<PAGE>

================================================================================


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

             [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                     THE SECURITIES EXCHANGE ACT OF 1934
                  For the fiscal year ended December 31, 2001

                                       OR

           [ ]  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 0-29598

                           MIDWEST BANC HOLDINGS, INC.
             (Exact name of Registrant as specified in its charter)

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

               501 WEST NORTH AVENUE, MELROSE PARK, ILLINOIS 60160
          (Address of principal executive offices including ZIP Code)

                                 (708) 865-1053
               (Registrant's telephone number including Area Code)

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

                   10.0% CUMULATIVE TRUST PREFERRED SECURITIES
                      (And Guarantee with Respect Thereto)

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

                          COMMON STOCK, $0.01 PAR VALUE
                                (Title of Class)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.

                               YES [X]     NO [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by Reference in Part III of this Form 10-K or any amendment to this
Form 10-K.

                               YES [ ]     NO [ ]

     As of March 22, 2002, the aggregate market value of the registrant's common
stock held by nonaffiliates of the registrant was approximately $137,326,000
based upon the last sales price of the common stock on that date.(1)

     As of March 22, 2002, the number of shares outstanding of the registrant's
common stock, par value $0.01 per share, was 10,740,956.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Company's Proxy Statement for the 2002 Annual Meeting of
Stockholders are incorporated by reference into Part III.

----------
(1)  Based upon the closing price of the registrant's common stock on March 22,
     2002, and reports of beneficial ownership filed by directors and executive
     officers of the registrant and by beneficial owners of more than 5% of the
     outstanding shares of common stock of the registrant. However, such
     determination of shares owned by affiliates does not constitute an
     admission of affiliate status or beneficial interest in shares of
     registrant's common stock.

================================================================================



<PAGE>

                          MIDWEST BANC HOLDINGS, INC.
                                    FORM 10-K

                                      INDEX

<TABLE>
<CAPTION>
                                                                                                          PAGE NO.
                                                                                                          --------
<S>             <C>                                                                                       <C>
PART I

Item 1.         Business                                                                                     1
Item 2.         Properties                                                                                  18
Item 3.         Legal Proceedings                                                                           19
Item 4.         Submission of Matters to a Vote of Stockholders                                             19

PART II

Item 5.         Market for the Registrant's Common Equity and Related Stockholder Matters                   20
Item 6.         Selected Consolidated Financial Data                                                        21
Item 7.         Management's Discussion and Analysis of Financial Condition and Results of Operations       22
Item 7A.        Quantitative and Qualitative Disclosures about Market Risk                                  43
Item 8.         Consolidated Financial Statements and Supplementary Data                                    43
Item 9.         Changes in and Disagreements with Accountants on Accounting and Financial Disclosure        43

PART III

Item 10.        Directors and Executive Officers of the Registrant                                          44
Item 11.        Executive Compensation                                                                      44
Item 12.        Security Ownership of Certain Beneficial Owners and Management                              44
Item 13.        Certain Relationships and Related Transactions                                              44

PART IV

Item 14.        Exhibits, Financial Statement Schedules and Reports on Form 8-K                             44
                Signature(s) Page                                                                           47
                Contents of Consolidated Financial Statements                                              F-1

</TABLE>

<PAGE>

                                     PART I

ITEM 1. BUSINESS

THE COMPANY

     Midwest Banc Holdings, Inc. (the "Company") is a community-based bank
holding company headquartered in Melrose Park, Illinois. The Company, through
its wholly-owned banking subsidiaries, provides a wide range of services,
including traditional banking services, personal and corporate trust services,
residential mortgage services, insurance brokerage and retail securities
brokerage services. The Company's principal operating subsidiaries are four
Illinois community banks: Midwest Bank and Trust Company, Midwest Bank of
Hinsdale, Midwest Bank of McHenry County, and Midwest Bank of Western Illinois
(collectively, the "Banks"). Each of the Banks is chartered as an Illinois state
bank.

     The Banks are community-oriented, full-service commercial banks, providing
traditional banking services to individuals, small-to-medium-sized businesses,
government and public entities and not-for-profit organizations. The Banks
operate out of 18 locations, with 12 banking centers in the greater Chicago
metropolitan area and six banking centers in Western Illinois. Porter Insurance
Agency, Inc., a subsidiary of Midwest Bank of Western Illinois, acts as an
insurance agency for individuals and corporations. First Midwest Data Corp., a
subsidiary of the Company, provides data processing services to the Company and
all of the Banks except Midwest Bank of Western Illinois. Midwest Financial and
Investment Services, Inc., a subsidiary of the Company, provides securities
brokerage services to customers of each of the Banks.

     The Company focuses on establishing and maintaining long-term relationships
with customers and is committed to serving the financial services needs of the
communities it serves. In particular, the Company has emphasized in the past and
intends to continue to emphasize its relationships with individual customers and
small-to-medium-sized businesses. The Company actively evaluates the credit
needs of its markets, including low- and moderate-income areas, and offers
products that are responsive to the needs of its customer base. The markets
served by the Company provide a mix of real estate, commercial and consumer
lending opportunities, as well as a stable core deposit base.

     The Company is a Delaware corporation. The Company was founded in 1983 as a
bank holding company under the Bank Holding Company Act of 1956, as amended, for
Midwest Bank and Trust Company.

     Certain information with respect to the Banks and the Company's nonbank
subsidiaries as of December 31, 2001, is set forth below:


                                       1



<PAGE>

<TABLE>
<CAPTION>
                                                                                                          NUMBER OF
                                                                                                           BANKING
COMPANY SUBSIDIARIES                              HEADQUARTERS            MARKET AREA                CENTERS OR OFFICES
--------------------                              ------------            -----------                ------------------
<S>                                               <C>                     <C>                        <C>
Banks:

Midwest Bank and Trust Company                    Elmwood Park, IL        Chicago, Elmwood                      5
                                                                          Park, Melrose Park,
                                                                          Oak Park, River
                                                                          Forest, Forest Park,
                                                                          Franklin Park, River
                                                                          Grove and Maywood

Midwest Bank of Hinsdale                          Hinsdale, IL            Hinsdale, Downers                     3
                                                                          Grove, Burr Ridge,
                                                                          Westmont, Oak
                                                                          Brook, Clarendon
                                                                          Hills, Roselle and
                                                                          Bloomingdale

Midwest Bank of McHenry County                    Union, IL               Union, Algonquin,                     4
                                                                          Marengo, Crystal
                                                                          Lake, East Dundee,
                                                                          McHenry, Lake in the
                                                                          Hills, Huntley, Island
                                                                          Lake, Wauconda and
                                                                          Carpentersville

Midwest Bank of Western Illinois                  Monmouth, IL            Monmouth,                             6
                                                                          Galesburg, Oquawka,
                                                                          Kirkwood,
                                                                          and Aledo

Nonbanks:

Porter Insurance Agency, Inc.                     Alexis, IL              Western Illinois                      2

First Midwest Data Corp                           Melrose Park, IL        *                                     1

MBHI Capital Trust I                              Melrose Park, IL        **                                   --

Midwest Financial and Investment                  Elmwood Park, IL        ***                                   4
Services, Inc.
</TABLE>

----------
  * Performs data processing services for the Company and all of the Banks,
    except Midwest Bank of Western Illinois.
 ** The trust is a statutory business trust formed as a financing subsidiary
    of the Company.
*** Provides securities brokerage services to consumers and commercial
    business; commenced operations in March 2002.


                                       2



<PAGE>

HISTORY

The Banks

     Midwest Bank and Trust Company was established in 1959 in Elmwood Park to
provide community and commercial banking services to individuals and businesses
in the neighboring western suburbs of Chicago. Midwest Bank and Trust Company
grew in the 1960s and 1970s with the economic development and population
expansion of Elmwood Park, Melrose Park, Forest Park, River Grove, Franklin
Park, and, to a lesser extent, River Forest and Oak Park.

     Midwest Bank and Trust Company's original facility was located at the
corner of North and Harlem Avenues in Elmwood Park, a central point for
residential traffic and commercial business throughout the 1970s. As state
banking regulations permitted, Midwest Bank and Trust Company established a
drive-up facility at the corner of North and Fifth Avenues in Melrose Park in
1978. This facility provided a convenient location to serve business customers,
which were an increasingly important part of the economic development of Melrose
Park at that time. In 1987, this location and surrounding acreage were developed
into Midwest Centre, a commercial office building with a full-service banking
center of Midwest Bank and Trust Company located on its main floor. Midwest
Centre is the Company's current headquarters.

     The Company pursued growth opportunities through acquisitions beginning in
the mid-to-late 1980s. Illinois State Bank of Chicago was acquired in 1986,
providing the Company with a prime downtown Chicago location on South Michigan
Avenue. Illinois State Bank of Chicago was merged into Midwest Bank and Trust
Company in 1991 and is operated as a full-service banking center.

     Midwest Bank and Trust Company added two additional banking centers in
Northwest Chicago on Pulaski Road in 1993 and Addison Street in 1996. Midwest
Bank and Trust Company currently has a network of five full-service banking
centers in diverse markets within Cook County, Illinois.

     The Company acquired the State Bank of Union in McHenry County in 1987 and
changed its name to Midwest Bank of Union in 1991. This acquisition represented
the first bank location for the Company outside of Cook County. The bank was
renamed Midwest Bank of McHenry County in 1994 and opened a full-service banking
center in Algonquin in southeastern McHenry County in August 1994. New banking
centers were opened in Island Lake in 1998 and McHenry in 1999.

     The Company established Midwest Bank of DuPage County in 1991 in Hinsdale.
Midwest Bank of DuPage County was created to develop markets through the opening
of a new banking center. The bank was subsequently renamed Midwest Bank of
Hinsdale in 1991. Midwest Bank of Hinsdale opened a convenience banking center
in 1996 in Downers Grove, Illinois, which has been expanded into a full-service
banking center. A third banking center, in Roselle, Illinois, opened in February
2000.

     In an effort to diversify the Company's core deposit base and develop
profitable growth opportunities at a reasonable cost of market entry, the
Company began an expansion program in West Central Illinois in the early 1990s.
The Company acquired the Bank of Oquawka in Henderson County in 1991 and The
National Bank of Monmouth via a merger with West Central Illinois Bancorp in
1993. Subsequently, the Bank of Oquawka was merged into The National Bank of
Monmouth in 1994. A new full-service banking center was opened in Galesburg in
Knox County in 1996. In 1998, The National Bank of Monmouth converted from a
national bank to an Illinois state chartered bank and changed its name to
Midwest Bank of Western Illinois. On December 18, 1999, Midwest Bank of Western
Illinois acquired the deposits and fixed assets of the Aledo Banking Center of
Associated Bank-Illinois. In January 2001, Midwest Bank of Western Illinois
opened a full service banking center in a grocery store in Monmouth. Midwest
Bank of Western Illinois currently has a network of six banking centers in
Monmouth, Galesburg, Oquawka, Kirkwood, and Aledo.


                                       3



<PAGE>

Nonbank Subsidiaries

     The Company's nonbank subsidiaries were created to support the core retail
and commercial banking activities of the Company and the Banks. First Midwest
Data Corp. was established in 1991 to replace third party data processing
services and provide competitive advantages in terms of service and delivery for
the Banks. First Midwest Data Corp. provides a variety of services to the
Company and all of the Banks, except Midwest Bank of Western Illinois, including
processing of demand deposits, savings accounts, time deposits, loans and
general ledgers, and managing telephone banking and on-line computer services
for retail and commercial customers. Midwest Bank of Western Illinois and Porter
Insurance Agency, Inc. provide their own data processing services.

     Porter Insurance Agency, Inc. was acquired by Midwest Bank of Western
Illinois in 1998 to provide insurance services to customers of the bank. This
subsidiary also maintains an independent customer base that represents more than
85% of its current premiums and commissions.

     In May 2000, the Company formed MBHI Capital Trust I (the "Trust"). The
Trust is a statutory business trust formed under the laws of the State of
Delaware and is wholly owned by the Company. In June 2000, the Trust issued
10.0% preferred securities with an aggregate liquidation amount of $20,000,000
($25 per preferred security) to third-party investors in an underwritten public
offering.

     In March 2002, the Company acquired the assets of Service 1st Financial
Corp. through its newly formed subsidiary, Midwest Financial and Investment
Services, Inc. This subsidiary provides securities brokerage services to both
bank and non-bank customers.


THE BANKS

     The Company functions as a network of autonomous banks with centralized
planning and staff support functions performed at the holding company level.
Each Bank faces different levels and varied types of competition, which are
addressed by the local, decentralized nature of each Bank. The Banks maintain
full responsibility for the day-to-day operations of each banking center,
including lending practices and decision-making, pricing, sales and customer
service. The Banks are supported by centralized staff services provided by the
Company for accounting, auditing, financial and strategic planning, marketing,
human resources, loan review, securities management, retail sales, training, and
regulatory compliance. The Banks, except Midwest Bank of Western Illinois, have
centralized at Midwest Bank and Trust Company their bookkeeping and loan
operations functions.

     Set forth below is selected financial and other information for each Bank
for the year ended December 31, 2001.

<TABLE>
<CAPTION>
                                                       TOTAL               TOTAL           NET
                                                       ASSETS              EQUITY         INCOME
                                                       ------              ------         ------
                                                                       (IN THOUSANDS)
<S>                                                   <C>               <C>               <C>
Midwest Bank and Trust Company                        $755,103            $50,226         $10,370
Midwest Bank of Hinsdale                               425,478             25,841           4,454
Midwest Bank of McHenry County                         370,131             24,080           4,061
Midwest Bank of Western Illinois(1)                    253,249             18,273           2,077
</TABLE>

----------
(1) Includes net income of Porter Insurance Agency, Inc.

     The Banks accounted for nearly 99.7% of the assets and virtually all the
net income of the Company as of and for the years ended 2001, 2000, and 1999.


                                       4



<PAGE>

MARKETS

     The Banks operate in broadly diverse markets, with varying levels and
growth rates of economic development and activity. Population trends, geographic
density, and the demographic mix vary by market. The largest segments of the
Company's customer base live and work in relatively mature markets in Cook,
DuPage and McHenry Counties and West Central Illinois. The market in Hinsdale is
a more affluent and upwardly mobile segment with a higher percentage of
white-collar professionals.

     The Company considers its primary market areas to be those areas
immediately surrounding its offices for retail customers and generally within a
10-20 mile radius of each Bank for commercial relationships. The Banks operate
out of 12 full-service locations in the Chicago metropolitan area and six
offices in West Central Illinois. Accordingly, the Company's business extends
throughout the Chicago metropolitan area and Western Illinois, but is highly
concentrated in the areas in which the Banks' offices are located. The
communities in which the Banks' offices are located have a broad spectrum of
demographic characteristics. These communities include a number of densely
populated areas as well as rural areas, and some extremely high-income areas as
well as many middle-income and some low-to-moderate income areas.


STRATEGY

     The Company believes that its continued success is dependent on its ability
to provide its customers value-added retail and commercial banking programs and
other financial products and services which are delivered by experienced,
committed banking professionals operating under the highest standards of
customer service. The growth strategy of the Company is to increase its core
banking business, develop its insurance and retail brokerage activities, and
expand into new markets and diversify the financial services it offers. The
Company's strategy includes the following objectives: (i) maintain high levels
of customer service; (ii) increase market share within existing markets and
expand into new markets; (iii) enhance cross-selling of value-added products and
services; (iv) maintain a competitive position in product development and
marketing; (v) increase the revenue base of nonbank financial services
subsidiaries; (vi) increase existing loan-to-deposit ratios of the Banks and
(vii) expand funding sources for liquidity and interest rate risk management.
Management believes that these strategies, which are subject to change at any
time based upon market conditions, will support the continued profitable growth
of the Company.

     The Company has established the following performance goals for the years
2001 - 2003: (1) annual growth in earning assets of 8.0% to 12.0%; (2) annual
growth in income of 12.0% to 15.0%; (3) average annual growth in diluted
earnings per share of 12.0% to 15.0%; (4) return on average assets of 1.05% to
1.15%; and (5) return on average equity of 16.0% to 18.0%. For 2001, the Company
either met or exceeded each of these five performance goals. The Company has
revised and extended through 2004 its performance goals as follows: (1) annual
growth of earning assets of 10.0% to 12.0%; (2) annual growth in income of 12.0%
to 15.0%; (3) average annual growth in diluted earnings per share of 12.0% to
15.0%; (4) return on average assets of 1.10% to 1.20%; and (5) return on average
equity of 16.0 to 20.0%. The Company has established the following specific
goals for fiscal 2002: (1) diluted earnings per share of $2.00; (2) total assets
of $2 billion; (3) net interest margin on a tax-equivalent basis of 3.50%; and
(4) return on average equity of 20.0%. Management anticipates that without any
material deterioration in asset quality and economic conditions, these targets
are attainable, though it cannot make any guarantee that actual results will
meet or exceed these goals.


                                       5
<PAGE>

PRODUCTS AND SERVICES

Deposit Products

     Management believes the Company and the Banks offer competitive deposit
products and programs which address the needs of customers in each of the local
markets served. These products include:

     Checking and NOW Accounts. The Company has developed a range of different
checking account products designed and priced to meet specific target segments
(e.g., Free Checking and Small Business Checking) of the local markets served by
each Bank. The Company offers several types of premium rate NOW accounts with
interest rates indexed to the prime rate or the 91-day U.S. Treasury bill rate.

     Savings and Money Market Accounts. The Company offers multiple types of
money market accounts with interest rates indexed to the 91-day U.S. Treasury
bill rate as well as various types of savings accounts.

     Time Deposits. The Company offers a wide range of innovative time deposits
(including traditional and Roth Individual Retirement Accounts), usually offered
at premium rates with special features to protect the customer's interest
earnings in changing interest rate environments.


Lending Services

     The Company's loan portfolio consists of commercial loans, commercial real
estate loans, agricultural loans, consumer real estate loans (including home
equity lines of credit), and consumer installment loans. Management emphasizes
sound credit analysis and loan documentation. Management also seeks to avoid
undue concentrations of loans to a single industry or based on a single class of
collateral. Management requires personal guarantees of the principals except on
cash secured, state or political subdivision, or non-for-profit loans. The
Company has focused its efforts on building its lending business in the
following areas:

     Commercial Loans. Commercial and individual loans are made to small- to
medium-sized businesses that are sole proprietorships, partnerships and
corporations. Generally, these loans are secured with collateral including
accounts receivable, inventory and equipment, and require personal guarantees of
the principals. Frequently, these loans are further secured with real estate
collateral.

     Commercial Real Estate Loans. Commercial real estate loans include loans
for acquisition, development and construction of real estate which are secured
by the real estate involved, and other loans secured by farmland, commercial
real estate, multifamily residential properties and other nonfarm,
nonresidential properties. Loans are generally short-term balloon loans and
adjustable rate mortgages with initial fixed terms of one to five years.

     Agricultural Loans. A relatively small but important segment of the loan
portfolio consists of farm crop production loans on a seasonal basis, machinery
and equipment loans of a medium term nature and longer-term real estate loans to
purchase acreage. Farm production loans are concentrated primarily in corn and
bean crops, with only a small portion tied to livestock. Midwest Bank of Western
Illinois is a major agribusiness lender in West Central Illinois and Midwest
Bank of McHenry County has a small agricultural loan portfolio in Northern
Illinois.

     Consumer Real Estate Loans. Consumer real estate loans are made to finance
residential units that will house from one to four families. While the Company
originates both fixed and adjustable rate consumer real estate loans, most one-
to five-year adjustable rate loans originated pursuant to Fannie Mae and Freddie
Mac guidelines are sold in the secondary market. In the normal course of
business, the


                                       6
<PAGE>

Company retains medium-term fixed-rate loans. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation."

     Home equity lines of credit, included within the Company's consumer real
estate loan portfolio, are secured by the borrower's home and can be drawn on at
the discretion of the borrower. These lines of credit are generally at variable
interest rates. When made, home equity lines, combined with the outstanding loan
balance of prior mortgage loans, generally do not exceed 80% of the appraised
value of the underlying real estate collateral.

     Consumer Loans. Consumer loans (other than consumer real estate loans) are
collateralized loans to individuals for various personal reasons such as
automobile financing and home improvements.

     Lending officers are assigned various levels of loan approval authority
based upon their respective levels of experience and expertise. Loan approval is
also subject to the Company's formal loan policy, as established by each Bank's
Board of Directors, and to the concurrence of an officers' credit committee (or
the Bank's Board of Directors or a committee of the Board) in addition to the
recommendation of the lending officer. This system is intended to assure that
commercial credit requests are subjected to independent objective review on at
least two different levels.


ATMs

     The Banks maintain a network of 26 ATM sites generally located within the
Banks' local markets. All except two off-site ATMs are owned by the Banks.
Eighteen of the ATM sites are located at various banking centers and are
maintained off-site at hotels, supermarkets, and schools.


Trust Activities

     Midwest Bank and Trust Company and Midwest Bank of Western Illinois offer
land trusts, personal trusts, custody accounts, retirement plan services, and
corporate trust services. As of December 31, 2001, the Trust Department of
Midwest Bank and Trust Company maintained trust relationships representing an
aggregate market value of $135.8 million in assets with an aggregate book value
of $131.0 million. In addition, the Trust Department of Midwest Bank and Trust
Company administered 1,974 land trust accounts as of December 31, 2001. Midwest
Bank of Western Illinois also provides trust services to its customers and
maintained trust accounts with an aggregate market value of $49.0 million and an
aggregate book value of $35.7 million as of December 31, 2001.


Insurance Services

     Porter Insurance Agency, Inc. is a full line independent insurance agency
acquired by Midwest Bank of Western Illinois in 1998. Concentrating in
agricultural-related insurance products, Porter Insurance Agency, Inc. is one of
the largest writers of crop hail insurance in Western Illinois. Its services
also include individual health care contracts and homeowners' insurance, as well
as commercial and retail automobile insurance for individuals, new car
dealerships, and commercial trucking fleets.


                                       7
<PAGE>

Securities Brokerage

     Securities brokerage services have been provided through arrangements with
an independent regional brokerage firm, Service 1st Financial Corp., which has
been operating for 13 years in our banking franchise. Licensed brokers are
located at four banking centers and provide investment-related services,
including securities trading, financial planning, mutual funds sales, fixed and
variable rate annuities, and tax-exempt and conventional unit trusts. In March
2002, the Company's newly formed subsidiary, Midwest Financial and Investment
Services, Inc., purchased certain assets of Service 1st Financial Corp. and
commenced brokerage activities through the banks' investment centers. The
projected income from the addition of this brokerage line of business is
expected to increase the Company's overall other income. This acquisition is
expected to further one of the Company's strategic goals of increasing revenues
from non-traditional sources and to enhance the Company's net income in the
current year, though there is no guaranty that actual results will be attained.


COMPETITION

     The Company competes in the financial services industry through the Banks,
Porter Insurance Agency, Inc., and Midwest Financial and Investment Services,
Inc. The financial services business is highly competitive. The Company
encounters strong direct competition for deposits, loans and other financial
services. The Company's principal competitors include other commercial banks,
savings banks, savings and loan associations, mutual funds, money market funds,
finance companies, credit unions, mortgage companies, insurance companies and
agencies, private issuers of debt obligations and suppliers of other investment
alternatives, such as securities firms.

     In addition, in recent years, several major multibank holding companies
have entered or expanded in the Chicago metropolitan market. Generally, these
financial institutions are significantly larger than the Company and have access
to greater capital and other resources. In addition, many of the Company's
nonbank competitors are not subject to the same degree of regulation as that
imposed on bank holding companies, federally insured banks and Illinois
chartered banks. As a result, such nonbank competitors have advantages over the
Company in providing certain services.

     The Company addresses these competitive challenges by creating market
differentiation and by maintaining an independent community bank presence with
local decision-making within its markets. The Banks compete for deposits
principally by offering depositors a variety of deposit programs, convenient
office locations and hours and other services. The Banks compete for loan
originations primarily through the interest rates and loan fees they charge, the
efficiency and quality of services they provide to borrowers, the variety of
their loan products and their trained staff of professional bankers.

     The Company competes for qualified personnel by offering competitive levels
of compensation, management and employee cash incentive programs, and by
augmenting compensation with stock options pursuant to its stock option plan.
Attracting and retaining high quality employees is important in enabling the
Company to compete effectively for market share.


EMPLOYEES

     As of December 31, 2001, the Company and its subsidiaries had 364 full-time
equivalent employees. Management considers its relationship with its employees
to be good.


                                       8

<PAGE>


                           SUPERVISION AND REGULATION

     Bank holding companies and banks are extensively regulated under federal
and state law. References under this heading to applicable statutes or
regulations are brief summaries of portions thereof which do not purport to be
complete and which are qualified in their entirety by reference to those
statutes and regulations. Any change in applicable laws or regulations may have
a material adverse effect on the business of commercial banks and bank holding
companies, including the Company and the Banks. However, management is not aware
of any current recommendations by any regulatory authority which, if
implemented, would have or would be reasonably likely to have a material effect
on the liquidity, capital resources or operations of the Company or the Banks.
Finally, please remember that the supervision, regulation and examination of
banks and bank holding companies by bank regulatory agencies are intended
primarily for the protection of depositors rather than stockholders of banks and
bank holding companies.


BANK HOLDING COMPANY REGULATION

     The Company is registered as a "bank holding company" with the Federal
Reserve and, accordingly, is subject to supervision and regulation by the
Federal Reserve under the Bank Holding Company Act (the Bank Holding Company Act
and the regulations issued thereunder are collectively referred to as the "BHC
Act"). The Company is required to file with the Federal Reserve periodic reports
and such additional information as the Federal Reserve may require pursuant to
the BHC Act. The Federal Reserve examines the Company and the Banks, and may
examine Porter Insurance Agency, Inc., MBHI Capital Trust I, Midwest Financial
and Investment Services, Inc. and First Midwest Data Corp.

