |          |   | (42,690  | )       |        |   |         |       
|                                                | Loan originations and principal collections, net                                                   |                                                                    |                                                                | (257,360 | )       |          |   | (100,960 | )       |        |   | 55,346   |       
|                                                | Disposition of subsidiary, net                                                                     |                                                                    |                                                                | 35,621   |         |          |   |         |         |        |   |         |       
|                                                | Proceeds from sale of mortgage loans                                                               |                                                                    |                                                                |         |         |          |   |         |         |        |   | 142,546  |       
|                                                | Cash received (paid), net of cash and cash equivalents in
    acquisition and stock issuance       |                                                                    |                                                                |         |         |          |   |         |         |        |   | 17,783   |       
|                                                | Proceeds from sale of other real estate                                                            |                                                                    |                                                                | 1,350    |         |          |   | 914      |         |        |   | 2,119    |       
|                                                | Return of life insurance premium and benefit                                                       |                                                                    |                                                                | 1,351    |         |          |   |         |         |        |   |         |       
|                                                | Investment in life insurance                                                                       |                                                                    |                                                                |         |         |          |   | (20,000  | )       |        |   |         |       
|                                                | Additions to property and equipment                                                                |                                                                    |                                                                | (1,083   | )       |          |   | (2,520   | )       |        |   | (1,950   | )     
|                                                |                                                                                                    |                                                                    |                                                                |          |         |          |   |          |        
|                                                |                                                                                                    |                                                                    | Net cash provided by (used in) continuing investing activities |          |         | (448,785 | ) |          |         | 47,526 |   |          |        | 43,283 | 
|                                                |                                                                                                    |                                                                    |                                                                |          |         |          |   |          |        
|Cash flows from continuing financing activities |                                                                                                    |                                                                    |                                                                |          |         |          |   |          |         |        |   |         
|                                                | Net increase in deposits                                                                           |                                                                    |                                                                | 21,738   |         |          |   | 80,619   |         |        |   | 66,197   |       
|                                                | Issuance of junior subordinated debt owed to unconsolidated
    trusts, net of debt issuance costs |                                                                    |                                                                | 20,619   |         |          |   |         |         |        |   | 18,430   |       
|                                                | Payments of junior subordinated debt owed to unconsolidated
    trusts                             |                                                                    |                                                                | (20,619  | )       |          |   |         |         |        |   |         |       
|                                                | Proceeds from borrowings                                                                           |                                                                    |                                                                | 152,000  |         |          |   |         |         |        |   | 5,500    |       
|                                                | Repayments on borrowings                                                                           |                                                                    |                                                                | (123,500 | )       |          |   | (94,000  | )       |        |   | (5,500   | )     
|                                                | Cash dividends paid                                                                                |                                                                    |                                                                | (9,164   | )       |          |   | (8,583   | )       |        |   | (7,317   | )     
|                                                | Change in federal funds purchased and securities sold under
    agreements to repurchase           |                                                                    |                                                                | 185,923  |         |          |   | (1,208   | )       |        |   | (20,066  | )     
|                                                | Issuance of common stock                                                                           |                                                                    |                                                                | 68,453   |         |          |   |         |         |        |   |         |       
|                                                | Proceeds from issuance of treasury stock under stock option plan                                   |                                                                    |                                                                | 4,374    |         |          |   | 660      |         |        |   | 1,666    |       
|                                                |                                                                                                    |                                                                    |                                                                |          |         |          |   |          |        
|                                                |                                                                                                    | Net cash provided by (used in) continuing financing activities     |                                                                |          | 299,824 |          |   |          | (22,512 | )      |   |          | 58,910 |       
|                                                |                                                                                                    |                                                                    |                                                                |          |         |          |   |          |        

F-6



---



##### 



MIDWEST BANC HOLDINGS, INC.




CONSOLIDATED STATEMENTS OF CASH
FLOWS  (Continued)


|                                                             |                                                                                    |                                                        |          |         |         |   |         |         |        |   |         |        |        | 
|------------------------------------------------------------ | ---------------------------------------------------------------------------------- | ------------------------------------------------------ | -------- | ------- | ------- | - | ------- | ------- | ------ | - | ------- | ------ | ------ | 
|                                                             |                                                                                    | Year Ended December 31,                                |         
|                                                             |                                                                                    |                                                        |         
|                                                             |                                                                                    | 2005                                                   |          |         | 2004    |   |         | 2003    |       
|                                                             |                                                                                    |                                                        |          |         |         |   |         |         |       
|                                                             |                                                                                    | (In thousands)                                         |         
|Cash flows from discontinued operations                      |                                                                                    |                                                        |          |         |         |   |         |         |        |   |         |       
|                                                             | Net cash provided by operating activities of discontinued
    operations           |                                                        |          | 4,641   |         |   |         | 2,356   |        |   |         | 8,837  |       
|                                                             | Net cash provided by (used in) investing activities of
    discontinued operations |                                                        |          | (29,161 | )       |   |         | 11,856  |        |   |         | (2,813 | )     
|                                                             | Net cash provided by (used in) financing activities of
    discontinued operations |                                                        |          | 113     |         |   |         | (10,699 | )      |   |         | 8,720  |       
|                                                             |                                                                                    |                                                        |          |         |         |   |         |         |       
|                                                             |                                                                                    | Net cash provided by (used in) discontinued operations |          |         | (24,407 | ) |         |         | 3,513  |   |         |        | 14,744 | 
|                                                             |                                                                                    |                                                        |          |         |         |   |         |         |       
|Increase (decrease) in cash and cash equivalents             |                                                                                    |                                                        | (172,832 | )       |         |   | 47,274  |         |        |   | 146,470 |       
|Cash and cash equivalents at beginning of year(1)            |                                                                                    |                                                        | 243,431  |         |         |   | 196,157 |         |        |   | 49,687  |       
|                                                             |                                                                                    |                                                        |          |         |         |   |         |         |       
|Cash and cash equivalents at end of year(2)                  |                                                                                    | $                                                      | 70,599   |         |         | $ | 243,431 |         |        | $ | 196,157 |       
|                                                             |                                                                                    |                                                        |          |         |         |   |         |         |       
|(1) Includes following balances from discontinued operations |                                                                                    | $                                                      | 24,407   |         |         | $ | 21,254  |         |        | $ | 6,050   |       
|(2) Included following balances from discontinued operations |                                                                                    |                                                        |         |         |         |   | 24,407  |         |        |   | 21,254  |       
|Supplemental disclosures                                     |                                                                                    |                                                        |          |         |         |   |         |         |        |   |         |       
|                                                             | Cash paid during the year for                                                      |                                                        |          |         |         |   |         |         |        |   |         |        |       
|                                                             |                                                                                    | Interest                                               |          | $       | 54,494  |   |         | $       | 47,732 |   |         | $      | 49,953 | 
|                                                             |                                                                                    | Income taxes                                           |          |         | 3,219   |   |         |         | 3,731  |   |         |        | 6,334  | 
|Supplemental schedule of noncash financing activities        |                                                                                    |                                                        |          |         |         |   |         |         |        |   |         |       
|                                                             | Dividends declared not paid                                                        |                                                        | $        | 2,638   |         |   | $       | 2,149   |        |   | $       | 2,143  |       



F-7



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##### 



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: held-to held-to


F-8



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##### 



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


Derivatives:


Loans:




Deferred loan fees:


Allowance for Loan Losses:






F-9



---



##### 



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




Premises and Equipment:


Other Real Estate:


Cash Surrender Value of Life Insurance:


Goodwill:


Other Intangibles:


Income Taxes:


Securities Sold Under Agreements to Repurchase:


Transfers of Financial Assets:


Fair Value of Financial Instruments and Derivatives:


F-10



---



##### 



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


Stock Compensation:






Comprehensive Income:


Earnings Per Common Share:


Dividend Restriction:


Reclassifications:


New accounting pronouncements:






F-11



---



##### 



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)






Note 3  Discontinued Operations






F-12



---



##### 



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                                          |                      |                                 |         |         |         | 
|--------------------------------------------------------- | -------------------- | ------------------------------- | ------- | ------- | ------- | 
|ASSETS HELD FOR SALE:                                     |                      |                                 |         |        
|Assets                                                    |                      |                                 |         |        
|Cash                                                      |                      | $                               | 6,492   |        
|Federal funds sold and other short-term investments       |                      |                                 | 17,915  |        
|Securities available-for-sale                             |                      |                                 | 94,770  |        
|Securities held-to-maturity                               |                      |                                 | 774     |        
|Federal Reserve and Federal Home Loan Bank stock, at cost |                      |                                 | 2,561   |        
|Loans                                                     |                      |                                 | 132,408 |        
|Allowance for loan losses                                 |                      |                                 | (1,744  | )      
|                                                          |                      |                                 |        
|                                                          | Net loans            |                                 |         | 130,664 |        
|Cash surrender value of life insurance                    |                      |                                 | 6,271   |        
|Premises and equipment, net                               |                      |                                 | 4,006   |        
|Other real estate                                         |                      |                                 | 160     |        
|Goodwill and other intangibles                            |                      |                                 | 3,469   |        
|Other assets                                              |                      |                                 | 6,941   |        
|                                                          |                      |                                 |        
|                                                          |                      | Total assets held for sale      |         | $       | 274,023 | 
|                                                          |                      |                                 |        
|                                                         
|LIABILITIES HELD FOR SALE:                               
|Liabilities                                               |                      |                                 |         |        
|Deposits                                                  |                      |                                 |         |        
|                                                          | Non-interest-bearing |                                 | $       | 14,385  |        
|                                                          | Interest-bearing     |                                 |         | 166,390 |        
|                                                          |                      |                                 |        
|                                                          |                      | Total deposits                  |         |         | 180,775 | 
|Federal funds purchased                                   |                      |                                 |        |        
|Securities sold under agreements to repurchase            |                      |                                 | 51,516  |        
|Advances from the Federal Home Loan Bank                  |                      |                                 | 15,549  |        
|Other liabilities                                         |                      |                                 | 2,616   |        
|                                                          |                      |                                 |        
|                                                          |                      | Total liabilities held for sale |         | $       | 250,456 | 
|                                                          |                      |                                 |        

F-13



---



##### 



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                                     |  |      |        |   |      |   |        |      |  |   |        | 
|---------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | 
|                                                     |  | 2005 |        |   | 2004 |   |        | 2003 | 
|                                                     |  |      |        |   |      |   |        |      | 
|Interest income                                      |  | $    | 10,386 |   |      | $ | 13,446 |      |  | $ | 13,971 | 
|Interest expense                                     |  |      | 4,427  |   |      |   | 5,970  |      |  |   | 6,537  | 
|                                                     |  |      |        |   |      |   |        |      | 
|Net interest income                                  |  |      | 5,959  |   |      |   | 7,476  |      |  |   | 7,434  | 
|Provision for loan losses                            |  |      | (183   | ) |      |   | 824    |      |  |   | 750    | 
|                                                     |  |      |        |   |      |   |        |      | 
|Net interest income after provision for loan losses  |  |      | 6,142  |   |      |   | 6,652  |      |  |   | 6,684  | 
|Noninterest income                                   |  |      | (1,301 | ) |      |   | (2,412 | )    |  |   | 3,257  | 
|Noninterest expense                                  |  |      | 4,345  |   |      |   | 6,242  |      |  |   | 5,396  | 
|                                                     |  |      |        |   |      |   |        |      | 
|Income (loss) before income taxes                    |  |      | 496    |   |      |   | (2,002 | )    |  |   | 4,545  | 
|Provision (benefit) for income taxes                 |  |      | (156   | ) |      |   | (1,306 | )    |  |   | 1,108  | 
|                                                     |  |      |        |   |      |   |        |      | 
|Operating income (loss) from discontinued operations |  |      | 652    |   |      |   | (696   | )    |  |   | 3,437  | 
|Gain on sale of discontinued operations, net of tax  |  |      | 6,881  |   |      |   |       |      |  |   |       | 
|                                                     |  |      |        |   |      |   |        |      | 
|Income (loss) from discontinued operations           |  | $    | 7,533  |   |      | $ | (696   | )    |  | $ | 3,437  | 
|                                                     |  |      |        |   |      |   |        |      | 

