##### Table of Contents



SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C.
    20549
  Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2006ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission file number
    001-13735
 Midwest Banc Holdings,
    Inc.
 (Exact name of Registrant as
    specified in its charter)
  Delaware

36-3252484(State of
    Incorporation)

(I.R.S. Employer Identification
    Number)   501 West North Avenue, Melrose Park, Illinois 60160
 (Address of principal executive
    offices including ZIP Code)
  (708) 865-1053
 (Registrants telephone
    number including Area Code)
  Securities registered pursuant to Section 12(g) of the
    Act:
  Common Stock, $0.01 par value, Nasdaq National Market
 (Title of Class)
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
 o þ o
  Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




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##### 



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


Business


1Item 1A.


Risk
    Factors


21Item 1B.


Unresolved Staff
    Comments


24Item 2.


Properties


25Item 3.


Legal
    Proceedings


26Item 4.


Submission of
    Matters to a Vote of Security Holders


26PART IIItem 5.


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


26Item 6.


Selected
    Consolidated Financial Data


29Item 7.


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


32Item 7A.


Quantitative and
    Qualitative Disclosures about Market Risk


66Item 8.


Consolidated
    Financial Statements and Supplementary Data


68Item 9.


Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


68Item 9A.


Controls and
    Procedures


68Item 9B.


Other
    Information


68PART IIIItem 10.


Directors and
    Executive Officers of the Registrant


69Item 11.


Executive
    Compensation


69Item 12.


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


69Item 13.


Certain
    Relationships and Related Transactions


70Item 14.


Principal
    Accounting Fees and Services


70PART IVItem 15.


Exhibits and
    Financial Statement Schedules


71Signature(s)
    Page


74Contents of
    Consolidated Financial Statements


F-1Stock and Incentive PlanSubsidiariesConsent of PricewaterhouseCoopers LLPConsent of McGladrey & Pullen, LLPCertification of Principal Executive OfficerCertification of Principal Financial OfficerSection 906 Certification of CEO and CFO




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##### Table of Contents



PART I  Item 1.
    Business  The
    Company
    small-to-medium-sized
  2006
    Developments
           1




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##### Table of Contents



2005
    Developments
    Company repositioning.
  Expansion of management depth.
  Board of Directors Alignment.
  Issuance of 3,450,000 shares of common
    stock.
  Sale of Midwest Bank of Western Illinois.
  Exit from Regulatory Process.
    Strategy
   2




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##### Table of Contents



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




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##### Table of Contents



Number ofBanking CentersCompany Subsidiaries

Headquarters

Market Area

or OfficesBanks:Midwest Bank and Trust Company

Elmwood Park, IL

Addison, Algonquin,


24Bensenville, Bloomingdale, 
    Buffalo Grove, Chicago, 
    Downers Grove, Elgin 
    Elmwood Park, Franklin Park, Glenview, Hinsdale, 
    Inverness, Island Lake, 
    Long Grove, McHenry, 
    Melrose Park, Naperville Norridge, Roselle, 
    and UnionNon-banks:Midwest Bank Insurance
    Services, L.L.C.

Algonquin, IL

*


1MBTC Investment Company

Las Vegas, NV

**


2Midwest Funding, L.L.C.

Melrose Park, IL

***


1MBHI Capital Trust II

Melrose Park, IL

****


MBHI Capital Trust III

Melrose Park, IL

****


MBHI Capital Trust IV

Melrose Park, IL

****


MBHI Capital Trust V

Melrose Park, IL

****


Royal Capital Trust I

Melrose Park, IL

****


Midwest Financial and Investment
    Services, Inc

Elmwood Park, IL

*****


24Royal American Investment
    Services, Inc.

Elmwood Park, IL

*****


1     *
    
    Provides insurance products.**
    
    Provides additional investment portfolio management to the Bank.***
    
    Provides real estate management services to the Bank.****
    
    The trust is a statutory business trust formed as a financing
    subsidiary of the Company.*****
    
    Provides securities brokerage services.  History
  The
    Bank
    
    On January 3, 2003, the Company completed the acquisition
    of Big Foot Financial Corp. (BFFC). BFFC was the
    holding company for Fairfield Savings Bank, F.S.B. with
    approximately $200 million in total assets at
    December 31, 2002, and three branches in Chicago, Long
    Grove, and Norridge which were merged into the Bank. The Company
    issued a total of 1,599,088 shares in the transaction.
    In 2004, the Bank added new branches in Addison and Glenview,
    Illinois. 4




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##### Table of Contents




    In September 2005, the Company sold Midwest Bank of Western
    Illinois and its insurance agency subsidiary in order to focus
    on the Chicago metropolitan area.
    The Company opened an additional branch in Franklin Park,
    Illinois in 2006.
    On July 1, 2006, the Company, as part of its expansion
    strategy, completed its acquisition of Royal American The
    Company issued 2.9 million common shares, paid
    $64.6 million in cash, and paid $795,000 in costs that were
    capitalized for a total purchase price of $129.2 million.    Non-bank
    Subsidiaries
              Mandatory

OptionalRedemption

RedemptionIssuer

Issue Date

Amount


Rate

Date

Date(In thousands)MBHI Capital Trust II

October 29, 2002

$
15,000


LIBOR+3.45%

November 7, 2032

November 7, 2007MBHI Capital Trust III

December 19, 2003

$
9,000


LIBOR+3.00%

December 30, 2033

December 30, 2008MBHI Capital Trust IV

December 19, 2003

$
10,000


LIBOR+2.85%

January 23, 2034

January 23, 2009MBHI Capital Trust V

June 7, 2005

$
20,000


LIBOR+1.77%

June 15, 2035

June 15, 2010Royal Capital Trust I

April 30, 2004

$
10,000


6.62% until July23, 2009;

July 23, 2034

July 23, 2009LIBOR+2.75% thereafter  5




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##### Table of Contents



Markets
  10-20 mile low-to-moderate
  Competition
            Products
    and Services
  Deposit
    Products
    Checking and Interest-bearing Checking
    Accounts.
  Savings and Money Market Accounts.
 6




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##### Table of Contents



Time Deposits.
  Lending
    Services
  not-for-profit
  Commercial Loans.
  Construction Loans.
  Commercial Real Estate Loans.
  Consumer Real Estate Loans.
  Consumer Loans.
      ATMs
  sf Surcharge-Free
  Trust Activities
   7




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##### Table of Contents



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




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9




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##### Table of Contents



Form 10-K.
       10




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##### Table of Contents



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




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##### Table of Contents



Standards for Safety and Soundness.
       12




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##### Table of Contents



Prompt Corrective Action.
  Insurance of Deposit Accounts.
     13




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##### Table of Contents



Risk CategoryI*Minimum


Maximum


II


III


IVAnnual Rates (in basis points)


5



7



10



28



43     *
    
    Rates for institutions that do not pay the minimum or maximum
    rate vary between these rates.  notice-and-comment
    Federal Reserve System.
  Community Reinvestment.
 14




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##### Table of Contents



Consumer Compliance.
  Brokered Deposits.
  Enforcement Actions.
  Interstate Banking and Branching
    Legislation.
  de novo
  Insurance Powers.
      Securities Brokerage.
 15




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##### Table of Contents



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




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##### Table of Contents



Truth in Lending Act.
    Federal Home Loan Bank System
    Monetary
    Policy and Economic Conditions
      Regulatory
    Developments
     17




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##### Table of Contents



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




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##### Table of Contents




    Operational risks, including data processing system failures or
    fraud;
    Asset/liability matching risks and liquidity risks;
    The ability to successfully acquire low cost deposits or funding;
    The ability to successfully execute strategies to increase
    noninterest income;
    The ability to successfully to grow non-commercial real estate
    loans;
    The ability of the Company to fully realize expected cost
    savings and revenues in connection with the Royal American
    Corporation acquisition, or the ability to realize them on a
    timely basis;
    Changes in the economic environment, competition, or other
    factors that may influence the anticipated growth rate of loans
    and deposits, the quality of the loan portfolio and loan and
    deposit pricing, and the Companys ability to successfully
    pursue acquisition and expansion strategies and integrate any
    acquired companies;
    The impact from liabilities arising from legal or administrative
    proceedings on the financial condition of the Company;
    Possible administrative or enforcement actions of banking
    regulators in connection with any material failure of the
    Company or the Bank to comply with banking laws, rules or
    regulations;
    Possible administrative or enforcement actions of the Securities
    and Exchange Commission (the SEC) in connection with
    the SEC inquiry of the restatement of the Companys
    September 30, 2002 financial statements;
    Governmental monetary and fiscal policies, as well as
    legislative and regulatory changes, that may result in the
    imposition of costs and constraints on the Company through
    higher FDIC insurance premiums, significant fluctuations in
    market interest rates, increases in capital requirements, and
    operational limitations;
    Changes in general economic or industry conditions, nationally
    or in the communities in which the Company conducts business;
    Changes in accounting principles, policies, or guidelines
    affecting the businesses conducted by the Company;
    Acts of war or terrorism; and
    Other economic, competitive, governmental, regulatory, and
    technical factors affecting the Companys operations,
    products, services, and prices.     19