     The BHC Act requires prior Federal Reserve approval for, among other
things, the acquisition by a bank holding company of direct or indirect
ownership or control of more than 5% of the voting shares or substantially all
the assets of any bank, or for a merger or consolidation of a bank holding
company with another bank holding company. With certain exceptions, the BHC Act
prohibits a bank holding company from acquiring direct or indirect ownership or
control of voting shares of any company which is not a bank or bank holding
company and from engaging directly or indirectly in any activity other than
banking or managing or controlling banks or performing services for its
authorized subsidiaries. A bank holding company may, however, engage in or
acquire an interest in a company that engages in activities which the Federal
Reserve has determined, by regulation or order, to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto,
such as owning and operating the data processing operations of First Midwest
Data Corp. Under the BHC Act, the Company and the Banks are prohibited from
engaging in certain tie-in arrangements in connection with an extension of
credit, lease, sale of property or furnishing of services. That means that,
except with respect to traditional banking products, the Company may not
condition a customer's purchase of one of its services on the purchase of
another service. The passage of the Gramm-Leach-Bliley Act, however, allows bank
holding companies to become financial holding companies. Financial holding
companies do not face the same prohibitions on entering into certain business
transactions that bank holding companies currently face.

     Under the Illinois Banking Act, any person who acquires more than 10% of
the Company's stock may be required to obtain the prior approval of the
Commissioner of the Illinois Office of Banks and Real Estate (the "Illinois
Commissioner"). Under the Change in Bank Control Act, a person may be required
to obtain the prior approval of the Federal Reserve before acquiring the power
to directly or indirectly control the management, operations or policies of the
Company or before acquiring 10% or more of any class of its outstanding voting
stock.

     It is the policy of the Federal Reserve that the Company is expected to act
as a source of financial strength to the Banks and to commit resources to
support the Banks. The Federal Reserve takes the position that in implementing
this policy, it may require the Company to provide such support when the Company
otherwise would not consider itself able to do so.

     The Federal Reserve has adopted risk-based capital requirements for
assessing bank holding company capital adequacy. These standards define
regulatory capital and establish minimum capital


                                      9



<PAGE>

ratios in relation to assets, both on an aggregate basis and as adjusted for
credit risks and off-balance sheet exposures. The Federal Reserve's risk-based
guidelines apply on a consolidated basis for bank holding companies with
consolidated assets of $150 million or more and on a "bank-only" basis for bank
holding companies with consolidated assets of less than $150 million, subject to
certain terms and conditions. Under the Federal Reserve's risk-based guidelines,
capital is classified into two categories. For bank holding companies, Tier 1,
or "core", capital consists of common stockholders' equity, qualifying
noncumulative perpetual preferred stock (including related surplus), qualifying
cumulative perpetual preferred stock (including related surplus) (subject to
certain limitations) and minority interests in the common equity accounts of
consolidated subsidiaries, and is reduced by goodwill, and specified intangible
assets ("Tier 1 Capital"). Tier 2, or "supplementary" capital consists of the
allowance for loan and lease losses, perpetual preferred stock and related
surplus, "hybrid capital instruments," unrealized holding gains on equity
securities, perpetual debt and mandatory convertible debt securities, and term
subordinated debt and intermediate-term preferred stock, including related
surplus.

     Under the Federal Reserve's capital guidelines, bank holding companies are
required to maintain a minimum ratio of qualifying total capital to
risk-weighted assets of 8%, of which at least 4% must be in the form of Tier 1
Capital. The Federal Reserve also requires a minimum leverage ratio of Tier 1
Capital to total assets of 3% for strong bank holding (those rated a composite
"1" under the Federal Reserve's rating system). For all other bank holding
companies, the minimum ratio of Tier 1 capital to total assets is 4%. In
addition, the Federal Reserve continues to consider the Tier 1 leverage ratio in
evaluating proposals for expansion or new activities.

     In its capital adequacy guidelines, the Federal Reserve emphasizes that the
foregoing standards are supervisory minimums and that banking organizations
generally are expected to operate well above the minimum ratios. These
guidelines also provide that banking organizations experiencing growth, whether
internally or by making acquisitions, are expected to maintain strong capital
positions substantially above the minimum levels.

     As of December 31, 2001, the Company had regulatory capital in excess of
the Federal Reserve's minimum requirements. The Company had a total capital to
risk-weighted assets ratio of 10.8% and a Tier 1 capital to risk-weighted assets
ratio of 9.9% and a leverage ratio of 6.6% as of December 31, 2001.

     As a holding company, the Company is primarily dependent upon dividend
distributions from its operating subsidiaries for its income. Federal and state
statutes and regulations impose restrictions on the payment of dividends by the
Company and the Banks.

     Federal Reserve policy provides that a bank holding company should not pay
dividends unless (i) the bank holding company's net income over the prior year
is sufficient to fully fund the dividends and (ii) the prospective rate of
earnings retention appears consistent with the capital needs, asset quality and
overall financial condition of the bank holding company and its subsidiaries.

     Delaware law also places certain limitations on the ability of the Company
to pay dividends. For example, the Company may not pay dividends to its
stockholders if, after giving effect to the dividend, the Company would not be
able to pay its debts as they become due. Because a major source of the
Company's revenues is dividends the Company receives and expects to receive from
the Banks, the Company's ability to pay dividends is likely to be dependent on
the amount of dividends paid by the Banks. No assurance can be given that the
Banks will, in any circumstances, pay such dividends to the Company on their
stock.

     On November 12, 1999, the Gramm-Leach-Bliley Act (the "GLB Act") was
enacted. The GLB Act amended or repealed certain provisions of the
Glass-Steagall Act and other legislation that restricted the ability of bank
holding companies, securities firms, and insurance companies to affiliate with
one another. The GLB Act establishes a comprehensive framework to permit
affiliations among commercial banks, insurance companies and securities firms.
Further, the GLB Act expanded the range of activities in which bank holding
companies may engage by allowing certain well managed and well capitalized

                                       10



<PAGE>

bank holding companies to be designated as "financial holding companies." In
addition, the GLB Act contains provisions intended to safeguard consumer
financial information in the hands of financial service providers by, among
other things, requiring such entities to disclose their privacy policies to
their customers and allowing customers to "opt out" of having their financial
service providers disclose their confidential financial information to
non-affiliated third parties, subject to certain exceptions. Final regulations
implementing the new financial privacy regulations become effective during 2001.
Similar to most other consumer-oriented laws, the regulations contain some
specific prohibitions and require timely disclosures of certain information. The
Company has devoted what it believes are sufficient resources to comply with
these new requirements. It is not anticipated that the GLB Act will have a
material adverse effect on the operations or prospects of the Company and its
subsidiaries. However, to the extent the GLB Act permits banks, securities firms
and insurance companies to affiliate, the financial services industry may
experience further consolidation. This consolidation could result in a growing
number of larger financial institutions that offer a wider variety of financial
services than the Company currently offers and that can aggressively compete in
the markets the Company currently serves.


BANK REGULATION

     Under Illinois law, the Banks are subject to supervision and examination by
the Illinois Commissioner. Each of the Banks is a member of the Federal Reserve
System and as such is also subject to examination by the Federal Reserve. The
Federal Reserve also supervises compliance with the provisions of federal law
and regulations, which place restrictions on loans by member banks to their
directors, executive officers and other controlling persons. Each Bank is also a
member of the FHLB of Chicago and may be subject to examination by the FHLB of
Chicago. As affiliates of the Banks, the Company and Porter Insurance Agency,
Inc. are also subject to examination by the Federal Reserve.

     The deposits of the Banks are insured by the Bank Insurance Fund ("BIF")
under the provisions of the Federal Deposit Insurance Act (the "FDIA"), and the
Banks are, therefore, also subject to supervision and examination by the FDIC.
The FDIA requires that the appropriate federal regulatory authority approve any
merger and/or consolidation by or with an insured bank, as well as the
establishment or relocation of any bank or branch office. The FDIA also gives
the Federal Reserve and other federal bank regulatory agencies power to issue
cease and desist orders against either banks, holding companies or person
regarded as "institution affiliated parties." A cease and desist order can
either prohibit such entities from engaging in certain unsafe and unsound bank
activity or can require them to take certain affirmative action.

     Furthermore, banks are affected by the credit policies of other monetary
authorities, including the Federal Reserve, which regulate the national supply
of bank credit. Such regulation influences overall growth of bank loans,
investments and deposits and may also affect interest rates charged on loans and
paid on deposits. The monetary policies of the Federal Reserve have had a
significant effect on the operating results of commercial banks in the past and
are expected to continue to do so in the future.


FINANCIAL INSTITUTION REGULATION

     Transactions with Affiliates. Transactions between a bank and its holding
company or other affiliates are subject to various restrictions imposed by state
and federal regulatory agencies. Such transactions include loans and other
extensions of credit, purchases of securities and other assets and payments of
fees or other distributions. In general, these restrictions limit the amount of
transactions between a bank and an affiliate of such bank, as well as the
aggregate amount of transactions between a bank and all of its affiliates,
impose collateral requirements in some cases and require transactions with
affiliates to be on terms comparable to those for transactions with unaffiliated
entities.

     Dividend Limitations. As state member banks, none of the Banks may, without
the approval of the Federal Reserve, declare a dividend if the total of all
dividends declared in a calendar year exceeds the total of its net income for
that year, combined with its retained net income of the preceding two years,
less any required transfers to the surplus account. Under Illinois law, none of
the Banks may pay dividends in an amount greater than its net profits then on
hand, after deducting losses and bad debts.


                                       11



<PAGE>


For the purpose of determining the amount of dividends that an Illinois bank may
pay, bad debts are defined as debts upon which interest is past due and unpaid
for a period of six months or more, unless such debts are well-secured and in
the process of collection.

     In addition to the foregoing, the ability of the Company and the Banks to
pay dividends may be affected by the various minimum capital requirements and
the capital and noncapital standards established under the Federal Deposit
Insurance Corporation Improvements Act of 1991 ("FDICIA"), as described below.
The right of the Company, its stockholders and its creditors to participate in
any distribution of the assets or earnings of its subsidiaries is further
subject to the prior claims of creditors of the respective subsidiaries.

     Capital Requirements. State member banks are required by the Federal
Reserve to maintain a minimum primary capital to total asset ratio of 5.5% and a
minimum total capital to total assets ratio of 6%. Primary capital consists of
common stock, perpetual preferred stock, surplus (excluding surplus relating to
limited-life preferred stock), undivided profits, contingency and other capital
reserves, mandatory convertible instruments, allowance for loan and lease
losses, and minority interests in equity accounts of consolidated subsidiaries.
Total capital consists of primary capital as well as limited-life preferred
stock, and bank subordinated notes and debentures and unsecured long-term debt
of a parent company and its subsidiaries. The Federal Reserve has created three
different zones into which a bank's total capital ratio may fall. Total capital
ratios exceeding 7% fall into Zone 1, total capital ratios ranging from 6% to 7%
fall into Zone 2, and total capital ratios below 6% fall into Zone 3. The nature
and intensity of Federal Reserve supervisory action over a bank will be
determined by a bank's primary capital ratio as well as the zone in which a
bank's total capital ratio falls. Banks with total capital ratios in Zone 2 and
Zone 3 will be more closely monitored and banks with total capital ratios in
Zone 3 have to submit a comprehensive capital plan to the Federal Reserve. Banks
with either a primary capital ratio below 5.5% or a total capital ratio in Zone
3 will be considered undercapitalized, unless they can show clear extenuating
circumstances.

     Each of the Banks has a Tier 1 capital to risk-weighted assets ratio and a
total capital to risk-weighted assets ratio which meets the above requirements.
Midwest Bank and Trust Company has a Tier 1 capital to risk-weighted assets
ratio of 10.3% and a total capital to risk-weighted assets ratio of 11.2%.
Midwest Bank of Hinsdale has a Tier 1 capital to risk-weighted assets ratio of
9.2% and a total capital to risk-weighted assets ratio of 10.1%. Midwest Bank of
McHenry County has a Tier 1 capital to risk-weighted assets ratio of 10.6% and a
total capital to risk-weighted assets ratio of 11.6%. Midwest Bank of Western
Illinois has a Tier 1 capital to risk-weighted assets ratio of 10.7% and a total
capital to risk-weighted assets ratio of 11.6%.

     Standards for Safety and Soundness. The FDIA, as amended by FDICIA and the
Riegle Community Development and Regulatory Improvement Act of 1994 requires the
Federal Reserve, together with the other federal bank regulatory agencies, to
prescribe standards of safety and soundness, by regulations or guidelines,
relating generally to operations and management, asset growth, asset quality,
earnings, stock valuation and compensation. The Federal Reserve and the other
federal bank regulatory agencies have adopted a set of guidelines prescribing
safety and soundness standards pursuant to FDICIA, as amended. The guidelines
establish general standards relating to internal controls and information
systems, internal audit systems, loan documentation, credit underwriting,
interest rate exposure, asset growth and compensation, fees and benefits. In
general, the guidelines require, among other things, appropriate systems and
practices to identify and manage the risks and exposures specified in the
guidelines. The guidelines prohibit excessive compensation as an unsafe and
unsound practice and describe compensation as excessive when the amounts paid
are unreasonable or disproportionate to the services performed by an executive
officer, employee, director or principal shareholder. In addition, the Federal
Reserve adopted regulations that authorize, but do not require, the Federal
Reserve to order an institution that has been given notice by the Federal
Reserve that it is not satisfying any of such safety and soundness standards to
submit a compliance plan. If, after being so notified, an institution fails to
submit an acceptable compliance plan or fails in any material respect to
implement an accepted compliance plan, the Federal Reserve must issue an order
directing action to correct the deficiency and may issue an order directing
other actions of the types to which an undercapitalized association is subject
under the "prompt


                                       12


<PAGE>


corrective action" provisions of FDICIA. If an institution fails to comply with
such an order, the Federal Reserve may seek to enforce such order in judicial
proceedings and to impose civil money penalties. The Federal Reserve and the
other federal bank regulatory agencies also adopted guidelines for asset quality
and earnings standards.

     A range of other provisions in FDICIA include requirements applicable to
closure of branches; additional disclosures to depositors with respect to terms
and interest rates applicable to deposit accounts; uniform regulations for
extensions of credit secured by real estate; restrictions on activities of and
investments by state-chartered banks; modification of accounting standards to
conform to generally accepted accounting principles including the reporting of
off-balance sheet items and supplemental disclosure of estimated fair market
value of assets and liabilities in financial statements filed with the banking
regulators; increased penalties in making or failing to file assessment reports
with the FDIC; greater restrictions on extensions of credit to directors,
officers and principal stockholders; and increased reporting requirements on
agricultural loans and loans to small businesses.

     In addition, the Federal Reserve, FDIC and other federal banking agencies
adopted a final rule , which modified the risk-based capital standards to
provide for consideration of interest rate risk when assessing the capital
adequacy of a bank. Under this rule, the Federal Reserve and the FDIC must
explicitly include a bank's exposure to declines in the economic value of its
capital due to changes in interest rates as a factor in evaluating a bank's
capital adequacy. The Federal Reserve, the FDIC and other federal banking
agencies also have adopted a joint agency policy statement providing guidance to
banks for managing interest rate risk. The policy statement emphasizes the
importance of adequate oversight by management and a sound risk management
process. The assessment of interest rate risk management made by the banks'
examiners will be incorporated into the banks' overall risk management rating
and used to determine the effectiveness of management.

     Prompt Corrective Action. FDICIA requires the federal banking regulators,
including the Federal Reserve and the FDIC, to take prompt corrective action
with respect to depository institutions that fall below minimum capital
standards and prohibits any depository institution from making any capital
distribution that would cause it to be undercapitalized. Institutions that are
not adequately capitalized may be subject to a variety of supervisory actions
including, but not limited to, restrictions on growth, investment activities,
capital distributions and affiliate transactions and will be required to submit
a capital restoration plan which, to be accepted by the regulators, must be
guaranteed in part by any company having control of the institution (such as the
Company). In other respects, FDICIA provides for enhanced supervisory authority,
including greater authority for the appointment of a conservator or receiver for
undercapitalized institutions. The capital-based prompt corrective action
provisions of FDICIA and their implementing regulations apply to FDIC-insured
depository institutions. However, federal banking agencies have indicated that,
in regulating bank holding companies, the agencies may take appropriate action
at the holding company level based on their assessment of the effectiveness of
supervisory actions imposed upon subsidiary insured depository institutions
pursuant to the prompt corrective action provisions of FDICIA.

     Insurance of Deposit Accounts. Under FDICIA, as a FDIC-insured institution,
each of the Banks is required to pay deposit insurance premiums based on the
risk it poses to the insurance fund. The FDIC has authority to raise or lower
assessment rates on insured deposits in order to achieve statutorily required
reserve ratios in the insurance funds and to impose special additional
assessments. Each depository institution is assigned to one of three capital
groups: "well capitalized," "adequately capitalized" or "undercapitalized" An
institution is considered well capitalized if it has a total risk-based capital
ratio of 10% or greater, has a Tier 1 risk-based capital ratio of 6% or greater,
has leverage ratio of 5% or greater and is not subject to any order or written
directive to meet and maintain a specific capital level. An "adequately
capitalized" institution is defined as one that has a total risk-based capital
ratio of 8% or greater, has a Tier 1 risk-based capital ratio of 4% or greater,
has a leverage rate of 4% or greater and does not meet the definition of a well
capitalized bank. An institution is considered "undercapitalized" if it does not
meet the definition of "well-capitalized" or "adequately capitalized." Within
each capital group, institutions are assigned to one of three supervisory
subgroups: "A" (institutions with few minor weaknesses), "B" (institutions which
demonstrate weaknesses which, if not


                                       13


<PAGE>


corrected, could result in significant deterioration of the institution and
increased risk of loss to BIF), and "C" (institutions that pose a substantial
probability of loss to BIF unless effective corrective action is taken).
Accordingly, there are nine combinations of capital groups and supervisory
subgroups to which varying assessment rates would be applicable. An
institution's assessment rate depends on the capital category and supervisory
category to which it is assigned.

     During 2001, the Banks were assessed deposit insurance in the aggregate
amount of $205,000. Deposit insurance may be terminated by the FDIC upon a
finding that an institution has engaged in unsafe or unsound practices, is in an
unsafe or unsound condition or has violated any applicable law, regulation,
rule, order or condition imposed by the FDIC. Such terminations can only occur,
if contested, following judicial review through the federal courts. The
management of each of the Banks does not know of any practice, condition or
violation that might lead to termination of deposit insurance.

     The Economic Growth and Regulatory Paperwork Reduction Act of 1996 provides
that beginning with semi-annual periods after December 31, 1996, Bank Insurance
Fund deposits will also be assessed to pay interest on the bonds issued in the
late 1980s by the Financing Corporation (the "FICO Bonds") to recapitalize the
now defunct Federal Savings & Loan Insurance Corporation. For purposes of the
assessments to pay interest on the FICO Bonds, BIF deposits were assessed at a
rate of 20% of the assessment rate applicable to SAIF deposits until December
31, 1999. After December 31, 1999, full pro rata sharing of FICO assessments
began. It has been estimated that the rates of assessment for the payment of
interest on the FICO Bonds will be approximately 1.3 basis points for
BIF-assessable deposits and approximately 6.4 basis points for SAIF-assessable
deposits. The payment of the assessment to pay interest on the FICO Bonds should
not materially affect the Banks.

     Federal Reserve System. The Banks are subject to Federal Reserve
regulations requiring depository institutions to maintain non-interest-earning
reserves against their transaction accounts (primarily NOW and regular checking
accounts). The Federal Reserve regulations generally require 3% reserves on the
first $44.3 million of transaction accounts and 10% on the remainder. The first
$5.0 million of otherwise reservable balances (subject to adjustments by the
Federal Reserve) are exempted from the reserve requirements. The Banks are in
compliance with the foregoing requirements.

     Community Reinvestment. Under the Community Reinvestment Act ("CRA"), a
financial institution has a continuing and affirmative obligation, consistent
with the safe and sound operation of such institution, to help meet the credit
needs of its entire community, including low- and moderate-income neighborhoods.
The CRA does not establish specific lending requirements or programs for
financial institutions nor does it limit an institution's discretion to develop
the types of products and services that it believes are best suited to its
particular community, consistent with the CRA. However, institutions are rated
on their performance in meeting the needs of their communities. Performance is
judged in three areas: (a) a lending test, to evaluate the institution's record
of making loans in its assessment areas; (b) an investment test, to evaluate the
institution's record of investing in community development projects, affordable
housing and programs benefiting low or moderate income individuals and business;
and (c) a service test to evaluate the institution's delivery of services
through its branches, ATMs and other offices. The CRA requires each federal
banking agency, in connection with its examination of a financial institution,
to assess and assign one of four ratings to the institution's record of meeting
the credit needs of its community and to take such record into account in its
evaluation of certain applications by the institution, including applications
for charters, branches and other deposit facilities, relocations, mergers,
consolidations, acquisitions of assets or assumptions of liabilities and savings
and loan holding company acquisitions. The CRA also requires that all
institutions make public disclosure of their CRA ratings. Each of the Banks
received "satisfactory" ratings on its most recent CRA performance evaluation.

     Consumer Compliance. Each Bank has been examined for consumer compliance on
a regular basis. As a result of these exams, Midwest Bank and Trust Company has
reached a mutual understanding with the Federal Reserve as to certain remedial
steps the Bank will take to address its less than satisfactory performance with
respect to several consumer statutes and regulations. The Bank's board of
directors has


                                       14


<PAGE>


directed the management of the Bank to correct any identified deficiencies and
to comply with the Federal Reserve's recommendations for improving the Bank's
consumer compliance systems. Management of the Bank and the Company believe they
have initiated the necessary actions to appropriately address any identified
deficiencies and to improve the performance of the Bank to a satisfactory level.
The failure to appropriately address these identified deficiencies, over time,
could impact the Company's ability to implement all of its growth strategies.

     Brokered Deposits. Well-capitalized institutions are not subject to
limitations on brokered deposits, while an adequately capitalized institution is
able to accept, renew or rollover brokered deposits only with a waiver from the
FDIC and subject to certain restrictions on the yield paid on such deposits.
Undercapitalized institutions are not permitted to accept brokered deposits.

     Enforcement Actions. Federal and state statutes and regulations provide
financial institution regulatory agencies with great flexibility to undertake
enforcement action against an institution that fails to comply with regulatory
requirements, particularly capital requirements. Possible enforcement actions
range from the imposition of a capital plan and capital directive to civil money
penalties, cease and desist orders, receivership, conservatorship or the
termination of deposit insurance.

     Interstate Banking and Branching Legislation. Under the Interstate Banking
and Efficiency Act of 1994 (the "Interstate Banking Act"), adequately
capitalized and adequately managed bank holding companies are allowed to acquire
banks across state lines subject to certain limitations. In addition, under the
Interstate Banking Act, banks are permitted, under some circumstances, to merge
with one another across state lines and thereby create a main bank with branches
in separate states. After establishing branches in a state through an interstate
merger transaction, a bank may establish and acquire additional branches at any
location in the state where any bank involved in the interstate merger could
have established or acquired branches under applicable federal and state law.

     While the State of Illinois has adopted legislation "opting in" to
interstate bank mergers, it did not allow out of state banks to enter the
Illinois market through de novo branching or through branch-only acquisitions.
Since many states ("host states") allow out-of-state banks to enter a host state
by de novo branching or branch-only acquisitions only if the banks of the host
state are afforded reciprocal treatment in the other state, the Banks have
limited opportunities to expand in other states except through whole bank or
bank holding company acquisitions. It is anticipated that this interstate merger
and branching ability will increase competition and further consolidate the
financial institutions industry.

     Insurance Powers. Under state law, a state bank is authorized to act as
agent for any fire, life or other insurance company authorized to do business in
the State of Illinois. Similarly, the Illinois Insurance Code was amended to
allow a state bank to form a subsidiary for the purpose of becoming a firm
registered to sell insurance. Such sales of insurance by a state bank may only
take place through individuals who have been issued and maintain an insurance
producer's license pursuant to the Illinois Insurance Code.

     State banks are prohibited from assuming or guaranteeing any premium on an
insurance policy issued through the bank. Moreover, state law expressly
prohibits tying the provision of any insurance product to the making of any loan
or extension of credit and requires state banks to make disclosures of this fact
in some instances. Other consumer oriented safeguards are also required.

     In October 1998, Midwest Bank of Western Illinois acquired the Porter
Insurance Agency, Inc. Porter Insurance Agency, Inc. is a subsidiary of Midwest
Bank of Western Illinois and is a full-lines insurance agency. Porter Insurance
Company, Inc. is registered with, and subject to examination by, the Illinois
Department of Insurance, and the Company believes that each is operating in
compliance with applicable laws of the State of Illinois.


                                       15


<PAGE>


     Securities Brokerage. Midwest Financial and Investment Services, Inc., a
subsidiary of the Company, is licensed as a retail securities broker and is
subject to regulation by the Securities and Exchange Commission, state
securities authorities, and National Association of Securities Dealers.


MONETARY POLICY AND ECONOMIC CONDITIONS

     The earnings of banks and bank holding companies are affected by general
economic conditions and by the fiscal and monetary policies of federal
regulatory agencies, including the Federal Reserve. Through open market
transactions, variations in the discount rate and the establishment of reserve
requirements, the Federal Reserve exerts considerable influence over the cost
and availability of funds obtainable for lending or investing.

     The above monetary and fiscal policies and resulting changes in interest
rates have affected the operating results of all commercial banks in the past
and are expected to do so in the future. The Banks and their respective holding
company cannot fully predict the nature or the extent of any effects which
fiscal or monetary policies may have on their business and earnings.


               SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES
                          LITIGATION REFORM ACT OF 1995

     This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995 and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Company, are
generally identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project" or similar expressions. The Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse effect on the
operations and future prospects of the Company and its subsidiaries, including
its ability to implement its growth strategies, include, but are not limited to,
changes in interest rates; general economic conditions; legislative or
regulatory changes; monetary and fiscal policies of the U.S. government,
including policies of the U.S. Treasury and the Federal Reserve Board; possible
administrative or enforcement action or similar direction of federal or state
banking regulators in connection with any material failure of any of the Banks
to comply with applicable banking laws, rules, and regulations; the quality or
composition of the loan or investment portfolios; demand for loan products;
deposit flows; competition; demand for financial services in the Company's
market area and accounting principles, policies and guidelines. These risks and
uncertainties should be considered in evaluating forward-looking statements and
undue reliance should not be placed on such statements.


                                       16


<PAGE>


                      EXECUTIVE OFFICERS OF THE REGISTRANT

     Listed below are the executive officers of the Company and its subsidiaries
as of March 22, 2002.