Note 4  Securities


held-to


|                              |                                                   |                                     |   |         |            |  |       |            |    |  |            |         |         |   |   |         |         | 
|----------------------------- | ------------------------------------------------- | ----------------------------------- | - | ------- | ---------- |  | ----- | ---------- | -- |  | ---------- | ------- | ------- | - | - | ------- | ------- | 
|                              |                                                   | December 31, 2005                   |  
|                              |                                                   |                                     |  
|                              |                                                   |                                     |   | Gross   |            |  | Gross |            |    | 
|                              |                                                   | Amortized                           |   |         | Unrealized |  |       | Unrealized |    |  |           
|                              |                                                   | Cost                                |   |         | Gains      |  |       | Losses     |    |  | Fair Value |        
|                              |                                                   |                                     |   |         |            |  |       |            |    |  |            |        
|                              |                                                   | (In thousands)                      |  
|Securities available-for-sale |                                                   |                                     |   |         |            |  |       |            |    |  |            |         |         |   |   |        
|                              | Obligations of U.S. government-sponsored entities |                                     | $ | 24,866  |            |  | $     |           |    |  | $          | (147    | )       |   | $ | 24,719  |        
|                              | Obligations of states and political subdivisions  |                                     |   | 79,463  |            |  |       | 8          |    |  |            | (1,121  | )       |   |   | 78,350  |        
|                              | Mortgage-backed securities                        |                                     |   | 521,896 |            |  |       | 21         |    |  |            | (10,605 | )       |   |   | 511,312 |        
|                              | Equity securities                                 |                                     |   | 63,574  |            |  |       |           |    |  |            | (644    | )       |   |   | 62,930  |        
|                              | Corporate and other debt securities               |                                     |   | 11,054  |            |  |       |           |    |  |            | (428    | )       |   |   | 10,626  |        
|                              |                                                   |                                     |   |         |            |  |       |            |    |  |            |        
|                              |                                                   | Total securities available-for-sale |   | $       | 700,853    |  |       | $          | 29 |  |            | $       | (12,945 | ) |   | $       | 687,937 | 
|                              |                                                   |                                     |   |         |            |  |       |            |    |  |            |        
|Securities held-to-maturity   |                                                   |                                     |   |         |            |  |       |            |    |  |            |         |         |   |   |        
|                              | Obligations of states and political subdivisions  |                                     | $ | 6,138   |            |  | $     | 48         |    |  | $          | (4      | )       |   | $ | 6,182   |        
|                              | Mortgage-backed securities                        |                                     |   | 53,313  |            |  |       | 6          |    |  |            | (1,169  | )       |   |   | 52,150  |        
|                              |                                                   |                                     |   |         |            |  |       |            |    |  |            |        
|                              |                                                   | Total securities held-to-maturity   |   | $       | 59,451     |  |       | $          | 54 |  |            | $       | (1,173  | ) |   | $       | 58,332  | 
|                              |                                                   |                                     |   |         |            |  |       |            |    |  |            |        

F-14



---



##### 



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


|                              |                                                   |                                     |   |         |            |  |       |            |     |  |            |         |         |   |   |         |         | 
|----------------------------- | ------------------------------------------------- | ----------------------------------- | - | ------- | ---------- |  | ----- | ---------- | --- |  | ---------- | ------- | ------- | - | - | ------- | ------- | 
|                              |                                                   | December 31, 2004                   |  
|                              |                                                   |                                     |  
|                              |                                                   |                                     |   | Gross   |            |  | Gross |            |     | 
|                              |                                                   | Amortized                           |   |         | Unrealized |  |       | Unrealized |     |  |           
|                              |                                                   | Cost                                |   |         | Gains      |  |       | Losses     |     |  | Fair Value |        
|                              |                                                   |                                     |   |         |            |  |       |            |     |  |            |        
|                              |                                                   | (In thousands)                      |  
|Securities available-for-sale |                                                   |                                     |   |         |            |  |       |            |     |  |            |         |         |   |   |        
|                              | Obligations of U.S. government-sponsored entities |                                     | $ | 334,870 |            |  | $     |           |     |  | $          | (23,726 | )       |   | $ | 311,144 |        
|                              | Obligations of states and political subdivisions  |                                     |   | 320     |            |  |       |           |     |  |            |        |         |   |   | 320     |        
|                              | Mortgage-backed securities                        |                                     |   | 34,455  |            |  |       | 66         |     |  |            | (677    | )       |   |   | 33,844  |        
|                              | Equity securities                                 |                                     |   | 80,924  |            |  |       | 227        |     |  |            | (62     | )       |   |   | 81,089  |        
|                              | Corporate and other debt securities               |                                     |   | 11,074  |            |  |       |           |     |  |            | (421    | )       |   |   | 10,653  |        
|                              |                                                   |                                     |   |         |            |  |       |            |     |  |            |        
|                              |                                                   | Total securities available-for-sale |   | $       | 461,643    |  |       | $          | 293 |  |            | $       | (24,886 | ) |   | $       | 437,050 | 
|                              |                                                   |                                     |   |         |            |  |       |            |     |  |            |        
|Securities held-to-maturity   |                                                   |                                     |   |         |            |  |       |            |     |  |            |         |         |   |   |        
|                              | Obligations of states and political subdivisions  |                                     | $ | 8,799   |            |  | $     | 244        |     |  | $          |        |         |   | $ | 9,043   |        
|                              | Mortgage-backed securities                        |                                     |   | 80,159  |            |  |       | 406        |     |  |            | (598    | )       |   |   | 79,967  |        
|                              |                                                   |                                     |   |         |            |  |       |            |     |  |            |        
|                              |                                                   | Total securities held-to-maturity   |   | $       | 88,958     |  |       | $          | 650 |  |            | $       | (598    | ) |   | $       | 89,010  | 
|                              |                                                   |                                     |   |         |            |  |       |            |     |  |            |        

held-to


|                                                     |                                       |                                     |                                       |         |                   |         |        |        |         |         |            |        |        |        |      |        |            |        |        |         |         |         |        |         |         |         |  
|---------------------------------------------------- | ------------------------------------- | ----------------------------------- | ------------------------------------- | ------- | ----------------- | ------- | ------ | ------ | ------- | ------- | ---------- | ------ | ------ | ------ | ---- | ------ | ---------- | ------ | ------ | ------- | ------- | ------- | ------ | ------- | ------- | ------- | -
|                                                     |                                       | December 31, 2005                   |                                      
|                                                     |                                       |                                     |                                      
|                                                     |                                       | Less Than 12 Months                 |                                       |         | 12 Months or More |         |        | Total  |        
|                                                     |                                       |                                     |                                       |         |                   |         |        |        |        
|                                                     |                                       | Fair                                |                                       |         | Unrealized        |         |        | Fair   |         |         | Unrealized |        |        | Fair   |      |        | Unrealized |       
|                                                     |                                       | Value                               |                                       |         | Losses            |         |        | Value  |         |         | Losses     |        |        | Value  |      |        | Losses     |       
|                                                     |                                       |                                     |                                       |         |                   |         |        |        |         |         |            |        |        |        |      |        |            |       
|                                                     |                                       | (In thousands)                      |                                      
|Securities available-for-sale                        |                                       |                                     |                                       |         |                   |         |        |        |         |         |            |        |        |        |      |        |            |        |        |         |         |         |        |        
|Obligations of U.S. government-sponsored entities(1) |                                       | $                                   | 24,719                                |         |                   | $       | (147   | )      |         | $       |           |        |        | $      |     |        |            | $      | 24,719 |         |         | $       | (147   | )      
|Obligations of states and political subdivisions     |                                       |                                     | 67,994                                |         |                   |         | (1,121 | )      |         |         |           |        |        |        |     |        |            |        | 67,994 |         |         |         | (1,121 | )      
|Mortgage-backed securities                           |                                       |                                     |                                       |         |                   |         |        |        |         |         |            |        |        |        |      |        |            |        |        |         |         |         |        |        
|                                                     | U.S. government agencies(2)           |                                     |                                       | 45      |                   |         |        | (1     | )       |         |            | 682    |        |        |      | (10    | )          |        |        | 727     |         |         |        | (11     | )      
|                                                     | U.S. government-sponsored entities(1) |                                     |                                       | 450,174 |                   |         |        | (8,606 | )       |         |            | 59,792 |        |        |      | (1,988 | )          |        |        | 509,966 |         |         |        | (10,594 | )      
|Equity securities(3)                                 |                                       |                                     | 62,930                                |         |                   |         | (644   | )      |         |         |           |        |        |        |     |        |            |        | 62,930 |         |         |         | (644   | )      
|Corporate and other debt securities                  |                                       |                                     | 6,742                                 |         |                   |         | (189   | )      |         |         | 3,884      |        |        |        | (239 | )      |            |        | 10,626 |         |         |         | (428   | )      
|                                                     |                                       |                                     |                                       |         |                   |         |        |        |         |         |            |        |        |        |      |        |            |       
|                                                     |                                       | Total securities available-for-sale |                                       | $       | 612,604           |         |        | $      | (10,708 | )       |            | $      | 64,358 |        |      | $      | (2,237     | )      |        | $       | 676,962 |         |        | $       | (12,945 | )      
|                                                     |                                       |                                     |                                       |         |                   |         |        |        |         |         |            |        |        |        |      |        |            |       
|Securities held-to-maturity                          |                                       |                                     |                                       |         |                   |         |        |        |         |         |            |        |        |        |      |        |            |        |        |         |         |         |        |        
|Obligations of states and political subdivisions     |                                       | $                                   | 1,004                                 |         |                   | $       | (4     | )      |         | $       |           |        |        | $      |     |        |            | $      | 1,004  |         |         | $       | (4     | )      
|Mortgage-backed securities                           |                                       |                                     |                                       |         |                   |         |        |        |         |         |            |        |        |        |      |        |            |        |        |         |         |         |        |        
|                                                     | U.S. government agencies(2)           |                                     |                                       | 11,012  |                   |         |        | (76    | )       |         |            |       |        |        |      |       |            |        |        | 11,012  |         |         |        | (76     | )      
|                                                     | U.S. government-sponsored entities(1) |                                     |                                       | 10,188  |                   |         |        | (102   | )       |         |            | 28,630 |        |        |      | (991   | )          |        |        | 38,818  |         |         |        | (1,093  | )      
|                                                     |                                       |                                     |                                       |         |                   |         |        |        |         |         |            |        |        |        |      |        |            |       
|                                                     |                                       | Total securities held-to-maturity   |                                       | $       | 22,204            |         |        | $      | (182    | )       |            | $      | 28,630 |        |      | $      | (991       | )      |        | $       | 50,834  |         |        | $       | (1,173  | )      
|                                                     |                                       |                                     |                                       |         |                   |         |        |        |         |         |            |        |        |        |      |        |            |       
|                                                     |                                       |                                     | Total temporarily impaired securities |         | $                 | 634,808 |        |        | $       | (10,890 | )          |        | $      | 92,988 |      |        | $          | (3,228 | )      |         | $       | 727,796 |        |         | $       | (14,118 | )
|                                                     |                                       |                                     |                                       |         |                   |         |        |        |         |         |            |        |        |        |      |        |            |       