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##### Table of Contents



EXECUTIVE
    OFFICERS OF THE REGISTRANT
                     20




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##### Table of Contents



Item 1A.
    Risk
    Factors    Changes
    in economic conditions, in particular an economic slowdown in
    Chicago, Illinois, could hurt the Companys business
    materially.
    
    loan delinquencies may increase;
    problem assets and foreclosures may increase;
    demand for its products and services may decline; 21




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##### Table of Contents




    low cost or noninterest bearing deposits may decrease; and
    collateral for loans made by us, especially real estate, may
    decline in value, in turn reducing customers borrowing
    power, and reducing the value of assets and collateral
    associated with the Companys existing loans.  A large
    percentage of the Companys loans are collateralized by
    real estate, and an adverse change in the real estate market may
    result in losses and adversely affect its
    profitability.
    The
    Companys business is subject to interest rate risk and
    fluctuations in interest rates may adversely affect its
    earnings.
      
    inflation;
    recession;
    changes in unemployment;
    the money supply; and
    international disorder and instability in domestic and foreign
    financial markets.    The
    Companys allowance for loan losses may not be sufficient
    to cover actual loan losses, which could adversely affect its
    results of operations.
    
    current economic conditions and their estimated effects on
    specific borrowers;
    an evaluation of the existing relationships among loans,
    potential loan losses and the present level of the allowance; 22




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##### Table of Contents




    results of examinations of the Companys loan portfolios by
    regulatory agencies; and
    managements internal review of the loan portfolio.    An
    interruption in or breach in security of the Companys
    information systems may result in a loss of customer
    business.
    The
    Companys ability to pay dividends and make payment on its
    debt securities is dependent on the earnings of its subsidiaries
    and is subject to other restrictions.
       23




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The
    Companys business may be adversely affected by the highly
    regulated environment in which it operates.
    The
    Company could encounter difficulties or unexpected developments
    related to any future acquisitions.
    
    potential exposure to unknown or contingent liabilities or asset
    quality issues of the target company;
    difficulty and expense of integrating the operations and
    personnel of the target company;
    potential disruption to the Companys business, including
    diversion of managements time and attention;
    the possible loss of key employees and customers of the target
    company;
    difficulty in estimating the value of the target company; and
    potential changes in banking or tax laws or regulations that may
    affect the target company.    Provisions
    in the Companys amended and restated certificate of
    incorporation and its amended and restated by-laws may delay or
    prevent an acquisition of the Company by a third
    party.
      Item 1B.
    Unresolved
    Staff Comments   24




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##### Table of Contents



Item 2.
    Properties    Date


Net Book Value at


Leased orLocation

Acquired


December 31, 2006


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


1987


$
1,247



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


1959



1,529



OwnedElmwood Park, Illinois 60607245 South Addison Road


2002



901



OwnedAddison, Illinois 601012045 East Algonquin Road


1994



632



OwnedAlgonquin, Illinois 601021000 Tower Lane #125


2006



3



LeasedBensenville, Illinois 60106236 West Lake Street


2006



363



LeasedBloomingdale, Illinois 601081001 Johnson Drive


2006



141



LeasedBuffalo Grove, Illinois 60089300 South Michigan Avenue


1986



1



LeasedChicago, Illinois 606044012 North Pulaski Road


1993



833



OwnedChicago, Illinois 606417227 West Addison Street


1996



1,056



OwnedChicago, Illinois 606341601 North Milwaukee Avenue


2003



2,977



OwnedChicago, Illinois 60647927 Curtiss Street


1996



124



LeasedDowners Grove, Illinois 60515645 Tollgate Road


2006







LeasedElgin, Illinois 601239668 Franklin Avenue


2006



262



LeasedFranklin Park, Illinois 601311441 Waukegan Road


2003



446



LeasedGlenview, Illinois 60025500 West Chestnut Street


1991



1,431



OwnedHinsdale, Illinois 605211604 West Colonial Parkway


2006



2



LeasedInverness, Illinois 60067204 E. State Road


1998



296



OwnedIsland Lake, Illinois 600421190 Old McHenry Road


2003







LeasedLong Grove, Illinois 600475555 Bull Valley Road


1998



1,125



OwnedMcHenry, Illinois 600501730 Park Street


2006



573



OwnedNaperville, Illinois 605638301 West Lawrence


2003



110



*Norridge, Illinois 60656505 North Roselle Road


1999



2,306



OwnedRoselle, Illinois 6017217622 Depot Street


1987



92



OwnedUnion, Illinois 60180     *
    
    Land is leased and building is owned. 25




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##### Table of Contents



Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders   PART II  Item 5.
    Market
    for the Registrants Common Equity and Related Stockholder
    Matters  over-the-counter
  Dividends DeclaredHigh


Low


Per Common Share2005First Quarter

$
22.80


$
19.55


$
0.12Second Quarter


20.20



17.92



0.12Third Quarter


24.24



19.13



0.12Fourth Quarter


23.50



21.00



0.122006First Quarter

$
26.65


$
21.94


$
0.12Second Quarter


25.89



20.99



0.13Third Quarter


25.18



20.89



0.13Fourth Quarter


25.17



22.34



0.13   Issuer
    Purchases of Equity Securities
   26




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##### Table of Contents



TotalNumberof Shares


Maximum NumberTotal





Purchased as Part


of Shares thatNumber


Average


of Publicly


May Yet Beof Shares


Price Paid


Announced Plans


Purchased UnderPeriod

Purchased


per Share


or Programs


the Plans or Programs7/1/06 -
    7/31/06


1,000


$
21.75



1,000



1,238,7998/1/06 -
    8/31/06


5,700



21.74



5,700



1,233,0999/1/06 -
    9/30/06


63,668



23.66



63,668



1,169,43110/1/06 -
    10 /31/06


20,760



23.23



20,760



1,148,67111/1/06 -
    11/31/06


70,760



23.12



70,760



1,077,91112/1/06 -
    12/31/06


42,300



23.65



42,300



1,035,611Total


204,188


$
23.37



204,188



1,035,611   Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters
   27




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##### Table of Contents



Performance
    Graph
    
 28




---



##### Table of Contents



Item 6.
    Selected
    Consolidated Financial Data    Year Ended December 31,2006


2005


2004


2003


2002(Dollars in thousands, except per share data)Statement of Income
    Data:Total interest income

$
159,262


$
112,244


$
91,962


$
98,108


$
97,420Total interest expense


83,980



50,797



41,780



43,260



45,460Net interest income


75,282



61,447



50,182



54,848



51,960Provision for loan losses


12,050



2,589



3,400



9,455



17,360Noninterest income


14,551



(6,245
)


(88
)


19,829



11,422Noninterest expenses


58,615



60,527



46,491



38,099



29,040Income (loss) before income taxes
    and discontinued operations


19,168



(7,914
)


203



27,123



16,981Provision (benefit) for income
    taxes


1,422



(6,325
)


(2,869
)


7,779



3,682Income (loss) from continuing
    operations


17,746



(1,589
)


3,072



19,344



13,299Income (loss) from discontinued
    operations






7,533



(696
)


3,437



3,009Net income

$
17,746


$
5,944


$
2,376


$
22,781


$
16,308Per Share Data:Earnings per share (basic) from
    continuing operations

$
0.76


$
(0.08
)

$
0.17


$
1.09


$
0.82Earnings per share (basic) from
    discontinued operations






0.38



(0.04
)


0.19



0.19Earnings per share (basic)


0.76



0.30



0.13



1.28



1.01Earnings per share (diluted) from
    continuing operations


0.75



(0.08
)


0.17



1.06



0.81Earnings per share (diluted) from
    discontinued operations






0.38



(0.04
)


0.19



0.18Earnings per share (diluted)


0.75



0.30



0.13



1.25



0.99Cash dividends declared


0.51



0.48



0.48



0.44



0.40Book value at end of period


11.65



9.91



7.66



8.01



7.12Tangible book value at end of
    period


7.97



9.78



7.49



7.80



7.05 29




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##### Table of Contents



Year Ended December 31,2006


2005


2004


2003


2002(Dollars in thousands, except per share data)Selected Financial
    Ratios:Return on average assets from
    continuing operations(1)


0.67
%


(0.07
)%


0.13
%


0.87
%


0.70
%Return on average equity from
    continuing operations(2)


7.04



(0.95
)


2.17



13.12



12.08Dividend payout ratio


67.95



162.38



279.59



40.55



48.57Average equity to average assets


9.57



7.29



6.12



6.60



5.83Tier 1 risk-based capital


11.92



16.97



13.27



13.68



10.49Total risk-based capital


12.97



18.07



14.65



14.74



11.74Net interest margin (tax
    equivalent)(3)(4)(5)


3.32



3.31



2.82



3.19



3.49Loan to deposit ratio(5)


99.44



88.62



73.07



67.23



83.16Net overhead expense to average
    assets(5)(6)


1.67



2.14



1.58



1.01



0.99Efficiency ratio(5)(7)


60.55



75.44



72.79



49.56



44.58Loan Quality
    Ratios(5):Allowance for loan losses to total
    loans at the end of year