     Brad A. Luecke (51) was named President and Chief Executive Officer of the
Company effective July 1, 2000. He had served previously as Executive Vice
President of the Company since 2000. Mr. Luecke became Vice Chairman of Midwest
Bank and Trust Company in 2000 and continues to serve as Chief Executive Officer
and a director since 1991. He also served as President of Midwest Bank and Trust
Company from 1991 to 2000. Mr. Luecke has been a director of Midwest Bank of
Hinsdale and First Midwest Data Corp since 2000.

     Sheldon Bernstein (54) was named a Senior Vice President of the Company in
2001. Mr. Bernstein has served as President, Chief Operating Officer and a
director of Midwest Bank and Trust Company since 2000. Previously, Mr. Bernstein
served as Executive Vice President-Lending of Midwest Bank and Trust Company
since 1993. Mr. Bernstein has been a director of First Midwest Data Corp since
2001.

     Mary M. Henthorn (44) was named a Senior Vice President of the Company in
2001. Ms. Henthorn was named President and Chief Executive Officer of Midwest
Bank of Hinsdale in 2000. Previously, she served as Executive Vice President and
continues as a director of Midwest Bank of Hinsdale since 1996. She has served
in various management capacities at Midwest Bank of Hinsdale and Midwest Bank
and Trust Company since 1992.

     Stephen M. Karaba (44) was named a Senior Vice President of the Company in
2000 and has served as President of Midwest Bank of McHenry County since 1994.
Previously, Mr. Karaba held various management and executive positions within
Midwest Bank and Trust Company and Midwest Bank of McHenry County since 1989.
Mr. Karaba has been a director of Midwest Bank of McHenry County since 1994.

     Christopher J. Gavin (40) was named a Senior Vice President of the Company
in 2000 and has served as President and Chief Executive Officer of Midwest Bank
of Western Illinois since 1998. He also has been a director of Midwest Bank of
Western Illinois since 1997 and has served as a director of Porter Insurance
Agency, Inc. since 1998. Mr. Gavin was Executive Vice President and Chief Credit
Officer of Midwest Bank of Western Illinois from 1997 to 1998.

     Michelle T. Holman (42) was named Senior Vice President - Risk Management
in 2000. Ms. Holman has served as a director of First Midwest Data Corp. since
2000. Previously, she served as Vice President of Loan Review since 1988 and in
various management capacities at the Company and Midwest Bank and Trust Company
since 1985.

     Daniel R. Kadolph, CPA (39) was named Senior Vice President and Chief
Financial Officer in 2000. He has served as Comptroller since 1994 and Treasurer
since 1997. Mr. Kadolph has served as a director of First Midwest Data Corp.
since 2000 and has served in various management capacities at the Company and
Midwest Bank and Trust Company since 1988.

     Edward H. Sibbald (53) was named Executive Vice President, Director of
Marketing and Director of Investor Relations in 2000. Previously he served as a
Senior Vice President of the Company in 2000 and as Chief Financial Officer of
the Company from 1997 to 2000. Previously, Mr. Sibbald served as Executive Vice
President from 1997 to 1999 and Senior Vice President-Administration from 1991
to 1997. Mr. Sibbald also serves as a director of Midwest Bank of McHenry County
and Midwest Bank of Western Illinois.

     Mary C. Ceas, SPHR (44) was named Senior Vice President - Human Resources
of the Company in 2000. Previously, Ms. Ceas was Vice President - Human
Resources in 1997 and served as Director -Training and Development from 1995 to
1997.


                                       17


<PAGE>


ITEM 2.  PROPERTIES

     The following table sets forth certain information regarding the Company's
principal office and bank subsidiary facilities.

<TABLE>
<CAPTION>
                                                                              NET BOOK VALUE AT
                                                                              DECEMBER 31, 2001         LEASED OR
LOCATION                                                   DATE ACQUIRED       (IN THOUSANDS)             OWNED
--------                                                   -------------      --------------            ---------
<S>                                                        <C>                <C>                       <C>
Principal Office

501 West North Avenue
Melrose Park, Illinois 60160                                  1987               $1,707                  Owned


Midwest Bank and Trust Company Banking Offices

1606 North Harlem Avenue
Elmwood Park, Illinois 60607                                  1959                1,771                  Owned

300 South Michigan Avenue
Chicago, Illinois 60604                                       1986                   --                  Leased

4012 North Pulaski Road
Chicago, Illinois 60641                                       1993                1,124                  Owned

7227 West Addison Street
Chicago, Illinois 60634                                       1996                1,223                  Owned


Midwest Bank of Hinsdale Banking Offices

500 West Chestnut Street
Hinsdale, Illinois 60521                                      1991                1,722                  Owned

927 Curtiss Street
Downers Grove, Illinois 60515                                 1996                   --                  Leased

505 N. Roselle Road
Roselle, Illinois 60172                                       1999                2,210                  Owned


Midwest Bank of McHenry County Banking Offices

17622 Depot Street
Union, Illinois 60180                                         1987                   50                  Owned

2045 East Algonquin Road
Algonquin, Illinois 60102                                     1994                  850                  Owned

204 E. State Road
Island Lake, Illinois 60042                                   1998                  351                  Owned

5555 Bull Valley Road
McHenry, Illinois 60050                                       1998                1,337                  Owned


Midwest Bank of Western Illinois Banking Offices

200 East Broadway
Monmonth, Illinois 61462                                      1993                2,471                  Owned



                                       18

</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                                                                              NET BOOK VALUE AT
                                                                              DECEMBER 31, 2001         LEASED OR
LOCATION                                                   DATE ACQUIRED       (IN THOUSANDS)             OWNED
--------                                                   -------------      --------------            ---------
<S>                                                        <C>                <C>                       <C>
612 West Main Street
Galesburg, Illinois 61401                                     1996                 $548                  Owned

Schuyler Street
Oquawka, Illinois 61469                                       1991                   85                  Owned

104 S.E. 3rd Avenue
Aledo, Illinois 61231                                         1999                  143                  Owned

106 South Kirk
Kirkwood, Illinois 61473                                      1993                   --                  Owned

1120 North 6th Street
Monmouth, Illinois 61462                                      2001                   --                  Leased

</TABLE>


ITEM 3.  LEGAL PROCEEDINGS

     The Company and its subsidiaries are from time to time parties to various
legal actions arising in the normal course of business. Management believes that
there is no proceeding threatened or pending against the Company or any of its
subsidiaries which, if determined adversely, would have a material adverse
effect on the financial condition or results of operations of the Company.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS

     None.


                                       19


<PAGE>


                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS

     The Company's common stock is traded over-the-counter and quoted on the
Nasdaq National Market under the symbol "MBHI". As of March 22, 2002, the
Company had 1,430 stockholders. The table below sets forth the high and low sale
prices of the common stock during the periods indicated.

<TABLE>
<CAPTION>
                                                                HIGH            LOW
                                                                ----            ---
<S>                                                            <C>             <C>
2000
     First Quarter                                             $15.19          $13.00
     Second Quarter                                             15.00           11.63
     Third Quarter                                              14.75           13.00
     Fourth Quarter                                             15.50           14.00

2001
     First Quarter                                             $18.00          $15.00
     Second Quarter                                             22.00           15.50
     Third Quarter                                              21.38           18.51
     Fourth Quarter                                             21.55           18.87
</TABLE>

     The Company has declared per share cash dividends with respect to its
common stock in the last two fiscal years as follows:

<TABLE>
<S>                                                            <C>             <C>
2000
     First Quarter                                             $0.125
     Second Quarter                                             0.125
     Third Quarter                                              0.125
     Fourth Quarter                                             0.150

2001
     First Quarter                                             $0.150
     Second Quarter                                             0.150
     Third Quarter                                              0.150
     Fourth Quarter                                             0.150
</TABLE>


     Holders of common stock are entitled to receive such dividends as may be
declared by the Board of Directors from time to time and paid out of funds
legally available therefore. Because the Company's consolidated net income
consists largely of net income of the Banks, the Company's ability to pay
dividends depends upon its receipt of dividends from the Banks. The Banks'
ability to pay dividends is regulated by banking statutes. See "Supervision and
Regulation - Dividend Limitations." The declaration of dividends by the Company
is discretionary and depends on the Company's earnings and financial condition,
regulatory limitations, tax considerations and other factors including
limitations imposed by the terms of the Company's revolving lines of credit and
limitations imposed by the terms of the Company's outstanding junior
subordinated debentures. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity." While the Board of Directors
expects to continue to declare dividends quarterly, there can be no assurance
that dividends will be paid in the future.


                                       20



<PAGE>

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

     The following table sets forth certain selected consolidated financial data
at or for the periods indicated. This information should be read in conjunction
with the Company's Consolidated Financial Statements and notes thereto included
herein. See "Item 8, Consolidated Financial Statements and Supplementary Data."

<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31,
                                                     ---------------------------------------------------------------
                                                       2001          2000         1999          1998          1997
                                                     --------      --------     -------       -------        -------
                                                               (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                  <C>           <C>          <C>           <C>            <C>
STATEMENT OF INCOME DATA:
   Total interest income                             $113,132      $109,792     $84,146       $74,827        $67,326
   Total interest expense                              65,665        64,032      44,262        41,014         35,311
                                                     --------      --------     -------       -------        -------
   Net interest income                                 47,467        45,760      39,884        33,813         32,015
   Provision for loan losses                            2,220         1,850       2,203         1,326          2,454
   Other income                                        12,802         7,695       6,734         6,787          5,563
   Other expenses                                      31,463        29,360      25,774        22,895         21,076
                                                     --------      --------     -------       -------        -------
   Income before income taxes                          26,586        22,245      18,641        16,379         14,048
   Provision for income taxes                           8,704         7,632       6,750         5,974          5,537
                                                     --------      --------     -------       -------        -------
   Net income                                        $ 17,882      $ 14,613     $11,891       $10,405        $ 8,511
                                                     ========      ========     =======       =======        =======

PER SHARE DATA:
   Earnings per share (basic)                        $   1.66      $   1.36     $  1.08       $  0.94        $  0.85
   Earnings per share (diluted)                          1.64          1.35        1.07          0.94           0.85
   Cash dividends declared                               0.600         0.525       0.350         0.145          0.055
   Book value at end of year                             8.98          7.69        6.22          6.88           5.29
   Tangible book value at end of year                    8.80          7.49        6.00          6.65           5.05

SELECTED FINANCIAL RATIOS:
   Return on average assets                              1.12%         1.07%       1.04%         1.04%          1.01%
   Return on average equity                             19.50         20.57       16.39         14.60          18.36
   Dividend payout ratio                                36.02         38.64       32.28         15.72           6.47
   Average equity to average assets                      5.75          5.18        6.31          7.11           5.51
   Tier 1 risk-based capital                             9.93         11.02       11.11         13.47           9.60
   Total risk-based capital                             10.82         11.94       12.20         14.64          10.78
   Net interest margin (tax equivalent)                  3.31          3.65        3.75          3.61           4.11
   Loan to deposit ratio                                82.82         75.95       66.58         60.04          61.45
   Net overhead expense to average assets (1)            1.40          1.66        1.70          1.72           1.95
   Efficiency ratio (1)                                 52.21         53.90       55.84         58.01          57.44
   Allowance for loan losses to total loans
   at the end of year                                    1.01          1.04        1.17          1.26           1.26
   Provision for loan losses to total loans              0.22          0.22        0.34          0.25           0.50
   Net loans charged off to average total loans          0.07          0.11        0.21          0.18           0.36
   Nonperforming loans to total loans
   at the end of year (2)                                0.24          0.26        0.37          0.90           0.66
   Nonperforming assets to total assets                  0.15          0.23        0.40          0.56           0.44
   Allowance for loan losses to
   nonperforming loans                                   4.28x         3.82x       3.19x         1.39x          1.91x
</TABLE>

<TABLE>
<CAPTION>
                                                                                DECEMBER 31,
                                                     ---------------------------------------------------------------
                                                       2001          2000         1999          1998          1997
                                                     --------      --------     -------       -------        -------
                                                                           (DOLLARS IN THOUSANDS)
<S>                                                  <C>           <C>          <C>           <C>            <C>
BALANCE SHEET DATA:
   Total assets                                      $1,810,422    $1,467,770   $1,256,462     $1,071,314    $908,642
   Total earning assets                               1,711,030     1,371,519    1,184,546      1,014,691     855,675
   Year-to-date average assets                        1,593,939     1,370,386    1,148,675      1,002,848     841,707
   Total loans                                        1,003,386       824,632      646,455        521,880     488,099
   Allowance for loan losses                             10,135         8,593        7,567          6,576       6,143
   Total deposits                                     1,211,520     1,085,786      970,954        869,152     794,362
   Borrowings                                           442,150       289,093      196,075        118,449      55,567
   Stockholders' equity                                  96,214        82,576       67,694         77,629      52,960
   Tangible stockholders' equity                         94,272        80,463       65,320         75,019      50,536
</TABLE>

----------
(1) Excludes security gains and trading account profits or losses.
(2) Includes total nonaccrual, impaired and all other loans 90 days or more past
    due.


                                       21

<PAGE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

     The following discussion and analysis is intended as a review of
significant factors affecting the financial condition and results of operations
of the Company for the periods indicated. The discussion should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto and
the Selected Consolidated Financial Data presented herein. In addition to
historical information, the following Management's Discussion and Analysis of
Financial Condition and Results of Operations contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ significantly from those anticipated in these forward-looking
statements as a result of certain factors discussed elsewhere in this report.


OVERVIEW

     The Company's principal business is conducted by the Banks and consists of
a full range of community-based financial services, including commercial and
retail banking. The profitability of the Company's operations depends primarily
on its net interest income, provision for loan losses, other income, and other
expenses. Net interest income is the difference between the income the Company
receives on its loan and securities portfolios and its cost of funds, which
consists of interest paid on deposits and borrowings. The provision for loan
losses reflects the cost of credit risk in the Company's loan portfolio. Other
income consists of service charges on deposit accounts, securities gains,
mortgage origination fees, insurance and brokerage commissions, trust fees, and
other income. Other expenses include salaries and employee benefits, occupancy
and equipment expenses, professional services, marketing expenses, and other
noninterest expenses.

     Net interest income is dependent on the amounts of and yields on
interest-earning assets as compared to the amounts of and rates on
interest-bearing liabilities. Net interest income is sensitive to changes in
market rates of interest and the Company's asset/liability management procedures
in coping with such changes. The provision for loan losses is dependent upon
management's assessment of the collectibility of the loan portfolio under
current economic conditions. Other expenses are influenced by the growth of
operations, with additional employees' necessary to staff and open new banking
centers and marketing expenses necessary to promote them. Growth in the number
of account relationships directly affects such expenses as data processing
costs, supplies, postage, and other miscellaneous expenses.

     During 2001, the economic expansion ended, and the economy entered a
recession. The Federal Reserve cut key interest rates eleven times resulting in
a 475 basis points reduction in interest rates. The sharp decline in interest
rates adversely impacted the Company's net interest income as its prime rate
based loans were immediately repriced downward with each cut in interest rates
while its deposit interest rates lagged in the repricing cycle. In addition,
falling mortgage interest rates and prepayment of both mortgage loans and
mortgage-backed securities resulted in lower yields earned on the Company's
investment portfolio due in part to an acceleration of premium amortization. The
tragic events of September 11th have further aggravated the economy. The
Company's net income is dependent in part on stable interest rates.


CONSOLIDATED RESULTS OF OPERATIONS

     Total assets increased $342.7 million, or 23.3%, to $1.8 billion as of
December 31, 2001 from $1.5 billion as of December 31, 2000. Net income
increased $3.3 million, or 22.4%, to $17.9 million for the year ended December
31, 2001 compared to $14.6 million for the year ended December 31, 2000. The
return on average assets was 1.12% for 2001 and 1.07% for 2000. The return on
average equity decreased to 19.50% in 2001 from 20.57% in 2000 due to the
increase in equity attributed to additional retained earnings and the decrease
in accumulated comprehensive loss. The return on average assets was 1.07% and
1.04% for both 2000 and 1999, respectively. The return on average equity
increased to 20.57% in 2000 from 16.39% in 1999.


                                       22

<PAGE>

2001 COMPARED TO 2000

     Net Interest Income. Net interest income on a tax-equivalent basis
increased $3.0 million, or 6.4%, to $50.1 million in 2001 from $47.1 million in
2000. Interest income on total earning assets increased $4.7 million in 2001
from 2000. This was primarily due to interest income on loans, which increased
$4.7 million in 2001 from 2000 resulting from a $172.5 million increase in
average loans outstanding despite a decrease in average rates paid on loans from
9.69% to 8.37%. Interest expense on interest-bearing liabilities increased $1.6
million in 2001 from 2000, or 2.6%, as a result of an $1.8 million increase in
interest expense on other borrowings. Interest expense on deposits declined by
$161,000 in 2001. The interest expense on interest-bearing liabilities increased
due to the $62.0 million increase in total average borrowings. Average rate on
total borrowings for 2001 was 5.49% compared to 6.09% in 2000. The increase in
interest expense on other borrowings was due primarily to an $28.1 million
increase in average fed funds purchased and repurchase agreements during 2001
and $27.5 million increase in average FHLB advances. In addition, the Company
issued $20.0 million in junior subordinated debentures in June 2000 at a rate of
10.0% with a maturity of 30 years. The net interest margin on a tax-equivalent
basis decreased from 3.65% in 2000 to 3.31% for 2001. In 2001, the interest
expense on the junior subordinated debentures for a full year was recognized.
The primary reason for the decrease in net interest margin was that yields on
earnings assets decreased more than the yields on interest bearing liabilities.
Repricing opportunities on core deposits and certificates of deposits are
expected to offset any unfavorable impact from future interest rate reductions
in the near term. In the first quarter of 2002, $257.3 million in certificates
of deposit at a weighted average rate of 4.60% will mature and are expected to
reprice at lower rates assuming no spike in interest rates. The Company expects
net interest income and net interest margin to improve during 2002.

     Provision for Loan Losses. The provision for loan losses increased
$370,000, or 20.0%, to $2.2 million in 2001 from $1.9 million in 2000. As of
December 31, 2001, the allowance for loan losses totaled $10.1 million, or 1.01%
of total loans, and was equal to 428% of nonperforming loans. The amount of the
provision for loan losses is based on quarterly evaluations of the loan
portfolio, with particular attention directed toward nonperforming and other
potential problem loans. During these evaluations, consideration is also given
to such factors as management's evaluation of specific loans, the level and
composition of impaired and other nonperforming loans, historical loss
experience, results of examinations by regulatory agencies, independent loan
review, the market value of collateral, the estimate of discounted cash flows,
the strength and availability of guaranties, concentrations of credits, and
other factors.

     Other Income. The Company's total other income increased $5.1 million, or
66.4%, to $12.8 million in 2001 from $7.7 million in 2000. Other income as a
percentage of average assets was 0.80% for the year ended 2001 compared to 0.56%
for the year ended 2000. The increase in total other income in 2001 from 2000
was primarily due to a $2.6 million increase in net securities gains and trading
profits, a $1.4 million increase in service charges on deposits, a $492,000
increase in cash surrender value of life insurance, and a $408,000 increase in
mortgage loan origination fees.

     Other Expenses. The Company's total other expenses increased $2.1 million,
or 7.2%, to $31.5 million in 2001 from $29.4 million in 2000. Other expenses as
a percentage of average assets were 1.97% for the year ended 2001 compared to
2.14% for the year ended 2000. Net overhead expenses were 1.17% and 1.57% as a
percentage of average assets in 2001 and 2000, respectively. The increase in
total other expenses in 2001 was primarily due to the following factors:
salaries and employee benefits increased $2.2 million or 13.5% compared to the
similar period in 2000; and professional services increased $351,000 for 2001
compared to 2000 due to higher ATM charges and outsourced engagements. The
efficiency ratio was 52.2% for the year ended December 31, 2001 compared to
53.9% in 2000.

     Federal and State Income Tax. The Company's consolidated income tax rate
varies from statutory rates principally due to interest income from tax-exempt
securities and loans. The Company recorded


                                       23


<PAGE>

income tax expense of $8.7 million in 2001 compared to $7.6 million in 2000, an
increase of 14.0%, due to changes in income. The effective tax rate in 2001 was
32.7% compared to 34.3% in 2000.


2000 COMPARED TO 1999

     Net Interest Income. Net interest income on a tax-equivalent basis
increased $6.2 million, or 15.2%, to $47.1 million in 2000 from $40.9 million in
1999. Interest income on total earning assets increased $26.0 million in 2000
from 1999. This was primarily due to interest income on loans, which increased
$19.6 million in 2000 from 1999 resulting from a $161.4 million increase in
average loans outstanding and an increase in average rates paid on loans from
8.99% to 9.69%. Interest expense on interest-bearing liabilities increased $19.8
million in 2000 from 1999, or 44.7%, as a result of an $8.8 million increase in
interest expense on other borrowings and a $11.0 million increase in interest
expense on deposits. The increase in interest expense was due primarily to a
combination of a $97.4 million increase in average deposits and an increase in
the average rate paid on deposits from 4.52% in 1999 to 5.27% in 2000. The
increase in interest expense on other borrowings was due primarily to an $89.7
million increase in average FHLB advances outstanding during 2000 and $20.4
million increase in average fed funds purchased and repurchase agreements. In
addition, the Company issued $20.0 million in junior subordinated debentures in
June 2000 at a rate of 10.0% with a maturity of 30 years. The average interest
rate paid for borrowings increased to 6.09% in 2000 from 5.20% in 1999 due to
increased interest rates on FHLB advances and the issuance of the Company's
junior subordinated debentures. The net interest margin on a tax-equivalent
basis decreased from 3.75% in 1999 to 3.65% for 2000. The primary reason for the
decrease in net interest margin was that yields on interest bearing liabilities
increased more than the yields on earning assets. Average yields on interest
bearing liabilities increased from 4.62% in 1999 to 5.46% in 2000.

     Provision for Loan Losses. The provision for loan losses decreased
$353,000, or 16.0%, to $1.9 million in 2000 from $2.2 million in 1999. As of
December 31, 2000, the allowance for loan losses totaled $8.6 million, or 1.04%
of total loans, and was equal to 382% of nonperforming loans.

     Other Income. The Company's total other income increased $961,000, or
14.3%, to $7.7 million in 2000 from $6.7 million in 1999. Other income as a
percentage of average assets was 0.56% for the year ended 2000 compared to 0.59%
for the year ended 1999. The increase in total other income in 2000 from 1999
was primarily due to a $611,000 increase in net securities gains and trading
profits, a $445,000 increase in cash surrender value of life insurance, a
$306,000 increase in service charges, and a $174,000 increase in insurance and
investment commissions. This was offset by a $17,000 decrease in trust income
and a $496,000 decrease in mortgage loan origination fees in 2000 following the
dissolution of Midwest One Mortgage Services, Inc. in September 1999.

     Other Expenses. The Company's total other expenses increased $3.6 million,
or 13.9%, to $29.4 million in 2000 from $25.8 million in 1999. Other expenses as
a percentage of average assets were 2.14% for the year ended 2000 compared to
2.24% for the year ended 1999. Net overhead expenses were 1.57% and 1.66% as a
percentage of average assets in 2000 and 1999, respectively. The increase in
total other expenses in 2000 were primarily due to the following factors.
Salaries increased $1.7 million in 2000 compared to 1999 due to additional
staffing to support a new Midwest Bank of Hinsdale banking center, growth in
existing banking centers and annual merit increases. Occupancy expenses
increased $588,000 due to the construction of new banking centers for Midwest
Bank of Hinsdale, a new main office for Midwest Bank of Western Illinois and the
acquisition of the Aledo Banking Center for Midwest Bank of Western Illinois in
December 1999. Other expenses rose $1.3 million as a result of increases in
other real estate expenses, legal expenses associated with problem loans,
increased marketing expenses, increased premium paid to the FDIC for deposit
insurance, and amortization expense related to the purchase of the Aledo Banking
Center.

     Federal and State Income Tax. The Company recorded income tax expense of
$7.6 million in 2000 compared to $6.8 million in 1999, an increase of 13.1%, due
to changes in income.


                                       24

<PAGE>


INTEREST-EARNING ASSETS AND INTEREST-BEARING LIABILITIES

     The following table sets forth the average balances, net interest income
and expense and average yields and rates for the Company's interest-earning
assets and interest-bearing liabilities for the indicated periods on a
tax-equivalent basis assuming a 35% tax rate for 2001 and 2000 and 34% tax rate
for 1999.