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

F-15



---



##### 



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


|                                                     |                                       |                                     |                                       |        |                   |        |      |       |      |      |            |        |         |         |         |      |            |         |         |        |         |         |         |      |         |         |  
|---------------------------------------------------- | ------------------------------------- | ----------------------------------- | ------------------------------------- | ------ | ----------------- | ------ | ---- | ----- | ---- | ---- | ---------- | ------ | ------- | ------- | ------- | ---- | ---------- | ------- | ------- | ------ | ------- | ------- | ------- | ---- | ------- | ------- | -
|                                                     |                                       | December 31, 2004                   |                                      
|                                                     |                                       |                                     |                                      
|                                                     |                                       | Less Than 12 Months                 |                                       |        | 12 Months or More |        |      | Total |     
|                                                     |                                       |                                     |                                       |        |                   |        |      |       |     
|                                                     |                                       | Fair                                |                                       |        | Unrealized        |        |      | Fair  |      |      | Unrealized |        |         | Fair    |         |      | Unrealized |        
|                                                     |                                       | Value                               |                                       |        | Losses            |        |      | Value |      |      | Losses     |        |         | Value   |         |      | Losses     |        
|                                                     |                                       |                                     |                                       |        |                   |        |      |       |      |      |            |        |         |         |         |      |            |        
|                                                     |                                       | (In thousands)                      |                                      
|Securities available-for-sale                        |                                       |                                     |                                       |        |                   |        |      |       |      |      |            |        |         |         |         |      |            |         |         |        |         |         |         |     
|Obligations of U.S. government-sponsored entities(1) |                                       | $                                   | 9,703                                 |        |                   | $      | (214 | )     |      | $    | 301,441    |        |         | $       | (23,512 | )    |            | $       | 311,144 |        |         | $       | (23,726 | )   
|Mortgage-backed securities                           |                                       |                                     |                                       |        |                   |        |      |       |      |      |            |        |         |         |         |      |            |         |         |        |         |         |         |     
|                                                     | U.S. government agencies(2)           |                                     |                                       | 243    |                   |        |      |      |      |      |            | 492    |         |         |         | (5   | )          |         |         | 735    |         |         |         | (5   | )      
|                                                     | U.S. government-sponsored entities(1) |                                     |                                       | 179    |                   |        |      | (3    | )    |      |            | 29,163 |         |         |         | (669 | )          |         |         | 29,342 |         |         |         | (672 | )      
|Equity securities(3)                                 |                                       |                                     | 3,975                                 |        |                   |        | (6   | )     |      |      | 7,445      |        |         |         | (56     | )    |            |         | 11,420  |        |         |         | (62     | )   
|Corporate and other debt securities                  |                                       |                                     |                                      |        |                   |        |     |       |      |      | 10,653     |        |         |         | (421    | )    |            |         | 10,653  |        |         |         | (421    | )   
|                                                     |                                       |                                     |                                       |        |                   |        |      |       |      |      |            |        |         |         |         |      |            |        
|                                                     |                                       | Total securities available-for-sale |                                       | $      | 14,100            |        |      | $     | (223 | )    |            | $      | 349,194 |         |         | $    | (24,663    | )       |         | $      | 363,294 |         |         | $    | (24,886 | )      
|                                                     |                                       |                                     |                                       |        |                   |        |      |       |      |      |            |        |         |         |         |      |            |        
|Securities held-to-maturity                          |                                       |                                     |                                       |        |                   |        |      |       |      |      |            |        |         |         |         |      |            |         |         |        |         |         |         |     
|Mortgage-backed securities                           |                                       |                                     |                                       |        |                   |        |      |       |      |      |            |        |         |         |         |      |            |         |         |        |         |         |         |     
|                                                     | U.S. government-sponsored entities(1) |                                     | $                                     | 40,874 |                   |        | $    | (598  | )    |      | $          |       |         |         | $       |     |            |         | $       | 40,874 |         |         | $       | (598 | )      
|                                                     |                                       |                                     |                                       |        |                   |        |      |       |      |      |            |        |         |         |         |      |            |        
|                                                     |                                       | Total securities held-to-maturity   |                                       | $      | 40,874            |        |      | $     | (598 | )    |            | $      |        |         |         | $    |           |         |         | $      | 40,874  |         |         | $    | (598    | )      
|                                                     |                                       |                                     |                                       |        |                   |        |      |       |      |      |            |        |         |         |         |      |            |        
|                                                     |                                       |                                     | Total temporarily impaired securities |        | $                 | 54,974 |      |       | $    | (821 | )          |        | $       | 349,194 |         |      | $          | (24,663 | )       |        | $       | 404,168 |         |      | $       | (25,484 | )
|                                                     |                                       |                                     |                                       |        |                   |        |      |       |      |      |            |        |         |         |         |      |            |        






|    |                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------
|(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).                                                            





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The unrealized loss for U.S. government-sponsored entities
    mortgage-backed securities relate primarily to debt securities
    issued by FNMA and FHLMC; each security has a stated maturity
    date. FNMA is rated Aa3, AA-and A+ by Moodys, S&P and
    Fitch, respectively. FHLMC is rated Aa3 and AA- by Moodys
    and Fitch, respectively. The mortgage-backed securities are
    notes with a weighted average maturity of approximately
    24 years and a weighted average interest rate of 4.98%.
|
| |  | The unrealized losses on corporate and other debt securities
    relate to securities which were rated A- or better by either
    Moodys or S&P. These debt securities have a weighted
    average maturity of approximately 8 years and a weighted
    average interest rate of 4.73%.                                                                                                                                                                                                                         





F-16



---



##### 



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                              |                                        |                                     |         |         |            |  |         |         |         | 
|----------------------------- | -------------------------------------- | ----------------------------------- | ------- | ------- | ---------- |  | ------- | ------- | ------- | 
|                              |                                        | Amortized                           |         |         |           
|                              |                                        | Cost                                |         |         | Fair Value | 
|                              |                                        |                                     |         |         |            | 
|                              |                                        | (In thousands)                      |        
|Securities available-for-sale |                                        |                                     |         |         |            |  |         |        
|                              | Due in one year or less                |                                     | $       |        |            |  | $       |        |        
|                              | Due after one year through five years  |                                     |         | 25,116  |            |  |         | 24,969  |        
|                              | Due after five years through ten years |                                     |         | 65,312  |            |  |         | 64,432  |        
|                              | Due after ten years                    |                                     |         | 24,955  |            |  |         | 24,294  |        
|                              |                                        |                                     |         |         |            | 
|                              |                                        |                                     | 115,383 |         |            |  | 113,695 |        
|                              | Mortgage-backed securities             |                                     |         | 521,896 |            |  |         | 511,312 |        
|                              |                                        |                                     |         |         |            | 
|                              |                                        | Total debt securities               |         |         | 637,279    |  |         |         | 625,007 | 
|                              | Equity securities                      |                                     |         | 63,574  |            |  |         | 62,930  |        
|                              |                                        |                                     |         |         |            | 
|                              |                                        | Total securities available-for-sale |         | $       | 700,853    |  |         | $       | 687,937 | 
|                              |                                        |                                     |         |         |            | 
|Securities held-to-maturity   |                                        |                                     |         |         |            |  |         |        
|                              | Due in one year or less                |                                     | $       | 4,446   |            |  | $       | 4,477   |        
|                              | Due after one year through five years  |                                     |         | 684     |            |  |         | 701     |        
|                              | Due after five years through ten years |                                     |         | 1,008   |            |  |         | 1,004   |        
|                              |                                        |                                     |         |         |            | 
|                              |                                        |                                     | 6,138   |         |            |  | 6,182   |        
|                              | Mortgage-backed securities             |                                     |         | 53,313  |            |  |         | 52,150  |        
|                              |                                        |                                     |         |         |            | 
|                              |                                        | Total securities held-to-maturity   |         | $       | 59,451     |  |         | $       | 58,332  | 
|                              |                                        |                                     |         |         |            | 



|                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|--------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                              |  | Year Ended December 31, |        
|                                              |  |                         |        
|                                              |  | 2005                    |         |   | 2004 |   |         | 2003 | 
|                                              |  |                         |         |   |      |   |         |      | 
|                                              |  | (In thousands)          |        
|Proceeds from sales                           |  | $                       | 357,303 |   |      | $ | 630,525 |      |  | $ | 389,398 |  
|                                              |  |                         |         |   |      |   |         |      | 
|Gross realized gains                          |  | $                       | 825     |   |      | $ | 4,436   |      |  | $ | 6,001   |  
|Gross realized losses                         |  |                         | (18,265 | ) |      |   | (2,975  | )    |  |   | (1,189  | )
|Hedge ineffectiveness                         |  |                         |        |   |      |   | (5,247  | )    |  |   | (508    | )
|                                              |  |                         |         |   |      |   |         |      | 
|Net gains (losses) on securities transactions |  | $                       | (17,440 | ) |      | $ | (3,786  | )    |  | $ | 4,304   |  
|                                              |  |                         |         |   |      |   |         |      | 



F-17



---



##### 



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


Note 5  Loans




|                       |                    |                        |         |            |         |  |      |        |            |   |         |           |         |  |      |       |     | 
|---------------------- | ------------------ | ---------------------- | ------- | ---------- | ------- |  | ---- | ------ | ---------- | - | ------- | --------- | ------- |  | ---- | ----- | --- | 
|                       |                    | December 31,           |        
|                       |                    |                        |        
|                       |                    | 2005                   |         |            | 2004    | 
|                       |                    |                        |         |            |         | 
|                       |                    |                        |         | % of Gross |         |  |      |        | % of Gross |  
|                       |                    | Amount                 |         |            | Loans   |  |      | Amount |            |   | Loans   |          
|                       |                    |                        |         |            |         |  |      |        |            |   |         |          
|                       |                    | (Dollars in thousands) |        
|Commercial             |                    | $                      | 201,284 |            |         |  | 14.9 | %      |            | $ | 184,558 |           |         |  | 16.8 | %    
|Construction           |                    |                        | 358,785 |            |         |  | 26.5 |        |            |   | 270,836 |           |         |  | 24.7 |      
|Commercial real estate |                    |                        | 496,819 |            |         |  | 36.8 |        |            |   | 411,535 |           |         |  | 37.5 |      
|Consumer               |                    |                        |         |            |         |  |      |        |            |   |         |           |         |  |      |      
|                       |                    | Home equity            |         |            | 115,429 |  |      |        | 8.5        |   |         |           | 100,322 |  |      |       | 9.1 | 
|                       |                    | Other consumer         |         |            | 4,273   |  |      |        | 0.3        |   |         |           | 4,377   |  |      |       | 0.4 | 
|                       |                    |                        |         |            |         |  |      |        |            |   |         |          
|                       | Total consumer     |                        |         | 119,702    |         |  |      | 8.8    |            |   |         | 104,699   |         |  |      | 9.5   |    
|Residential mortgage   |                    |                        | 176,096 |            |         |  | 13.0 |        |            |   | 126,740 |           |         |  | 11.5 |      
|                       |                    |                        |         |            |         |  |      |        |            |   |         |          
|                       | Total loans, gross |                        |         | 1,352,686  |         |  |      | 100.0  | %          |   |         | 1,098,368 |         |  |      | 100.0 | %  
|Net deferred fees      |                    |                        | (778    | )          |         |  |      |        |            |   | (376    | )         |         |  |      |      
|                       |                    |                        |         |            |         |  |      |        |            |   |         |          
|                       | Total loans,net    |                        | $       | 1,351,908  |         |  |      |        |            |   | $       | 1,097,992 |         |  |      |       |    
|                       |                    |                        |         |            |         |  |      |        |            |   |         |          



Note 6  Allowance for Loan Losses




|                                               |                        |                |        |        |      |   |        |        | 
|---------------------------------------------- | ---------------------- | -------------- | ------ | ------ | ---- | - | ------ | ------ | 
|                                               |                        | Year Ended     |       
|                                               |                        | December 31,   |       
|                                               |                        |                |       
|                                               |                        | 2005           |        |        | 2004 |  
|                                               |                        |                |        |        |      |  
|                                               |                        | (In thousands) |       
|Balance at beginning of year                   |                        | $              | 16,217 |        |      | $ | 14,459 |       
|Balance from acquisition                       |                        |                |       |        |      |   |       |       
|Adjustment for loan sale to related parties(1) |                        |                |       |        |      |   |       |       
|Provision for loan losses                      |                        |                | 2,589  |        |      |   | 3,400  |       
|Loans charged off                              |                        |                | (2,519 | )      |      |   | (2,148 | )     
|Recoveries on loans previously charged off     |                        |                | 1,473  |        |      |   | 506    |       
|                                               |                        |                |        |        |      |  
|                                               | Balance at end of year |                | $      | 17,760 |      |   | $      | 16,217 | 
|                                               |                        |                |        |        |      |  

F-18



---



##### 



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                                                       |                      |                |        |        |      |   |        |        | 
|---------------------------------------------------------------------- | -------------------- | -------------- | ------ | ------ | ---- | - | ------ | ------ | 
|                                                                       |                      | December 31,   |       
|                                                                       |                      |                |       
|                                                                       |                      | 2005           |        |        | 2004 |  
|                                                                       |                      |                |        |        |      |  
|                                                                       |                      | (In thousands) |       
|Impaired loans for which no allowance for loan losses is
    allocated |                      | $              | 10,067 |        |      | $ | 15,102 |       
|Impaired loans with an allocation of the allowance for loan
    losses |                      |                | 16,280 |        |      |   | 20,004 |       
|                                                                       |                      |                |        |        |      |  
|                                                                       | Total impaired loans |                | $      | 26,348 |      |   | $      | 35,106 | 
|                                                                       |                      |                |        |        |      |  
|Allowance for loan losses allocated to impaired loans                  |                      | $              | 7,934  |        |      | $ | 6,485  |       
|                                                                       |                      |                |        |        |      |  

|                                                             |  |                |        |  |      |   |        | 
|------------------------------------------------------------ |  | -------------- | ------ |  | ---- | - | ------ | 
|                                                             |  | Year Ended     |       
|                                                             |  | December 31,   |       
|                                                             |  |                |       
|                                                             |  | 2005           |        |  | 2004 |  
|                                                             |  |                |        |  |      |  
|                                                             |  | (In thousands) |       
|Average impaired loans                                       |  | $              | 29,012 |  |      | $ | 38,346 | 
|Interest income recognized on impaired loans on a cash basis |  |                | 2,394  |  |      |   | 2,811  | 





Note 7  Other Real Estate






|                     |  |                |        |   |      |   |       |  
|-------------------- |  | -------------- | ------ | - | ---- | - | ----- | -
|                     |  | 2005           |        |   | 2004 |  
|                     |  |                |        |   |      |  
|                     |  | (In thousands) |       
|Beginning balance    |  | $              | 8,064  |   |      | $ | 6,712 |  
|New properties       |  |                | 3,974  |   |      |   | 705   |  
|Capital improvements |  |                | 2,807  |   |      |   | 1,542 |  
|Sales proceeds, net  |  |                | (1,261 | ) |      |   | (895  | )
|Write downs          |  |                | (2,430 | ) |      |   |      |  
|                     |  |                |        |   |      |  
|Ending balance       |  | $              | 11,154 |   |      | $ | 8,064 |  
|                     |  |                |        |   |      |  