1.19



1.32



1.48



1.51



1.93Provision for loan losses to total
    loans


0.62



0.19



0.31



0.99



1.72Net loans charged off to average
    total loans


0.59



0.09



0.17



0.82



0.69Nonaccrual loans to total loans at
    the end of year(8)


2.20



0.59



0.85



1.56



2.76Nonperforming assets to total
    assets(9)


1.55



0.83



0.78



0.96



1.40Allowance for loan losses to
    nonaccrual loans


0.54
x


2.25
x


1.74
x


0.97
x


0.70xBalance Sheet Data:Total assets

$
2,942,046


$
2,307,608


$
2,236,813


$
2,264,149


$
2,009,047Total earning assets(5)


2,617,894



2,126,227



1,807,609



1,807,207



1,651,917Average assets


2,635,138



2,305,086



2,310,594



2,234,293



1,889,511Loans(5)


1,946,816



1,349,996



1,097,299



955,380



1,012,111Allowance for loan losses(5)


23,229



17,760



16,217



14,459



19,540Deposits(5)


1,957,810



1,523,384



1,501,646



1,421,027



1,217,101Borrowings(5)


652,774



538,480



320,636



418,797



385,659Stockholders equity


287,242



216,126



137,423



143,081



114,951Tangible stockholders
    equity(5)(10)


196,481



213,447



134,315



139,400



113,816     (1)
    
    Net income divided by average assets.(2)
    
    Net income divided by average equity.(3)
    
    Net interest income, on a fully tax-equivalent basis, divided by
    average earning assets.(4)
    
    The following table reconciles reported net interest income on a
    fully tax-equivalent basis for the periods presented:  30




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##### Table of Contents



2006


2005


2004


2003


2002Net interest income

$
75,282


$
61,447


$
50,182


$
54,848


$
51,960Tax-equivalent adjustment to net
    interest income


4,286



2,628



2,399



3,511



2,365Net interest income, fully
    tax-equivalent basis

$
79,568


$
64,075


$
52,581


$
58,359


$
54,325   (5)
    
    Reflects continuing operations due to the sale of bank
    subsidiary on September 30, 2005.(6)
    
    Noninterest expense less noninterest income, excluding security
    gains or losses, divided by average assets.(7)
    
    Noninterest income, excluding security gains or losses, plus net
    interest income on a fully tax-equivalent basis divided by
    noninterest expense excluding amortization and other real estate
    expense.(8)
    
    Includes total nonaccrual, impaired and all other loans
    90 days or more past due.(9)
    
    Includes total nonaccrual, all other loans 90 days or more
    past due, and other real estate owned.(10)
    
    Stockholders equity less goodwill, core deposits and other
    intangible assets. The following table reconciles reported
    stockholders equity to tangible stockholders equity
    for the periods presented:  2006


2005


2004


2003


2002Stockholders equity

$
287,242


$
216,126


$
137,423


$
143,081


$
114,951Core deposit intangible and other
    intangibles, net


11,273



1,788



2,217



2,790



244Goodwill


79,488



891



891



891



891Tangible stockholders equity

$
196,481


$
213,447


$
134,315


$
139,400


$
113,816  31




---



##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Overview
        Critical
    Accounting Policies and Estimates
    Allowance for Loan Losses:
   32




---



##### Table of Contents



Evaluation of Securities for
    Impairment: held-to-maturity available-for-sale available-for-sale held-to-maturity available-for-sale
  Income Taxes:
   33




---



##### Table of Contents



34




---



##### Table of Contents



2006
    Developments
      
    Expanding the community banking market penetration;
    Adding experienced key executives;
    Expanding the size of the loan portfolio and diversifying its
    risk profile by increasing the percentage of commercial and
    industrial loans and owner occupied commercial real estate
    loans, while decreasing the percentage of construction loans;
    Expanding the deposit base by adding a higher percentage of
    noninterest-bearing and interest-bearing demand deposit, money
    market, and savings accounts; and
    Acquiring approximately $200.0 million in managed trust
    assets.  Market
    for the Registrants Common Equity and Related Stockholder
    Matters
      2005
    Developments
       35




---



##### Table of Contents



Consolidated
    Results of Operations
  2006
    Compared to 2005
    
    Income was $17.7 million for the year ended
    December 31, 2006 compared to a loss of $1.6 million
    for the prior year.
    Core income (defined as income excluding the merger related and
    balance sheet repositioning charges as reconciled below in
    Supplemental Information) was $18.7 million for the
    year ended December 31, 2006, or 7.4% higher compared to
    core income of $17.4 million for the year ended
    December 31, 2005.
    2006 earnings were reduced by provisions for loan losses
    recorded to reflect the deterioration of a large lending
    relationship. The Company recorded a loan loss provision of
    $5.0 million relating to this problem relationship in the
    second quarter of 2006. In the fourth quarter, the Company
    recorded a $5.5 million provision for loan losses and
    charged off $7.5 million of these loans to reflect the
    deterioration of the relationship with this borrower.
    The return on average assets was 0.67% for 2006 compared to a
    negative 0.07% for 2005; core return on average assets was 0.71%
    for 2006 compared to 0.76% for 2005.
    The return on average equity was 7.04% in 2006 compared to a
    negative 0.95% in 2005; core return on average equity was 7.42%
    for 2006 compared to 10.37% for 2005.  Net Interest Income.
    
    Interest income on a fully tax-equivalent basis increased
    $48.7 million to $163.5 million in 2006 compared to
    $114.9 million in 2005. Average earning assets increased by
    $457.7 million (approximately $262.2 million of this
    increase was attributable to the Royal American acquisition) and
    average yields increased by 90 basis points.
    Interest income on loans on a fully tax-equivalent basis
    increased $43.9 million to $124.1 million in 2006 from
    $80.2 million in 2005 due to an increase in average rates
    paid on loans from 6.63% to 7.48% and an increase of
    $448.0 million in average loans; $261.8 million of the
    increase in average loans was from the Royal American
    acquisition.
    Interest income on securities on a fully tax-equivalent basis
    increased $4.7 million to $38.1 million in 2006 from
    $33.4 million in 2005 as a result of an increase in yields
    on securities from 4.81% in 2005 to 5.39% in 2006 while average
    securities increased $12.9 million, or 1.9%.    
    Interest expense on interest-bearing liabilities increased
    $33.2 million to $84.0 million in 2006 from
    $50.8 million in 2005. Average balances on interest-bearing
    liabilities increased by $360.3 million in 2006 to
    $2.1 billion compared to $1.8 billion in the prior
    year while rates paid increased 108 basis points to 3.95%
    during 2006 compared to 2.87% in 2005.
    Interest expense on interest-bearing deposits increased by
    $23.5 million to $57.5 million in 2006 from
    $34.1 million in 2005. Average interest-bearing deposits
    increased $237.2 million to $1.6 billion in 2006
    compared to $1.3 billion in the prior year;
    $188.0 million of the increase was attributable to the
    Royal 36




---



##### Table of Contents



American acquisition. Average rates paid on interest-bearing
    deposits increased by 110 basis points to 3.63% in 2006
    compared to 2.53% in the prior year.  
    The migration of demand deposit, interest-bearing demand
    deposit, money market, and savings accounts into certificates of
    deposit and the reliance on more expensive wholesale funds
    contributed to the increase in the cost of funds.
    Average interest-bearing core deposits (interest-bearing demand
    deposit, money market, and savings accounts) decreased
    $26.7 million in 2006 compared to 2005 and rates paid
    increased 38 basis points.
    Average certificates of deposits less than $100,000 remained
    flat while rates paid increased by 101 basis points. Average
    certificates of deposits greater than $100,000 increased
    $266.1 million in 2006 and rates paid increased by
    176 basis points. Average brokered deposits increased by
    $136.5 million in 2006 compared to the prior year.  
    Interest expense on borrowings increased by $9.7 million to
    $26.5 million in 2006 from $16.7 million in 2005.
    Average borrowings increased by $123.0 million to
    $545.4 million in 2006 compared to $422.4 million in
    the prior year mainly due to the increase in FHLB advances;
    $15.0 million of the increase in borrowings was from the
    Royal American acquisition. This increase in borrowings was a
    result of the Companys difficulty in raising lower cost
    deposits.
    Interest expense on Federal funds purchased and securities sold
    under agreements to repurchase increased by $4.7 million in
    2006 as a result of the increases in rates of 155 basis
    points and average balances of $23.5 million.
    Interest expense on FHLB advances increased by $4.1 million
    in 2006 compared to the prior year while average balances
    increased by $94.6 million during the same period; a
    $5.0 million FHLB advance was acquired in the Royal
    American acquisition. Average rates paid on FHLB advances rose
    by only 4 basis points in 2006 to 4.29% compared to 4.25%
    in 2005.
    The Company used $64.6 million of the cash raised through a
    secondary public offering to pay for the Royal American
    acquisition. Funding costs increased as a result of replacing
    these funds with more expensive borrowings, which were offset by
    the increase in net interest income resulting from the Royal
    American acquisition.  Provision for Loan Losses.
  Noninterest Income.
  