<TABLE>
<CAPTION>
                                                      FOR THE YEAR ENDED DECEMBER 31,
                      -------------------------------------------------------------------------------------------------------------
                                     2001                                  2000                                    1999
                      ---------------------------------       -------------------------------       -------------------------------
                      AVERAGE                   AVERAGE       AVERAGE                 AVERAGE       AVERAGE                 AVERAGE
                      BALANCE     INTEREST       RATE         BALANCE    INTEREST      RATE         BALANCE      INTEREST     RATE
                      -------     --------      -------       -------    --------     -------       -------      --------   -------
                                                                 (DOLLARS IN THOUSANDS)
<S>                 <C>           <C>           <C>          <C>           <C>         <C>          <C>          <C>        <C>
INTEREST-EARNING ASSETS:
Federal funds sold    $  6,132    $    250      4.08%      $   10,476     $   661      6.31%        $   7,186    $   363     5.05%
Securities:
  Taxable (1)          555,053      36,362      6.55          494,791      35,412      7.16           465,134     30,003     6.45
  Exempt from
  federal income
  taxes (1)             33,255       2,320      6.98           40,747       2,853      7.00            34,124      2,285     6.70
                    ----------    -------                  ----------    --------                  ----------    -------
Total securities       588,308      38,682      6.58          535,538      38,265      7.15           499,258     32,288     6.47
Loans (2):
  Commercial
  loans (1)            215,722      17,067      7.91          193,053      18,948      9.81           169,339     14,771     8.72
  Commercial
  real estate
  loans (1)            526,309      45,145      8.58          385,538      38,371      9.95           264,896     24,702     9.33
  Agricultural
  loans (1)             49,332       3,994      8.10           45,758       3,997      8.74            37,093      3,106     8.37
  Consumer
  real estate
  loans                112,053       9,291      8.29          106,768       9,545      8.94            96,677      8,124     8.40
  Consumer
  installment
  loans                 14,194       1,327      9.35           13,967       1,309      9.37            15,678      1,766    11.26
                    ----------    -------                  ----------    --------                  ----------    -------
Total loans            917,610      76,824      8.37          745,084      72,170      9.69           583,683     52,469     8.99
                    ----------    -------                  ----------    --------                  ----------    -------
Total interest-
earning assets      $1,512,050    $115,756      7.66%      $1,291,098    $111,096      8.60%       $1,090,127    $85,120     7.81%
                    ==========    ========                 ==========    ========                  ==========    =======
</TABLE>


                                       25


<PAGE>


<TABLE>
<CAPTION>
                                                      FOR THE YEAR ENDED DECEMBER 31,
                      -------------------------------------------------------------------------------------------------------------
                                     2001                                  2000                                    1999
                      ---------------------------------       -------------------------------       -------------------------------
                      AVERAGE                   AVERAGE       AVERAGE                 AVERAGE       AVERAGE                 AVERAGE
                      BALANCE     INTEREST       RATE         BALANCE    INTEREST      RATE         BALANCE      INTEREST     RATE
                      -------     --------      -------       -------    --------     -------       -------      --------   -------
                                                                 (DOLLARS IN THOUSANDS)
<S>                 <C>           <C>           <C>          <C>           <C>         <C>          <C>          <C>        <C>
INTEREST-BEARING LIABILITIES:
Deposits:
Interest-bearing
demand deposits     $  129,116    $ 3,409       2.64%      $  112,714    $  3,942      3.50%       $   97,823    $ 2,887     2.95%
Money-market
demand accounts
and savings
accounts               264,603      8,369       3.16          248,214      11,151      4.49           232,308      8,579     3.69
Time deposits less
than $100,000          480,036     27,372       5.70          423,721      25,262      5.96           371,160     19,698     5.31
Time deposits of
$100,000 or more        95,389      4,991       5.23           62,075       3,762      6.06            64,369      3,309     5.14
Public funds            69,137      3,378       4.89           58,525       3,563      6.09            47,208      2,257     4.78
                    ----------    -------                  ----------    --------                  ----------    -------
Total interest-
bearing deposits     1,038,281     47,519       4.58          905,249      47,680      5.27        8   12,868     36,730     4.52

Borrowings:
Federal funds and
repurchase
agreements              60,674      2,221       3.66           32,587       2,020      6.20            12,167        651     5.53
FHLB advances          243,706     13,528       5.55          216,173      12,549      5.81           126,444      6,463     5.11
Notes payable and
other borrowings        26,146      2,397       9.17           19,731       1,783      9.03             6,112        418     6.84
                    ----------    -------                  ----------    --------                  ----------    -------
Total borrowings       330,526     18,146       5.49          268,491      16,352      6.09           144,723      7,532     5.20
                    ----------    -------                  ----------    --------                  ----------    -------
Total interest-
bearing liabilities $1,368,807    $65,665       4.80       $1,173,740    $ 64,032      5.46        $  957,591    $44,262     4.62
                    ==========    =======                  ==========    ========                  ==========    =======

Net interest income
(tax equivalent)                  $50,091       2.86%                    $ 47,064      3.14%                     $40,858     3.19%
                                  =======                                ========                                =======
Net interest
margin                                          3.31%                                  3.65%                                 3.75%
</TABLE>

----------

(1)  Adjusted for 35% tax rate in 2001 and 2000 and 34% tax rate in 1999 and
     adjusted for the dividends-received deduction where applicable.

(2)  Nonaccrual loans are included in the average balance, however these loans
     are not earning any interest.


                                       26

<PAGE>


CHANGES IN INTEREST INCOME AND EXPENSE

     The changes in net interest income from period to period are reflective of
changes in the interest rate environment, changes in the composition of assets
and liabilities as to type and maturity (and the inherent interest rate
differences related thereto), and volume changes. Later sections of this
discussion and analysis address the changes in maturity composition of loans and
investments and in the asset and liability repricing gaps associated with
interest rate risk, all of which contribute to changes in net interest margin.

     The following table sets forth an analysis of volume and rate changes in
interest income and interest expense of the Company's average interest-earning
assets and average interest-bearing liabilities for the indicated periods on a
tax-equivalent basis assuming a 35% tax rate in 2001 and 2000 and 34% tax rate
in 1999. The table distinguishes between the changes related to average
outstanding balances (changes in volume holding the interest rate constant) and
the changes related to average interest rates (changes in average rate holding
the outstanding balance constant). The change in interest due to both volume and
rate has been allocated to volume and rate changes in proportion to the
relationship of the absolute dollar amounts of the change in each.

<TABLE>
<CAPTION>
                                                                   FOR THE YEAR ENDED DECEMBER 31,
                                          --------------------------------------------------------------------------
                                                  2001 COMPARED TO 2000              2000 COMPARED TO 1999
                                                      CHANGE DUE TO                           CHANGE DUE TO
                                          ----------------------------------       ---------------------------------
                                             NET       VOLUME         RATE           NET       VOLUME          RATE
                                          -------     -------      ---------       -------     -------        ------
<S>                                       <C>         <C>          <C>             <C>         <C>            <C>
INTEREST-EARNING ASSETS:
Federal funds sold                        $  (411)    $  (222)     $    (189)      $   298     $   193        $  105
Securities taxable                            950       4,098         (3,148)        5,409       1,990         3,419
Securities exempt from
federal income taxes                         (533)       (523)           (10)          568         460           108
Commercial loans                           (1,881)      2,062         (3,943)        4,177       2,205         1,972
Commercial real estate loans                6,774      12,606         (5,832)       13,669      11,910         1,759
Agricultural loans                             (3)        300           (303)          891         752           139
Consumer real estate loans                   (254)        459           (713)        1,421         882           539
Consumer installment loans                     18          21             (3)         (457)       (180)         (277)
                                          -------     -------      ---------       -------     -------        ------
Total interest-earning
assets                                    $ 4,660     $18,801      $ (14,141)      $25,976     $18,212        $7,764
                                          =======     =======      =========       =======     =======        ======

INTEREST-BEARING LIABILITIES:
Interest-bearing demand
deposits                                  $  (533)    $   521      $  (1,054)      $ 1,055     $   476        $  579
Money market demand
accounts and savings accounts              (2,782)        697         (3,479)        2,572         618         1,954
Time deposits of less
than $100,000                               2,110       3,247         (1,137)        5,564       2,973         2,591
Time deposits of $100,000
or more                                     1,229       1,799           (570)          453        (121)          574
Public funds                                 (185)        587           (772)        1,306         608           698
Federal funds and repurchase
agreements                                    201       1,258         (1,057)        1,369       1,251           118
FHLB advances                                 979       1,546           (567)        6,086       5,109           977
Notes payable and other
borrowings                                    614         646            (32)        1,365       1,193           172
                                          -------     -------      ---------       -------     -------        ------
Total interest-bearing
liabilities                               $ 1,633     $10,301      $  (8,668)      $19,770     $12,107        $7,663
                                          =======     =======      =========       =======     =======        ======
Net interest                              $ 3,027     $ 8,500      $  (5,473)      $ 6,206     $ 6,105        $  101
                                          =======     =======      =========       =======     =======        ======
</TABLE>


                                       27

<PAGE>


FINANCIAL CONDITION

Loans

     The Company's loan portfolio largely reflects the profile of the
communities in which it operates. The following table sets forth the composition
of the Company's loan portfolio as of the indicated dates.

<TABLE>
<CAPTION>
                                                                           DECEMBER 31,
                                          -------------------------------------------------------------------
                                             2001           2000          1999          1998           1997
                                          ----------     ---------     ---------     ---------      ---------
                                                                           (IN THOUSANDS)
<S>                                       <C>            <C>           <C>           <C>          <C>
Commercial                                $  220,801     $ 205,698     $ 187,822     $ 148,081     $  140,815
Commercial real estate                       612,687       448,988       300,071       229,489        212,184
Agricultural                                  48,772        47,773        41,745        33,231         24,065
Consumer real estate (1)                     109,329       108,780       103,681        95,604         93,338
Consumer installment                          13,375        14,529        13,889        16,128         18,811
                                          ----------     ---------     ---------     ---------      ---------
  Total loans, gross                       1,004,964       825,768       647,208       522,533        489,213
Unearned discount                             (1,578)       (1,136)         (753)         (653)        (1,114)
                                          ----------     ---------     ---------     ---------      ---------
  Total loans                              1,003,386       824,632       646,455       521,880        488,099
Allowance for loan losses                    (10,135)       (8,593)       (7,567)       (6,576)        (6,143)
                                          ----------     ---------     ---------     ---------      ---------
  Net loans                               $  993,251     $ 816,039     $ 638,888     $ 515,304      $ 481,956
                                          ==========     =========     =========     =========      =========
Loans held for sale:
  Consumer real estate                    $    3,414     $     616     $     449     $   3,829      $   6,627
                                          ==========     =========     =========     =========      =========
</TABLE>

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


     Total loans increased $178.8 million to $1.0 billion as of December 31,
2001 from $824.6 million as of December 31,2000, an increase of 21.7%. The
Company expects loan growth for 2002 to remain stable despite the ongoing
economic difficulties.

     Commercial loans increased $15.1 million to $220.8 million as of December
31, 2001 from $205.7 million as of December 31, 2000, an increase of 7.3%. The
increase reflects increased demand due to increased working capital and
equipment requirements both by existing borrowers and new customer
relationships.

     Commercial real estate loans increased $163.7 million to $612.7 million as
of December 31, 2001 from $449.0 million as of December 31, 2000, an increase of
36.5%. The Company has increased its lending efforts in this area while
maintaining firm underwriting standards. The Company has added lending personnel
to assist in this growth. The increase in commercial real estate loans reflects
continued growth in the commercial real estate market, increased commitments
with existing borrowers, and market penetration and market share growth as a
result of these efforts.

     Agricultural loans increased $1.0 million to $48.8 million as of December
31, 2001 from $47.8 million as of December 31, 2000, an increase of 2.1%. The
increase in agricultural loans reflects increased market share in west central
Illinois.

     Consumer real estate loans increased $549,000 to $109.3 million as of
December 31, 2001 from $108.8 million as of December 31, 2000, an increase of
0.5%. The increase reflects the Company's desire to originate medium-term,
fixed-rate, and adjustable rate residential loans for its portfolio.

     Consumer installment loans decreased $1.2 million to $13.4 million as of
December 31, 2001 from $14.5 million as of December 31, 2000, a decrease of
7.9%.

                                       28

<PAGE>


     Although the risk of nonpayment for any reason exists with respect to all
loans, certain other more specific risks are associated with each type of loan.
The primary risks associated with commercial loans are the quality of the
borrower's management 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 values. Consumer loans
also have risks associated with concentrations of loans in a single type of
loan, as well as face the risk of a borrower's unemployment as a result of
deteriorating economic conditions.

     The Company attempts to balance the types of loans in its portfolio with
the objective of reducing risk. At the end of 2001, the Company had 71.8% of its
loan portfolio in commercial and consumer real estate loans, 56.1% of these real
estate loans are variable rate and 43.9% of these real estate loans are fixed
rate. The Company believes that most credits should have both a primary and a
secondary source of repayment, and that the primary source should generally be
supported by operating cash flows, while the secondary source should generally
be disposition of collateral. The Company engages in very little unsecured
lending and generally requires personal guarantees of principals for business
obligations. The Company practices a system of concurrence in the approval of
commercial credit whereby the documented approval of an officer's credit
committee (or approval by the Board or a Board committee, where applicable) is
obtained in addition to that of the recommending officer. This system is
intended to ensure that commercial credit is subjected to an independent
objective review on at least two different levels.


Loan Maturities

     The following table sets forth the remaining maturities, based upon
contractual dates, for selected loan categories as of December 31, 2001.


<TABLE>
<CAPTION>
                                     ONE YEAR             1-5 YEARS               OVER 5 YEARS
                                     --------        ---------------------      -------------------
                                      OR LESS         FIXED       VARIABLE      FIXED      VARIABLE        TOTAL
                                     --------        --------     --------     -------     --------      ----------
                                                                    (IN THOUSANDS)
<S>                                  <C>             <C>          <C>          <C>          <C>          <C>
Commercial                           $166,481        $ 25,792     $ 20,334     $ 3,748      $ 4,446      $  220,801
Commercial real estate                308,536         185,660       76,812      29,732       11,947         612,687
Agricultural                           17,659           4,576        2,074       3,659       20,804          48,772
Consumer real estate                   18,329          35,314       12,421      24,603       18,662         109,329
Consumer installment                    2,664           9,951           --         760           --          13,375
                                     --------        --------     --------     -------      -------      ----------
Total loans, gross                    513,669         261,293      111,641      62,502       55,859       1,004,964
Unearned discount                      (1,578)             --           --          --           --          (1,578)
                                     --------        --------     --------     -------      -------      ----------
Total loans                          $512,091        $261,293     $111,641     $62,502      $55,859      $1,003,386
                                     ========        ========     ========     =======      =======      ==========
</TABLE>


Nonperforming Loans

     The Company's financial statements are prepared on the accrual basis of
accounting, including the recognition of interest income on its loan portfolio,
unless a loan is placed on nonaccrual status. Loans are placed on nonaccrual
status when there are serious doubts regarding the collectibility of all
principal and interest due under the terms of the loans. Amounts received on
nonaccrual loans generally are applied first to principal and then to interest
after all of the principal has been collected. It is the policy of the Company
not to renegotiate the terms of a loan because of a delinquent status. Rather, a
loan is generally transferred to nonaccrual status if it is not in the process
of collection and is delinquent in payment of either principal or interest
beyond 90 days.

     Under Statement of Financial Accounting Standards No. 114 and No. 118, the
Company defined loans that are individually evaluated for impairment to include
commercial loans and mortgages secured by commercial properties or five-plus
family residences that are in non-accrual status or were


                                       29

<PAGE>


restructured. All other smaller balance loans with similar attributes (such as
auto) are evaluated for impairment in total.

     The classification of a loan as impaired or non-accrual does not
necessarily indicate that the principal is uncollectible, in whole or in part.
The Company makes a determination as to the collectibility on a case-by-case
basis. The Company considers both the adequacy of the collateral and the other
resources of the borrower in determining the steps to be taken to collect
impaired or non-accrual loans. The final determination as to the steps taken is
made based upon the specific facts of each situation. Alternatives that are
typically considered to collect impaired or non-accrual loans are foreclosure,
collection under guarantees, loan restructuring, or judicial collection actions.

     Loans that are considered to be impaired are reduced to the present value
of expected future cash flows or to the fair value of the related collateral by
allocating a portion of the allowance to such loans. If these allocations cause
the allowance for possible loan losses to require an increase, such increase is
reported as a provision for possible loan losses charged to expense. Loans are
evaluated for impairment when payments are delinquent 90 days or more or when
management downgrades the loan classification to doubtful.

     The following table sets forth information on the Company's nonperforming
loans and other nonperforming assets as of the indicated dates.


<TABLE>
<CAPTION>
                                                                            DECEMBER 31,
                                                 ---------------------------------------------------------------
                                                  2001          2000          1999          1998           1997
                                                 ------        ------        ------        ------         ------
                                                                 (DOLLARS IN THOUSANDS)
<S>                                              <C>           <C>           <C>           <C>            <C>
Nonaccrual and impaired loans
not accruing                                     $1,774        $1,168        $1,567        $2,190         $1,400
Impaired and other loans 90 days
past due and accruing                               595         1,082           806         2,528          1,823
                                                 ------        ------        ------        ------         ------
Total nonperforming loans                         2,369         2,250         2,373         4,718          3,223
Other real estate                                   355         1,153         2,651         1,245            789
                                                 ------        ------        ------        ------         ------
Total nonperforming assets                       $2,724        $3,403        $5,024        $5,963         $4,012
                                                 ======        ======        ======        ======         ======
Total nonperforming loans to
total loans                                        0.24%         0.26%         0.37%         0.90%          0.66%
Total nonperforming assets to
total loans and other real estate                  0.27          0.41          0.77          1.14           0.82
Total nonperforming assets to
total assets                                       0.15          0.23          0.40          0.56           0.44
</TABLE>


     During 2001, 2000, and 1999, the Company recognized interest income on
impaired loans of $69,000, $67,000, and $170,000, respectively.

     Nonperforming loans increased $119,000 or 5.3% to $2.4 million at December
31, 2001 from $2.3 million at December 31, 2000. Other real estate declined
$798,000 in 2001 from $1.2 million to $355,000. Total nonperforming assets
declined by $679,000 from $3.4 million in 2000 to $2.7 million in 2001.


                                       30
<PAGE>


Analysis of Allowance for Loan Losses

     The Company recognizes that credit losses will be experienced and the risk
of loss will vary with, among other things, general economic conditions; the
type of loan being made; the creditworthiness of the borrower over the term of
the loan; and in the case of a collateralized loan, the quality of the
collateral for such loan. The allowance for loan losses represents the Company's
estimate of the allowance necessary to provide for probable incurred losses in
the portfolio. In making this determination, the Company analyzes the ultimate
collectibility of the loans in its portfolio by incorporating feedback provided
by internal loan staff, an independent loan review function, and information
provided by examinations performed by regulatory agencies. The Company makes an
ongoing evaluation as to the adequacy of the allowance for loan losses.

     On a quarterly basis, management of the Banks meets to review the adequacy
of the allowance for loan losses. Each loan officer grades these individual
commercial credits, and the Company's independent loan review function validates
the officers' grades. In the event that loan review downgrades the loan, it is
included in the allowance analysis at the lower grade. The grading system is in
compliance with the regulatory classifications, and the allowance is allocated
to the loans based on the regulatory grading, except in instances where there
are known differences (e.g., collateral value is nominal).

     The analysis of the allowance for loan losses is comprised of three
components: specific credit allocation; general portfolio allocation; and
subjectively by determined allocation. The specific credit allocation includes a
detailed review of the credit in accordance with SFAS No. 114 and No. 118, and
an allocation is made based on this analysis. The general portfolio allocation
consists of an assigned reserve percentage based on the credit rating of the
loan. The subjective portion is determined based on loan history and the
Company's evaluation of various factors including economic and industry
outlooks. In addition, the subjective portion of the allowance is influenced by
current economic conditions and trends in the portfolio including delinquencies
and impairments, as well as changes in the composition of the portfolio.

     The allowance for loan losses is based on estimates, and ultimate losses
will vary from current estimates. These estimates are reviewed quarterly, and as
adjustments, either positive or negative, become necessary, a corresponding
increase or decrease is made in the provision for loan losses. The methodology
used to determine the adequacy of the allowance for loan losses is consistent
with prior years.


                                       31


<PAGE>


         The following table sets forth loans charged off and recovered by type
of loan and an analysis of the allowance for loan losses for the indicated
periods.

<TABLE>
<CAPTION>

                                                                       YEAR ENDED DECEMBER 31,
                                                 ---------------------------------------------------------------------
                                                     2001         2000            1999           1998           1997
                                                 -----------   ------------    -----------    ----------    ----------
                                                                        (DOLLARS IN THOUSANDS)

<S>                                              <C>             <C>           <C>            <C>           <C>
Average total loans                              $   917,610     $  745,085    $   583,683    $  508,465    $  460,532
                                                 ===========     ==========    ===========    ==========    ==========
Total loans at end of year                       $ 1,003,386     $  824,632    $   646,455    $  521,880    $  488,099
                                                 ===========     ==========    ===========    ==========    ==========
Total nonperforming and impaired loans           $     2,369     $    2,250    $     2,373    $    4,718    $    3,223
                                                 ===========     ==========    ===========    ==========    ==========
Allowance at beginning of year                   $     8,593     $    7,567    $     6,576    $    6,143    $    5,342

Charge-offs:
   Commercial loans                                      541            874          1,124           883         1,547
   Consumer real estate loans                             49             56             49            49            53
   Commercial real estate loans                          231             89            120           126            51
   Agricultural loans                                     --             11             --            --            --
   Consumer installment loans                             56             77            124           110           207
                                                 -----------     ----------    -----------    ----------    ----------
      Total charge-offs                                  877          1,107          1,417         1,168         1,858
Recoveries:
   Commercial loans                                      168            256            108           197           100
   Consumer real estate loans                              2              6              1             1             2
   Commercial real estate loans                           --              1             71             6            10
   Agricultural loans                                     --             --              8            20            30
   Consumer installment loans                             29             20             17            51            63
                                                 -----------     ----------    -----------    ----------    ----------
      Total recoveries                                   199            283            205           275           205
                                                 -----------     ----------    -----------    ----------    ----------
Net charge-offs                                          678            824          1,212           893         1,653
Provision for loan losses                              2,220          1,850          2,203         1,326         2,454
                                                 -----------     ----------    -----------    ----------    ----------

Allowance at end of the year                     $    10,135     $    8,593    $     7,567    $    6,576      $  6,143
                                                 ===========     ==========    ===========    ==========    ==========

Net charge-off to average total loans                   0.07%          0.11%          0.21%         0.18%         0.36%
Allowance to total loans at end of year                 1.01           1.04           1.17          1.26          1.26
Allowance to nonperforming loans                        4.28x          3.82x          3.19x         1.39x         1.91x
</TABLE>


         The provision for loan losses increased $370,000, or 20.0%, to $2.2
million for the year ended December 31, 2001 from $1.9 million for the year
ended December 31, 2000. The allowance for loan losses was $10.1 million at
December 31, 2001 and $8.6 million at December 31, 2000. Total recoveries on
loans previously charged off were $199,000 for the year ended December 31, 2001
and $283,000 for the year ended December 31, 2000. These recoveries were due
primarily to payments from customers' bankruptcy proceedings or payment plans on
charged off loans.

         Net charge-offs decreased $146,000 to $678,000, or 0.07%, of average
loans in 2001 compared to $824,000, or 0.11%, of average loans in 2000.
Allowance for loan losses to nonperforming loans ratio was 4.28x and 3.82x at
December 31, 2001 and December 31, 2000, respectively.

Allocation of Allowance for Loan Loss

         During 2001, there was a shift in the loan portfolio as commercial
loans decreased from 24.91% of the loan portfolio in 2000 to 22.00% in 2001.
Commercial real estate increased as a percentage of the loan portfolio from
54.37% in 2000 to 60.95% in 2001. There were no significant changes in the other
three categories making up the loan portfolio. The methodology used to determine
the adequacy of the allowance for loan losses is consistent with prior years and
there were no reallocations.



                                       32
<PAGE>


         The following table sets forth the Company's allocation of the
allowance for loan losses by types of loans as of the indicated dates.

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                              -----------------------------------------------------------------------------------------
                                    2001               2000             1999             1998                1997
                              -----------------  --------------- -----------------  ---------------   -----------------
                                         LOAN             LOAN              LOAN             LOAN               LOAN
                                       CATEGORY         CATEGORY          CATEGORY         CATEGORY           CATEGORY
                                       TO GROSS         TO GROSS          TO GROSS         TO GROSS           TO GROSS
                              AMOUNT     LOANS   AMOUNT   LOANS   AMOUNT    LOANS   AMOUNT   LOANS    AMOUNT    LOANS
                              ------   --------  ------ --------  ------  --------  ------ --------   ------  ---------
                                                         (DOLLARS IN THOUSANDS)

<S>                           <C>       <C>      <C>      <C>     <C>       <C>     <C>      <C>      <C>       <C>
Commercial                   $ 5,339    22.00%   $4,579   24.91%  $3,771    29.02%  $3,294   28.34%   $2,972    28.78%
Commercial real estate         2,386    60.95     1,865   54.37    1,635    46.36    1,222   43.92     1,026    43.37
Agricultural                     737     4.86       659    5.79      637     6.45      418    6.36       331     4.92
Consumer real estate             310    10.89       206   13.17      194    16.02      177   18.30        56    19.08
Consumer installment             173     1.30       138    1.76      146     2.15      169    3.08       223     3.85
Unallocated                    1,190      --      1,146     --     1,184       --    1,296     --      1,535      --
                             -------   ------    ------  ------   ------   ------   ------  ------    ------   ------
Total allowance
for loan losses              $10,135   100.00%   $8,593  100.00%  $7,567   100.00%  $6,576  100.00%   $6,143   100.00%
                             =======   ======    ======  ======   ======   ======   ======  ======    ======   ======

</TABLE>

Securities

         The Company manages its securities portfolio to provide a source of
both liquidity and earnings. Each of the Banks has its own asset/liability
committee, which develops current investment policies based upon its operating
needs and market circumstances. The investment policy is reviewed by senior
financial management of the Company in terms of its objectives, investment
guidelines, and consistency with overall Company performance and risk management
goals. Each of the Banks' investment policy is formally reviewed and approved
annually by its board of directors. The asset/liability committee of each of the
Banks is responsible for reporting and monitoring compliance with the investment
policy. Reports are provided to each of the Banks' board of directors and the
Board of Directors of the Company on a regular basis.

         The securities portfolio represented approximately 38.9% and 36.7% of
the Company's assets as of December 31, 2001 and 2000, respectively. During the
past two years, the securities portfolio ranged between 30% and 50% of each of
the Banks' assets, depending upon liquidity requirements, deposit growth, and
loan demand in each market.

         The total fair value of the securities portfolio was $705.3 million as
of December 31, 2001, or 99.8% of amortized cost. The fair value of the
securities portfolio was $538.7 million and $532.6 million as of December 31,
2000 and 1999, respectively.

         The following tables set forth the composition of the Company's
securities portfolio by major category as of the indicated dates. The securities
portfolio as of December 31, 2001, 2000, and 1999 has been categorized as either
available-for-sale or held-to-maturity in accordance with SFAS No. 115.