F-19



---



##### 



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


Note 8  Premises and Equipment




|                          |                             |                |         |        |      |   |         |        | 
|------------------------- | --------------------------- | -------------- | ------- | ------ | ---- | - | ------- | ------ | 
|                          |                             | December 31,   |        
|                          |                             |                |        
|                          |                             | 2005           |         |        | 2004 |  
|                          |                             |                |         |        |      |  
|                          |                             | (In thousands) |        
|Land and improvements     |                             | $              | 9,697   |        |      | $ | 9,697   |       
|Building and improvements |                             |                | 25,166  |        |      |   | 25,148  |       
|Furniture and equipment   |                             |                | 15,166  |        |      |   | 15,341  |       
|                          |                             |                |         |        |      |  
|                          | Total cost                  |                |         | 50,029 |      |   |         | 50,187 | 
|Accumulated depreciation  |                             |                | (27,782 | )      |      |   | (26,672 | )     
|                          |                             |                |         |        |      |  
|                          | Premises and equipment, net |                | $       | 22,247 |      |   | $       | 23,515 | 
|                          |                             |                |         |        |      |  

Note 9  Goodwill and Intangibles




|                                   |  |                   |       |  |                   |   |        |          |  |       |          |  |  |              |       |  |          |   |      |   |  |   |       | 
|---------------------------------- |  | ----------------- | ----- |  | ----------------- | - | ------ | -------- |  | ----- | -------- |  |  | ------------ | ----- |  | -------- | - | ---- | - |  | - | ----- | 
|                                   |  | December 31, 2005 |       |  | December 31, 2004 |  
|                                   |  |                   |       |  |                   |  
|                                   |  | Gross             |       |  |                   |   | Net    |          |  | Gross |          |  |  |              | Net   | 
|                                   |  | Carrying          |       |  | Accumulated       |   |        | Carrying |  |       | Carrying |  |  | Accumulated  |       |  | Carrying |  
|                                   |  | Amount            |       |  | Amortization      |   |        | Amount   |  |       | Amount   |  |  | Amortization |       |  | Amount   |  
|                                   |  |                   |       |  |                   |   |        |          |  |       |          |  |  |              |       |  |          |  
|Amortized intangible assets:       |  |                   |       |  |                   |   |        |          |  |       |          |  |  |              |       |  |          |   |      |   |  |   |       | 
|Core deposit and other intangibles |  | $                 | 3,130 |  |                   | $ | (1,342 | )        |  | $     | 1,788    |  |  | $            | 3,130 |  |          | $ | (913 | ) |  | $ | 2,217 | 





|                             |  |          |     |              |             |   |       |  
|---------------------------- |  | -------- | --- | ------------ | ----------- | - | ----- | -
|                             |  | 2005     |    
|                             |  |          |    
|                             |  |          |     | Core Deposit |            
|                             |  |          |     | and Other    |            
|                             |  | Goodwill |     |              | Intangibles |  
|                             |  |          |     |              |             |  
|Balance at beginning of year |  | $        | 891 |              |             | $ | 2,217 |  
|Amortization                 |  |          |    |              |             |   | (429  | )
|                             |  |          |     |              |             |  
|Balance at end of year       |  | $        | 891 |              |             | $ | 1,788 |  
|                             |  |          |     |              |             |  

|                                     |  |          |     |              |             |   |       |  
|------------------------------------ |  | -------- | --- | ------------ | ----------- | - | ----- | -
|                                     |  | 2004     |    
|                                     |  |          |    
|                                     |  |          |     | Core Deposit |            
|                                     |  |          |     | and Other    |            
|                                     |  | Goodwill |     |              | Intangibles |  
|                                     |  |          |     |              |             |  
|Balance at beginning of year         |  | $        | 891 |              |             | $ | 2,790 |  
|Amortization                         |  |          |    |              |             |   | (362  | )
|Goodwill and intangibles acquired(1) |  |          |    |              |             |   | (211  | )
|                                     |  |          |     |              |             |  
|Balance at end of year               |  | $        | 891 |              |             | $ | 2,217 |  
|                                     |  |          |     |              |             |  






|    |                                                                                
|--- | -------------------------------------------------------------------------------
|(1) | Reflects final purchase accounting adjustment from the
    acquisition of BFFC.

F-20



---



##### 



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


Note 10  Income Taxes




|         |                                            |                         |       |        |      |  |        |        |   |  |     |       |  
|-------- | ------------------------------------------ | ----------------------- | ----- | ------ | ---- |  | ------ | ------ | - |  | --- | ----- | -
|         |                                            | Year Ended December 31, |      
|         |                                            |                         |      
|         |                                            | 2005                    |       |        | 2004 |  |        | 2003   |  
|         |                                            |                         |       |        |      |  |        |        |  
|         |                                            | (In thousands)          |      
|Current  |                                            |                         |       |        |      |  |        |        |   |  |     |      
|         | Federal                                    |                         | $     | (9,010 | )    |  | $      | 2,428  |   |  | $   | 7,211 |  
|         | State                                      |                         |       |       |      |  |        | (612   | ) |  |     | (9    | )
|Deferred |                                            |                         | 2,685 |        |      |  | (4,685 | )      |   |  | 577 |      
|         |                                            |                         |       |        |      |  |        |        |  
|         | Total provision (benefit) for income taxes |                         | $     | (6,325 | )    |  | $      | (2,869 | ) |  | $   | 7,779 |  
|         |                                            |                         |       |        |      |  |        |        |  



|                                                   |                                            |                         |        |        |      |   |        |        |   |   |       |       | 
|-------------------------------------------------- | ------------------------------------------ | ----------------------- | ------ | ------ | ---- | - | ------ | ------ | - | - | ----- | ----- | 
|                                                   |                                            | Year Ended December 31, |       
|                                                   |                                            |                         |       
|                                                   |                                            | 2005                    |        |        | 2004 |   |        | 2003   |  
|                                                   |                                            |                         |        |        |      |   |        |        |  
|                                                   |                                            | (In thousands)          |       
|Income taxes computed at the statutory rate        |                                            | $                       | (2,770 | )      |      | $ | 71     |        |   | $ | 9,493 |      
|Tax-exempt interest income on securities and loans |                                            |                         | (563   | )      |      |   | (404   | )      |   |   | (969  | )    
|General business credits                           |                                            |                         | (255   | )      |      |   | (100   | )      |   |   |      |      
|State income taxes, net of federal tax benefit     |                                            |                         | (952   | )      |      |   | (1,105 | )      |   |   | 422   |      
|Cash surrender value increase, net of premiums     |                                            |                         | (615   | )      |      |   | (503   | )      |   |   | (283  | )    
|Life insurance benefit                             |                                            |                         | (276   | )      |      |   |       |        |   |   |      |      
|Dividends received deduction                       |                                            |                         | (868   | )      |      |   | (1,053 | )      |   |   | (873  | )    
|Other                                              |                                            |                         | (26    | )      |      |   | 225    |        |   |   | (11   | )    
|                                                   |                                            |                         |        |        |      |   |        |        |  
|                                                   | Total provision (benefit) for income taxes |                         | $      | (6,325 | )    |   | $      | (2,869 | ) |   | $     | 7,779 | 
|                                                   |                                            |                         |        |        |      |   |        |        |  

F-21



---



##### 



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                               |                                                  |                                      |                        |        |        |        |   |        |        |        | 
|------------------------------ | ------------------------------------------------ | ------------------------------------ | ---------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                               |                                                  | December 31,                         |                       
|                               |                                                  |                                      |                       
|                               |                                                  | 2005                                 |                        |        | 2004   |       
|                               |                                                  |                                      |                        |        |        |       
|                               |                                                  | (In thousands)                       |                       
|Gross deferred tax assets      |                                                  |                                      |                        |        |        |        |   |       
|                               | Unrealized loss on securities available-for-sale |                                      | $                      | 5,002  |        |        | $ | 9,757  |       
|                               | Allowance for loan losses                        |                                      |                        | 7,059  |        |        |   | 6,433  |       
|                               | Deferred compensation                            |                                      |                        | 1,204  |        |        |   | 1,052  |       
|                               | Net operating loss carryforward                  |                                      |                        | 1,739  |        |        |   | 667    |       
|                               | Income from partnerships                         |                                      |                        | 85     |        |        |   | 131    |       
|                               | Deferred tax credits                             |                                      |                        | 105    |        |        |   | 527    |       
|                               | Impairment loss on equity securities             |                                      |                        |       |        |        |   | 2,479  |       
|                               | Hedge ineffectiveness                            |                                      |                        |       |        |        |   | 2,283  |       
|                               | Other                                            |                                      |                        | 110    |        |        |   |       |       
|                               |                                                  |                                      |                        |        |        |       
|                               |                                                  | Total gross deferred tax assets      |                        |        | 15,304 |        |   |        | 23,329 |       
|                               |                                                  |                                      |                        |        |        |       
|Gross deferred tax liabilities |                                                  |                                      |                        |        |        |        |   |       
|                               | Depreciation                                     |                                      |                        | (1,682 | )      |        |   | (1,727 | )     
|                               | FHLB stock dividends                             |                                      |                        | (1,454 | )      |        |   | (1,856 | )     
|                               | Amortizing intangible assets                     |                                      |                        | (520   | )      |        |   | (619   | )     
|                               | Other                                            |                                      |                        |       |        |        |   |        |       
|                               |                                                  |                                      |                        |        |        |       
|                               |                                                  | Total gross deferred tax liabilities |                        |        | (3,656 | )      |   |        | (4,242 | )     
|                               |                                                  |                                      |                        |        |        |       
|                               |                                                  |                                      | Net deferred tax asset |        | $      | 11,648 |   |        | $      | 19,087 | 
|                               |                                                  |                                      |                        |        |        |       



Note 11  Securities Sold Under Agreements to
Repurchase




|                                                  |  |                |         |   |      |   |         |  
|------------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | -
|                                                  |  | 2005           |         |   | 2004 |  
|                                                  |  |                |         |   |      |  
|                                                  |  | (In thousands) |        
|Outstanding at end of year                        |  | $              | 264,808 |   |      | $ | 146,885 |  
|Weighted average interest at year end             |  |                | 3.83    | % |      |   | 2.67    | %
|Maximum amount outstanding as of any month end    |  | $              | 264,808 |   |      | $ | 264,007 |  
|Average amount outstanding                        |  |                | 204,438 |   |      |   | 155,983 |  
|Approximate weighted average rate during the year |  |                | 3.04    | % |      |   | 2.72    | %

F-22



---



##### 



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|              |  |                |         |  |                  |                      |      |           |  |   |            |  |  |   |         | 
|------------- |  | -------------- | ------- |  | ---------------- | -------------------- | ---- | --------- |  | - | ---------- |  |  | - | ------- | 
|              |  |                |         |  |                  | Collateral Mortgage- |     
|              |  |                |         |  |                  | Backed and Equity    |     
|              |  |                |         |  |                  | Securities           |     
|              |  |                |         |  |                  |                      |     
|              |  | Repurchase     |         |  | Weighted Average |                      |      | Amortized |  |   |           
|Original Term |  | Liability      |         |  | Interest Rate    |                      |      | Cost      |  |   | Fair Value | 
|              |  |                |         |  |                  |                      |      |           |  |   |            | 
|              |  | (In thousands) |        
|Up to 30 days |  | $              | 75,315  |  |                  |                      | 4.41 | %         |  | $ | 80,145     |  |  | $ | 78,886  | 
|30 to 90 days |  |                | 111,493 |  |                  |                      | 4.31 |           |  |   | 116,029    |  |  |   | 114,293 | 
|Over 3 years  |  |                | 78,000  |  |                  |                      | 2.58 |           |  |   | 94,056     |  |  |   | 92,089  | 
|              |  |                |         |  |                  |                      |      |           |  |   |            | 
|              |  | $              | 264,808 |  |                  |                      | 3.83 | %         |  | $ | 290,230    |  |  | $ | 285,268 | 
|              |  |                |         |  |                  |                      |      |           |  |   |            | 