    $1.3 million 2006 gain on extinguishment of debt. The
    Company, as part of its program of repositioning the maturities
    of its borrowings, recognized a gain on the extinguishment of
    debt of $625,000 in the first quarter of 2006 as a result of the
    prepayment of a $28.0 million repurchase agreement and
    recognized $625,000 gain in the second quarter of 2006 as a
    result of the assignment of a $50.0 million FHLB advance
    $629,000 increase in the cash surrender value of life insurance
    reflecting an additional purchase of bank owned life insurance
    of $6.0 million in 2006 and $12.5 million of such
    insurance acquired with Royal American; 37




---



##### Table of Contents




    $616,000 increase in trust income primarily as a result of the
    trust operations acquired from Royal American;
    $594,000 increase in service charges on deposits mainly due to
    the increase in noninterest-bearing demand deposit service
    charges of $1.1 million which was partially offset by the
    decrease in overdraft fees of $514,000;
    $471,000 increase in insurance and brokerage commissions as a
    result of increased staff and brokerage activity;
    $403,000 increase in gains on sale of loans due to a 134.5%
    increase in loans sold as a result of a higher level of mortgage
    refinancing volume; and
    $211,000 increase in trading profits.    Noninterest Expenses.
  
    The loss on extinguishment of debt of $13.1 million in
    2005, which did not occur in 2006;
    Other real estate expense decreased by $2.2 million in 2006
    compared to 2005 as a result of a $2.4 million write down
    of other real estate owned in the second quarter of 2005;
    Salaries and employee benefits increased $7.8 million
    reflecting the additions to management and the 50 full-time
    equivalent employees from the Royal American acquisition;
    Non-capitalized merger related expense was $1.6 million in
    2006;
    Occupancy and equipment increased $1.5 million in 2006
    compared to the prior year reflecting the additional branches
    acquired in the Royal American acquisition;
    Marketing expenses increased by $294,000 in 2006 compared to the
    prior year due to increased marketing activity; and
    Professional services increased $248,000 in 2006 due to an
    increase in consulting expense.    Federal and State Income Tax.
 38




---



##### Table of Contents



Year Ended December 31,2006


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

$
6,709



35.0
%

$
(2,770
)


35.0
%Tax-exempt interest income on
    securities and loans


(1,171
)


(6.1
)


(563
)


7.1General business credits


(665
)


(3.5
)


(255
)


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


(676
)


(3.5
)


(952
)


12.0Income tax reserve reversal


(591
)


(3.1
)






Life insurance cash surrender
    value increase, net of premiums


(838
)


(4.4
)


(615
)


7.8Life insurance death benefit










(276
)


3.5Dividends received deduction


(1,106
)


(5.8
)


(868
)


11.0Merger related expenses


(278
)


(1.5
)






Stock based compensation, net


56



0.3







Other


(18
)


(0.2
)


(26
)


0.3Total provision (benefit) for
    income taxes

$
1,422



7.4
%

$
(6,325
)


79.9
%   2005
    Compared to 2004
    
    Total assets increased $70.8 million, or 3.2%, to
    $2.3 billion as of December 31, 2005 from
    December 31, 2004 or increased $353.3 million after
    giving consideration to the sale of MBWI on September 30,
    2005 which had assets of $282.5 million.
    In June 2005, the Company completed its balance sheet
    repositioning which included the sale of low-yielding, long
    duration U.S. government-sponsored entity notes, the
    prepayment of long-term high cost FHLB advances, and the
    redemption of 10% trust preferred securities, with after-tax
    charges of $21.0 million.
    Loans increased $253.9 million, or 23.1%, to
    $1.4 billion as of December 31, 2005 compared to
    December 31, 2004.
    Net loans charged off to average total loans were 0.09% for the
    year ended December 31, 2005 compared to 0.17% in the prior
    year.
    Securities increased by $221.4 million, or 42.1%, in 2005
    compared to 2004 as a result of investing federal funds sold and
    other short-term investments of $169.8 million at
    December 31, 2004.
    Allowance to nonaccrual loans coverage increased to 2.25x at
    December 31, 2005 from 1.74x at December 31, 2004.
    Loss from continuing operations was $1.6 million for the
    year ended December 31, 2005 compared to income from
    continuing operations of $3.1 million for the prior year.
    Core income from continuing operations (defined as income from
    continuing operations excluding charges from the balance sheet
    repositioning and retirement benefit obligation as reconciled
    below in Supplemental Information) was $17.4 million
    for the year ended December 31, 2005 or 75.6% higher
    compared to core income from continuing operations of
    $9.9 million for the year ended December 31, 2004.
    The return on average assets from continuing operations was a
    negative 0.07% for 2005 and a positive 0.13% for 2004; core
    return on average assets from continuing operations was 0.76%
    for 2005 and 0.43% for 2004. 39




---



##### Table of Contents




    The return on average equity from continuing operations
    decreased to a negative 0.95% in 2005 from 2.17% in 2004; core
    return on average equity from continuing operations was 10.37%
    for 2005 and 7.01% for 2004.  Net Interest Income.
    
    Interest income on a fully tax-equivalent basis increased
    $20.5 million to $114.9 in 2005 compared to
    $94.4 million in 2004. Average earning assets increased by
    $74.8 million, and average yields increased by
    87 basis points.
    Interest income on loans on a fully tax-equivalent basis
    increased $20.6 million to $80.2 million in 2005 from
    $59.7 million in 2004 due to an increase in average rates
    paid on loans from 6.06% to 6.63% and an increase of
    $225.9 million in average loans.
    Interest income on securities on a fully tax-equivalent basis
    increased $1.1 million to $33.4 million in 2005 from
    $32.3 million in 2004 as a result of an increase of yields
    on securities from 4.33% in 2004 to 4.81% in 2005 despite a
    $50.3 million decrease in average securities. The duration
    of the securities portfolio decreased to 3.8 years at
    December 31, 2005 from 5.0 years a year ago.  
    Consistent with its strategy, the Company changed the mix of its
    securities portfolio through the sale of
    U.S. government-sponsored entity notes in the fourth
    quarter of 2004 and the first half 2005 and the investment in
    mortgage-backed securities described below.
    During 2005, the Company invested $342.4 million in 5/1,
    7/1, and
    10/1
    adjustable rate mortgage-backed securities with a weighted
    average yield of 4.84% as well as $201.4 million in
    15-year
    fixed mortgage-backed securities with a weighted average yield
    of 4.87%. The Company expects these securities to provide added
    liquidity to fund future loan growth.  
    Average cash equivalents decreased by $98.4 million
    compared to 2004 due to more proactive funds management.    
    Interest expense on interest-bearing liabilities increased
    $9.0 million to $50.8 million in 2005 from
    $41.8 million in 2004, or 21.6%, due primarily to the
    increase in interest expense on deposits. Average balances on
    interest-bearing liabilities increased by $44.8 million in
    2005 to $1.8 billion.
    Interest expense on interest-bearing deposits increased by
    $6.4 million to $34.1 million in 2005 from
    $27.7 million in 2004, or 23.2%. This is mainly the result
    of the increase in average rates paid on certificates of
    deposits and public funds of 58 basis points in 2005 and
    increase in average balances of $32.8 million. Average
    interest-bearing core deposits (interest-bearing demand deposit,
    money market, and savings accounts) increased $9.9 million
    compared to 2004, while rates paid increased 13 basis
    points.
    The Company also experienced a migration of balances in core
    interest-bearing deposits (interest-bearing demand, money
    market, and savings accounts) to certificates of deposits as a
    result of the upward movement in rates.
    Interest expense on borrowings increased by $2.6 million to
    $16.7 million in 2005 from $14.1 million in 2004, or
    18.4%. Included in 2004s interest expense is a purchase
    accounting adjustment of $2.1 million which reduced the
    interest expense on FHLB advances.
    Interest expense on Federal funds purchased and securities sold
    under agreements to repurchase increased by $2.9 million in
    2005 as a result of the increase in rates of 40 basis
    points and average balances of $73.0 million. This increase
    in Federal funds purchased and securities sold under agreements
    to repurchase was a result of the Companys difficulty in
    raising low cost deposits. 40




---



##### Table of Contents




    The Company prepaid $121.5 million of FHLB advances with an
    average rate of 5.47%, unwound the interest rate swaps
    associated with those advances, and replaced them with
    $150.0 million in new advances with an average rate of
    3.48%.
    The Company also redeemed $20.6 million of its junior
    subordinated debt at a rate of 10.00% during June 2005 and
    replaced it with another issuance for the same amount at LIBOR
    plus 177 basis points adjusting quarterly.  Provision for Loan Losses. Nonaccrual Loans
  Noninterest Income.
  
    $116,000 decrease in service charges on deposits mainly due to
    the decrease in overdraft and noninterest-bearing demand deposit
    service charges of $266,000, partially offset by an increase in
    ATM and debit card fees of $113,000;
    $204,000 increase in trading profits:  
    covered call options were written to provide incremental revenue
    enhancement when market conditions provided such
    opportunities, and
    compared to 2004, trading activities have been curtailed with
    reductions in the volume of securities traded and number of
    transactions;  
    $95,000 increase in insurance and brokerage commissions;
    $315,000 increase in the cash surrender value of life insurance
    (reflecting the additional investment of $20.0 million in
    July of 2004 and the increase in crediting rates);
    $180,000 decrease in gains on sale of loans (as a result of a
    lower level of mortgage refinancing volume and the retention of
    variable rate mortgages in the portfolio); and
    A life insurance benefit was received in the third quarter of
    2005 in the amount of $789,000.    Noninterest Expenses.
  