                                       33


<PAGE>

<TABLE>
<CAPTION>
                                                               DECEMBER 31, 2001
                                -------------------------------------------------------------------------------------
                                      HELD-TO-MATURITY        AVAILABLE-FOR-SALE            TOTAL
                                -------------------------   ----------------------  ---------------------
                                 AMORTIZED                   AMORTIZED              AMORTIZED               % OF
                                    COST       FAIR VALUE      COST     FAIR VALUE     COST    FAIR VALUE  PORTFOLIO
                                ----------     ----------   ----------  ----------  ---------  ----------  ----------
                                                               (DOLLARS IN THOUSANDS)
<S>                              <C>            <C>          <C>         <C>         <C>        <C>          <C>
U.S. Treasury and obligations
  of U. S. government agencies   $    --        $  --        $    505    $    516    $    505   $    516      0.07%
Obligations of states and
  political subdivisions           21,445        21,865        12,872      13,008      34,317     34,873      4.86
Mortgage-backed securities            --           --         597,902     596,147     597,902    596,147     84.61
Equity securities                     --           --          72,007      72,233      72,007     72,233     10.19
Other bonds                           --           --           1,941       1,570       1,941      1,570      0.27
                                ----------     ----------   ----------  ----------  ---------  ----------  ----------
Total                            $ 21,445       $21,865      $685,227    $683,474    $706,672   $705,339    100.00%
                                ==========     ==========   ==========  ==========  =========  ==========  ==========
</TABLE>

<TABLE>
<CAPTION>
                                                               DECEMBER 31, 2000
                                -------------------------------------------------------------------------------------
                                      HELD-TO-MATURITY        AVAILABLE-FOR-SALE            TOTAL
                                -------------------------   ----------------------  ---------------------
                                 AMORTIZED                   AMORTIZED              AMORTIZED               % OF
                                    COST       FAIR VALUE      COST     FAIR VALUE     COST    FAIR VALUE  PORTFOLIO
                                ----------     ----------   ----------  ----------  ---------  ----------  ----------
                                                               (DOLLARS IN THOUSANDS)
<S>                              <C>            <C>          <C>         <C>         <C>        <C>          <C>
U.S. Treasury and obligations
of U. S. government agencies     $              $  --        $  1,000    $    934    $ 1,000    $    934       0.18%
Obligations of states and
political subdivisions             25,174        25,215        10,789      10,974     35,963      36,189       6.60
Mortgage-backed securities:
Pass-through securities              --            --         427,339     422,407    427,339     422,407      78.40
Collateralized mortgage
obligations                          --            --           1,724       1,720      1,724       1,720       0.32
Equity securities                    --            --          59,746      59,735     59,746      59,735      10.96
Other bonds                          --            --          19,312      17,742     19,312      17,742       3.54
                                ----------     ----------   ----------  ----------  ---------  ----------  ----------
Total                            $ 25,174       $25,215      $519,910    $513,512   $545,084    $538,727     100.00%
                                ==========     ==========   ==========  ==========  =========  ==========  ==========
</TABLE>

<TABLE>
<CAPTION>
                                                               DECEMBER 31, 1999
                                -------------------------------------------------------------------------------------
                                      HELD-TO-MATURITY        AVAILABLE-FOR-SALE            TOTAL
                                -------------------------   ----------------------  ---------------------
                                 AMORTIZED                   AMORTIZED              AMORTIZED               % OF
                                    COST       FAIR VALUE      COST     FAIR VALUE     COST    FAIR VALUE  PORTFOLIO
                                ----------     ----------   ----------  ----------  ---------  ----------  ----------
                                                               (DOLLARS IN THOUSANDS)
<S>                              <C>            <C>          <C>         <C>         <C>        <C>          <C>
U.S. Treasury and obligations
  of U. S. government agencies   $   --          $  --       $  2,000    $  1,905    $  2,000   $  1,905       0.36%
Obligations of states and
  political subdivisions           29,626         29,175        8,340       8,274      37,966     37,449       6.87
Mortgage-backed securities:
Pass-through securities              --             --        491,411     472,495     491,411    472,495      88.93
Collateralized mortgage
obligations                          --             --          2,660       2,621       2,660      2,621       0.48
Equity securities                    --             --         18,567      18,147      18,567     18,147       3.36
                                ----------     ----------   ----------  ----------  ---------  ----------  ----------
Total                            $ 29,626        $29,175     $522,978    $503,442    $552,604   $532,617     100.00%
                                ==========     ==========   ==========  ==========  =========  ==========  ==========
</TABLE>


         As of December 31, 2001, the Company is involved in certain derivative
transactions that are intended to protect the fair value of certain asset values
and to improve the predictability of certain future transactions. All derivative
instruments are recorded at their fair values and the change in the fair value
of a derivative is included in other income. If derivative instruments are
designated as hedges of fair values, both the change in the fair value of the
hedge and the hedged item are included in current earnings. Fair value
adjustments related to cash flow hedges are recorded in other comprehensive
income and reclassified to earnings when the hedged transaction is reflected in
earnings. Ineffective portions of hedges are reflected in earnings as they
occur. At December 31, 2001, the Company did not have any fair value or cash
flow hedges. The Company has bought and sold various put and call options, with
terms less than 90 days, on mortgage-backed securities at December 31, 2001. The
carrying value of these options is $535,000, which approximates fair value and
is included in other liabilities in the consolidated balance sheet. The total
notional amount of put or call options outstanding at any one time during 2001
and 2000 did not exceed $99 million and represented less than 6.0% of the total
assets of the Company.


                                       34

<PAGE>


         As of December 31, 2001, the Company held no securities of a single
issuer with a book value exceeding 10% of stockholders' equity other than those
of the U.S. Treasury or other U.S. government agencies.

         The Company's securities portfolio on an amortized cost basis increased
$161.6 million, or 29.6%, in 2001 compared to a $7.5 million decrease in 2000.
The change was attributed to the generation of new deposits and additional
borrowings in excess of the loan funding and operational requirements of the
Banks. During 2001, the Company increased its securities portfolio by increasing
its holdings in mortgage-backed securities by $173.7 million from the prior
year. This increase is a result of investing the accumulation of new deposits
and borrowings.

         The securities portfolio consists primarily of agency-guaranteed,
mortgage-backed securities. Mortgage-backed securities represented 84.6%, 78.4%,
and 88.9% of total securities as of December 31, 2001, 2000, and 1999,
respectively. Based upon the Company's evaluation, mortgage-backed securities
are a preferable investment vehicle for the Banks. Mortgage-backed securities
offer attractive yields, provide monthly cash flows, serve as acceptable
collateral, and have most of the liquidity characteristics of U.S. Treasury
notes and bonds.

         The Banks' investment strategies during the past three years have been
focused on the purchase of seasoned and new production mortgage-backed
securities of moderate average lives (5 to 8 years), which have been purchased
at discounts, at par, and at a premium to par. Historically, management believes
these securities are reasonably predictable in terms of price volatility,
prepayment speeds, and monthly cash flows. The sharp decrease in long-term
investment yields and, as a consequence, lower mortgage rates, led to a
significant increase in prepayment speeds in 1999 and 2001. As a result,
management repositioned the securities portfolio in 2001 to reduce the overall
impact on yields and improve longer-term profitability.

         The Company manages its securities available-for-sale portfolio and
trading account portfolio on a total return basis. In this respect, management
regularly reviews the performance of its securities and sells specific
securities to provide opportunities to enhance net interest income and net
interest margin, and when possible it will recognize gains on the sale of
securities. The Company has a long history of managing its securities in this
manner. During 2001, the Company experienced an above average level of
refinancing activity on its mortgage-backed securities. Trading account profits
result from trading strategies that are utilized to supplement narrowing bond
yields during periods of interest rate volatility. Gains on securities
transactions for the years ended December 31, 2001 and 2000 were $2.8 million
and $1.2 million, respectively. Trading account profits were $899,000 compared
to a loss of $120,000 for the years ended December 31, 2001 and 2000,
respectively.

         All fixed and adjustable rate mortgage pools contain a certain amount
of risk related to the uncertainty of prepayments of the underlying mortgages.
Interest rate changes have a direct impact upon prepayment rates. The Company
uses computer simulation models to test the average life and yield volatility of
adjustable rate mortgage pools under various interest rate assumptions to
monitor volatility. Stress tests are performed quarterly.

                                       35

<PAGE>



Investment Maturities and Yields

         The following tables set forth the contractual or estimated maturities
of the components of the Company's securities portfolio as of December 31, 2001
and the weighted average yields on a non-tax-equivalent basis. The table assumes
estimated fair values for available-for-sale securities and amortized cost for
held-to-maturity securities:

<TABLE>
<CAPTION>

                                                                            MATURING
                             -------------------------------------------------------------------------------------------------
                                                    AFTER ONE BUT       AFTER FIVE BUT
                              WITHIN ONE YEAR       WITHIN FIVE YEARS   WITHIN TEN YEARS   AFTER TEN YEARS        TOTAL
                             ------------------     -----------------   ----------------   ---------------   -----------------
                              AMOUNT     YIELD      AMOUNT    YIELD     AMOUNT    YIELD    AMOUNT   YIELD    AMOUNT     YIELD
                             --------   -------    --------  --------  --------  -------  -------- -------  --------   -------
                                                                (DOLLARS IN THOUSANDS)
<S>                          <C>        <C>        <C>       <C>        <C>      <C>       <C>      <C>      <C>       <C>
Available-for-Sale
Securities:
U.S. Treasury and
  obligations of U. S.
  government agencies         $  --      0.00%     $    --      0.00%  $    505    6.46%  $    --    0.00%  $    505     6.46%

Obligations of
 states and political
  subdivisions                   452     5.31         4,089     5.76      6,482    4.61      1,849   4.67     12,872     5.01

Mortgage-backed securities       111     7.00       408,935     7.09    127,255    6.53     61,601   6.70    597,902     6.93

Equity securities                --      0.00           --      0.00        --     0.00     72,007   5.73     72,007     5.73

Other bonds                      988     7.13           953     5.50        --     0.00        --    0.00      1,941     6.33
                             --------   -------    --------  --------  --------  -------  -------- -------  --------   -------
Total                         $1,551     6.59      $413,977     7.07   $134,242    6.44   $135,457   6.16   $685,227     6.76
                             ========   =======    ========  ========  ========  =======  ======== =======  ========  ========
Held-to-Maturity Securities:
Obligations of states and
  political subdivisions      $3,281     4.89      $ 17,473     4.83   $    691    4.95   $    --    0.00   $ 21,445     4.84
                             ========   =======    ========  ========  ========  =======  ======== =======  ========  ========
</TABLE>



                                       36



<PAGE>


Deposits

     The Company has experienced significant growth in total deposits in recent
years. Total deposits were $1.2 billion at December 31, 2001, $1.1 billion at
December 31, 2000, and $971.0 million at December 31, 1999, representing an
increase of 11.6% and 11.8%, respectively, between the three years. Average
total deposits were $1.0 billion for the year ended December 31, 2001, $905.2
million for the year ended December 31, 2000, and $925.3 million for the year
ended December 31, 1999. These increases in deposits are the result of increased
marketing activity in the last three years in connection with the opening of new
banking centers in Aledo, Roselle, McHenry, and Island Lake, as well as normal
growth in the Banks' core market areas. Deposit growth in 2001 surpassed the
budgeted levels; the rate of deposit growth is likely to increase in 2002.

     The following table sets forth the average amount of and the average rate
paid on deposits by category for the indicated periods.

<TABLE>
<CAPTION>
                                                       FOR THE YEAR ENDED DECEMBER 31,
                              ----------------------------------------------------------------------------------------------------
                                            2001                                 2000                              1999
                              ----------------------------          ---------------------------        ---------------------------
                                          PERCENT                              PERCENT                            PERCENT
                              AVERAGE        OF                     AVERAGE       OF                   AVERAGE       OF
                              BALANCE     DEPOSITS    RATE          BALANCE    DEPOSITS    RATE        BALANCE    DEPOSITS    RATE
                              --------    --------    ----          -------    --------    ----        --------   --------    ----
                                                          (DOLLARS IN THOUSANDS)
<S>                         <C>            <C>        <C>        <C>            <C>         <C>        <C>          <C>       <C>
Non-interest-bearing
demand deposits             $  121,394     10.47%     0.00%      $  117,396     11.48%      0.00%      $112,417     12.15%    0.00%
Interest-bearing
demand deposits                129,116     11.13      2.64          112,714     11.02       3.50         97,823     10.57     2.95
Savings and money
market accounts                264,603     22.82      3.16          248,214     24.28       4.49        232,308     25.11     3.69
Time Deposits:
Certificates of deposit,
under $100,000(1)              480,036     41.39      5.70          423,721     41.43       5.96        371,160     40.11     5.31
Certificates of deposit,
over $100,000(1)                95,389      8.23      5.23           62,075      6.07       6.06         64,369      6.97     5.14
Public funds                    69,137      5.96      4.89           58,525      5.72       6.09         47,208      5.09     4.78
                            ----------    ------                 ----------    ------                  --------    ------
Total time
deposits                       644,562     55.58      5.55          544,321     53.22       5.99        482,737     52.17     5.23
                            ----------    ------                 ----------    ------                  --------    ------
Total deposits              $1,159,675    100.00      4.10       $1,022,645    100.00%      4.66%      $925,285    100.00%    3.97%
                            ==========    ======                 ==========    ======                  ========    ======
</TABLE>

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


     The following table summarizes the maturity distribution of certificates of
deposit in amounts of $100,000 or more as of December 31, 2001. These deposits
have been made by individuals, businesses, and public and other not-for-profit
entities, most of which are located within the Company's market area.

                                                               (IN THOUSANDS)
                                                               --------------

Three months or less                                              $ 99,011
Over three months through twelve months                            127,554
Over one year through three years                                    8,843
Over three years                                                       226
                                                                   -------
Total                                                             $235,634
                                                                  ========


                                       37

<PAGE>


Borrowings

     The following table summarizes the Company's borrowings.

<TABLE>
<CAPTION>
                                                                                 DECEMBER 31,
                                                                 -----------------------------------------
                                                                   2001             2000             1999
                                                                 --------         --------        --------
                                                                                 (DOLLARS IN THOUSANDS)
<S>                                                              <C>              <C>            <C>
Federal funds purchased                                          $ 24,350         $  3,830       $   6,725
Securities sold under agreements to repurchase                    146,800           20,463          12,200
Lines of credit                                                     6,500            5,300           7,500
Mortgage payable and other                                             --               --             150
Junior subordinated debt                                           20,000           20,000              --
FHLB advances                                                     244,500          239,500         169,500
                                                                 --------         --------        --------
Total                                                            $442,150         $289,093        $196,075
                                                                 ========         ========        ========
</TABLE>

     The Company uses short-term borrowings on a limited basis. These borrowings
include overnight funds purchased, securities sold under agreements to
repurchase, FHLB advances, and commercial bank lines of credit. The following
table sets forth categories of short-term borrowings of the Company for the
indicated periods.

<TABLE>
<CAPTION>
                                                                            YEAR ENDED DECEMBER 31,
                                                                 -----------------------------------------
                                                                   2001             2000             1999
                                                                 --------         --------        --------
                                                                                 (DOLLARS IN THOUSANDS)
<S>                                                              <C>              <C>            <C>
Federal funds purchased:
Balance at end of year                                           $24,350          $ 3,830        $ 6,725
Weighted average interest rate at end of year                       1.89%            6.02%          5.89%
Maximum amount outstanding (1)                                   $51,500     $     14,815        $20,350
Average amount outstanding                                        23,604            8,848          7,973
Weighted average interest rate during year                          3.36%            6.60%          5.33%
</TABLE>

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


<TABLE>
<CAPTION>
                                                                            YEAR ENDED DECEMBER 31,
                                                                 -----------------------------------------
                                                                   2001             2000             1999
                                                                 --------         --------        --------
                                                                                 (DOLLARS IN THOUSANDS)
<S>                                                              <C>              <C>            <C>
Securities sold under repurchase agreements:
Balance at end of year                                           $ 146,800        $20,463        $12,200
Weighted average interest rate at end of year                         2.04%          6.35%          5.79%
Maximum amount outstanding (1)                                   $ 146,800        $36,005        $12,321
Average amount outstanding                                          37,070         23,935          4,374
Weighted average interest rate during year                            3.85%          6.00%          5.16%
</TABLE>

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


     The Banks each became members of the Federal Home Loan Bank of Chicago
("FHLB") during 1996. Membership requirements include common stock ownership in
the FHLB. The Banks have FHLB advances due at various times through 2011. These
advances are used as a supplemental source of funds. At December 31, 2001,
$213.5 million of these advances had call provisions. The following table sets
forth categories of FHLB advances of the Company as of the indicated dates or
for the indicated periods.


                                       38

<PAGE>

<TABLE>
<CAPTION>
                                                                            YEAR ENDED DECEMBER 31,
                                                                 -----------------------------------------
                                                                   2001             2000             1999
                                                                 --------         --------        --------
                                                                                 (DOLLARS IN THOUSANDS)
<S>                                                              <C>              <C>            <C>
FHLB advances:
Balance at end of year                                           $244,500         $239,500      $169,500
Weighted average interest rate at end of year                        5.47%            5.56%         5.22%
Maximum amount outstanding (1)                                   $244,500         $239,500      $172,000
Average amount outstanding                                        243,706          216,173       126,444
Weighted average interest rate during year                           5.55%            5.81%         5.11%
</TABLE>

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


     The following table sets forth categories of short-term or revolving lines
of credit borrowings of the Company from correspondent banks as of the indicated
dates or for the indicated periods.

<TABLE>
<CAPTION>
                                                                            YEAR ENDED DECEMBER 31,
                                                                 -----------------------------------------
                                                                   2001             2000             1999
                                                                 --------         --------        --------
                                                                                 (DOLLARS IN THOUSANDS)
<S>                                                              <C>              <C>            <C>
Lines of Credit:
Balance at end of year                                           $6,500           $ 5,300        $7,500
Weighted average interest rate at end of year                      2.59%             7.57%         6.85%
Maximum amount outstanding (1)                                   $6,500           $13,750        $7,500
Average amount outstanding                                        6,147             8,307         5,671
Weighted average interest rate during year                         6.46%             7.87%         7.09%
</TABLE>

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

     The Company entered into a credit agreement with a correspondent bank on
January 30, 1998 ("the Credit Agreement"), which provides the Company with a
revolving line of credit with a maximum availability of $25.0 million. The
original maturity of the revolving line of credit was January 30, 2000. On
January 17, 2000, this revolving line of credit was extended until January 31,
2002 by an amendment to the existing agreement. On January 11, 2002, this
revolving line of credit was further extended until January 30, 2004.

     Amounts outstanding under the Company's revolving line of credit represent
borrowings incurred to provide capital contributions to the Banks to support
their growth. The Company makes interest payments, at its option, at the 30-,
60-, 90-, or 180-day London Inter-Bank Offered Rate ("LIBOR") plus 95 basis
points or the prime rate less 25 basis points. The principal balance outstanding
under the line was $6.5 million as of December 31, 2001, with the entire balance
maturing and renewing in the first quarter of 2002.

     In May 2000, the Company formed MBHI Capital Trust I ("the Trust"). The
Trust is a statutory business trust formed under the laws of the State of
Delaware and is wholly owned by the Company. In June 2000, the Trust issued
10.0% preferred securities with an aggregate liquidation amount of $20,000,000
($25 per preferred security) to third-party investors in an underwritten public
offering. The Company issued 10.0% junior subordinated debentures aggregating
$20,000,000 to the Trust. The junior subordinated debentures are the sole assets
of the Trust. The junior subordinated debentures and the preferred securities
pay distributions and dividends, respectively, on a quarterly basis, which are
included in interest expense. The junior subordinated debentures will mature on
June 7, 2030, at which time the preferred securities must be redeemed. The
junior subordinated debentures and preferred securities can be redeemed
contemporaneously, in whole or in part, beginning June 7, 2005 at a redemption
price of $25 per preferred security. The Company has provided a full,
irrevocable, and unconditional guarantee on a subordinated basis of the
obligations of the Trust under the preferred securities in the event of the
occurrence of an event of default, as defined in such guarantee.


                                       39

<PAGE>


CAPITAL RESOURCES

     The Company monitors compliance with bank and bank-holding company
regulatory capital requirements, focusing primarily on risk-based capital
guidelines. Under the risk-based capital method of capital measurement, the
ratio computed is dependent upon the amount and composition of assets recorded
on the balance sheet and the amount and composition of off-balance sheet items,
in addition to the level of capital. Included in the risk-based capital method
are two measures of capital adequacy, Tier 1, or core capital, and total
capital, which consists of Tier 1 plus Tier 2 capital. See "Business -
Supervision and Regulation - Bank Holding Company Regulation" for definitions of
Tier 1 and Tier 2 capital.

     The following tables set forth the Company's capital ratios as of the
indicated dates.

<TABLE>
<CAPTION>
                                                            RISK-BASED CAPITAL RATIOS

                                                                    DECEMBER 31,
                                  ------------------------------------------------------------------------------
                                            2001                        2000                        1999
                                  ----------------------      --------------------          --------------------
                                    AMOUNT        RATIO         AMOUNT      RATIO            AMOUNT        RATIO
                                  ----------     -------      ---------     ------          --------       -----
                                                            (DOLLARS IN THOUSANDS)
<S>                               <C>             <C>         <C>           <C>             <C>            <C>
Tier 1 capital to
risk-weighted assets              $  113,747      9.93%      $ 102,532      11.02%          $ 77,263       11.11
Tier 1 capital
minimum requirement                   45,814      4.00          37,214       4.00             27,821        4.00
Total capital to
risk-weighted assets                 123,984     10.82         111,125      11.94             84,829       12.20
Total capital minimum
requirements                          91,628      8.00          74,428       8.00             55,643        8.00
Total risk-
weighted assets                    1,145,354                   930,352                       695,532
</TABLE>


LIQUIDITY

     The Company manages its liquidity position with the objective of
maintaining sufficient funds to respond to the needs of depositors and borrowers
and to take advantage of earnings enhancement opportunities. In addition to the
normal inflow of funds from core-deposit growth, together with repayments and
maturities of loans and securities, the Company utilizes other short-term
funding sources such as securities sold under agreements to repurchase,
overnight funds purchased from correspondent banks and the acceptance of
short-term deposits from public entities. The FHLB provides an additional source
of liquidity. The Banks have used the FHLB extensively since 1999. In 2001, FHLB
advances increased by $5 million. Assuming that collateral is available to
secure loans, each Bank can borrow up to 35% of its assets with the FHLB, which
provided the Banks with a total additional $387.0 million in unused capacity at
December 31, 2001.

     The Banks also have various funding arrangements with commercial and
investment banks providing up to $1.5 billion of available funding sources in
the form of Federal funds lines, repurchase agreements, and brokered certificate
of deposit programs. Unused capacity under these lines was $1.2 billion at
December 31, 2001. The Banks maintain these funding arrangements to achieve
favorable costs of funds, manage interest rate risk, and enhance liquidity in
the event of deposit withdrawals.

     The Company monitors and manages its liquidity position on several bases,
which vary depending upon the time period. As the time period is expanded, other
data is factored in, including estimated loan funding requirements, estimated
loan payoffs, securities portfolio maturities or calls, and anticipated
depository buildups or runoffs.


                                       40

<PAGE>


     The Company classifies the majority of its securities as
available-for-sale, thereby maintaining significant liquidity. The Company's
liquidity position is further enhanced by the structuring of a majority of its
loan portfolio interest payments as monthly and also by the significant
representation of retail credit and residential mortgage loans in the Company's
loan portfolio.

     The Company's cash flows are composed of three classifications: cash flows
from operating activities, cash flows from investing activities, and cash flows
from financing activities. Net cash provided by operating activities, consisting
primarily of earnings, was $20.4 million, $15.6 million, and $21.5 million for
the years ended December 31, 2001, 2000, and 1999, respectively. Net cash used
in investing activities, consisting primarily of loan and investment funding,
was $288.9 million, $204.5 million, and $179.4 million for the years ended
December 31, 2001, 2000, and 1999, respectively. Net cash provided by financing
activities, consisting principally of deposit growth and net borrowings, was
$271.7 million, $199.3 million, and $153.8 million for the years ended December
31, 2001, 2000, and 1999, respectively.


ASSET/LIABILITY MANAGEMENT

     The business of the Company and the composition of its balance sheet
consists of investments in interest-earning assets (primarily loans,
mortgage-backed securities, and other securities) that are primarily funded by
interest-bearing liabilities, (deposits and borrowings). All of the financial
instruments of the Company as of December 31, 2001 were for other than trading
purposes. Such financial instruments have varying levels of sensitivity to
changes in market rates of interest. The Company's net interest income is
dependent on the amounts of and yields on its interest-earning assets as
compared to the amounts of and rates on its interest-bearing liabilities. Net
interest income is therefore sensitive to changes in market rates of interest.

     The Company's asset/liability management strategy is to maximize net
interest income while limiting exposure to risks associated with a volatile
interest rate environment. This strategy is implemented by the Company's ongoing
analysis and management of its interest rate risk. A principal function of
asset/liability management is to coordinate the levels of interest-sensitive
assets and liabilities to minimize net interest income fluctuations in times of
fluctuating market interest rates. In January 2002, the Company entered into an
interest rate swap with a counterparty in order to convert its $20 million trust
preferred securities and related junior subordinated debentures from a 10.0%
fixed rate instrument into floating rate debt. The interest rate swap was
written to the call date on the trust preferred securities, which is June 7,
2005. The Company will pay interest quarterly at a rate equal to the Three-Month
LIBOR rate. The counterparty will pay a fixed rate of 4.59% for the term of the
agreement. This transaction is expected to reduce the Company's interest expense
by more than 2.50% in the first three months of 2002.

     Interest rate risk results when the maturity or repricing intervals and
interest rate indices of the interest-earning assets, interest-bearing
liabilities, and off-balance sheet financial instruments are different, thus
creating a risk that will result in disproportionate changes in the value of and
the net earnings generated from the Company's interest-earning assets,
interest-bearing liabilities, and off-balance sheet financial instruments. The
Company's exposure to interest rate risk is managed primarily through the
Company's strategy of selecting the types and terms of interest-earning assets
and interest-bearing liabilities that generate favorable earnings while limiting
the potential negative effects of changes in market interest rates. Because the
Company's primary source of interest-bearing liabilities is customer deposits,
the Company's ability to manage the types and terms of such deposits may be
somewhat limited by customer maturity preferences in the market areas in which
the Company operates. Borrowings, which include FHLB advances, short-term
borrowings, and long-term borrowings, are generally structured with specific
terms which, in management's judgment, when aggregated with the terms for
outstanding deposits and matched with interest-earning assets, reduce the
Company's exposure to interest rate risk. The rates, terms, and interest rate
indices of the Company's interest-earning assets result primarily from the
Company's strategy of investing in securities and loans (a substantial portion
of which have adjustable rate terms). This permits the Company to limit its
exposure to interest rate risk,


                                       41

<PAGE>


together with credit risk, while at the same time achieving a positive interest
rate spread from the difference between the income earned on interest-earning
assets and the cost of interest-bearing liabilities.