Note 12  Advances from the FHLB




|                                                  |  |                  |      |   |        |   |                  |      |  |  |        |   |  |   |         | 
|------------------------------------------------- |  | ---------------- | ---- | - | ------ | - | ---------------- | ---- |  |  | ------ | - |  | - | ------- | 
|                                                  |  | December 31,     |     
|                                                  |  |                  |     
|                                                  |  | 2005             |      |   | 2004   |  
|                                                  |  |                  |      |   |        |  
|                                                  |  | Weighted Average |      |   |        |   | Weighted Average |      |  | 
|                                                  |  | Rate             |      |   | Amount |   |                  | Rate |  |  | Amount |  
|                                                  |  |                  |      |   |        |   |                  |      |  |  |        |  
|                                                  |  | (In thousands)   |     
|Advances from the Federal Home Loan Bank due 2010 |  |                  | 3.48 | % |        | $ | 150,000          |      |  |  | 4.55   | % |  | $ | 118,079 | 



Note 13  Junior Subordinated Debt Owed to
Unconsolidated Trusts






|                       |  |            |                   |  |        |   |            |           |  |  |                 |  |  |                 |                   |  |  |  |                   | 
|---------------------- |  | ---------- | ----------------- |  | ------ | - | ---------- | --------- |  |  | --------------- |  |  | --------------- | ----------------- |  |  |  | ----------------- | 
|                       |  |            |                   |  |        |   |            | Mandatory |  |  | Optional        | 
|Issuer                 |  | Issue Date |                   |  | Amount |   |            | Rate      |  |  | Redemption Date |  |  | Redemption Date |                  
|                       |  |            |                   |  |        |   |            |           |  |  |                 |  |  |                 |                  
|MBHI Capital Trust II  |  |            | October 29, 2002  |  |        | $ | 15,464,000 |           |  |  | LIBOR+3.45%     |  |  |                 | November 7, 2032  |  |  |  | November 7, 2007  | 
|MBHI Capital Trust III |  |            | December 19, 2003 |  |        | $ | 9,279,000  |           |  |  | LIBOR+3.00%     |  |  |                 | December 30, 2033 |  |  |  | December 30, 2008 | 
|MBHI Capital Trust IV  |  |            | December 19, 2003 |  |        | $ | 10,310,000 |           |  |  | LIBOR+2.85%     |  |  |                 | January 23, 2034  |  |  |  | January 23, 2009  | 
|MBHI Capital Trust V   |  |            | June 7, 2005      |  |        | $ | 20,619,000 |           |  |  | LIBOR+1.77%     |  |  |                 | June 15, 2035     |  |  |  | June 15, 2010     | 

Note 14  Employee Benefit Plans




F-23



---



##### 



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)








Note 15  Time Deposits






|           |  |                |         | 
|---------- |  | -------------- | ------- | 
|           |  | (In thousands) |        
|2006       |  | $              | 788,850 | 
|2007       |  |                | 95,355  | 
|2008       |  |                | 14,841  | 
|2009       |  |                | 2,769   | 
|2010       |  |                | 519     | 
|Thereafter |  |                |        | 
|           |  |                |        
|           |  | $              | 902,334 | 
|           |  |                |        

Note 16  Related Party Transactions




F-24



---



##### 



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                             |  |                |         |  
|---------------------------- |  | -------------- | ------- | -
|                             |  | (In thousands) |        
|Balance at December 31, 2004 |  | $              | 29,251  |  
|New loans                    |  |                | 33,565  |  
|Repayments                   |  |                | (24,054 | )
|                             |  |                |        
|Balance at December 31, 2005 |  | $              | 38,762  |  
|                             |  |                |        

Note 17  Capital Requirements






F-25



---



##### 



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                         |         |                |   |             |                   |                  |            |             |  |  |       |         |  |        |  |      |       |  |  |         |  |  |  |      | 
|---------------------------------------- | ------- | -------------- | - | ----------- | ----------------- | ---------------- | ---------- | ----------- |  |  | ----- | ------- |  | ------ |  | ---- | ----- |  |  | ------- |  |  |  | ---- | 
|                                         |         |                |   |             |                   | Minimum Required |           
|                                         |         |                |   |             |                   |                  |           
|                                         |         |                |   | For Capital |                   |                  | To Be Well |            
|                                         |         | Actual         |   |             | Adequacy Purposes |                  |            | Capitalized | 
|                                         |         |                |   |             |                   |                  |            |             | 
|                                         |         | Amount         |   |             | Ratio             |                  |            | Amount      |  |  | Ratio |         |  | Amount |  |      | Ratio | 
|                                         |         |                |   |             |                   |                  |            |             |  |  |       |         |  |        |  |      |       | 
|                                         |         | (In thousands) |  
|As of December 31, 2005                  |         |                |   |             |                   |                  |            |             |  |  |       |         |  |        |  |      |       |  |  |         |  |  |  |     
|Total Capital (to risk-weighted assets)  |         |                |   |             |                   |                  |            |             |  |  |       |         |  |        |  |      |       |  |  |         |  |  |  |     
|                                         | Company |                | $ | 292,168     |                   |                  |            | 18.1%       |  |  | $     | 129,381 |  |        |  | 8.0% |       |  |  | n/a     |  |  |  | n/a  | 
|                                         | MBTC    |                |   | 205,866     |                   |                  |            | 12.8        |  |  |       | 128,844 |  |        |  | 8.0  |       |  |  | 161,055 |  |  |  | 10.0 | 
|Tier 1 Capital (to risk-weighted assets) |         |                |   |             |                   |                  |            |             |  |  |       |         |  |        |  |      |       |  |  |         |  |  |  |     
|                                         | Company |                |   | 274,408     |                   |                  |            | 17.0        |  |  |       | 64,691  |  |        |  | 4.0  |       |  |  | n/a     |  |  |  | n/a  | 
|                                         | MBTC    |                |   | 188,106     |                   |                  |            | 11.7        |  |  |       | 64,422  |  |        |  | 4.0  |       |  |  | 96,633  |  |  |  | 6.0  | 
|Tier 1 Capital (to average assets)       |         |                |   |             |                   |                  |            |             |  |  |       |         |  |        |  |      |       |  |  |         |  |  |  |     
|                                         | Company |                |   | 274,408     |                   |                  |            | 12.2        |  |  |       | 90,083  |  |        |  | 4.0  |       |  |  | n/a     |  |  |  | n/a  | 
|                                         | MBTC    |                |   | 188,106     |                   |                  |            | 8.4         |  |  |       | 89,635  |  |        |  | 4.0  |       |  |  | 112,044 |  |  |  | 5.0  | 
|                                        
|As of December 31, 2004                  |         |                |   |             |                   |                  |            |             |  |  |       |         |  |        |  |      |       |  |  |         |  |  |  |     
|Total Capital (to risk-weighted assets)  |         |                |   |             |                   |                  |            |             |  |  |       |         |  |        |  |      |       |  |  |         |  |  |  |     
|                                         | Company |                | $ | 219,343     |                   |                  |            | 14.7%       |  |  | $     | 119,758 |  |        |  | 8.0% |       |  |  | n/a     |  |  |  | n/a  | 
|                                         | MBTC    |                |   | 189,276     |                   |                  |            | 14.3        |  |  |       | 105,724 |  |        |  | 8.0  |       |  |  | 132,155 |  |  |  | 10.0 | 
|Tier 1 Capital (to risk-weighted assets) |         |                |   |             |                   |                  |            |             |  |  |       |         |  |        |  |      |       |  |  |         |  |  |  |     
|                                         | Company |                |   | 198,597     |                   |                  |            | 13.3        |  |  |       | 59,879  |  |        |  | 4.0  |       |  |  | n/a     |  |  |  | n/a  | 
|                                         | MBTC    |                |   | 172,985     |                   |                  |            | 13.1        |  |  |       | 52,862  |  |        |  | 4.0  |       |  |  | 79,293  |  |  |  | 6.0  | 
|Tier 1 Capital (to average assets)       |         |                |   |             |                   |                  |            |             |  |  |       |         |  |        |  |      |       |  |  |         |  |  |  |     
|                                         | Company |                |   | 198,597     |                   |                  |            | 8.5         |  |  |       | 93,225  |  |        |  | 4.0  |       |  |  | n/a     |  |  |  | n/a  | 
|                                         | MBTC    |                |   | 172,985     |                   |                  |            | 8.5         |  |  |       | 80,991  |  |        |  | 4.0  |       |  |  | 101,239 |  |  |  | 5.0  | 

F-26



---



##### 



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 Period |        
|                             |                        |                                            |        
|                             |                        | Within                                     |         |         |           |   | After  |           |  |  
|                             |                        | 1 Year                                     |         |         | 1-3 Years |   |        | 4-5 Years |  |   | 5 Years |        |  | Total |       
|                             |                        |                                            |         |         |           |   |        |           |  |   |         |        |  |       |       
|                             |                        | (In thousands)                             |        
|Lines of credit:             |                        |                                            |         |         |           |   |        |           |  |   |         |        |  |       |        |        |  |   |         |        
|                             | Commercial real estate |                                            | $       | 162,506 |           |   | $      | 50,654    |  |   | $       | 1,397  |  |       | $      | 43     |  |   | $       | 214,600 | 
|                             | Consumer real estate   |                                            |         | 16,988  |           |   |        | 5,234     |  |   |         | 10,292 |  |       |        | 37,405 |  |   |         | 69,919  | 
|                             | Consumer               |                                            |         |        |           |   |        |          |  |   |         |       |  |       |        | 1,821  |  |   |         | 1,821   | 
|                             | Commercial             |                                            |         | 62,644  |           |   |        | 972       |  |   |         | 238    |  |       |        | 1,251  |  |   |         | 65,105  | 
|Letters of credit            |                        |                                            | 42,824  |         |           |   | 8,927  |           |  |   | 65      |        |  |       | 375    |        |  |   | 52,191  |        
|Commitments to extend credit |                        |                                            | 118,326 |         |           |   |       |           |  |   |        |        |  |       |       |        |  |   | 118,326 |        
|                             |                        |                                            |         |         |           |   |        |           |  |   |         |        |  |       |       
|Total commercial commitments |                        | $                                          | 403,288 |         |           | $ | 65,787 |           |  | $ | 11,992  |        |  | $     | 40,895 |        |  | $ | 521,962 |        
|                             |                        |                                            |         |         |           |   |        |           |  |   |         |        |  |       |       





Note 19  Stock Compensation and Restricted
Stock Awards




F-27



---



##### 



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                 |  |           |           |                  |                |   |                  |                 |  |   |      | 
|-------------------------------- |  | --------- | --------- | ---------------- | -------------- | - | ---------------- | --------------- |  | - | ---- | 
|                                 |  |           |           | Weighted Average |                |   | Weighted Average |                
|                                 |  | Number of |           |                  | Exercise Price |   |                  | Grant-Date Fair | 
|                                 |  | Options   |           |                  | Per Share      |   |                  | Value Per Share | 
|                                 |  |           |           |                  |                |   |                  |                 | 
|Outstanding at January 1, 2003   |  |           | 1,099,797 |                  |                | $ | 10.90            |                 |  |   |      | 
|Granted during 2003              |  |           | 103,000   |                  |                |   | 18.34            |                 |  | $ | 7.31 | 
|Exercised during 2003            |  |           | (120,251  | )                |                |   | 10.25            |                 |  |   |      | 
|Forfeited during 2003            |  |           | (6,001    | )                |                |   | 13.42            |                 |  |   |      | 
|                                 |  |           |           |                  |                |   |                  |                 | 
|Outstanding at December 31, 2003 |  |           | 1,076,545 |                  |                |   | 11.67            |                 |  |   |      | 
|Granted during 2004              |  |           | 120,000   |                  |                |   | 22.03            |                 |  |   | 7.82 | 
|Exercised during 2004            |  |           | (70,521   | )                |                |   | 9.37             |                 |  |   |      | 
|Forfeited during 2004            |  |           | (10,938   | )                |                |   | 16.78            |                 |  |   |      | 
|                                 |  |           |           |                  |                |   |                  |                 | 
|Outstanding at December 31, 2004 |  |           | 1,115,086 |                  |                |   | 12.88            |                 |  |   |      | 
|Granted during 2005              |  |           | 30,500    |                  |                |   | 19.43            |                 |  |   | 5.50 | 
|Exercised during 2005            |  |           | (397,051  | )                |                |   | 11.02            |                 |  |   |      | 
|Forfeited during 2005            |  |           | (60,593   | )                |                |   | 17.57            |                 |  |   |      | 
|                                 |  |           |           |                  |                |   |                  |                 | 
|Outstanding at December 31, 2005 |  |           | 687,942   |                  |                |   | 13.83            |                 |  |   |      | 
|                                 |  |           |           |                  |                |   |                  |                 | 



|     |  |           |         |                  |                |   |       | 
|---- |  | --------- | ------- | ---------------- | -------------- | - | ----- | 
|     |  |           |         | Weighted Average |               
|     |  | Number of |         |                  | Exercise Price |  
|     |  | Options   |         |                  | Per Share      |  
|     |  |           |         |                  |                |  
|2003 |  |           | 584,670 |                  |                | $ | 10.30 | 
|2004 |  |           | 805,836 |                  |                |   | 10.96 | 
|2005 |  |           | 588,190 |                  |                |   | 13.18 | 



|                        |  |             |         |                  |                  |  |      |        |                  |  |                |  |  |   |       | 
|----------------------- |  | ----------- | ------- | ---------------- | ---------------- |  | ---- | ------ | ---------------- |  | -------------- |  |  | - | ----- | 
|                        |  | Outstanding |         |                  |                 
|                        |  |             |         |                  | Exercisable      | 
|                        |  |             |         | Weighted Average |                  |  |      |       
|                        |  |             |         | Remaining        |                  |  |      |        | Weighted Average | 
|Range of Exercise Price |  | Number      |         |                  | Contractual Life |  |      | Number |                  |  | Exercise Price | 
|                        |  |             |         |                  |                  |  |      |        |                  |  |                | 
|$5.42-8.50              |  |             | 14,500  |                  |                  |  | 1.87 |        |                  |  | 14,500         |  |  | $ | 8.29  | 
|$8.83-10.59             |  |             | 264,955 |                  |                  |  | 4.53 |        |                  |  | 264,955        |  |  |   | 9.66  | 
|$10.75-14.90            |  |             | 202,237 |                  |                  |  | 4.47 |        |                  |  | 174,485        |  |  |   | 13.00 | 
|$18.34-22.03            |  |             | 206,250 |                  |                  |  | 8.20 |        |                  |  | 134,250        |  |  |   | 20.88 | 
|                        |  |             |         |                  |                  |  |      |        |                  |  |                | 
|Outstanding at year end |  |             | 687,942 |                  |                  |  | 5.16 |        |                  |  | 588,190        |  |  |   | 13.18 | 
|                        |  |             |         |                  |                  |  |      |        |                  |  |                | 