    Salaries and employee benefits increased $2.4 million
    reflecting additions of new management personnel;
    Occupancy and equipment decreased $406,000 in 2005 compared to
    the prior year mainly due to a decrease in real estate taxes;
    Professional services increased $51,000 for 2005 compared to
    2004 due to an increase in audit and ATM processing fees and a
    decrease in legal and consulting expenses;
    A $2.4 million write down of other real estate owned was
    taken in the second quarter of 2005; and
    The loss on extinguishment of debt (FHLB advances, as mentioned
    above) was $13.1 million in 2005.   41




---



##### Table of Contents



Federal and State Income Tax.
  Year Ended December 31,2005


2004(Dollars in thousands)Income taxes computed at the
    statutory rate

$
(2,770
)


35.0
%

$
71



35.0
%Tax-exempt interest income on
    securities and loans


(563
)


7.1



(404
)


(198.8
)General business credits


(255
)


3.2



(100
)


(49.2
)State income taxes, net of federal
    tax benefit due to state operating loss


(952
)


12.0



(1,105
)


(543.1
)Life insurance cash surrender
    value increase, net of premiums


(615
)


7.8



(503
)


(247.4
)Life insurance death benefit


(276
)


3.5







Dividends received deduction


(868
)


11.0



(1,053
)


(517.6
)Other


(26
)


0.3



225



110.9Total provision (benefit) for
    income taxes

$
(6,325
)


79.9
%

$
(2,869
)


1,410.2
%   Supplemental Information.
  Year Ended December 31,2006


2005


2004(In thousands)Income (loss) from continuing
    operations

$
17,746


$
(1,589
)

$
3,072Merger related charges, net of tax


961







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






10,595



Charge from prepayment of FHLB
    advances, net of tax






5,886



2,158Charge from unwinding of swaps,
    net of tax






2,206



Charge from redemption of trust
    preferred securities, net of tax






318



Impairment loss on equity
    securities, net of tax










3,786Retirement benefit obligation, net
    of tax










902Core income from continuing
    operations

$
18,707


$
17,416


$
9,918  42




---



##### Table of Contents



Year Ended December 31,2006


2005


2004(In thousands)Noninterest expenses

$
58,615


$
60,527


$
46,491Merger related charges


(1,595
)






Charge from prepayment of FHLB
    advances






(9,547
)


(3,560
)Charge from unwinding of swaps






(3,578
)


Charge from redemption of trust
    preferred securities






(516
)


Retirement benefit obligation










(1,487
)Core noninterest expenses

$
57,020


$
46,886


$
41,444  43




---



##### Table of Contents



Interest-Earning
    Assets and Interest-Bearing Liabilities
    Year Ended December 31,2006


2005


2004Average





Average


Average





Average


Average





AverageBalance


Interest


Rate


Balance


Interest


Rate


Balance


Interest


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

$
10,009


$
506



5.06
%

$
18,576


$
505



2.72
%

$
116,963


$
1,331



1.14
%Securities:Taxable(1)


613,485



32,593



5.31



662,100



31,448



4.75



730,059



31,306



4.29Exempt from federal income taxes(1)


93,347



5,492



5.88



31,801



1,920



6.04



14,165



946



6.68Total securities


706,832



38,085



5.39



693,901



33,368



4.81



744,224



32,252



4.33FRB and FHLB stock


18,105



693



3.83



14,081



727



5.16



16,106



1,058



6.57Loans held for sale


2,028



125



6.16



805



47



5.84



1,191



57



4.79Loans:Commercial loans(1)(3)(4)


296,533



23,219



7.83



183,553



12,194



6.64



164,391



9,157



5.57Commercial real estate
    loans(1)(3)(4)(6)


1,110,828



83,891



7.55



842,889



57,130



6.78



707,860



44,271



6.25Agricultural loans(1)(3)(4)


2,456



191



7.78



1,615



116



7.18



1,374



83



6.04Consumer real estate loans(3)(4)(6)


240,601



16,207



6.74



178,982



10,492



5.86



107,018



5,829



5.45Consumer installment loans(3)(4)


8,502



631



7.42



3,834



293



7.64



4,333



323



7.45Total loans


1,658,920



124,139



7.48



1,210,873



80,225



6.63



984,976



59,663



6.06Total interest-earning assets

$
2,395,894


$
163,548



6.83
%

$
1,938,236


$
114,872



5.93
%

$
1,863,460


$
94,361



5.06
%Interest-Bearing
    Liabilities:Deposits:Interest-bearing demand deposits

$
150,503


$
1,759



1.17
%

$
176,355


$
2,147



1.22
%

$
187,684


$
2,483



1.32
%Money-market demand accounts and
    savings accounts


346,933



7,571



2.18



347,792



5,718



1.64



326,544



4,579



1.40Time deposits less than $100,000


747,676



31,370



4.20



747,611



23,814



3.19



714,787



19,042



2.66Time deposits of $100,000 or more


326,516



16,287



4.99



60,405



1,950



3.23



64,237



1,389



2.16Public funds


11,703



531



4.54



13,943



438



3.14



10,156



160



1.58Total interest-bearing deposits


1,583,331



57,518



3.63



1,346,106



34,067



2.53



1,303,408



27,653



2.12Borrowings:Federal funds purchased and
    repurchase agreements


255,843



11,913



4.66



232,326



7,229



3.11



159,305



4,316



2.71FHLB advances(7)


228,811



9,808



4.29



134,194



5,701



4.25



204,915



6,244



3.05Notes payable and other borrowings


60,776



4,741



7.80



55,874



3,800



6.80



56,038



3,567



6.37Total borrowings


545,430



26,462



4.85



422,394



16,730



3.96



420,258



14,127



3.36Total interest-bearing liabilities

$
2,128,761


$
83,980



3.95
%

$
1,768,500


$
50,797



2.87
%

$
1,723,666


$
41,780



2.42
%Net interest income (tax
    equivalent)(1)(5)





$
79,568



2.88
%





$
64,075



3.05
%





$
52,581



2.64
%Net interest margin (tax
    equivalent)(1)










3.32
%










3.31
%










2.82
%Net interest income(2)(5)





$
75,282










$
61,447










$
50,182Net interest margin(2)










3.14
%










3.17
%










2.69
%     (1)
    
    Adjusted for 35% tax rate and adjusted for the
    dividends-received deduction where applicable.(2)
    
    Not adjusted for 35% tax rate or for the dividends-received
    deduction. 44




---



##### Table of Contents



(3)
    
    Nonaccrual loans are included in the average balance; however,
    these loans are not earning any interest.(4)
    
    Includes loan fees.(5)
    
    The following table reconciles reported net interest income on a
    tax equivalent basis for the periods presented:  2006


2005


2004Net interest income

$
75,282


$
61,447


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


4,286



2,628



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

$
79,568


$
64,075


$
52,581   (6)
    
    Includes construction loans.(7)
    
    2004 includes $2.1 million purchase accounting adjustment
    resulting from the prepayment of the FHLB advances which reduced
    interest expense.  Changes
    in Interest Income and Expense
   45




---



##### Table of Contents



Year Ended December 31,2006 Compared to 2005


2005 Compared to 2004Change Due to


Change Due toNet


Volume


Rate


Net


Volume


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

$
1


$
(303
)

$
304


$
(826
)

$
(1,706
)

$
880Securities taxable


1,145



(2,414
)


3,559



142



(3,060
)


3,202Securities exempt from federal
    income taxes


3,572



3,622



(50
)


974



1,073



(99
)FRB and FHLB stock


(34
)


180



(214
)


(331
)


(122
)


(209
)Loans held for sale


78



75



3



(10
)


(21
)


11Commercial loans


11,025



8,545



2,480



3,037



1,145



1,892Commercial real estate loans


26,761



19,687



7,074



12,859



8,936



3,923Agricultural loans


75



65



10



33



16



17Consumer real estate loans


5,715



3,988



1,727



4,663



4,188



475Consumer installment loans


338



347



(9
)


(30
)


(38
)


8Total interest-earning assets

$
48,676


$
33,792


$
14,884


$
20,511


$
10,411


$
10,100Interest-Bearing
    Liabilities:Interest-bearing demand deposits

$
(388
)

$
(305
)

$
(83
)

$
(336
)

$
(145
)

$
(191
)Money market demand accounts and
    savings accounts


1,853



(14
)


1,867



1,139



312



827Time deposits of less than $100,000


7,556



2



7,554



4,772



907



3,865Time deposits of $100,000 or more


14,337



12,758



1,579



561



(87
)


648Public funds


93



(79
)


172



278



76



202Federal funds purchased and
    repurchase agreements


4,684



793



3,891



2,913



2,200



713FHLB advances


4,107



4,055



52



(543
)


(2,552
)


2,009Notes payable and other borrowings


941



352



589



233



(10
)