     Management uses a duration model for each of the Banks' internal
asset/liability management. The model uses cash flows and repricing information
from loans and certificate of deposits, plus repricing assumptions on products
without specific repricing dates (e.g., savings and interest-bearing demand
deposits), to calculate the durations of each of the Banks' assets and
liabilities. Securities are stress tested, and the theoretical changes in cash
flow are key elements of the Company's model. The model also projects the effect
on the Company's earnings and theoretical value for a change in interest rates.
The model computes the duration of each of the Banks' rate sensitive assets and
liabilities, a theoretical market value of each of the Banks and the effects of
rate changes on each of the Banks' earnings and market value. The Banks'
exposure to interest rates is reviewed on a monthly basis by senior management
and the Company's Board of Directors.

     Each of the Banks also maintains specific interest rate risk management
policy limits. Based upon simulation modeling, these guidelines include a +/-
20% change in net interest income upon an immediate or gradual 200 basis point
change in interest rates.


EFFECTS OF INFLATION

     Inflation can have a significant effect on the operating results of all
industries. However, management believes that inflationary factors are not as
critical to the banking industry as they are to other industries, due to the
high concentration of relatively short-duration monetary assets in the banking
industry. Inflation does, however, have some impact on the Company's growth,
earnings, and total assets and on its need to closely monitor its equity capital
levels. Management does not expect inflation to be a significant factor in 2002.

     Interest rates are significantly affected by inflation, but it is difficult
to assess the impact, since neither the timing nor the magnitude of the changes
in the various inflation indices coincide with changes in interest rates.
Inflation does impact the economic value of longer term, interest-earning assets
and interest-bearing liabilities, but the Company attempts to limit its
long-term assets and liabilities, as indicated in the tables set forth under
"Financial Condition" and "Asset/Liability Management."


                                       42

<PAGE>


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company's overall interest rate sensitivity is demonstrated by net
interest income analysis. Net interest income analysis measures the change in
net interest income in the event of hypothetical changes in interest rates. This
analysis assesses the risk of change in net interest income in the event of
sudden and sustained 1.0% and 2.0% increases and decreases in market interest
rates. The tables below present the Company's projected changes in net interest
income for the various rate shock levels at December 31, 2001 and 2000,
respectively.

<TABLE>
<CAPTION>
                              2001 NET INTEREST INCOME
                        --------------------------------------
                                           DOLLAR       RATE
                        AMOUNT             CHANGE      CHANGE
                        -------           --------     -------
                        (DOLLARS IN THOUSANDS)
<S>                     <C>               <C>          <C>
+200 bp                 $64,675           $(2,951)     (4.36)%
+100 bp                  64,550            (3,076)     (4.55)
Base                     67,626                --         --
-100 bp                  69,487             1,861       2.75
-200 bp                  69,191             1,565       2.31
</TABLE>


<TABLE>
<CAPTION>
                              2000 NET INTEREST INCOME
                        --------------------------------------
                                           DOLLAR       RATE
                        AMOUNT             CHANGE      CHANGE
                        -------           --------     -------
                        (DOLLARS IN THOUSANDS)
<S>                     <C>               <C>          <C>
+200 bp                 $42,560           $(1,876)     (4.22)%
+100 bp                  43,578              (858)     (1.93)
Base                     44,436                --         --
-100 bp                  43,999              (437)     (0.98)
-200 bp                  43,320            (1,116)     (2.51)
</TABLE>


     As shown above, at December 31, 2001, the effect of an immediate 200 basis
point increase in interest rates would decrease the Company's net interest
income by 4.36%, or approximately $3.0 million. The effect of an immediate 200
basis point decrease in rates would increase the Company's net interest income
by 2.31%, or approximately $1.6 million. Overall net interest income sensitivity
has decreased slightly from 2000 to 2001, but remains within the Company's and
recommended regulatory guidelines. This decreased sensitivity was due to the
changes in interest rates that affected various earning assets and
interest-bearing liabilities.

     As shown above, at December 31, 2000, the effect of an immediate 200 basis
point increase in interest rates would decrease the Company's net income by
4.22%, or approximately $1.9 million. The effect of an immediate 200 basis point
decrease in rates would decrease the Company's net interest income by 2.51%, or
approximately $1.1 million.


ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See "Index to Consolidated Financial Statements" on page F-1.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
         AND FINANCIAL DISCLOSURE

     None.

                                       43


<PAGE>


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information regarding directors of the Registrant is included in the
Registrant's Proxy Statement for its 2002 Annual Meeting of Stockholders ("the
Proxy Statement") under the heading "Election of Directors" and the information
included therein is incorporated herein by reference. Information regarding the
executive officers of the Registrant is included in "Item I. Business."


ITEM 11.  EXECUTIVE COMPENSATION

     Information regarding compensation of executive officers and directors is
included in the Registrant's Proxy Statement under the headings "Directors'
Compensation," "Executive Compensation," "Employment Agreements," and "1996
Stock Option Plan," and the information included therein is incorporated herein
by reference.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Information regarding security ownership of certain beneficial owners and
management is included in the Registrant's Proxy Statement under the headings
"Voting Securities" and "Security Ownership of Certain Beneficial Owners," and
the information included therein is incorporated herein by reference.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information regarding certain relationships and related transactions is
included in the Registrant's Proxy Statement under the heading "Transactions
with Certain Related Persons," and the information included therein is
incorporated herein by reference.


                                     PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K


     (A)(1) INDEX TO FINANCIAL STATEMENTS


     The consolidated financial statements of the Registrant and its
subsidiaries as required by Item 8 of Form 10-K are filed as a part of this
document. See "Index to Consolidated Financial Statements" on page F-1.


     (A)(2) FINANCIAL STATEMENT SCHEDULES

     All financial statement schedules as required by Item 8 and Item 14 of Form
10-K have been omitted because the information requested is either not
applicable or has been included in the consolidated financial statements or
notes thereto.


                                       44

<PAGE>


     (A)(3) EXHIBITS

     The following exhibits are either filed as part of this report or are
incorporated herein by reference:

<TABLE>
<S>               <C>
  3.1             Restated Certificate of Incorporation, as amended (incorporated by reference to
                  Registrant's Registration Statement on Form S-1, Registration No. 333-42827).
  3.2             Restated By-Laws, as amended (incorporated by reference to Registrant's
                  Quarterly Report on Form 10-Q for the quarter ended June 30, 1998,
                  File No. 0-29652).
  3.3             Amendment of Restated By-Laws (incorporated by reference to Registrant's
                  Quarterly Report on Form 10-Q for the quarter ended June 30, 2000,
                  File No. 0-29598).
  4.1             Specimen Common Stock Certificate (incorporated by reference to Registrant's
                  Registration Statement on Form S-1, Registration No. 333-42827).
  4.2             Certain instruments defining the rights of the holders of
                  long-term debt of the Company and certain of its subsidiaries,
                  none of which authorize a total amount of indebtedness in
                  excess of 10% of the total assets of the Company and its
                  subsidiaries on a consolidated basis, have not been filed as
                  Exhibits. The Company hereby agrees to furnish a copy of any
                  of these agreements to the SEC upon request.
*10.3             Midwest Banc Holdings, Inc. 1996 Stock Option Plan (incorporated by reference
                  to Registrant's Registration Statement on Form S-1, Registration No. 333-42827).
*10.4             Amendment to the Midwest Banc Holdings, Inc. 1996 Stock Option Plan
                  (incorporated by reference to Registrant's Annual Report on Form 10-K for the
                  year ended December 31, 1998, File No. 0-29652).
*10.5             Form of Transitional Employment Agreements (incorporated by reference to
                  Registrant's Registration Statement on Form S-1, Registration No. 333-42827).
 10.6             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).
 10.7             Britannica Centre Lease, dated as of May 1, 1994, between Chicago Title and
                  Trust Company, as Trustee under Trust Agreement dated November 2, 1977 and
                  known as Trust No. 1070932 and Midwest Bank & Trust Company (incorporated
                  by reference to Registrant's Registration Statement on Form S-1,
                  Registration No. 333-42827).
 10.8             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).
 10.9             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).
 10.10            Credit Agreement as of January 30,1998, between the Company, Midwest One
                  Mortgage Services, Inc., and Harris Trust & Savings Bank (incorporated by
                  reference to Registrant's Registration Statement on Form S-1,
                  Registration No. 333-42827).
 10.11            First Amendment and waiver to Credit Agreement dated as of September 28,
                  1998 between the Company, Midwest One Mortgage Services, Inc., and Harris
</TABLE>


                                       45


<PAGE>

<TABLE>
<S>               <C>
                  Trust and Savings Bank (incorporated by reference to
                  Registrant's Form 10-K for the fiscal year ended 1999, File
                  No. 0-29598).

 10.12            Second Amendment and waiver to Credit Agreement dated as of
                  January 7, 1999 between the Company, Midwest One Mortgage
                  Services, Inc., and Harris Trust and Savings Bank
                  (incorporated by reference to Registrant's Form 10-K for the
                  fiscal year ended 1999, File No. 0-29598).

 10.13            Third Amendment and waiver to Credit Agreement dated as of January 17, 2000
                  between the Company and Harris Trust and Savings Bank (incorporated by
                  reference to Registrant's Form 10-K for the fiscal year ended 1999,
                  File No. 0-29598).
 10.14            Fourth Amendment to Credit Agreement dated January 17, 2000 between the
                  Company and Harris Trust and Savings Bank.
*10.15            Form of Supplemental Executive Retirement Agreement
                  (incorporated by reference to Registrant's Form 10-Q for the
                  quarter ended September 30, 2001).

*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).

 21.1             Subsidiaries.
 23.1             Consent of Crowe, Chizek and Company LLP.
 24.1             Power of Attorney (included on signature page).
</TABLE>

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


     (B)  REPORTS ON FORM 8-K.

          THE FOLLOWING CURRENT REPORTS OF FORM 8-K WERE FILED BY THE COMPANY
          DURING THE LAST QUARTER OF FISCAL 2001:
          o    Form 8-K dated October 4, 2001;
          o    Form 8-K dated October 15, 2001; and
          o    Form 8-K dated December 20, 2001.


                                       46

<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


                                       MIDWEST BANC HOLDINGS, INC.


Date: March 27, 2002                   BY: /s/ BRAD A. LUECKE
                                           ------------------------
                                           Brad A. Luecke
                                           President and Chief Executive Officer


     Each person whose signature appears below constitutes and appoints Brad A.
Luecke and Daniel R. Kadolph his true and law attorneys-in-fact and agents, each
acting alone, with full powers of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any or all
amendments to this Annual Report on Form 10-K, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in order to effectuate
the filing of such report, as fully for all intents and purposes as he might or
could do in person, thereby ratifying and confirming all that said
attorneys-in-fact and agents, and each of them, or his substitutes, may lawfully
do or cause to be done by virtue hereof.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf in the
capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE                                   TITLE                                                     DATE
---------                                   -----                                                     ----
<S>                                         <C>                                                       <C>
/s/ E.V. SILVERI
------------------------------
E.V. Silveri                                Chairman of the Board, Director                           March 27, 2002

/s/ BRAD A. LUECKE
------------------------------
Brad A. Luecke                              President, Chief Executive Officer, and Director          March 27, 2002

/s/ ANGELO A. DIPAOLO
------------------------------
Angelo A. DiPaolo                           Director                                                  March 27, 2002

/s/ DANIEL NAGLE
------------------------------
Daniel Nagle                                Director                                                  March 27, 2002

/s/ JOSEPH RIZZA
------------------------------
Joseph Rizza                                Director                                                  March 27, 2002

/s/ LEROY ROSASCO
------------------------------
LeRoy Rosasco                               Director                                                  March 27, 2002

/s/ ROBERT D. SMALL
------------------------------
Robert D. Small                             Director                                                  March 27, 2002

/s/ LEON WOLIN
------------------------------
Leon Wolin                                  Director                                                  March 27, 2002

/s/ DANIEL R. KADOLPH
------------------------------
Daniel R. Kadolph                           Senior Vice President, Chief Financial Officer,           March 27, 2002
                                            Comptroller, and Treasurer
</TABLE>


                                       47

<PAGE>

                          MIDWEST BANC HOLDINGS, INC.
                       CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999


                                    CONTENTS


REPORT OF INDEPENDENT AUDITORS                                            F-2

FINANCIAL STATEMENTS

   CONSOLIDATED BALANCE SHEETS                                            F-3

   CONSOLIDATED STATEMENTS OF INCOME                                      F-4

   CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY                        F-5

   CONSOLIDATED STATEMENTS OF CASH FLOWS                                  F-6

   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                             F-7


                                       F-1


<PAGE>

                              [CROWE CHIZEK LOGO]


                         REPORT OF INDEPENDENT AUDITORS


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


We have audited the accompanying consolidated balance sheets of Midwest Banc
Holdings, Inc. as of December 31, 2001 and 2000 and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Midwest Banc
Holdings, Inc. at December 31, 2001 and 2000 and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2001, in conformity with accounting principles generally accepted in the United
States of America.



                                       [Crowe, Chizek and Company LLP SIGNATURE]

                                        Crowe, Chizek and Company LLP

Oak Brook, Illinois
January 11, 2002


                                      F-2


<PAGE>


                          MIDWEST BANC HOLDINGS, INC.
                           CONSOLIDATED BALANCE SHEETS
                                 (In thousands)
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                    December 31,
                                                                              ---------------------------
                                                                                 2001             2000
                                                                              ----------       ----------
<S>                                                                           <C>              <C>
ASSETS
Cash and cash equivalents                                                     $   49,812       $   46,556
Securities available-for-sale                                                    683,474          513,512
Securities held-to-maturity (fair value: 2001 - $21,865;
2000 - $25,215)                                                                   21,445           25,174
Loans                                                                          1,003,386          824,632
Allowance for loan losses                                                        (10,135)          (8,593)
                                                                              ----------       ----------
Net loans                                                                        993,251          816,039
Cash value of life insurance                                                      19,554           18,617
Premises and equipment, net                                                       19,477           21,185
Other real estate                                                                    355            1,153
Goodwill                                                                           3,524            3,893
Other assets                                                                      19,530           21,641
                                                                              ----------       ----------
Total assets                                                                  $1,810,422       $1,467,770
                                                                              ==========       ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest-bearing                                                          $  134,707      $   128,749
Interest-bearing                                                               1,076,813          957,037
                                                                              ----------       ----------
Total deposits                                                                 1,211,520        1,085,786
Federal funds purchased                                                           24,350            3,830
Securities sold under agreements to repurchase                                   146,800           20,463
Advances from the Federal Home Loan Bank                                         244,500          239,500
Junior subordinated debt                                                          20,000           20,000
Note payable                                                                       6,500            5,300
Due to broker                                                                     46,432               --
Other liabilities                                                                 14,106           10,315
                                                                              ----------       ----------
Total liabilities                                                              1,714,208        1,385,194

Stockholders' equity
Preferred stock                                                                       --               --
Common stock                                                                         114              114
Surplus                                                                           29,587           29,654
Retained earnings                                                                 77,256           65,814
Accumulated other comprehensive loss                                              (1,057)          (3,861)
Treasury stock, at cost                                                           (9,686)          (9,145)
                                                                              ----------       ----------
Total stockholders' equity                                                        96,214           82,576
                                                                              ----------       ----------
Total liabilities and stockholders' equity                                    $1,810,422       $1,467,770
                                                                              ==========       ==========
</TABLE>


-------------------------------------------------------------------------------
          See accompanying notes to consolidated financial statements.


                                      F-3

<PAGE>


                           MIDWEST BANC HOLDINGS, INC.
                       CONSOLIDATED STATEMENTS OF INCOME
                      (In thousands, except per share data)
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                          Year Ended December 31,
                                                                                     --------------------------------
                                                                                       2001        2000        1999
                                                                                     --------    --------     -------
<S>                                                                                  <C>         <C>          <C>
Interest income
 Loans                                                                               $ 76,429    $ 71,865     $52,272
 Securities
  Taxable                                                                              34,920      35,409      29,957
  Exempt from federal income taxes                                                      1,508       1,854       1,508
 Trading account securities                                                                25           3          46
 Federal funds sold and other short-term investments                                      250         661         363
                                                                                     --------    --------     -------
  Total interest income                                                               113,132     109,792      84,146
Interest expense
 Deposits                                                                              47,519      47,680      36,730
 Advances from the Federal Home Loan Bank                                              13,528      12,549       6,463
 Notes payable and other borrowings                                                       397         661         418
 Federal funds purchased and securities sold under
  agreements to repurchase                                                              2,221       2,020         651
 Junior subordinated debt                                                               2,000       1,122          --
                                                                                     --------    --------     -------
  Total interest expense                                                               65,665      64,032      44,262
                                                                                     --------    --------     -------

NET INTEREST INCOME                                                                    47,467      45,760      39,884
Provision for loan losses                                                               2,220       1,850       2,203
                                                                                     --------    --------     -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                                    45,247      43,910      37,681
Other income
 Service charges on deposit accounts                                                    5,013       3,615       3,309
 Net gains on securities transactions                                                   2,761       1,190         299
 Net trading account profits (losses)                                                     899        (120)        160
 Mortgage loan origination fees                                                           605         197         693
 Insurance and brokerage commissions                                                      795         759         585
 Trust income                                                                             628         653         670
 Increase in cash surrender value of life insurance                                       937         445          --
 Other income                                                                           1,164         956       1,018
                                                                                     --------    --------     -------
  Total other income                                                                   12,802       7,695       6,734
Other expenses
 Salaries and employee benefits                                                        18,770      16,534      14,788
 Occupancy and equipment                                                                5,067       4,969       4,381
 Professional services                                                                  2,144       1,793       1,674
 Marketing                                                                                848       1,166         928
 Other expenses                                                                         4,634       4,898       4,003
                                                                                     --------    --------     -------
  Total other expenses                                                                 31,463      29,360      25,774
                                                                                     --------    --------     -------
INCOME BEFORE INCOME TAXES                                                             26,586      22,245      18,641
Provision for income taxes                                                              8,704       7,632       6,750
                                                                                     --------    --------     -------
NET INCOME                                                                            $17,882     $14,613     $11,891
                                                                                     ========    ========     =======
Basic earnings per share                                                              $  1.66     $  1.36     $  1.08
                                                                                     ========    ========     =======
Diluted earnings per share                                                            $  1.64     $  1.35     $  1.07
                                                                                     ========    ========     =======
</TABLE>


-------------------------------------------------------------------------------
          See accompanying notes to consolidated financial statements.


                                       F-4


<PAGE>


                           MIDWEST BANC HOLDINGS, INC.
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 (In thousands, except share and per share data)
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                   Accumulated                  Total
                                                                                       Other                    Stock-
                                                 Common                 Retained   Comprehensive   Treasury    holders'
                                                 Stock       Surplus    Earnings   Income (Loss)    Stock       Equity
                                                 ------      -------    --------   -------------   --------    --------
<S>              <C>                             <C>         <C>        <C>         <C>            <C>          <C>
Balance, January 1, 1999                         $ 114       $ 29,704   $ 48,795    $  (522)       $  (462)     $ 77,629
Cash dividends declared
($.350 per share)                                   --             --     (3,838)        --             --        (3,838)
Purchase of 394,858 shares of treasury stock        --             --         --         --         (6,577)       (6,577)
Issuance of common stock upon
exercise of 512 stock options                       --             --         --         --              9             9
Comprehensive income
Net income                                          --             --     11,891         --             --        11,891
Net decrease in fair value of securities
classified as available-for-sale, net of
income taxes and reclassification
adjustments                                         --             --         --    (11,420)            --       (11,420)
                                                                                                                --------
Total comprehensive income                                                                                           471
                                                 -----       --------   --------    -------        -------      --------
Balance, December 31, 1999                         114         29,704     56,848    (11,942)        (7,030)       67,694

Cash dividends declared
($.525 per share)                                   --             --     (5,647)        --             --        (5,647)
Purchase of 155,654 shares of treasury stock        --             --         --         --         (2,271)       (2,271)
Issuance of common stock upon
exercise of 11,000 stock options, net
of tax benefits                                     --            (50)        --         --            156           106
Comprehensive income
Net income                                          --             --     14,613         --             --        14,613
Net increase in fair value of securities
classified as available-for-sale, net of
income taxes and reclassification
adjustments                                         --             --         --      8,081             --         8,081
                                                                                                                --------
Total comprehensive income                                                                                        22,694
                                                 -----       --------   --------    -------        -------      --------
Balance, December 31, 2000                         114         29,654     65,814     (3,861)        (9,145)       82,576
Cash dividends declared
($.600 per share)                                   --             --     (6,440)        --             --        (6,440)
Purchase of 28,000 shares of treasury stock         --             --         --         --           (541)         (541)
Issuance and retirement of common stock
upon exercise of 17,980 stock
options, net of tax benefits                        --            (67)        --         --             --           (67)
Comprehensive income
Net income                                          --             --     17,882         --             --        17,882
Net increase in fair value of securities
classified as available-for-sale, net of
income taxes and reclassification
adjustments                                         --             --        --       2,804             --         2,804
                                                                                                                --------
Total comprehensive income                                                                                        20,686
                                                 -----       --------   --------    -------        -------      --------
Balance, December 31, 2001                       $ 114       $ 29,587   $ 77,256    $(1,057)       $(9,686)     $ 96,214
</TABLE>


-------------------------------------------------------------------------------
          See accompanying notes to consolidated financial statements.


                                      F-5


<PAGE>


                           MIDWEST BANC HOLDINGS, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                         Year Ended December 31,
                                                                                   ----------------------------------
                                                                                     2001         2000         1999
                                                                                   --------     --------     --------
<S>                                                                                <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                                         $ 17,882     $ 14,613     $  11,891
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation                                                                          2,474        2,683         2,296
Provision for loan losses                                                             2,220        1,850         2,203
Proceeds from sales of trading account securities, net                                  899         (120)          160
Net gain on sales of securities available-for-sale                                   (2,761)      (1,190)         (299)
Net loss (gain) on sales of trading account securities                                 (899)         120          (160)
Federal Home Loan Bank stock dividend                                                  (864)        (591)           --
Net change in real estate loans held for sale                                        (2,798)        (167)        3,380
Increase in cash surrender value of life insurance                                     (937)        (445)           --
Deferred income taxes                                                                   486         (347)         (481)
Change in other assets                                                                1,435       (4,743)        1,997
Change in other liabilities                                                           3,307        3,904           536
                                                                                   --------     --------     ---------
Net cash provided by operating activities                                            20,444       15,567        21,523

CASH FLOWS FROM INVESTING ACTIVITIES
Sales and maturities of securities available-for-sale                               349,521      121,416       123,481
Principal payments on securities                                                    132,915       55,105       102,380
Purchases of securities available-for-sale                                         (597,597)    (186,097)     (274,916)
Purchases of securities held-to-maturity                                                 --         (720)      (10,253)
Maturities of securities held-to-maturity                                             3,630        5,022         4,210
Net increase in loans                                                              (176,634)    (178,834)     (131,808)
Acquisition of branch, net                                                               --           --        13,794
Property and equipment expenditures, net                                               (766)      (2,200)       (6,286)
Investment in life insurance                                                             --      (18,172)           --
                                                                                   --------     --------     ---------
Net cash used in investing activities                                              (288,931)    (204,480)     (179,398)

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits                                                            125,734      114,832        85,858
Issuance of junior subordinated debt, net of debt issuance costs                         --       19,030            --
Borrowings                                                                            9,500      256,800       123,200
Payments on borrowings                                                               (3,300)    (189,150)      (53,850)
Dividends paid                                                                       (6,440)      (5,397)       (3,323)
Change in securities sold under agreements to repurchase
and federal funds purchased                                                         146,857        5,368         8,456
Treasury stock and stock option transactions, net                                      (608)      (2,165)       (6,568)
                                                                                   --------     --------     ---------
Net cash provided by financing activities                                           271,743      199,318       153,773
                                                                                   --------     --------     ---------
Increase (decrease) in cash and cash equivalents                                      3,256       10,405        (4,102)
Cash and cash equivalents at beginning of year                                       46,556       36,151        40,253
                                                                                   --------     --------     ---------

CASH AND CASH EQUIVALENTS AT END OF YEAR                                           $ 49,812     $ 46,556     $  36,151
                                                                                   ========     ========     =========
Supplemental disclosures
Cash paid during the year for
Interest                                                                           $ 66,105     $ 62,846     $  43,717
Income taxes                                                                          8,991        8,397         6,541
Amount due to broker for purchases of securities                                     46,432           --        14,424
</TABLE>


-------------------------------------------------------------------------------
          See accompanying notes to consolidated financial statements.


                                      F-6


<PAGE>


                           MIDWEST BANC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
-------------------------------------------------------------------------------


NOTE 1 - NATURE OF OPERATIONS

Midwest Banc Holdings, Inc. ("Midwest Banc" or "the Company") is a bank holding
company organized under the laws of the State of Delaware. Through its
commercial bank and nonbank subsidiaries, the Company provides a full line of
financial services to corporate and individual customers located in the greater
Chicago metropolitan area and in Warren, Knox, Henderson, and Mercer Counties in
western Illinois. These services include demand, time, and savings deposits;
lending; mortgage banking; insurance products; and trust services. While the
Company's management monitors the revenue streams of the various products and
services, operations are managed and financial performance is evaluated on a
Company-wide basis. Accordingly, all of the Company's banking operations are
considered by management to be aggregated in one reportable operating segment.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation: The consolidated financial statements of Midwest Banc
include the accounts of Midwest Banc and its wholly owned subsidiaries, Midwest
Bank and Trust Company (MBT), Midwest Bank of Hinsdale (MBH), Midwest Bank of
McHenry County (MBMC), Midwest Bank of Western Illinois (MBWI), MBHI Capital
Trust I, and First Midwest Data Corp. Significant intercompany balances and
transactions have been eliminated.