F-28



---



##### 



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                                                                      |  |                                       |        |   |      |   |       |      |  |   |        | 
|------------------------------------------------------------------------------------- |  | ------------------------------------- | ------ | - | ---- | - | ----- | ---- |  | - | ------ | 
|                                                                                      |  | 2005                                  |        |   | 2004 |   |       | 2003 | 
|                                                                                      |  |                                       |        |   |      |   |       |      | 
|                                                                                      |  | (In thousands, except per share data) |       
|Income (loss) from continuing operations as reported                                  |  | $                                     | (1,589 | ) |      | $ | 3,072 |      |  | $ | 19,344 | 
|Deduct: Stock-based compensation expense determined under fair
    value-based method |  |                                       | 583    |   |      |   | 494   |      |  |   | 457    | 
|                                                                                      |  |                                       |        |   |      |   |       |      | 
|Pro forma income (loss) from continuing operations                                    |  | $                                     | (2,172 | ) |      | $ | 2,578 |      |  | $ | 18,887 | 
|                                                                                      |  |                                       |        |   |      |   |       |      | 
|Basic earnings per share from continuing operations as reported                       |  | $                                     | (0.08  | ) |      | $ | 0.17  |      |  | $ | 1.09   | 
|Pro forma basic earnings per share                                                    |  |                                       | (0.11  | ) |      |   | 0.14  |      |  |   | 1.06   | 
|Diluted earnings per share from continuing operations as reported                     |  |                                       | (0.08  | ) |      |   | 0.17  |      |  |   | 1.06   | 
|Pro forma diluted earnings per share                                                  |  |                                       | (0.11  | ) |      |   | 0.14  |      |  |   | 1.04   | 

out-of out-of




|                                |  |      |         |   |      |   |         |      |  |   |           |  
|------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | --------- | -
|                                |  | 2005 |         |   | 2004 |   |         | 2003 | 
|                                |  |      |         |   |      |   |         |      | 
|Fair value                      |  | $    | 5.50    |   |      | $ | 7.82    |      |  | $ | 7.31      |  
|Risk-free interest rate         |  |      | 4.05    | % |      |   | 4.56    | %    |  |   | 3.40      | %
|Expected option life            |  |      | 5 years |   |      |   | 7 years |      |  |   | 7.6 years |  
|Expected stock price volatility |  |      | 22.06   | % |      |   | 21.01   | %    |  |   | 28.53     | %

F-29



---



##### 



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                      |  |                   |        |            |            |   |       | 
|------------------------------------- |  | ----------------- | ------ | ---------- | ---------- | - | ----- | 
|                                      |  | 2005              |       
|                                      |  |                   |       
|                                      |  |                   |        | Grant-date |           
|                                      |  | Number of         |        |            | Per Share  |  
|                                      |  | Restricted Shares |        |            | Fair Value |  
|                                      |  |                   |        |            |            |  
|May 18, 2005 Grant                    |  |                   | 9,000  |            |            | $ | 19.96 | 
|June 28, 2005 Grant                   |  |                   | 6,000  |            |            |   | 19.75 | 
|July 1, 2005 Grant, net of forfeiture |  |                   | 48,700 |            |            |   | 19.43 | 
|                                      |  |                   |        |            |            |  
|Total Granted 2005                    |  |                   | 63,700 |            |            |   | 19.54 | 
|                                      |  |                   |        |            |            |  

|                         |  |                   |         |            |            |   |       | 
|------------------------ |  | ----------------- | ------- | ---------- | ---------- | - | ----- | 
|                         |  | 2004              |        
|                         |  |                   |        
|                         |  |                   |         | Grant-date |           
|                         |  | Number of         |         |            | Per Share  |  
|                         |  | Restricted Shares |         |            | Fair Value |  
|                         |  |                   |         |            |            |  
|September 28, 2004 Grant |  |                   | 150,000 |            |            | $ | 18.71 | 
|                         |  |                   |         |            |            |  
|Total Granted 2004       |  |                   | 150,000 |            |            |   | 18.71 | 
|                         |  |                   |         |            |            |  



Note 20  Derivative Instruments








|                                      |  |                |            |  
|------------------------------------- |  | -------------- | ---------- | -
|                                      |  | (In thousands) |           
|Notional amount                       |  | $              | 121,500    |  
|Weighted average fixed rates received |  |                | 5.47       | %
|Weighted average variable rates paid  |  |                | 4.44       | %
|Weighted average maturity             |  |                | 5.60 years |  
|Fair value                            |  | $              | (3,421     | )

F-30



---



##### 



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


10-year


|                                              |  |                         |         |   |      |   |        |      |  |   |       |  
|--------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ----- | -
|                                              |  | Year ended December 31, |        
|                                              |  |                         |        
|                                              |  | 2005                    |         |   | 2004 |   |        | 2003 | 
|                                              |  |                         |         |   |      |   |        |      | 
|                                              |  | (In thousands)          |        
|Net gains (losses) on securities transactions |  | $                       | (17,440 | ) |      | $ | 1,461  |      |  | $ | 4,812 |  
|Hedge ineffectiveness                         |  |                         |        |   |      |   | (5,247 | )    |  |   | (508  | )
|                                              |  |                         |         |   |      |   |        |      | 
|Net gains (losses) on securities transactions |  | $                       | (17,440 | ) |      | $ | (3,786 | )    |  | $ | 4,304 |  
|                                              |  |                         |         |   |      |   |        |      | 





F-31



---



##### 



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


Note 21  Parent Company Financial
Statements




CONDENSED BALANCE SHEETS


|                                                       |                                            |                |         |         |      |   |         |         | 
|------------------------------------------------------ | ------------------------------------------ | -------------- | ------- | ------- | ---- | - | ------- | ------- | 
|                                                       |                                            | December 31,   |        
|                                                       |                                            |                |        
|                                                       |                                            | 2005           |         |         | 2004 |  
|                                                       |                                            |                |         |         |      |  
|                                                       |                                            | (In thousands) |        
|ASSETS                                                
|Cash                                                   |                                            | $              | 83,389  |         |      | $ | 2,669   |        
|Investment in subsidiaries with continuing operations  |                                            |                | 185,545 |         |      |   | 163,126 |        
|Investment in subsidiary with discontinued operations  |                                            |                |        |         |      |   | 23,574  |        
|Other assets                                           |                                            |                | 7,574   |         |      |   | 9,023   |        
|                                                       |                                            |                |         |         |      |  
|                                                       | Total assets                               |                | $       | 276,508 |      |   | $       | 198,392 | 
|                                                       |                                            |                |         |         |      |  
|                                                      
|LIABILITIES AND STOCKHOLDERS EQUITY                  
|Junior subordinated debt owed to unconsolidated trusts |                                            | $              | 55,672  |         |      | $ | 55,672  |        
|Other liabilities                                      |                                            |                | 4,710   |         |      |   | 5,297   |        
|Stockholders equity                                   |                                            |                | 216,126 |         |      |   | 137,423 |        
|                                                       |                                            |                |         |         |      |  
|                                                       | Total liabilities and stockholders equity |                | $       | 276,508 |      |   | $       | 198,392 | 
|                                                       |                                            |                |         |         |      |  

CONDENSED STATEMENTS OF INCOME


|                                                                                                    |                                        |                |        |        |      |   |        |        |   |   |        |        |  
|--------------------------------------------------------------------------------------------------- | -------------------------------------- | -------------- | ------ | ------ | ---- | - | ------ | ------ | - | - | ------ | ------ | -
|                                                                                                    |                                        | December 31,   |       
|                                                                                                    |                                        |                |       
|                                                                                                    |                                        | 2005           |        |        | 2004 |   |        | 2003   |  
|                                                                                                    |                                        |                |        |        |      |   |        |        |  
|                                                                                                    |                                        | (In thousands) |       
|Operating income                                                                                    |                                        |                |        |        |      |   |        |        |   |   |        |       
|                                                                                                    | Dividends from continuing subsidiaries |                | $      | 3,346  |      |   | $      | 6,571  |   |   | $      | 6,545  |  
|                                                                                                    | Fees from continuing subsidiaries      |                |        | 1,897  |      |   |        | 1,672  |   |   |        | 1,594  |  
|                                                                                                    | Noninterest income                     |                |        | 59     |      |   |        | 37     |   |   |        | 1,104  |  
|                                                                                                    | Interest expense                       |                |        | (3,801 | )    |   |        | (3,567 | ) |   |        | (2,844 | )
|                                                                                                    | Noninterest expense                    |                |        | (6,733 | )    |   |        | (8,633 | ) |   |        | (5,566 | )
|                                                                                                    |                                        |                |        |        |      |   |        |        |  
|Income (loss) before income taxes and equity in undistributed
    income of continuing subsidiaries |                                        |                | (5,232 | )      |      |   | (3,920 | )      |   |   | 833    |       
|Income tax benefit                                                                                  |                                        |                | 3,434  |        |      |   | 3,932  |        |   |   | 2,110  |       
|Equity in undistributed income of continuing subsidiaries                                           |                                        |                | 209    |        |      |   | 3,060  |        |   |   | 16,401 |       
|                                                                                                    |                                        |                |        |        |      |   |        |        |  
|Income (loss) from continuing operations                                                            |                                        |                | (1,589 | )      |      |   | 3,072  |        |   |   | 19,344 |       
|                                                                                                    |                                        |                |        |        |      |   |        |        |  
|Income (loss) from discontinued operations                                                          |                                        |                | 7,533  |        |      |   | (696   | )      |   |   | 3,437  |       
|                                                                                                    |                                        |                |        |        |      |   |        |        |  
|Net income                                                                                          |                                        | $              | 5,944  |        |      | $ | 2,376  |        |   | $ | 22,781 |       
|                                                                                                    |                                        |                |        |        |      |   |        |        |  