243Total interest-bearing liabilities

$
33,183


$
17,562


$
15,621


$
9,017


$
701


$
8,316Net interest

$
15,493


$
16,230


$
(737
)

$
11,494


$
9,710


$
1,784  46




---



##### Table of Contents



Financial
    Condition
    Excluding


ExcludingRoyal


RoyalRoyal


American


AmericanDecember 31,





American


Acquisition


Acquisition2006


2005


$ Change


Acquisition(1)


$ Change


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

$
100,532


$
70,599


$
29,933


$
(41,044
)

$
70,977



100.5
%Securities
    available-for-sale,
    at fair value


589,981



687,937



(97,956
)


16,487



(114,443
)


(16.6
)Securities
    held-to-maturity,
    at amortized cost


45,931



59,451



(13,520
)






(13,520
)


(22.7
)Federal Reserve and Federal Home
    Loan Bank stock


23,592



14,661



8,931



1,427



7,504



51.2Loans held for sale


2,672



1,912



760







760



39.7Loans


1,946,816



1,349,996



596,820



497,783



99,037



7.3Allowance for loan loss


(23,229
)


(17,760
)


(5,469
)


(3,244
)


(2,225
)


12.5Net loans


1,923,587



1,332,236



591,351



494,539



96,812



7.3Cash surrender value of life
    insurance


65,220



44,433



20,787



12,467



8,320



18.7Premises and equipment, net


21,960



22,247



(287
)


1,295



(1,582
)


(7.1
)Other real estate


2,640



11,154



(8,514
)






(8,514
)


(76.3
)Core deposit and other intangibles,
    net


11,273



1,788



9,485



10,488



(1,003
)


(56.1
)Goodwill


79,488



891



78,597



78,597







0.0Other assets


75,170



60,299



14,871



4,535



10,336



17.1Total assets

$
2,942,046


$
2,307,608


$
634,438


$
578,791


$
55,647



2.4
%Liabilities and
    stockholders equity:Noninterest-bearing

$
276,381


$
158,406


$
117,975


$
125,506


$
(7,531
)


(4.8
)%Interest-bearing


1,681,429



1,364,978



316,451



340,505



(24,054
)


(1.8
)Total deposits


1,957,810



1,523,384



434,426



466,011



(31,585
)


(2.1
)Federal funds purchased


66,000



68,000



(2,000
)


30,000



(32,000
)


(47.1
)Securities sold under agreements to
    repurchase


201,079



264,808



(63,729
)






(63,729
)


(24.1
)Advances from the Federal Home
    Loan Bank


319,883



150,000



169,883



4,854



165,029



110.0Junior subordinated debentures


65,812



55,672



10,140



10,106



34



0.1Due to broker






1,301



(1,301
)






(1,301
)


(100.0
)Other liabilities


44,220



28,317



15,903



4,053



11,850



41.8Total liabilities


2,654,804



2,091,482



563,322



515,024



48,298



2.3Total stockholders equity


287,242



216,126



71,116



63,767



7,349



3.4Total liabilities and
    stockholders equity

$
2,942,046


$
2,307,608


$
634,438


$
578,791


$
55,647



2.4
%     (1)
    
    Includes fair value adjustments.(2)
    
    Royal American Acquisition column includes cash and cash
    equivalents acquired through Royal American of $24,363 less cash
    paid for acquisition of $64,612 and capitalized costs of $795. 47




---



##### Table of Contents




    Total assets increased $55.6 million, or 2.4%.
    Loans increased $99.0 million, or 7.3% .
    Securities decreased by $128.0 million, or 17.1%; cash flow
    from principal payments of $86.0 million received on
    mortgage-backed securities were used to fund loan growth in 2006.
    Deposits decreased by $31.6 million, or 2.1%; deposit
    losses included $7.5 million in noninterest-bearing
    deposits and. $24.1 million interest-bearing deposits.    
    The allowance for loan losses was 1.19% of total loans at
    December 31, 2006 versus 1.32% at December 31, 2005.
    The allowance for loan losses increased by $3.2 million due
    to the Royal American merger.
    Nonaccrual loans increased to 2.20% of total loans at
    December 31, 2006 from 0.59% at December 31, 2005 as a
    result of the large loan relationship previously discussed.
    Allowance to nonaccrual loans coverage decreased to 0.54x in
    2006 from 2.25x in 2005. The decrease was a result of net
    charge-offs totaling $9.8 million, total loan loss
    provision expense of $12.1 million, and the nonaccrual
    loans increase to $42.8 million at December 31, 2006
    from $7.9 million at December 31, 2005.
    Net loans charged off to average total loans were 0.59% at
    December 31, 2006 compared to 0.09% in the prior year. The
    increase was the result of the $7.5 million charge off in
    the fourth quarter of 2006 to reflect the deterioration of a
    large lending relationship.    Loans
    December 31,2006


2005


2004


2003


2002(In thousands)Commercial

$
376,944


$
201,284


$
184,558


$
182,344


$
197,353Construction


424,181



358,785



270,836



253,951



310,263Commercial real estate


761,742



496,819



411,535



359,047



356,167ConsumerHome equity


147,366



115,429



100,322



77,772



67,572Other consumer


9,373



4,273



4,377



5,062



8,107Total consumer


156,739



119,702



104,699



82,834



75,679Residential mortgage


227,762



174,184



126,047



77,916



73,619Total loans, gross


1,947,368



1,350,774



1,097,675



956,092



1,013,081Net deferred fees


(552
)


(778
)


(376
)


(712
)


(970
)Total loans


1,946,816



1,349,996



1,097,299



955,380



1,012,111Allowance for loan losses


(23,229
)


(17,760
)


(16,217
)


(14,459
)


(19,540
)Net loans

$
1,923,587


$
1,332,236


$
1,081,082


$
940,921


$
992,571Loans held for sale:Consumer real estate

$
2,672


$
1,912


$
693


$
1,571


$
4,394  48




---



##### Table of Contents



Excluding


ExcludingRoyal


RoyalRoyal


American


AmericanDecember 31,





American


Acquisition


Acquisition2006


2005


$ Change


Acquisition(1)


$ Change


% Change(Dollars in thousands)Commercial

$
376,944


$
201,284


$
175,660


$
157,103


$
18,557



9.2
%Construction


424,181



358,785



65,396



40,526



24,870



6.9Commercial real estate


761,742



496,819



264,923



220,885



44,038



8.9ConsumerHome equity


147,366



115,429



31,937



43,019



(11,082
)


(9.6
)Other consumer


9,373



4,273



5,100



6,318



(1,218
)


(28.5
)Total consumer


156,739



119,702



37,037



49,337



(12,300
)


(10.3
)Residential mortgage


227,762



174,184



53,578



29,932



23,646



13.6Total loans, gross


1,947,368



1,350,774



596,594



497,783



98,811



7.3Net deferred fees


(552
)


(778
)


226







226



(29.0
)Total loans


1,946,816



1,349,996



596,820



497,783



99,037



7.3Allowance for loan losses


(23,229
)


(17,760
)


(5,469
)


(3,244
)


(2,225
)


12.5Net loans

$
1,923,587


$
1,332,236


$
591,351


$
494,539


$
96,812



7.3
%Loans held for sale:Consumer real estate

$
2,672


$
1,912


$
760


$



$
760



39.7
%     (1)
    
    Includes fair value adjustments.    
    Total loans increased $99.0 million, or 7.3%.
    Commercial loans increased $18.6 million, or 9.2%.
    Construction loans increased by $24.9 million or 6.9%.
    Commercial real estate loans rose by $44.0 million or 8.9%.
    Consumer loans decreased $12.3 million or 10.3%.
    Residential mortgage loans increased $23.6 million or 13.6%.      
    The primary risks associated with commercial loans are the
    quality of the borrowers management, financial strength
    and cash flow resources, and the impact of local economic
    factors.
    Risks associated with real estate loans include concentrations
    of loans in a certain loan type, such as commercial or
    residential, and fluctuating land and property values.
    Consumer loans also have risks associated with concentrations of
    loans in a single type of loan, as well as the risk a borrower
    may become unemployed as a result of deteriorating economic
    conditions. 49




---



##### Table of Contents



December 31,


December 31,2006


2005No. of





No. ofAmount


Borrowers


Amount


Borrowers(Dollars in thousands)$30.0 million or more

$
94,523



3


$
218,492



6$25.0 million or more


144,999



5



273,277



8   Loan
    Maturities
    One Year


1-5 Years


Over 5 YearsOr Less


Fixed


Variable


Fixed


Variable


Total(In thousands)Commercial

$
241,582


$
80,087


$
43,846


$
11,142


$
287


$
376,944Construction


352,165



35,345



33,523



1,353



1,795



424,181Commercial real estate


184,083



482,728



41,427



47,337



6,167



761,742ConsumerHome equity


46,989



15,423



43,955



130



40,869



147,366Other consumer


5,544



3,168



661











9,373Total consumer


52,533



18,591



44,616



130



40,869



156,739Residential mortgage


49,355



45,691



1,821



71,342



59,553



227,762Total loans, gross


879,718



662,442



165,233



131,304



108,671



1,947,368Net deferred fees(1)






