The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America and
with general practices in the banking industry. The preparation of financial
statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Securities: Securities are classified as held-to-maturity when the Company has
the ability and management has the positive intent to hold those securities to
maturity. Accordingly, they are stated at cost adjusted for amortization of
premiums and accretion of discounts. Securities are classified as
available-for-sale when the Company may decide to sell those securities for
changes in market interest rates, liquidity needs, changes in yields or
alternative investments, and for other reasons. They are carried at fair value
with unrealized gains and losses, net of taxes, reported in other comprehensive
income (loss). Interest income is reported net of amortization of premium and
accretion of discount. Realized gains and losses on disposition of securities
available-for-sale are based on the net proceeds and the adjusted carrying
amounts of the securities sold, using the specific identification method.
Trading account securities are carried at fair value. Realized and unrealized
gains and losses on trading account securities are recognized in the statement
of income as they occur. No trading securities were held at December 31, 2001 or
2000.

-------------------------------------------------------------------------------
                                   (Continued)


                                      F-7

<PAGE>


                           MIDWEST BANC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
-------------------------------------------------------------------------------


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Derivatives: The Company is involved in certain derivative transactions that are
intended to protect the fair value of certain asset values and to improve the
predictability of certain future transactions. All derivative instruments are
recorded at their fair values and the change in the fair value of a derivative
is included in other income. If derivative instruments are designated as hedges
of fair values, both the change in the fair value of the hedge and the hedged
item are included in current earnings. Fair value adjustments related to cash
flow hedges are recorded in other comprehensive income and reclassified to
earnings when the hedged transaction is reflected in earnings. Ineffective
portions of hedges are reflected in earnings as they occur. At December 31,
2001, the Company did not have any fair value or cash flow hedges. The Company
has bought and sold various put and call options, with terms less than 90 days,
on mortgage-backed securities in the notional amount of $60 million at December
31, 2001. The carrying value of these options is $535,000, which approximates
fair value and is included in other liabilities in the consolidated balance
sheet.

Loans: Loans are reported net of the allowance for loan losses and unearned
discount. Impaired loans are carried at the present value of expected future
cash flows or the fair value of the related collateral, if the loan is
considered to be collateral dependent. Interest on loans is included in interest
income over the term of the loan based upon the principal balance outstanding.
Where serious doubt exists as to the collectibility of a loan, the accrual of
interest is discontinued. Loan fees and direct loan origination costs are
deferred and amortized over the term of the loan as a yield adjustment.

Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost, net of deferred loan fees, or estimated fair value
in the aggregate.

Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance for probable incurred credit losses, increased by the provision for
loan losses and decreased by charge-offs less recoveries. Management estimates
the allowance balance required based on past loan loss experience, the nature
and volume of the portfolio, information about specific borrower situations and
estimated collateral values, economic conditions, and other factors. Allocations
of the allowance may be made for specific loans, but the entire allowance is
available for any loan that, in management's judgment, should be charged off.
Loan losses are charged against the allowance when management believes that the
uncollectibility of a loan balance is confirmed.

A loan is impaired when full payment under the loan terms is not expected.
Impairment is evaluated in total for smaller-balance loans of similar nature
such as residential mortgage and consumer loans and on an individual basis for
other loans. If a loan is impaired, a portion of the allowance is allocated so
that the loan is reported, net, at the present value of estimated future cash
flows using the loan's existing rate or at the fair value of collateral if
repayment is expected solely from the collateral.


-------------------------------------------------------------------------------
                                   (Continued)


                                      F-8

<PAGE>


                           MIDWEST BANC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
-------------------------------------------------------------------------------


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Premises and Equipment: Premises and equipment are stated at cost, less
accumulated depreciation and amortization. Provisions for depreciation and
amortization, included in operating expenses, are computed on the straight-line
method over the estimated useful lives of the assets. The cost of maintenance
and repairs is charged to income as incurred; significant improvements are
capitalized.

Other Real Estate: Real estate acquired in settlement of loans is recorded at
fair value when acquired, establishing a new cost basis. If fair value declines,
a valuation allowance is recorded through expense. Costs after acquisition are
expensed.

Goodwill: Goodwill results from the application of purchase accounting
principles to the acquisition of subsidiaries and a branch office. Goodwill
represents the excess of acquisition cost over the fair value of net assets
acquired and, through December 31, 2001, has been amortized over periods ranging
from 10 to 25 years using the straight-line method.

Income Taxes: Deferred tax assets and liabilities are recognized for temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities. Deferred taxes are recognized for the
estimated taxes ultimately payable or recoverable based on enacted tax laws.
Changes in enacted tax rates and laws are reflected in the financial statements
in the periods they occur.

Stock Compensation: Employee compensation expense under stock option plans is
reported if options are granted below market price at grant date. Pro forma
disclosures of net income and earnings per share are shown using the fair value
method of Statement of Financial Accounting Standards No. 123 to measure expense
for options granted using an option pricing model to estimate fair value.

Stockholders' Equity: Common stock has $.01 par value, and 17,000,000 shares are
authorized. There were 11,379,392 common shares issued at December 31, 2001 and
2000, including 667,000 shares and 639,000 shares held in treasury,
respectively. Treasury stock is carried at cost. Preferred stock has $.01 par
value, and 1,000,000 shares are authorized. There were no preferred shares
issued or outstanding at December 31, 2001 and 2000.

Comprehensive Income: Comprehensive income includes both net income and other
comprehensive income elements, including the change in unrealized gains and
losses on securities available-for-sale, net of tax.

Earnings Per Common Share: Basic earnings per common share is net income divided
by the weighted average number of common shares outstanding during the year.
Diluted earnings per common share includes the dilutive effect of additional
potential common shares issuable under stock options.


-------------------------------------------------------------------------------
                                   (Continued)


                                      F-9

<PAGE>


                           MIDWEST BANC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
-------------------------------------------------------------------------------


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loss Contingencies: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there now are such matters that will have
a material effect on the financial statements.

Dividend Restriction: Banking regulations require maintaining certain capital
levels and may limit the dividends paid by the subsidiary banks to the Company
or by the Company to the stockholders.

Statement of Cash Flows: Amounts due from banks and federal funds sold are
considered to be cash equivalents. Loan disbursements and collections,
repurchase agreements, and transactions in deposit accounts are reported net.

Fair Value of Financial Instruments: Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed in a separate note. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could
significantly affect the estimates.

New Accounting Pronouncements: A new accounting standard requires all business
combinations to be recorded using the purchase method of accounting for any
transaction initiated after June 30, 2001. Under the purchase method, all
identifiable tangible and intangible assets and liabilities of the acquired
company must be recorded at fair value at date of acquisition, and the excess of
cost over fair value of net assets acquired is recorded as goodwill.
Identifiable intangible assets must be separated from goodwill. Identifiable
intangible assets with finite useful lives will be amortized under the new
standard, whereas goodwill, both amounts previously recorded and future amounts
purchased, will cease being amortized starting in 2002. Annual impairment
testing will be required for goodwill with impairment being recorded if the
carrying amount of goodwill exceeds its implied fair value. Adoption of this
standard on January 1, 2002 will not have a material effect on the Company's
financial statements.

Reclassifications: Some items in the prior year financial statements were
reclassified to conform to the current presentation.


-------------------------------------------------------------------------------
                                   (Continued)


                                      F-10


<PAGE>


                           MIDWEST BANC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
-------------------------------------------------------------------------------


NOTE 3 - SECURITIES

The amortized cost and fair value of securities available-for-sale and
held-to-maturity are as follows:

<TABLE>
<CAPTION>
                                                                                    December 31, 2001
                                                                    ---------------------------------------------------
                                                                                     Gross       Gross
(In thousands)                                                      Amortized     Unrealized   Unrealized       Fair
                                                                       Cost          Gains       Losses         Value
                                                                    ---------     ----------   ----------     ---------
<S>                                                                  <C>           <C>         <C>            <C>
   Securities available-for-sale
   Obligations of U.S. government agencies                           $     505     $    11     $     --       $     516
   Obligations of states and political subdivisions                     12,872         245         (109)         13,008
   Mortgage-backed securities                                          597,902         926       (2,681)        596,147
   Equity securities                                                    72,007         455         (229)         72,233
   Corporate and other debt securities                                   1,941          --         (371)          1,570
                                                                     ---------     -------     --------       ---------
      Total securities available-for-sale                            $ 685,227     $ 1,637     $ (3,390)      $ 683,474
                                                                     =========     =======     ========       =========
Securities held-to-maturity
   Obligations of states and political subdivisions                  $  21,445     $   420     $     (1)      $  21,865
                                                                     =========     =======     ========       =========
</TABLE>


<TABLE>
<CAPTION>
                                                                                    December 31, 2000
                                                                    ---------------------------------------------------
                                                                                     Gross       Gross
(In thousands)                                                      Amortized     Unrealized   Unrealized       Fair
                                                                       Cost          Gains       Losses         Value
                                                                    ---------     ----------   ----------     ---------
<S>                                                                  <C>           <C>         <C>            <C>
Securities available-for-sale
   Obligations of U.S. government agencies                           $  1,000      $    --     $    (66)      $     934
   Obligations of states and political subdivisions                    10,789          198          (13)         10,974
   Mortgage-backed securities                                         427,339          597       (5,529)        422,407
   Collateralized mortgage obligations                                  1,724           --           (4)          1,720
   Equity securities                                                   59,746          743         (754)         59,735
   Corporate and other debt securities                                 19,312          190       (1,760)         17,742
                                                                     --------      -------     --------       ---------
      Total securities available-for-sale                            $519,910      $ 1,728     $ (8,126)      $ 513,512
                                                                     ========      =======     ========       =========
Securities held-to-maturity
   Obligations of states and political subdivisions                  $ 25,174      $   155     $   (114)      $  25,215
                                                                     ========      =======     ========       =========
</TABLE>


At December 31, 2001, equity securities consist of $55 million of callable
preferred stock issued by the Federal Home Loan Mortgage Corporation. The
remaining equity securities consist of Federal Home Loan Bank ("FHLB") stock and
Federal Reserve Bank stock.

At December 31, 2001, included in securities available-for-sale are
approximately $46.4 million of securities, which have a trade date in 2001 and a
settlement date in 2002. These securities are comprised primarily of
mortgage-backed securities.


-------------------------------------------------------------------------------
                                   (Continued)


                                      F-11

<PAGE>


                           MIDWEST BANC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
-------------------------------------------------------------------------------


NOTE 3 - SECURITIES (Continued)

Securities with an approximate carrying value of $505,000,000 and $338,000,000
at December 31, 2001 and 2000 were pledged to secure public deposits,
borrowings, and for other purposes as required or permitted by law. Included in
securities pledged at December 31, 2001 and 2000 is $252,000,000 and
$209,000,000, which has been pledged for FHLB borrowings.

The amortized cost and fair value of securities by contractual maturity at
December 31, 2001 are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
(In thousands)                                                             Amortized         Fair
                                                                             Cost           Value
                                                                           ---------      ---------
<S>                                                                        <C>            <C>
Securities available-for-sale
    Due in one year or less                                                $  1,440       $   1,122
    Due after one year through five years                                     5,042           5,151
    Due after five years through ten years                                    6,987           6,998
    Due after ten years                                                       1,849           1,823
                                                                           --------       ---------
                                                                             15,318          15,094
    Mortgage-backed securities                                              597,902         596,147
                                                                           --------       ---------
        Total debt securities                                               613,220         611,241
    Equity securities                                                        72,007          72,233
                                                                           --------       ---------
        Total securities available-for-sale                                $685,227       $ 683,474
                                                                           ========       =========

Securities held-to-maturity
    Due in one year or less                                                $  3,281       $   3,339
    Due after one year through five years                                    17,473          17,813
    Due after five years through ten years                                      691             713
                                                                           --------       ---------
        Total securities held-to-maturity                                  $ 21,445       $  21,865
                                                                           ========       =========
</TABLE>


Proceeds from sales of securities available-for-sale and the realized gross
gains and losses are as follows:

<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                                         -------------------------------------
(In thousands)                                                             2001          2000           1999
                                                                         --------      --------       --------
<S>                                                                      <C>           <C>            <C>
Proceeds from sales                                                      $347,230      $118,381       $122,686
Gross realized gains                                                        3,552         1,242            445
Gross realized losses                                                        (791)          (52)          (146)
</TABLE>


--------------------------------------------------------------------------------
                                  (Continued)


                                      F-12

<PAGE>
                           MIDWEST BANC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999

--------------------------------------------------------------------------------


NOTE 4 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. The methods and assumptions used to determine
fair values for each class of financial instrument are presented below.

Carrying amount is the estimated fair value for cash and cash equivalents,
securities sold under agreements to repurchase, federal funds purchased, FHLB
stock, accrued interest receivable and payable, demand deposits, short-term
debt, and variable rate loans or deposits that reprice frequently and fully.
Security fair values are based on market prices or dealer quotes, and if no such
information is available, on the rate and term of the security and information
about the issuer. For fixed rate loans or deposits and for variable rate loans
or deposits with infrequent repricing or repricing limits, fair value is based
on discounted cash flows using current market rates applied to the estimated
life and credit risk. Fair values for impaired loans are estimated using
discounted cash flow analysis or underlying collateral values. Fair value of
fixed rate debt is based on current rates for similar financing. The fair value
of off-balance-sheet items is not material.

The estimated fair values of the Company's financial instruments were as
follows:

<TABLE>
<CAPTION>
                                                           December 31,
                                   --------------------------------------------------------
                                             2001                            2000
                                   --------------------------    --------------------------
                                                   Estimated                      Estimated
                                    Carrying         Fair          Carrying         Fair
(In thousands)                       Amount          Value         Amount           Value
                                   -----------    -----------    -----------    -----------
<S>                                <C>            <C>            <C>            <C>

Financial assets
 Cash and cash equivalents         $    49,812    $    49,812    $    46,556    $    46,556
   Securities available-for-sale       683,474        683,474        513,512        513,512
   Securities held-to-maturity          21,445         21,865         25,174         25,215
   Loans, net of allowance for
     loan losses                       993,251        998,405        816,039        812,619
   Accrued interest receivable           9,718          9,718         12,385         12,385

Financial liabilities
 Deposits

   Non-interest-bearing               (134,707)      (134,707)      (128,749)      (128,749)
   Interest-bearing                 (1,076,813)    (1,085,904)      (957,037)      (958,902)
 Securities sold under
   agreements to repurchase
   and federal funds purchased        (171,150)      (171,150)       (24,293)       (24,293)
  Borrowings                          (251,000)      (255,918)      (244,800)      (243,363)
  Junior subordinated debt             (20,000)       (20,073)       (20,000)       (20,220)
  Accrued interest payable              (3,809)        (3,809)        (4,249)        (4,249)
  Due to broker                        (46,432)       (46,432)            --             --
</TABLE>

                                  (Continued)

                                      F-13
<PAGE>


                           MIDWEST BANC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999

--------------------------------------------------------------------------------

NOTE 4 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

Other assets and liabilities of the Company not defined as financial
instruments, such as property and equipment, are not included in the above
disclosures. Also not included are nonfinancial instruments such as the value of
core deposits, loan servicing rights, customer goodwill, and similar items.

There is no ready market for a significant portion of the Company's financial
instruments. Accordingly, fair values are based on various factors relative to
expected loss experience, current economic conditions, risk characteristics, and
other factors. The assumptions and estimates used in the fair value
determination process are subjective in nature and involve uncertainties and
significant judgment and, therefore, fair values cannot be determined with
precision. Changes in assumptions could significantly affect these estimated
values.

NOTE 5 - LOANS

Major classifications of loans are summarized as follows:

<TABLE>
<CAPTION>

                                                 December 31,
                                          --------------------------
(In thousands)                                 2001           2000
                                          -----------    -----------
<S>                                       <C>            <C>

Commercial                                $   220,801    $   205,698
Commercial real estate                        612,687        448,988
Agricultural                                   48,772         47,773
Consumer real estate                          109,329        108,780
Consumer installment                           13,375         14,529
                                          -----------    -----------
  Total loans, gross                        1,004,964        825,768
Unearned discount                              (1,578)        (1,136)
                                          -----------    -----------
  Total loans                             $ 1,003,386    $   824,632
                                          ===========    ===========
</TABLE>

Included in consumer real estate are $3,414,000 and $616,000 of loans held for
sale at December 31, 2001 and 2000.

                                  (Continued)

                                      F-14


<PAGE>


                           MIDWEST BANC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999

--------------------------------------------------------------------------------



NOTE 6 - ALLOWANCE FOR LOAN LOSSES

The following is a summary of changes in the allowance for loan losses:

<TABLE>
<CAPTION>
                                                  Year Ended December 31,
                                             --------------------------------
(In thousands)                                  2001       2000         1999
                                             --------    --------    --------
<S>                                          <C>         <C>         <C>
Balance at beginning of year                 $  8,593    $  7,567    $  6,576
Provision for loan losses                       2,220       1,850       2,203
Loans charged off                                (877)     (1,107)     (1,417)
Recoveries on loans previously charged off        199         283         205
                                             --------    --------    --------
  Balance at end of year                     $ 10,135    $  8,593    $  7,567
                                             ========    ========    ========
</TABLE>


A portion of the allowance for loan losses is allocated to impaired loans.
Information with respect to impaired loans and the related allowance for loan
losses is as follows:

<TABLE>
<CAPTION>
                                                           December 31,
                                                         ---------------
(In thousands)                                            2001     2000
                                                         ------   ------
<S>                                                      <C>      <C>
Impaired loans for which no allowance for loan losses
  is allocated                                           $  992   $  351
Impaired loans with an allocation of the allowance for
  loan losses                                               352      759
                                                         ------   ------
    Total impaired loans                                 $1,344   $1,110
                                                         ======   ======
Allowance for loan losses allocated to impaired loans    $   97   $  340
                                                         ======   ======
</TABLE>


<TABLE>
<CAPTION>
                                                Year Ended December 31,
                                               ------------------------
                                                2001      2000     1999
                                               ------   ------   ------
<S>                                            <C>      <C>      <C>
Average impaired loans                         $1,327   $1,230   $3,105
Interest income recognized on impaired loans       69       67      170
Interest income recognized on impaired loans
  on a cash basis                                  69       67      170
</TABLE>

Interest payments on impaired loans are generally applied to principal, unless
the loan principal is considered to be fully collectible, in which case interest
is recognized on the cash basis.


                                  (Continued)

                                      F-15
<PAGE>


                           MIDWEST BANC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999

--------------------------------------------------------------------------------


NOTE 7 - PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows:

<TABLE>
<CAPTION>
                                      December 31,
                                  --------------------
(In thousands)                      2001        2000
                                  --------    --------
<S>                               <C>         <C>
Land and improvements             $  5,186    $  5,180
Building and improvements           20,070      20,041
Furniture and equipment             15,324      14,642
                                  --------    --------
  Total cost                        40,580      39,863
  Accumulated depreciation         (21,103)    (18,678)
                                  --------    --------
    Premises and equipment, net   $ 19,477    $ 21,185
                                  ========    ========
</TABLE>


NOTE 8 - INCOME TAXES

The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
(In thousands)                          Year Ended December 31,
                                     ----------------------------
                                        2001     2000       1999
                                     -------   -------    -------
<S>                                  <C>       <C>        <C>
Current
  Federal                            $ 7,245   $ 6,441    $ 5,959
  State                                  973     1,538      1,272
Deferred                                 486      (347)      (481)
                                     -------   -------    -------
  Total provision for income taxes   $ 8,704   $ 7,632    $ 6,750
                                     =======   =======    =======
</TABLE>


The difference between the provision for income taxes in the financial
statements and amounts computed by applying the current federal income tax rate
of 35% to income before income taxes is reconciled as follows:

<TABLE>
<CAPTION>
                                                     Year Ended December 31,
                                                 -----------------------------
(In thousands)                                     2001       2000       1999
                                                 -------    -------    -------
<S>                                              <C>        <C>        <C>
Income taxes computed at the statutory rate      $ 9,305    $ 7,786    $ 6,524
Tax-exempt interest income on securities
  and loans                                         (652)      (684)      (552)
Amortization of goodwill                              87         91         91
State income taxes, net of federal tax benefit       620        957        710
Cash surrender value increase, net of premiums      (324)      (150)        --
Excess charitable contributions                       --       (121)        --
Dividends received deduction and other              (332)      (247)       (23)
                                                 -------    -------    -------
   Total provision for income taxes              $ 8,704    $ 7,632    $ 6,750
                                                 =======    =======    =======
</TABLE>


                                  (Continued)

                                      F-16


<PAGE>


                           MIDWEST BANC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999


--------------------------------------------------------------------------------

NOTE 8 - INCOME TAXES (Continued)

The net deferred tax asset, included in other assets in the accompanying balance
sheets, consisted of the following components:

<TABLE>
<CAPTION>
                                                        December 31,
                                                     ------------------
(In thousands)                                         2001       2000
                                                     -------    -------
<S>                                                  <C>        <C>
Gross deferred tax assets
  Unrealized loss on securities available-for-sale   $   695    $ 2,537
  Allowance for loan losses                            4,021      3,409
  Amortizable assets                                      86         39
  Other real estate                                       10        116
  Depreciation                                           130         --
  Deferred compensation                                  161         --
                                                     -------    -------
    Total gross deferred tax assets                    5,103      6,101
Gross deferred tax liabilities
  Depreciation                                            --        (15)
  Deferred loan fees                                     (21)       (53)
  FHLB stock dividends                                  (654)      (234)
  Other                                                  (51)       (66)
                                                     -------    -------
    Total gross deferred tax liabilities                (726)      (368)
                                                     -------    -------
Net deferred tax asset                               $ 4,377    $ 5,733
                                                     =======    =======
</TABLE>

NOTE 9 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

The Company has retail repurchase agreements with customers within its local
market areas. These borrowings are collateralized with securities owned by the
Company and held in safekeeping at independent correspondent banks. In addition,
the Company has repurchase agreements with brokerage firms, which are in
possession of the underlying securities. The same securities are returned to the
Company at the maturity of the agreements. At December 31, 2001, repurchase
agreements with brokerage firms approximated $125,000,000. The following
summarizes certain information relative to these borrowings:

<TABLE>
<CAPTION>
(In thousands)                                         2001        2000        1999
                                                    --------    --------    --------
<S>                                                 <C>         <C>         <C>
Outstanding at end of year                          $146,800    $ 20,463    $ 12,200
Weighted average interest at year end                   2.04%       6.35%       5.79%
Maximum amount outstanding as of any month end       146,800      36,005      12,321
Average amount outstanding                            37,070      23,935       4,374
Approximate weighted average rate during the year       3.85%       6.00%       5.16%
</TABLE>

                                  (Continued)

                                      F-17


<PAGE>


                           MIDWEST BANC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999


--------------------------------------------------------------------------------

NOTE 9 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (Continued)

At December 31, 2001, securities sold under agreements to repurchase are
summarized below:

<TABLE>
<CAPTION>
                                                         Collateral
                                                       Mortgage-Backed
                                   Weighted        and Municipal Securities
                                    Average       ---------------------------
Original          Repurchase       Interest       Amortized            Fair
Term              Liability          Rate            Cost             Value
--------          ----------       --------       ---------          --------
<S>                <C>               <C>          <C>                <C>
Up to 30 days      $ 27,305          1.84%        $ 28,247           $ 27,827
30 to 90 days        45,949          1.94           46,863             46,725
Over 90 days         73,546          2.18           77,403             76,850
                   --------          ----         --------           --------
                   $146,800          2.04%        $152,513           $151,402
                   ========          ====         ========           ========
</TABLE>


NOTE 10 - ADVANCES FROM THE FEDERAL HOME LOAN BANK

Advances from the FHLB are summarized as follows:

<TABLE>
<CAPTION>
                                                         December 31,
                                          -------------------------------------------
                                                 2001                    2000
                                          ------------------       ------------------
                                          Weighted                 Weighted
                                          Average                   Average
                                            Rate      Amount         Rate     Amount
                                          --------  --------       --------  --------
<S>                                       <C>       <C>            <C>       <C>
Advances from the Federal
Home Loan Bank due

 2001                                         --%   $     --         6.73%   $  3,000
 2002                                       5.78      27,000         6.48      20,000
 2004                                       5.63       4,500         5.63       4,500
 2005                                       6.07      32,500         6.07      32,500
 2008                                       5.00      42,000         4.96      42,000
 2010                                       5.45     137,500         5.46     137,500
 2011                                       4.08       1,000           --          --
                                            ----    --------         ----    --------
     Total                                  5.47%   $244,500         5.56%   $239,500
                                            ====    ========         ====    ========

</TABLE>

In addition to the above, the Company has $23,700,000 at December 31, 2001 of
letters of credit with the FHLB. These letters of credit are pledged to secure
public deposits.

At December 31, 2001, $213,500,000 of the FHLB advances have various call
provisions and $19,000,000 have adjustable rates. The Company maintains a
collateral pledge agreement covering secured advances whereby the Company has
specifically pledged $26,100,000 of first mortgages on improved residential
property, free of all other pledges, liens, and encumbrances (not more than 90
days delinquent). Various securities are also pledged as collateral as discussed
in Note 3.

                                   (Continued)

                                      F-18
<PAGE>


                           MIDWEST BANC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
-------------------------------------------------------------------------------


NOTE 11 - NOTES PAYABLE

Notes payable consisted of the following:

<TABLE>
<CAPTION>
(Table amounts in thousands)
                                                                                              December 31,
                                                                                           ---------------------
                                                                                            2001          2000
                                                                                           -------       -------
<S>                                                                                        <C>           <C>
Revolving line of credit ($25,000,000) maturing on January 30, 2004, interest
payments due quarterly at the 30-, 60-, 90-, or 180-day LIBOR plus 95 basis
points or prime rate less 25 basis points (weighted average rate of 3.18% at
December 31, 2001); secured by all common stock of the
subsidiary banks.                                                                          $ 6,500       $ 5,300
                                                                                           =======       =======
</TABLE>


The revolving line of credit includes the following covenants at December 31,
2001: (1) the banks must not have nonperforming assets in excess of 25% of Tier
1 capital plus the loan loss allowance; (2) the Company and each subsidiary bank
must be considered well capitalized; (3) the Company must maintain consolidated
tangible net worth (as defined in the credit agreement) of not less than $70
million; and (4) consolidated net income for the four previous quarters combined
must be at least $5.5 million. The Company had complied with these covenants at
December 31, 2001.