F-32



---



##### 



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


CONDENSED STATEMENTS OF CASH FLOWS


|                                                 |                                                                                                      |                                                                |                                                                |         |        |        |        |        |        |     |        |        |         |       | 
|------------------------------------------------ | ---------------------------------------------------------------------------------------------------- | -------------------------------------------------------------- | -------------------------------------------------------------- | ------- | ------ | ------ | ------ | ------ | ------ | --- | ------ | ------ | ------- | ----- | 
|                                                 |                                                                                                      | December 31,                                                   |                                                               
|                                                 |                                                                                                      |                                                                |                                                               
|                                                 |                                                                                                      | 2005                                                           |                                                                |         | 2004   |        |        | 2003   |       
|                                                 |                                                                                                      |                                                                |                                                                |         |        |        |        |        |       
|                                                 |                                                                                                      | (In thousands)                                                 |                                                               
|Cash flows from continuing operating activities  |                                                                                                      |                                                                |                                                                |         |        |        |        |        |        |     |        |       
|                                                 | Net income                                                                                           |                                                                | $                                                              | 5,944   |        |        | $      | 2,376  |        |     | $      | 22,781 |        
|                                                 | (Income) loss from discontinued operations                                                           |                                                                |                                                                | (7,533  | )      |        |        | 696    |        |     |        | (3,437 | )      
|                                                 | Adjustments to reconcile net income from to net cash provided by
    continuing operating activities |                                                                |                                                                |         |        |        |        |        |        |     |        |        |        
|                                                 |                                                                                                      | Equity in undistributed income of continuing subsidiaries      |                                                                |         | (209   | )      |        |        | (3,060 | )   |        |        | (16,401 | )    
|                                                 |                                                                                                      | Depreciation                                                   |                                                                |         | 101    |        |        |        | 73     |     |        |        | 66      |      
|                                                 |                                                                                                      | Amortization of stock-based compensation                       |                                                                |         | 873    |        |        |        | 165    |     |        |        |        |      
|                                                 |                                                                                                      | Change in other assets                                         |                                                                |         | (171   | )      |        |        | (2,175 | )   |        |        | 7,059   |      
|                                                 |                                                                                                      | Change in other liabilities                                    |                                                                |         | (1,517 | )      |        |        | 1,881  |     |        |        | (3,178  | )    
|                                                 |                                                                                                      |                                                                |                                                                |         |        |        |        |        |       
|                                                 |                                                                                                      |                                                                | Net cash provided by (used in) continuing operating activities |         |        | (2,512 | )      |        |        | (44 | )      |        |         | 6,890 | 
|                                                 |                                                                                                      |                                                                |                                                                |         |        |        |        |        |       
|Cash flows from continuing investing activities  |                                                                                                      |                                                                |                                                                |         |        |        |        |        |        |     |        |       
|                                                 | Cash paid, net of cash and cash equivalents in acquisition and
    stock issuance                    |                                                                |                                                                |        |        |        |        |       |        |     |        | (1,377 | )      
|                                                 | Investment in continuing subsidiaries                                                                |                                                                |                                                                | (15,200 | )      |        |        |       |        |     |        | (7,000 | )      
|                                                 | Property and equipment expenditures                                                                  |                                                                |                                                                | (39     | )      |        |        | (207   | )      |     |        | (68    | )      
|                                                 | Disposition of subsidiary                                                                            |                                                                |                                                                | 35,621  |        |        |        |       |        |     |        |       |        
|                                                 |                                                                                                      |                                                                |                                                                |         |        |        |        |        |       
|                                                 |                                                                                                      | Net cash provided by (used in) continuing investing activities |                                                                |         | 20,382 |        |        |        | (207   | )   |        |        | (8,445  | )    
|                                                 |                                                                                                      |                                                                |                                                                |         |        |        |        |        |       
|Cash flows from continuing financing activities  |                                                                                                      |                                                                |                                                                |         |        |        |        |        |        |     |        |       
|                                                 | Issuance of junior subordinated debt, net of debt issuance costs                                     |                                                                |                                                                | 20,619  |        |        |        |       |        |     |        | 18,430 |        
|                                                 | Payments of junior subordinated debt                                                                 |                                                                |                                                                | (20,619 | )      |        |        |       |        |     |        |       |        
|                                                 | Proceeds from notes payable                                                                          |                                                                |                                                                | 2,000   |        |        |        |       |        |     |        | 5,500  |        
|                                                 | Repayments on notes payable                                                                          |                                                                |                                                                | (2,000  | )      |        |        | (2,000 | )      |     |        | (5,500 | )      
|                                                 | Cash dividends paid                                                                                  |                                                                |                                                                | (9,164  | )      |        |        | (8,583 | )      |     |        | (7,317 | )      
|                                                 | Issuance of common stock                                                                             |                                                                |                                                                | 68,453  |        |        |        |       |        |     |        |       |        
|                                                 | Proceeds from issuance of common and treasury stock under stock
    option plan                      |                                                                |                                                                | 4,374   |        |        |        | 660    |        |     |        | 1,666  |        
|                                                 |                                                                                                      |                                                                |                                                                |         |        |        |        |        |       
|                                                 |                                                                                                      | Net cash provided by (used in) continuing financing activities |                                                                |         | 63,663 |        |        |        | (9,923 | )   |        |        | 12,779  |      
|                                                 |                                                                                                      |                                                                |                                                                |         |        |        |        |        |       
|Cash flows from discontinued operations          |                                                                                                      |                                                                |                                                                |         |        |        |        |        |        |     |        |       
|                                                 | Net cash provided by (used in) operating activities of
    discontinued operations                   |                                                                |                                                                | 187     |        |        |        | 1,127  |        |     |        | 1,137  |        
|                                                 | Net cash used in investing activities of discontinued operations                                     |                                                                |                                                                | (1,000  | )      |        |        |       |        |     |        | (3,000 | )      
|                                                 |                                                                                                      |                                                                |                                                                |         |        |        |        |        |       
|                                                 | Net cash provided by (used in) discontinued operations                                               |                                                                |                                                                | (813    | )      |        |        | 1,127  |        |     |        | (1,863 | )      
|                                                 |                                                                                                      |                                                                |                                                                |         |        |        |        |        |       
|Increase (decrease) in cash and cash equivalents |                                                                                                      |                                                                | 80,720                                                         |         |        |        | (9,047 | )      |        |     | 9,361  |       
|Cash and cash equivalents at beginning of year   |                                                                                                      |                                                                | 2,669                                                          |         |        |        | 11,716 |        |        |     | 2,355  |       
|                                                 |                                                                                                      |                                                                |                                                                |         |        |        |        |        |       
|Cash and cash equivalents at end of year         |                                                                                                      | $                                                              | 83,389                                                         |         |        | $      | 2,669  |        |        | $   | 11,716 |       
|                                                 |                                                                                                      |                                                                |                                                                |         |        |        |        |        |       

F-33



---



##### 



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


Note 22  Earnings Per Share


|                                                               |  |                                       |        |   |      |   |        |      |  |   |        | 
|-------------------------------------------------------------- |  | ------------------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | 
|                                                               |  | 2005                                  |        |   | 2004 |   |        | 2003 | 
|                                                               |  |                                       |        |   |      |   |        |      | 
|                                                               |  | (In thousands, except per share data) |       
|Basic                                                          |  |                                       |        |   |      |   |        |      |  |   |        | 
|Income (loss) from continuing operations                       |  | $                                     | (1,589 | ) |      | $ | 3,072  |      |  | $ | 19,344 | 
|Income (loss) from discontinued operations                     |  |                                       | 7,533  |   |      |   | (696   | )    |  |   | 3,437  | 
|                                                               |  |                                       |        |   |      |   |        |      | 
|Net income                                                     |  | $                                     | 5,944  |   |      | $ | 2,376  |      |  | $ | 22,781 | 
|                                                               |  |                                       |        |   |      |   |        |      | 
|Weighted average common shares outstanding                     |  |                                       | 19,573 |   |      |   | 17,888 |      |  |   | 17,798 | 
|                                                               |  |                                       |        |   |      |   |        |      | 
|Basic earnings per share from continuing operations            |  | $                                     | (0.08  | ) |      | $ | 0.17   |      |  | $ | 1.09   | 
|                                                               |  |                                       |        |   |      |   |        |      | 
|Basic earnings per share from discontinued operations          |  | $                                     | 0.38   |   |      | $ | (0.04  | )    |  | $ | 0.19   | 
|                                                               |  |                                       |        |   |      |   |        |      | 
|Basic earnings per share                                       |  | $                                     | 0.30   |   |      | $ | 0.13   |      |  | $ | 1.28   | 
|                                                               |  |                                       |        |   |      |   |        |      | 
|Diluted                                                        |  |                                       |        |   |      |   |        |      |  |   |        | 
|Income (loss) from continuing operations                       |  | $                                     | (1,589 | ) |      | $ | 3,072  |      |  | $ | 19,344 | 
|Income (loss) from discontinued operations                     |  |                                       | 7,533  |   |      |   | (696   | )    |  |   | 3,437  | 
|                                                               |  |                                       |        |   |      |   |        |      | 
|Net income                                                     |  | $                                     | 5,944  |   |      | $ | 2,376  |      |  | $ | 22,781 | 
|                                                               |  |                                       |        |   |      |   |        |      | 
|Weighted average common shares outstanding                     |  |                                       | 19,573 |   |      |   | 17,888 |      |  |   | 17,798 | 
|Dilutive effect of stock options(1)                            |  |                                       | 234    |   |      |   | 403    |      |  |   | 420    | 
|Dilutive effect of restricted stock(1)                         |  |                                       | 38     |   |      |   |       |      |  |   |       | 
|                                                               |  |                                       |        |   |      |   |        |      | 
|Diluted average common shares                                  |  |                                       | 19,845 |   |      |   | 18,291 |      |  |   | 18,218 | 
|                                                               |  |                                       |        |   |      |   |        |      | 
|Diluted average common shares  continuing
    operations(1)   |  |                                       | 19,573 |   |      |   | 18,291 |      |  |   | 18,218 | 
|                                                               |  |                                       |        |   |      |   |        |      | 
|Diluted average common shares  discontinued
    operations(1) |  |                                       | 19,845 |   |      |   | 17,888 |      |  |   | 18,218 | 
|                                                               |  |                                       |        |   |      |   |        |      | 
|Diluted earnings per share from continuing operations          |  | $                                     | (0.08  | ) |      | $ | 0.17   |      |  | $ | 1.06   | 
|                                                               |  |                                       |        |   |      |   |        |      | 
|Diluted earnings per share from discontinued operations        |  | $                                     | 0.38   |   |      | $ | (0.04  | )    |  | $ | 0.19   | 
|                                                               |  |                                       |        |   |      |   |        |      | 
|Diluted earnings per share                                     |  | $                                     | 0.30   |   |      | $ | 0.13   |      |  | $ | 1.25   | 
|                                                               |  |                                       |        |   |      |   |        |      | 






|    |                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | No dilutive shares from stock options or restricted stock were
    included in the computation of earnings per share if there was a
    resulting loss from continuing or discontinued operations.



F-34



---



##### 



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


Note 23  Other Comprehensive Income




|                                                                                                        |                                   |                          |        |        |      |   |         |        |   |   |         |         |  
|------------------------------------------------------------------------------------------------------- | --------------------------------- | ------------------------ | ------ | ------ | ---- | - | ------- | ------ | - | - | ------- | ------- | -
|                                                                                                        |                                   | Years Ended December 31, |       
|                                                                                                        |                                   |                          |       
|                                                                                                        |                                   | 2005                     |        |        | 2004 |   |         | 2003   |  
|                                                                                                        |                                   |                          |        |        |      |   |         |        |  
|                                                                                                        |                                   | (In thousands)           |       
|Unrealized holding gains (losses) on securities
    available-for-sale                                  |                                   | $                        | (5,710 | )      |      | $ | (15,504 | )      |   | $ | (32,087 | )      
|Reclassification adjustment for (gains) losses recognized
    in income from continuing operations      |                                   |                          | 17,440 |        |      |   | 10,034  |        |   |   | (4,304  | )      
|Reclassification adjustment for (gains) losses recognized
    in income from discontinued operations    |                                   |                          | 2,982  |        |      |   | 4,544   |        |   |   | (1,036  | )      
|Accretion of unrealized gains on securities transferred from
    available-for-sale to held-to-maturity |                                   |                          | (40    | )      |      |   | (123    | )      |   |   | (595    | )      
|                                                                                                        |                                   |                          |        |        |      |   |         |        |  
|                                                                                                        | Net unrealized gains (losses)     |                          |        | 14,672 |      |   |         | (1,049 | ) |   |         | (38,022 | )
|Tax effect                                                                                              |                                   |                          | (5,821 | )      |      |   | 416     |        |   |   | 15,053  |        
|                                                                                                        |                                   |                          |        |        |      |   |         |        |  
|                                                                                                        | Other comprehensive income (loss) |                          | $      | 8,851  |      |   | $       | (633   | ) |   | $       | (22,969 | )
|                                                                                                        |                                   |                          |        |        |      |   |         |        |  