(552
)Total loans

$
879,718


$
662,442


$
165,233


$
131,304


$
108,671


$
1,946,816     (1)
    
    The Companys data processing system currently limits its
    ability to break net deferred fees out over the timeframes in
    the table.  Nonaccrual
    Loans
      case-by-case
 50




---



##### Table of Contents



December 31,2006


2005


2004


2003


2002(Dollars in thousands)Impaired and other loans
    90 days past due and accruing

$
34


$
4


$
21


$
11


$
1,842Nonaccrual and impaired loans not
    accruing

$
42,826


$
7,905


$
9,296


$
14,916


$
27,946Other real estate


2,640



11,154



8,064



6,712



84Total nonperforming assets

$
45,466


$
19,059


$
17,360


$
21,628


$
28,030Total nonaccrual loans to total
    loans


2.20
%


0.59
%


0.85
%


1.56
%


2.76
%Total nonperforming assets to
    total loans and other real estate


2.33



1.40



1.57



2.25



2.77Total nonperforming assets to
    total assets


1.55



0.83



0.78



0.96



1.40           Analysis
    of Allowance for Loan Losses
     51




---



##### Table of Contents



52




---



##### Table of Contents



Year Ended December 31,2006


2005


2004


2003


2002(Dollars in thousands)Average total loans

$
1,658,920


$
1,210,873


$
984,976


$
995,078


$
969,943Total loans at end of year

$
1,946,816


$
1,349,996


$
1,097,299


$
955,380


$
1,012,111Total nonaccrual loans

$
42,826


$
7,905


$
9,296


$
14,916


$
27,946Allowance at beginning of year

$
17,760


$
16,217


$
14,459


$
19,540


$
8,858Addition resulting from acquisition


3,244











300



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














(6,685
)


Charge-offs:Commercial loans


5,912



1,668



819



7,645



6,512Consumer real estate loans


360



15



37



48



3Commercial real estate loans


4,401



772



1,162



1,500



105Agricultural loans


















Consumer installment loans


136



64



130



77



268Total charge-offs


10,809



2,519



2,148



9,270



6,888Recoveries:Commercial loans


616



1,448



163



1,072



134Consumer real estate loans


4



5



32



2



47Commercial real estate loans


339



6



261



10



4Agricultural loans


















Consumer installment loans


25



14



50



35



25Total recoveries


984



1,473



506



1,119



210Net charge-offs


9,825



1,046



1,642



8,151



6,678Provision for loan losses


12,050



2,589



3,400



9,455



17,360Allowance at end of the year

$
23,229


$
17,760


$
16,217


$
14,459


$
19,540Net charge-off to average total
    loans


0.59
%


0.09
%


0.17
%


0.82
%


0.69
%Allowance to total loans at end of
    year


1.19



1.32



1.48



1.51



1.93Allowance to nonaccrual loans


0.54
x


2.25
x


1.74
x


0.97
x


0.70x     (1)
    
    Adjustment made following the Banks receipt of
    $13.3 million of proceeds from an entity indirectly owned
    by certain directors and family members of directors relating to
    the sale of previously classified loans, of which
    $12.5 million was applied to outstanding principal,
    $750,000 to fund a letter of credit, and $67,000 applied to
    accrued interest income and late charges on March 26, 2003.
    As a consequence, the Bank recognized a $4.0 million
    after-tax capital contribution as a result of the sale of these
    loans to the related parties. As of December 31, 2002,
    $6.3 million of the $12.5 million outstanding
    principal amount of these loans was considered impaired. 53




---



##### Table of Contents



ExludingLarge


LargeLending


LendingDecember 31,


Relationship


Relationship2006


Adjustment


Adjustment(In thousands)Allowance for loan losses

$
23,229


$
(3,000
)

$
20,229Nonaccrual loans


42,826



(25,825
)


17,001Nonperforming assets


45,466



(25,825
)


19,641     December 31,2006


2005


2004


2003


2002Loan





Loan





Loan





Loan





LoanCategory





Category





Category





Category





CategoryTo





To





To





To





ToGross





Gross





Gross





Gross





GrossAmount


Loans


Amount


Loans


Amount


Loans


Amount


Loans


Amount


Loans(Dollars in thousands)Commercial

$
6,156



19.87
%

$
7,727



14.54
%

$
8,124



16.72
%

$
6,479



18.57
%

$
15,062



20.12
%Commercial real estate


16,166



65.35



7,807



69.24



6,837



68.92



7,101



72.04



3,096



70.03Agricultural


3



0.13



3



0.15







0.11







0.09



21



0.12Consumer real estate


352



14.10



864



15.76



385



13.90



257



8.81



134



9.12Consumer installment


90



0.55



46



0.31



438



0.35



360



0.49



348



0.61Unallocated


462







1,313







44







262







879



Total allowance for loan losses

$
23,229



100.00
%

$
17,760



100.00
%

$
16,217



100.00
%

$
14,459



100.00
%

$
19,540



100.00
%         Special Mention:
 54




---



##### Table of Contents



and/or
    Substandard:
    Doubtful:
     55




---



##### Table of Contents



Securities
    available-for-sale held-to-maturity
  December 31, 2006Held-to-Maturity


Available-for-Sale


Total% ofAmortized


Fair


Amortized


Fair


Amortized


Fair


AmortizedCost


Value


Cost


Value


Cost


Value


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

$



$



$
6,958


$
6,958


$
6,958


$
6,958



1.08
%Obligations of states and political
    subdivisions


1,686



1,697



97,167



96,987



98,853



98,684



15.29Mortgage-backed securities


44,245



42,990



444,392



434,108



488,637



477,098



75.56Equity securities










41,131



41,521



41,131



41,521



6.36Other bonds










11,034



10,407



11,034



10,407



1.71Total

$
45,931


$
44,687


$
600,682


$
589,981


$
646,613


$
634,668



100.00
%   December 31, 2005Held-to-Maturity


Available-for-Sale


Total% ofAmortized


Fair


Amortized


Fair


Amortized


Fair


AmortizedCost


Value


Cost


Value


Cost


Value


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

$



$



$
24,866


$
24,719


$
24,866


$
24,719



3.27
%Obligations of states and political
    subdivisions


6,138



6,182



79,463



78,350



85,601



84,532



11.26Mortgage-backed securities


53,313



52,150



521,896



511,312



575,209



563,462



75.66Equity securities










63,574



62,930



63,574



62,930



8.36Other bonds










11,054



10,626



11,054



10,626



1.45Total

$
59,451


$
58,332


$
700,853


$
687,937


$
760,304


$
746,269



100.00
%   56




---



##### Table of Contents



December 31, 2004Held-to-Maturity


Available-for-Sale


Total% ofAmortized


Fair


Amortized


Fair


Amortized


Fair


AmortizedCost


Value


Cost


Value


Cost


Value


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

$



$



$
334,870


$
311,144


$
334,870


$
311,144



60.81
%Obligations of states and political
    subdivisions


8,799



9,043



320



320



9,119



9,363



1.66Mortgage-backed securities


80,159



79,967



34,455



33,844



114,614



113,811



20.82Equity securities










80,924



81,089



80,924



81,089



14.70Other bonds










11,074



10,653



11,074



10,653



2.01Total

$
88,958


$
89,010


$
461,643


$
437,050


$
550,601


$
526,060



100.00
%         available-for-sale available-for-sale
  
    Cash flow from principal payments of $86.0 million received
    on mortgage-backed securities in the
    available-for-sale
    and
    held-to-maturity
    portfolios were used to fund loan growth during 2006.
    U.S. government agency and government-sponsored entity
    mortgage-backed securities decreased 15.1%, or
    $77.2 million, from $511.3 million at
    December 31, 2005 to $434.1 million at
    December 31, 2006.
    Equity securities decreased $21.4 million to
    $41.5 million at December 31, 2006 from
    December 31, 2005. Equity securities included capital
    securities of U.S. government-sponsored entities.
    Obligations of state and political subdivisions increased
    $18.6 million to $97.0 million at December 31,
    2006 from December 31, 2005. As part of its tax strategy,
    the Company continued to build its tax-exempt municipal bond
    position in the securities portfolio in 2006.
    Other bonds decreased $219,000 to $10.4 million at
    December 31, 2006 compared to $10.6 million at
    December 31, 2005. Other bonds include high grade corporate
    bonds primarily issued by financial institutions.  held-to-maturity
   57




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##### Table of Contents



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


After Five ButWithin One


Within


Within


AfterYear


Five Years


Ten Years


Ten Years


TotalAmount


Yield


Amount


Yield


Amount


Yield


Amount


Yield


Amount


Yield(Dollars in thousands)Available-for-Sale-Securities:U.S. Treasury and obligations
    of U.S. government-sponsored entities

$
6,958



4.17
%

$





%

$





%

$





%

$
6,958



4.17
%Obligations of states and political
    subdivisions










2,112



3.80



75,560



3.81



19,315



3.88



96,987



3.82Mortgage-backed securities










350,238



4.80



83,870



5.07







0.00



434,108



4.85Equity securities(1)


