NOTE 12 - ISSUANCE OF TRUST PREFERRED SECURITIES

In May 2000, the Company formed MBHI Capital Trust I ("the Trust"). The Trust is
a statutory business trust formed under the laws of the State of Delaware and is
wholly owned by the Company. In June 2000, the Trust issued 10% preferred
securities with an aggregate liquidation amount of $20,000,000 ($25 per
preferred security) to third-party investors in an underwritten public offering.
The Company also issued 10% junior subordinated debentures aggregating
$20,000,000 to the Trust. The junior subordinated debentures are the sole assets
of the Trust. The junior subordinated debentures and the preferred securities
pay interest and dividends, respectively, on a quarterly basis. The junior
subordinated debentures will mature on June 7, 2030, at which time the preferred
securities must be redeemed. The junior subordinated debentures and preferred
securities can be redeemed contemporaneously, in whole or in part, beginning
June 7, 2005 at a redemption price of $25 per preferred security. The Company
has provided a full, irrevocable, and unconditional guarantee on a subordinated
basis of the obligations of the Trust under the preferred securities in the
event of the occurrence of an event of default, as defined in such guarantee.
Debt issuance costs totaling $270,000 and underwriting fees of $700,000 were
capitalized related to the offering and are being amortized over the estimated
life of the junior subordinated debentures.

-------------------------------------------------------------------------------
                                   (Continued)


                                      F-19


<PAGE>


                           MIDWEST BANC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
-------------------------------------------------------------------------------


NOTE 13 - EMPLOYEE BENEFIT PLANS

The Company maintains a 401(k) salary reduction plan covering substantially all
employees. Eligible employees may elect to make tax deferred contributions
within a specified range of their compensation as defined in the plan. The
Company contributes 1% more than the employee's contribution up to a maximum 5%
employer contribution. Contributions to the plan are expensed currently and were
$459,000, $431,000, and $399,000 for the years ended December 31, 2001, 2000,
and 1999.

The Company and various members of senior management have entered into a
Supplemental Executive Retirement Plan ("SERP"). The SERP provides for
guaranteed payments, based on a percentage of the individual's final salary, for
15 years after age 65. The benefit amount is reduced if the individual retires
prior to age 65. The liability is being accrued over the vesting period. Expense
of $406,000 was recorded for the year ended December 31, 2001 and has been
included in compensation and benefits.

During 2000, the Company purchased life insurance policies on various members of
senior management. The Company is the beneficiary of these life insurance
policies, which have an aggregate death benefit of approximately $56.5 million
at December 31, 2001. In addition, the policies had aggregate cash surrender
values of approximately $19.6 million at December 31, 2001 and $18.6 million at
December 31, 2000.


NOTE 14 - TIME DEPOSITS

Interest-bearing deposits in denominations of $100,000 and over were
$235,634,000 as of December 31, 2001 and $165,071,000 as of December 31, 2000.
Interest expense related to deposits in denominations of $100,000 and over was
$8,334,000 for 2001, $7,284,000 for 2000, and $5,555,000 for 1999.

Certificates of deposit have scheduled maturities for the years 2002 through
2006 and thereafter as follows:


(In thousands)

        2002                                           $605,929
        2003                                             61,974
        2004                                             10,140
        2005                                                629
        2006                                                110
        Thereafter                                           30
                                                       --------
                                                       $678,812
                                                       ========

-------------------------------------------------------------------------------
                                   (Continued)

                                      F-20


<PAGE>


                           MIDWEST BANC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
-------------------------------------------------------------------------------


NOTE 15 - RELATED PARTY TRANSACTIONS

Certain executive officers, directors, and their related interests are loan
customers of the Company's subsidiary banks. A summary of loans made by the
subsidiary banks in the ordinary course of business to or for the benefit of
directors and executive officers is as follows:

(In thousands)

        Balance at December 31, 2000                     $ 15,701
        New loans                                           5,909
        Repayments                                         (5,456)
                                                         --------
             Balance at December 31, 2001                $ 16,154
                                                         ========


NOTE 16 - CAPITAL REQUIREMENTS

The Company and its subsidiary banks are subject to regulatory capital
requirements administered by the federal banking agencies. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
banks must meet specific capital guidelines that involve quantitative measures
of assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices.

Quantitative measures established by regulation to ensure capital adequacy
require banks and bank holding companies to maintain minimum amounts and ratios
of total and Tier 1 capital to risk-weighted assets and Tier 1 capital to
average assets. If banks do not meet these minimum capital requirements, as
defined, bank regulators can initiate certain actions that could have a direct
material effect on a bank's financial statements. Management believes that, as
of December 31, 2001 and December 31, 2000, the Company and its subsidiary banks
met all capital adequacy requirements to which they were subject.

As of December 31, 2001 and 2000, the most recent Federal Deposit Insurance
Corporation notification categorized each of the subsidiary banks as well
capitalized under the regulatory framework for prompt corrective action. There
are no conditions or events since that notification that management believes
have changed the institutions' categories. To be categorized as well
capitalized, banks must maintain minimum total risk-based, Tier 1 risk-based,
and Tier 1 leverage ratios. The actual capital amounts and ratios for the
Company and subsidiary banks are presented in the following table.


-------------------------------------------------------------------------------
                                   (Continued)


                                      F-21

<PAGE>
                           MIDWEST BANC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999



NOTE 16 - CAPITAL REQUIREMENTS (Continued)

<TABLE>
<CAPTION>
                                                                                   Minimum Required
                                                                 ----------------------------------------------
                                                                   To Be Adequately         To Be Well
                                                Actual                Capitalized           Capitalized
                                        --------------------     --------------------    ----------------------
As of December 31, 2001                  Amount        Ratio      Amount        Ratio     Amount       Ratio
-----------------------                 --------       -----     --------       -----    --------   -----------
<S>                                     <C>            <C>       <C>            <C>      <C>        <C>
Total Capital (to risk-weighted
  assets)
     Company                            $123,984        10.8%    $ 91,628        8.0%    $114,535        10.0%
     MBT                                  55,041        11.2       39,307        8.0       49,134        10.0
     MBH                                  28,610        10.1       22,724        8.0       28,404        10.0
     MBMC                                 26,345        11.6       18,244        8.0       22,803        10.0
     MBWI                                 16,307        11.6       11,256        8.0       14,069        10.0
Tier 1 Capital (to risk-weighted
  assets)
     Company                             113,747         9.9       45,814        4.0       68,721         6.0
     MBT                                  50,648        10.3       19,654        4.0       29,480         6.0
     MBH                                  26,095         9.2       11,362        4.0       17,043         6.0
     MBMC                                 24,265        10.6        9,122        4.0       13,683         6.0
     MBWI                                 15,004        10.7        5,628        4.0        8,442         6.0
Tier 1 Capital (to average assets)
  Company                                113,747         6.6       68,652        4.0       85,815         5.0
     MBT                                  50,648         7.0       29,110        4.0       36,388         5.0
     MBH                                  26,095         6.7       15,484        4.0       19,354         5.0
     MBMC                                 24,265         6.8       14,254        4.0       17,818         5.0
     MBWI                                 15,004         6.3        9,589        4.0       11,986         5.0

As of December 31, 2000

Total Capital (to risk-weighted
  assets)
     Company                            $111,125        11.9%    $ 74,428        8.0%    $ 93,035        10.0%
     MBT                                  49,470        12.3       32,067        8.0       40,084        10.0
     MBH                                  24,731        11.4       17,423        8.0       21,779        10.0
     MBMC                                 23,100        12.9       14,347        8.0       17,933        10.0
     MBWI                                 13,956        10.7       10,390        8.0       12,987        10.0
Tier 1 Capital (to risk-weighted
  assets)
     Company                             102,532        11.0       37,214        4.0       55,821         6.0
     MBT                                  45,574        11.4       16,033        4.0       24,050         6.0
     MBH                                  22,841        10.5        8,712        4.0       13,067         6.0
     MBMC                                 21,404        11.9        7,173        4.0       10,760         6.0
     MBWI                                 12,845         9.9        5,195        4.0        7,792         6.0
Tier 1 Capital (to average assets)
  Company                                102,532         7.2       57,338        4.0       71,673         5.0
     MBT                                  45,574         7.4       24,708        4.0       30,885         5.0
     MBH                                  22,841         7.3       12,455        4.0       15,568         5.0
     MBMC                                 21,404         7.3       11,721        4.0       14,651         5.0
     MBWI                                 12,845         6.3        8,219        4.0       10,274         5.0
</TABLE>

                                  (Continued)

                                      F-22


<PAGE>


                           MIDWEST BANC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999


NOTE 17 - OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF CREDIT RISK

The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet financing needs of customers. Since many
commitments to extend credit expire without being used, the amounts below do not
necessarily represent future cash commitments. These financial instruments
include commitments to extend credit, standby letters of credit, and unused
lines of credit and are summarized as follows:

<TABLE>
<CAPTION>
(In thousands)                                                        December 31,
                                                                 ----------------------
                                                                   2001          2000
                                                                 --------      --------
<S>                                                              <C>           <C>
Financial instruments whose contract amounts
represent credit risk
   Unused lines of credit                                        $112,650      $220,983
   Commitments to extend credit                                    39,738        34,789
   Standby letters of credit                                       11,162        12,687
</TABLE>

At December 31, 2001 and 2000, commitments to extend credit consisted of
$29,681,000 and $10,363,000 of fixed rate loan commitments. These commitments
are due to expire within 30 to 90 days of issuance and have rates ranging
primarily from 7.00% to 8.75%. Substantially all of the unused lines of credit
are at adjustable rates of interest.

The Company also had Community Reinvestment Act ("CRA") investment commitments
outstanding of $1.5 million at December 31, 2001. These commitments include $1.5
million to be funded over seven years for investment in the Chicago Equity Fund.

The credit risk amounts represent the maximum accounting loss that would be
recognized at the reporting date if counterparties failed completely to perform
as contracted and any collateral or security proved to be of no value. Midwest
Banc has experienced little difficulty in accessing collateral when necessary.
The amounts of credit risk shown therefore greatly exceed expected losses.

NOTE 18 - STOCK OPTION PLAN

The 1996 Stock Option Plan ("the Plan") became effective on November 19, 1996.
Under the Plan, officers, directors, and key employees may be granted incentive
stock options to purchase the Company's common stock at no less than 100% of the
market price on the date the option is granted. Options can be granted to become
exercisable immediately or options can be granted to become exercisable in
installments of 25% a year on each of the first through the fourth anniversaries
of the grant date. In all cases, the options have a maximum term of ten years.
The Plan also permits nonqualified stock options to be issued. The Company
originally had authorized 500,000 shares for issuance under the Plan. During
2001 and 2000, the Plan was amended to authorize a total of 950,000 shares for
issuance.

                                   (Continued)

                                      F-23



<PAGE>


                          MIDWEST BANC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       December 31, 2001, 2000, and 1999




NOTE 18 - STOCK OPTION PLAN (Continued)

Had compensation cost for stock options been measured using FASB Statement
No. 123, net income and earnings per share would have been the pro forma amounts
as follow:

<TABLE>
<CAPTION>
                                               2001           2000             1999
                                            ----------      ----------      ----------
<S>                                         <C>             <C>             <C>
Net income as reported                      $   17,882      $   14,613      $   11,891
Pro forma net income                            17,479          13,922          11,342
Basic earnings per share as reported              1.66            1.36            1.08
Pro forma basic earnings per share                1.63            1.29            1.03
Diluted earnings per share as reported            1.64            1.35            1.07
Pro forma diluted earnings per share              1.61            1.29            1.02
</TABLE>

Information about option grants follows:

<TABLE>
<CAPTION>
                                                      Weighted
                                       Number          Average
                                         of         Exercise Price
                                       Options        Per Share
                                      ---------     --------------
<S>                                   <C>           <C>
Outstanding at January 1, 1999         252,500       $   14.49
Granted during 1999                    113,044           15.99
Exercised during 1999                     (512)          15.88
                                       -------       ---------
Outstanding at December 31, 1999       365,032           14.95
Granted during 2000                    242,576           13.41
Exercised during 2000                  (12,914)          10.20
Forfeited during 2000                  (42,186)          14.51
                                       -------       ---------
Outstanding at December 31, 2000       552,508           14.42
Granted during 2001                    141,000           15.31
Exercised during 2001                  (17,980)          12.81
Forfeited during 2001                       --              --
                                       -------       ---------
Outstanding at December 31, 2001       675,528       $   14.65
                                       =======       =========
</TABLE>


Options exercisable at year end are as follows:

<TABLE>
<CAPTION>
                                                   Weighted
                                    Number          Average
                                      of        Exercise Price
                                    Options       Per Share
                                    -------     --------------
<S>                                 <C>         <C>
1999                                170,907      $   13.74
2000                                301,883          14.00
2001                                426,897          14.62
</TABLE>

                                  (Continued)

                                      F-24


<PAGE>


                           MIDWEST BANC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999



NOTE 18 - STOCK OPTION PLAN (Continued)

Options outstanding at December 31, 2001 were as follows:

<TABLE>
<CAPTION>
                                 Outstanding                Exercisable
                             ---------------------   ------------------------
                                        Weighted
                                         Average                    Weighted
                                        Remaining                    Average
                                       Contractual                  Exercise
Range of Exercise Price       Number      Life        Number          Price
-----------------------      -------   -----------   --------      ----------
<S>                           <C>           <C>        <C>         <C>
$8.13 - $12.75                85,000        5.4        85,000      $   10.41
$13.25 - $15.88              417,903        8.5       192,903          14.13
$16.13 - $17.88              172,625        6.6       148,994          17.65
                             -------        ---       -------          -----
Outstanding at year end      675,528        7.6       426,897      $   14.62
                             =======        ===       =======      =========
</TABLE>


The fair value of options granted during 2001, 2000, and 1999 is estimated using
the following weighted average information.

<TABLE>
<CAPTION>
                                           2001        2000         1999
                                        ---------    ---------    ---------
<S>                                     <C>          <C>          <C>
Fair value                              $    2.99    $    3.27    $    4.33
Risk-free interest rate                      4.64%        6.20%        5.50%
Expected life                             5 years      5 years      5 years
Expected volatility of stock price          22.15%       27.00%       21.00%
Expected dividend                            3.18%        3.50%        2.00%
</TABLE>

NOTE 19 - PARENT COMPANY FINANCIAL STATEMENTS

The following are condensed balance sheets and statements of income and cash
flows for Midwest Banc Holdings, Inc., without subsidiaries:

                            CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
(In thousands)                          December 31,
                                  ----------------------
                                     2001         2000
                                  --------      --------
<S>                               <C>           <C>
ASSETS
  Cash                            $  2,788      $  1,826
  Investment in subsidiaries       119,596       103,983
  Other assets                       3,859         5,317
                                  --------      --------
     Total assets                 $126,243      $111,126
                                  ========      ========
</TABLE>


                                  (Continued)

                                      F-25


<PAGE>


                           MIDWEST BANC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999


NOTE 19 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)

                      CONDENSED BALANCE SHEETS (Continued)

<TABLE>
<CAPTION>
(In thousands)                                             December 31,
                                                     ----------------------
                                                        2001         2000
                                                     --------      --------
<S>                                                  <C>           <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
  Borrowings                                         $  6,500      $  5,300
  Junior subordinated debt                             20,000        20,000
  Other liabilities                                     3,529         3,250
  Stockholders' equity                                 96,214        82,576
                                                     --------      --------
     Total liabilities and stockholders' equity      $126,243      $111,126
                                                     ========      ========
</TABLE>

                         CONDENSED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
(In thousands)                                                    December 31,
                                                    --------------------------------------
                                                      2001           2000           1999
                                                    --------       --------       --------
<S>                                                 <C>            <C>            <C>
Operating income
  Dividends from subsidiary banks                   $  8,658       $  7,689       $  7,596
  Fees from subsidiaries                               1,524          1,503          1,203
  Other income                                           167            234            224
  Interest expense                                    (2,459)        (1,783)          (408)
  Other expense                                       (4,899)        (4,472)        (3,848)
                                                    --------       --------       --------
Income before income taxes and equity in
  undistributed income of subsidiaries                 2,991          3,171          4,767

Income tax benefit                                     2,347          1,751          1,031

Equity in undistributed income of subsidiaries        12,544          9,691          6,093
                                                    --------       --------       --------
NET INCOME                                          $ 17,882       $ 14,613       $ 11,891
                                                    ========       ========       ========
</TABLE>


                                  (Continued)

                                      F-26


<PAGE>


                           MIDWEST BANC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999




NOTE 19 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)

                            CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
(In thousands)                                                      December 31,
                                                       --------------------------------------
                                                          2001          2000           1999
                                                       --------       --------       --------
<S>                                                    <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                           $ 17,882       $ 14,613       $ 11,891
  Adjustments to reconcile net income to
   net cash provided by operating activities
     Equity in undistributed income of
      subsidiaries                                      (12,544)        (9,691)        (6,093)
     Depreciation                                            84            113            132
     Decrease (increase) in other assets                  1,167           (778)           875
     Increase in other liabilities                          279            378             83
                                                       --------       --------       --------
        Net cash provided by operating activities         6,868          4,635          6,888

CASH FLOWS FROM INVESTING ACTIVITIES
  Investment in subsidiaries                                 --        (12,500)        (1,500)
  Property and equipment expenditures                       (58)           (25)           (49)
                                                       --------       --------       --------
     Net cash used in investing activities                  (58)       (12,525)        (1,549)

CASH FLOWS FROM FINANCING ACTIVITIES
  Issuance of junior subordinated debt,
   net of debt issuance costs                                --         19,030             --
  Borrowings                                              1,500          7,800          5,000
  Payments on borrowings                                   (300)       (10,075)        (1,575)
  Dividends paid                                         (6,440)        (5,397)        (3,323)
  Treasury stock and option transactions, net              (608)        (2,165)        (6,568)
                                                       --------       --------       --------
     Net cash provided by (used in) financing
      activities                                         (5,848)         9,193         (6,466)
                                                       --------       --------       --------

Increase (decrease) in cash and cash equivalents            962          1,303         (1,127)

Cash and cash equivalents at beginning of year            1,826            523          1,650
                                                       --------       --------       --------
CASH AND CASH EQUIVALENTS AT END OF YEAR               $  2,788       $  1,826       $    523
                                                       ========       ========       ========
</TABLE>


                                  (Continued)

                                      F-27


<PAGE>


                           MIDWEST BANC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999




NOTE 20 - EARNINGS PER SHARE

<TABLE>
<CAPTION>
                                                            2001              2000             1999
                                                         -----------      -----------      -----------
<S>                                                      <C>              <C>              <C>
(In thousands, except share and per share data)

Basic
  Net income                                             $    17,882      $    14,613      $    11,891
                                                         ===========      ===========      ===========
  Weighted average common
   shares outstanding                                     10,736,102       10,766,377       11,028,136
                                                         ===========      ===========      ===========
  Basic earnings per common share                        $      1.66      $      1.36      $      1.08
                                                         ===========      ===========      ===========

Diluted

  Net income                                             $    17,882      $    14,613      $    11,891
                                                         ===========      ===========      ===========
  Weighted average common
   shares outstanding                                     10,736,102       10,766,377       11,028,136
  Dilutive effect of stock options                           150,673           25,071           47,976
                                                         ===========      ===========      ===========
  Dilutive average common shares
   outstanding                                            10,886,775       10,791,448       11,076,112
                                                         ===========      ===========      ===========
  Diluted earnings per common
   share                                                 $      1.64      $      1.35      $      1.07
                                                         ===========      ===========      ===========
</TABLE>

NOTE 21 - OTHER COMPREHENSIVE INCOME (LOSS)

Changes in other comprehensive income (loss) components and related taxes are as
follows:

<TABLE>
<CAPTION>
                                                       Years Ended December 31,
                                                ------------------------------------
(In thousands)                                     2001         2000          1999
                                                --------      --------      --------
<S>                                             <C>           <C>           <C>
Unrealized holding gains (losses)
 on securities available-for-sale               $  7,406      $ 14,328      $(18,383)
Less reclassification adjustment for gains
 recognized in income                              2,761         1,190           299
                                                --------      --------      --------
     Net unrealized gains (losses)                 4,645        13,138       (18,682)
Tax expense (benefit)                              1,841         5,057        (7,262)
                                                --------      --------      --------
Other comprehensive income (loss)               $  2,804      $  8,081      $(11,420)
                                                ========      ========      ========
</TABLE>


                                  (Continued)

                                      F-28


<PAGE>


                           MIDWEST BANC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999



NOTE 22 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

(In thousands, except per share data)

<TABLE>
<CAPTION>
                                                Three Months Ended
                                -------------------------------------------------
2001                            March 31     June 30   September 30   December 31
----                            --------     -------   ------------   -----------
<S>                             <C>          <C>          <C>          <C>
Interest income                 $28,647      $28,304      $28,493      $27,688
Interest expense                 17,325       16,913       16,651       14,776
                                -------      -------      -------      -------
NET INTEREST INCOME              11,322       11,391       11,842       12,912

Provision for loan losses           509          695          346          670
Other income                      2,223        3,766        3,599        3,214
Other expense                     7,393        7,836        7,985        8,249
                                -------      -------      -------      -------

INCOME BEFORE INCOME TAXES        5,643        6,626        7,110        7,207

Provision for income taxes        1,781        2,390        2,324        2,209
                                -------      -------      -------      -------

NET INCOME                      $ 3,862      $ 4,236      $ 4,786      $ 4,998
                                =======      =======      =======      =======

EARNINGS PER COMMON SHARE

  Basic                         $   .36      $   .39      $   .45      $   .46
  Diluted                           .36          .39          .44          .45
</TABLE>

<TABLE>
<CAPTION>
                                                Three Months Ended
                                -------------------------------------------------
2000                            March 31     June 30   September 30   December 31
----                            --------     -------   ------------   -----------
<S>                             <C>          <C>          <C>          <C>
Interest income                 $24,824      $26,966      $28,794      $29,208
Interest expense                 13,615       15,344       17,256       17,817
                                -------      -------      -------      -------
NET INTEREST INCOME              11,209       11,622       11,538       11,391

Provision for loan losses           355          535          535          425
Other income                      1,577        1,928        1,895        2,295
Other expense                     7,210        7,208        7,171        7,771
                                -------      -------      -------      -------

INCOME BEFORE INCOME TAXES        5,221        5,807        5,727        5,490

Provision for income taxes        1,818        2,114        1,937        1,763
                                -------      -------      -------      -------

NET INCOME                      $ 3,403      $ 3,693      $ 3,790      $ 3,727
                                =======      =======      =======      =======

EARNINGS PER COMMON SHARE

  Basic                         $   .31      $   .34      $   .35      $   .35
  Diluted                           .31          .34          .35          .35
</TABLE>

                                      F-29
<PAGE>


<TABLE>
<CAPTION>
EXHIBIT
NO.                   DESCRIPTION OF EXHIBITS
-------               -----------------------
<S>                   <C>
  3.1                 Restated Certificate of Incorporation, as amended (incorporated by reference to
                      Registrant's Registration Statement on Form S-1, Registration No. 333-42827).
  3.2                 Restated By-Laws, as amended (incorporated by reference to Registrant's
                      Quarterly Report on Form 10-Q for the quarter ended June 30, 1998,
                      File No. 0-29652).
  3.3                 Amendment of Restated By-Laws (incorporated by reference to Registrant's
                      Quarterly Report on Form 10-Q for the quarter ended June 30, 2000,
                      File No. 0-29598).
  4.3                 Specimen Common Stock Certificate (incorporated by reference to Registrant's
                      Registration Statement on Form S-1, Registration No. 333-42827).
  4.4                 Certain instruments defining the rights of the holders of long-term debt of
                      the Company and certain of its subsidiaries, none of which authorize a total
                      amount of indebtedness in excess of 10% of the total assets of the Company
                      and its subsidiaries on a consolidated basis, have not been filed as Exhibits.
                      The Company hereby agrees to furnish a copy of any of these agreements to
                      the SEC upon request.
*10.3                 Midwest Banc Holdings, Inc. 1996 Stock Option Plan (incorporated by reference
                      to Registrant's Registration Statement on Form S-1, Registration No. 333-42827).
*10.4                 Amendment to the Midwest Banc Holdings, Inc. 1996 Stock Option Plan
                      (incorporated by reference to Registrant's Annual Report on Form 10-K for the
                      year ended December 31, 1998, File No. 0-29652).
*10.5                 Form of Transitional Employment Agreements (incorporated by reference to
                      Registrant's Registration Statement on Form S-1, Registration No. 333-42827).
 10.6                 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).
 10.7                 Britannica Centre Lease, dated as of May 1, 1994, between Chicago Title and
                      Trust Company, as Trustee under Trust Agreement dated November 2, 1977 and
                      known as Trust No. 1070932 and Midwest Bank & Trust Company (incorporated
                      by reference to Registrant's Registration Statement on Form S-1,
                      Registration No. 333-42827).
 10.8                 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).
 10.9                 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                Credit Agreement as of January 30,1998, between the Company, Midwest One
                      Mortgage Services, Inc., and Harris Trust & Savings Bank (incorporated by
                      reference to Registrant's Registration Statement on Form S-1,
                      Registration No. 333-42827).
 10.16                First Amendment and waiver to Credit Agreement dated as of September 28,
                      1998 between the Company, Midwest One Mortgage Services, Inc., and Harris
                      Trust and Savings Bank (incorporated by reference to Registrant's Form 10-K for
                      the fiscal year ended 1999, File No. 0-29598).
 10.17                Second Amendment and waiver to Credit Agreement dated as of January 7, 1999
                      between the Company, Midwest One Mortgage Services, Inc., and Harris Trust
</TABLE>




<PAGE>



<TABLE>
<S>               <C>
                  and Savings Bank (incorporated by reference to Registrant's Form 10-K for the
                  fiscal year ended 1999, File No. 0-29598).
 10.18            Third Amendment and waiver to Credit Agreement dated as of January 17, 2000
                  between the Company and Harris Trust and Savings Bank (incorporated by
                  reference to Registrant's Form 10-K for the fiscal year ended 1999,
                  File No. 0-29598).
 10.19            Fourth Amendment to Credit Agreement dated January 17, 2000 between the
                  Company and Harris Trust and Savings Bank.
*10.15            Form of Supplemental Executive Retirement Agreement (incorporated by
                  reference to Registrant's Form 10-Q for the quarter ended September 30, 2001).
*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).
 21.1             Subsidiaries.
 23.1             Consent of Crowe, Chizek and Company LLP.
 24.1             Power of Attorney (included on signature page).
</TABLE>

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