Note 24  Quarterly Results of Operations
(Unaudited)


|                                                                 |                                      |                                       |        |      |         |   |         |              |       |   |             |      |       |   |        |      |   | 
|---------------------------------------------------------------- | ------------------------------------ | ------------------------------------- | ------ | ---- | ------- | - | ------- | ------------ | ----- | - | ----------- | ---- | ----- | - | ------ | ---- | - | 
|                                                                 |                                      | Three Months Ended                    |       
|                                                                 |                                      |                                       |       
|2005                                                             |                                      | March 31                              |        |      | June 30 |   |         | September 30 |       |   | December 31 |     
|                                                                 |                                      |                                       |        |      |         |   |         |              |       |   |             |     
|                                                                 |                                      | (In thousands, except per share data) |       
|Interest income                                                  |                                      | $                                     | 24,532 |      |         | $ | 26,731  |              |       | $ | 28,880      |      |       | $ | 32,101 |     
|Interest expense                                                 |                                      |                                       | 11,294 |      |         |   | 12,661  |              |       |   | 12,457      |      |       |   | 14,385 |     
|                                                                 |                                      |                                       |        |      |         |   |         |              |       |   |             |     
|Net interest income                                              |                                      |                                       | 13,238 |      |         |   | 14,070  |              |       |   | 16,423      |      |       |   | 17,716 |     
|Provision for loan losses                                        |                                      |                                       | 814    |      |         |   | 813     |              |       |   | 813         |      |       |   | 149    |     
|Noninterest income                                               |                                      |                                       | 2,081  |      |         |   | (14,426 | )            |       |   | 3,562       |      |       |   | 2,538  |     
|Noninterest expense                                              |                                      |                                       | 10,716 |      |         |   | 27,670  |              |       |   | 11,277      |      |       |   | 10,864 |     
|                                                                 |                                      |                                       |        |      |         |   |         |              |       |   |             |     
|Income (loss) from continuing operations before income
    taxes |                                      |                                       | 3,789  |      |         |   | (28,839 | )            |       |   | 7,895       |      |       |   | 9,241  |     
|Provision (benefit) for income taxes                             |                                      |                                       | 812    |      |         |   | (11,690 | )            |       |   | 1,982       |      |       |   | 2,571  |     
|                                                                 |                                      |                                       |        |      |         |   |         |              |       |   |             |     
|Income (loss) from continuing operations                         |                                      |                                       | 2,977  |      |         |   | (17,149 | )            |       |   | 5,913       |      |       |   | 6,670  |     
|                                                                 |                                      |                                       |        |      |         |   |         |              |       |   |             |     
|Discontinued operations                                          |                                      |                                       |        |      |         |   |         |              |       |   |             |      |       |   |        |     
|                                                                 |                                      | Income from discontinued operations   |        |      | 1,632   |   |         |              | 1,050 |   |             |      | 6,554 |   |        |      |  | 
|                                                                 |                                      | Provision for income taxes            |        |      | 527     |   |         |              | 251   |   |             |      | 925   |   |        |      |  | 
|                                                                 |                                      |                                       |        |      |         |   |         |              |       |   |             |     
|                                                                 |                                      | Income from discontinued operations   |        |      | 1,105   |   |         |              | 799   |   |             |      | 5,629 |   |        |      |  | 
|                                                                 |                                      |                                       |        |      |         |   |         |              |       |   |             |     
|Net income (loss)                                                |                                      | $                                     | 4,082  |      |         | $ | (16,350 | )            |       | $ | 11,542      |      |       | $ | 6,670  |     
|                                                                 |                                      |                                       |        |      |         |   |         |              |       |   |             |     
|Earnings per common share(a)                                     |                                      |                                       |        |      |         |   |         |              |       |   |             |      |       |   |        |     
|                                                                 | Basic from continuing operations     |                                       | $      | 0.16 |         |   | $       | (0.94        | )     |   | $           | 0.30 |       |   | $      | 0.31 |  
|                                                                 | Basic from discontinued operations   |                                       |        | 0.06 |         |   |         | 0.04         |       |   |             | 0.28 |       |   |        | 0.00 |  
|                                                                 | Basic                                |                                       |        | 0.22 |         |   |         | (0.90        | )     |   |             | 0.58 |       |   |        | 0.31 |  
|                                                                 | Diluted from continuing operations   |                                       |        | 0.16 |         |   |         | (0.94        | )     |   |             | 0.29 |       |   |        | 0.30 |  
|                                                                 | Diluted from discontinued operations |                                       |        | 0.06 |         |   |         | 0.04         |       |   |             | 0.28 |       |   |        | 0.00 |  
|                                                                 | Diluted                              |                                       |        | 0.22 |         |   |         | (0.90        | )     |   |             | 0.57 |       |   |        | 0.30 |  

F-35



---



##### 



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


|                                                                 |                                            |                                       |        |      |         |   |        |              |  |   |             |       |   |   |        |        |  
|---------------------------------------------------------------- | ------------------------------------------ | ------------------------------------- | ------ | ---- | ------- | - | ------ | ------------ |  | - | ----------- | ----- | - | - | ------ | ------ | -
|                                                                 |                                            | Three Months Ended                    |       
|                                                                 |                                            |                                       |       
|2004                                                             |                                            | March 31                              |        |      | June 30 |   |        | September 30 |  |   | December 31 |      
|                                                                 |                                            |                                       |        |      |         |   |        |              |  |   |             |      
|                                                                 |                                            | (In thousands, except per share data) |       
|Interest income                                                  |                                            | $                                     | 22,719 |      |         | $ | 21,737 |              |  | $ | 23,629      |       |   | $ | 23,877 |       
|Interest expense                                                 |                                            |                                       | 10,463 |      |         |   | 10,458 |              |  |   | 11,265      |       |   |   | 9,594  |       
|                                                                 |                                            |                                       |        |      |         |   |        |              |  |   |             |      
|Net interest income                                              |                                            |                                       | 12,256 |      |         |   | 11,279 |              |  |   | 12,364      |       |   |   | 14,283 |       
|Provision for loan losses                                        |                                            |                                       | 600    |      |         |   | 600    |              |  |   | 400         |       |   |   | 1,800  |       
|Noninterest income                                               |                                            |                                       | 3,512  |      |         |   | 2,336  |              |  |   | (1,569      | )     |   |   | (4,367 | )     
|Noninterest expense                                              |                                            |                                       | 9,700  |      |         |   | 10,050 |              |  |   | 12,018      |       |   |   | 14,723 |       
|                                                                 |                                            |                                       |        |      |         |   |        |              |  |   |             |      
|Income (loss) from continuing operations before income
    taxes |                                            |                                       | 5,468  |      |         |   | 2,965  |              |  |   | (1,623      | )     |   |   | (6,607 | )     
|Provision (benefit) for income taxes                             |                                            |                                       | 1,298  |      |         |   | 557    |              |  |   | (1,395      | )     |   |   | (3,329 | )     
|                                                                 |                                            |                                       |        |      |         |   |        |              |  |   |             |      
|Income (loss) from continuing operations                         |                                            |                                       | 4,170  |      |         |   | 2,408  |              |  |   | (228        | )     |   |   | (3,278 | )     
|                                                                 |                                            |                                       |        |      |         |   |        |              |  |   |             |      
|Discontinued operations                                          |                                            |                                       |        |      |         |   |        |              |  |   |             |       |   |   |        |       
|                                                                 | Income (loss) from discontinued operations |                                       |        | 845  |         |   |        | 1,062        |  |   |             | 84    |   |   |        | (3,993 | )
|                                                                 | Provision (benefit) for income taxes       |                                       |        | 190  |         |   |        | 286          |  |   |             | (113  | ) |   |        | (1,669 | )
|                                                                 |                                            |                                       |        |      |         |   |        |              |  |   |             |      
|                                                                 | Income (loss) from discontinued operations |                                       |        | 655  |         |   |        | 776          |  |   |             | 197   |   |   |        | (2,324 | )
|                                                                 |                                            |                                       |        |      |         |   |        |              |  |   |             |      
|Net income (loss)                                                |                                            | $                                     | 4,825  |      |         | $ | 3,184  |              |  | $ | (31         | )     |   | $ | (5,602 | )     
|                                                                 |                                            |                                       |        |      |         |   |        |              |  |   |             |      
|Earnings per common share(a)                                     |                                            |                                       |        |      |         |   |        |              |  |   |             |       |   |   |        |       
|                                                                 | Basic from continuing operations           |                                       | $      | 0.23 |         |   | $      | 0.14         |  |   | $           | (0.01 | ) |   | $      | (0.18  | )
|                                                                 | Basic from discontinued operations         |                                       |        | 0.04 |         |   |        | 0.04         |  |   |             | 0.01  |   |   |        | (0.13  | )
|                                                                 | Basic                                      |                                       |        | 0.27 |         |   |        | 0.18         |  |   |             | 0.00  |   |   |        | (0.31  | )
|                                                                 | Diluted from continuing operations         |                                       |        | 0.23 |         |   |        | 0.13         |  |   |             | (0.01 | ) |   |        | (0.18  | )
|                                                                 | Diluted from discontinued operations       |                                       |        | 0.04 |         |   |        | 0.04         |  |   |             | 0.01  |   |   |        | (0.13  | )
|                                                                 | Diluted                                    |                                       |        | 0.26 |         |   |        | 0.17         |  |   |             | 0.00  |   |   |        | (0.31  | )






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

Note 25  Fair Value of Financial
Instruments






F-36



---



##### 



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                      |                                                                                |                      |   |           |            |   |   |           |            |   |            |           |            |   |   |           |            |  
|--------------------- | ------------------------------------------------------------------------------ | -------------------- | - | --------- | ---------- | - | - | --------- | ---------- | - | ---------- | --------- | ---------- | - | - | --------- | ---------- | -
|                      |                                                                                | December 31,         |  
|                      |                                                                                |                      |  
|                      |                                                                                | 2005                 |   |           | 2004       |  
|                      |                                                                                |                      |   |           |            |  
|                      |                                                                                | Carrying             |   |           | Estimated  |   |   | Carrying  |            |   | Estimated  |          
|                      |                                                                                | Amount               |   |           | Fair Value |   |   | Amount    |            |   | Fair Value |          
|                      |                                                                                |                      |   |           |            |   |   |           |            |   |            |          
|                      |                                                                                | (In thousands)       |  
|Financial assets      |                                                                                |                      |   |           |            |   |   |           |            |   |            |           |            |   |   |          
|                      | Cash and cash equivalents                                                      |                      | $ | 70,599    |            |   | $ | 70,599    |            |   | $          | 219,024   |            |   | $ | 219,024   |           
|                      | Securities available-for-sale                                                  |                      |   | 687,937   |            |   |   | 687,937   |            |   |            | 437,050   |            |   |   | 437,050   |           
|                      | Securities held-to-maturity                                                    |                      |   | 59,451    |            |   |   | 58,332    |            |   |            | 88,958    |            |   |   | 89,010    |           
|                      | Federal Reserve and Federal Home Loan Bank stock                               |                      |   | 14,661    |            |   |   | 14,661    |            |   |            | 13,830    |            |   |   | 13,830    |           
|                      | Loans, net of allowance for loan losses                                        |                      |   | 1,334,148 |            |   |   | 1,330,226 |            |   |            | 1,081,775 |            |   |   | 1,082,914 |           
|                      | Accrued interest receivable                                                    |                      |   | 9,705     |            |   |   | 9,705     |            |   |            | 7,479     |            |   |   | 7,479     |           
|Financial liabilities |                                                                                |                      |   |           |            |   |   |           |            |   |            |           |            |   |   |          
|                      | Deposits                                                                       |                      |   |           |            |   |   |           |            |   |            |           |            |   |   |           |           
|                      |                                                                                | Non-interest-bearing |   |           | (158,406   | ) |   |           | (158,406   | ) |            |           | (162,610   | ) |   |           | (162,610   | )
|                      |                                                                                | Interest-bearing     |   |           | (1,364,978 | ) |   |           | (1,324,025 | ) |            |           | (1,339,036 | ) |   |           | (1,313,576 | )
|                      | Securities sold under agreements to repurchase and federal funds
    purchased |                      |   | (332,808  | )          |   |   | (331,260  | )          |   |            | (146,885  | )          |   |   | (145,446  | )         
|                      | FHLB advances                                                                  |                      |   | (150,000  | )          |   |   | (148,414  | )          |   |            | (118,079  | )          |   |   | (131,044  | )         
|                      | Junior subordinated debt owed to unconsolidated trusts                         |                      |   | (55,672   | )          |   |   | (57,538   | )          |   |            | (55,672   | )          |   |   | (55,070   | )         
|                      | Accrued interest payable                                                       |                      |   | (3,683    | )          |   |   | (3,683    | )          |   |            | (2,907    | )          |   |   | (2,907    | )         
|                      | Interest rate swaps                                                            |                      |   |          |            |   |   |          |            |   |            | (3,421    | )          |   |   | (3,421    | )         
|                      | Due to broker                                                                  |                      |   | (1,301    | )          |   |   | (1,301    | )          |   |            |          |            |   |   |          |           





Note 26  Business Combination


held-to


F-37



---



##### 



MIDWEST BANC HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




Note 27  Subsequent Event




F-38



---



##### 



Report of Independent Registered Public Accounting Firm






Consolidated financial statements




Internal control over financial reporting


Internal Control  Integrated Framework Internal Control 
Integrated Framework








| |                           
| | --------------------------
| | PRICEWATERHOUSECOOPERS LLP





F-39



---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


ON THE FINANCIAL STATEMENTS
















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






F-40