41,521



5.63



41,521



5.63Other bonds


















10,407



4.46







0.00



10,407



4.46Total

$
6,958



4.17
%

$
352,350



4.79
%

$
169,837



4.47
%

$
60,836



5.08
%

$
589,981



4.72
%Held-to-Maturity
    Securities:Obligations of states and political
    subdivisions

$
430



4.82
%

$
250



4.90
%

$
1,006



3.74
%

$





%

$
1,686



4.19
%Mortgage-backed securities










1,542



5.70



42,703



5.46











44,245



5.47Total

$
430



4.82
%

$
1,792



5.59
%

$
43,709



5.42
%

$





%

$
45,931



5.42
%     (1)
    
    Equity securities, although they do not have a maturity date,
    are included in the after ten years column.  Deposits
   58




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##### Table of Contents



Excluding


ExcludingRoyal


RoyalRoyal


American


AmericanDecember 31,





American


Acquisition


Acquisition2006


2005


$ Change


Acquisition(1)


$ Change


% Change(Dollars in thousands)Noninterest-bearing demand

$
276,381


$
158,406


$
117,975


$
125,506


$
(7,531
)


(4.8
)%Interest-bearing demand


161,585



155,403



6,182



32,714



(26,532
)


(17.1
)Money market


272,577



196,695



75,882



139,266



(63,384
)


(32.2
)Savings


105,378



110,546



(5,168
)


5,078



(10,246
)


(9.3
)Certificates of deposit less than
    $100,000


721,578



752,028



(30,450
)


8,383



(38,833
)


(5.2
)Certificates of deposit over
    $100,000


420,311



131,406



288,905



144,689



144,216



109.7Public funds






18,900



(18,900
)


10,375



(29,275
)


(154.9
)Total interest-bearing deposits


1,681,429



1,364,978



316,451



340,505



(24,054
)


(1.8
)Total deposits

$
1,957,810


$
1,523,384


$
434,426


$
466,011


$
(31,585
)


(2.1
)%     (1)
    
    Includes fair value adjustments.    
    Deposits decreased by $31.6 million, or 2.1%; deposit
    losses included $7.5 million in noninterest-bearing
    deposits and. $24.1 million interest-bearing deposits.
    Core deposits, which include demand, interest-bearing demand,
    money market, and savings deposits, decreased
    $107.7 million. The majority of this decrease was the
    migration of demand deposit, interest-bearing demand deposit,
    money market, and savings accounts into certificates of deposit
    and the reliance on more expensive wholesale funds.
    Certificates of deposits less than $100,000 decreased 5.2% or
    $38.8 million.
    Certificates of deposit over $100,000 increased
    $144.2 million and public funds certificates of deposits
    decreased by $29.3 million. Brokered certificates of
    deposit, included in certificates of deposit over $100,000,
    increased by $70.8 million. 59




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##### Table of Contents



Year Ended December 31,2006


2005


2004Average


Percent of





Average


Percent of





Average


Percent ofBalance


Deposits


Rate


Balance


Deposits


Rate


Balance


Deposits


Rate(Dollars in thousands)Noninterest-bearing demand deposits

$
220,706



12.23
%


0.00
%

$
154,180



10.28
%


0.00
%

$
148,173



10.21
%


0.00
%Interest-bearing demand deposits


150,503



8.34



1.17



176,355



11.75



1.22



187,684



12.93



1.32Savings and money market
    accounts


346,933



19.23



2.18



347,792



23.18



1.64



326,544



22.50



1.40Time Deposits:Certificates of deposit, less than
    $100,000(1)


747,676



41.44



4.20



747,611



49.83



3.19



714,787



49.24



2.66Certificates of deposit, over
    $100,000(1)


326,516



18.10



4.99



60,405



4.03



3.23



64,237



4.43



2.16Public funds


11,703



0.65



4.54



13,943



0.93



3.14



10,156



0.70



1.57Total time deposits


1,085,895



60.19



4.44



821,960



54.79



3.19



789,180



54.37



2.61Total deposits

$
1,804,037



100.00
%


3.19
%

$
1,500,286



100.00
%


2.27
%

$
1,451,581



100.00
%


1.90
%     (1)
    
    Certificates of deposit exclusive of public funds.  not-for-profit
  December 31,2006


2005


2004(In thousands)Three months or less

$
271,994


$
131,607


$
50,433Over three months through six
    months


63,168



29,278



79,512Over six months through twelve
    months


160,478



74,054



27,656Over twelve months


58,020



11,848



540Total

$
553,660


$
246,787


$
158,141   Borrowings
    December 31,2006


2005


2004(In thousands)Federal funds purchased

$
66,000


$
68,000


$
Securities sold under agreements
    to repurchase


201,079



264,808



146,885Notes payable










Junior subordinated debt


65,812



55,672



55,672FHLB advances


319,883



150,000



118,079Total

$
652,774


$
538,480


$
320,636  60




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##### Table of Contents



Year Ended December 31,2006


2005


2004(Dollars in thousands)Federal funds purchased:Balance at end of year

$
66,000


$
68,000


$
Weighted average interest rate at
    end of year


5.30
%


4.26
%



%Maximum amount outstanding(1)

$
95,000


$
73,000


$
37,000Average amount outstanding


29,474



27,888



3,322Weighted average interest rate
    during year(2)


5.18
%


3.64
%


2.05
%     (1)
    
    Based on amounts outstanding at each month end during the year.(2)
    
    During 2006 and 2005, there were four and eight increases,
    respectively, in the federal funds target rate.  Year Ended December 31,2006


2005


2004(Dollars in thousands)Securities sold under repurchase
    agreements:Balance at end of year

$
201,079


$
264,808


$
146,885Weighted average interest rate at
    end of year


4.40
%


3.83
%


2.67
%Maximum amount outstanding(1)

$
294,599


$
264,808


$
264,007Average amount outstanding


226,369



204,438



155,983Weighted average interest rate
    during year


4.59
%


3.04
%


2.72
%     (1)
    
    Based on amount outstanding at month end during each year.      Year Ended December 31,2006


2005


2004(Dollars in thousands)FHLB advances:Balance at end of year

$
319,883


$
150,000


$
118,079Weighted average interest rate at
    end of year(2)


4.54
%


3.48
%


4.55
%Maximum amount outstanding(1)

$
319,883


$
150,000


$
214,461Average amount outstanding


228,811



134,194



204,915Weighted average interest rate
    during year(2)


4.29
%


4.25
%


3.05
%  61




---



##### Table of Contents



(1)
    
    Based on amount outstanding at month end during each year.(2)
    
    Includes the impact of the interest rate swaps and purchase
    accounting adjustment for 2004. The purchase accounting
    adjustment of $2.1 million reduced the weighted average
    interest rate from 4.08% to 3.05%.    Year Ended December 31,2006


2005


2004(Dollars in thousands)Lines of Credit:Balance at end of year

$



$



$
Weighted average interest rate at
    end of year



%



%



%Maximum amount outstanding(1)

$



$
2,000


$
2,000Average amount outstanding






202



366Weighted average interest rate
    during year



%


4.33
%


2.32
%     (1)
    
    Based on amount outstanding at month end during each year.      Mandatory

OptionalIssuer

Issue Date

Amount


Rate

Redemption Date

Redemption Date(In thousands)MBHI Capital Trust II

October 29, 2002

$
15,464


LIBOR+3.45%

November 7, 2032

November 7, 2007MBHI Capital Trust III

December 19, 2003


9,279


LIBOR+3.00%

December 30, 2033

December 30, 2008MBHI Capital Trust IV

December 19, 2003


10,310


LIBOR+2.85%

January 23, 2034

January 23, 2009MBHI Capital Trust V

June 7, 2005


20,619


LIBOR+1.77%

June 15, 2035

June 15, 2010Royal Capital Trust I

April 30, 2004


10,310


6.62% until July 23, 2009;

July 23, 2034

July 23, 2009LIBOR+2.75%Fair value adjustment




(170
)Total junior subordinated debentures



$
65,812   Capital
    Resources
   62




---



##### Table of Contents



Risk-Based Capital Ratios December 31,2006


2005


2004Amount


Ratio


Amount


Ratio


Amount


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

$
266,753



11.92
%

$
274,408



16.97
%

$
198,597



13.27
%Tier 1 capital minimum
    requirement


89,492



4.00



64,691



4.00



59,879



4.00Total capital to risk-weighted
    assets


290,158



12.97



292,168



18.07



219,343



14.65Total capital minimum requirements


178,984



8.00



129,381



8.00



119,758



8.00Total risk-weighted assets


2,237,305







1,617,267







1,496,978     Liquidity
           63




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##### Table of Contents



Contractual
    Obligations, Commitments, and Off-Balance Sheet
    Arrangements
  December 31, 2006Payments Due By PeriodWithin








After1 Year


2-3 Years


4-5 Years


5 Years


Total(In thousands)Deposits without a stated maturity

$
815,920


$



$



$



$
815,920Consumer and brokered certificates
    of deposits


1,022,782



116,420



2,688







1,141,890Securities sold under agreements
    to repurchase


106,079



10,000







85,000



201,079FHLB advances






4,883



225,000



90,000



319,883Junior subordinated debentures
    owed to unconsolidated trusts














65,812



65,812Operating leases


1,075



1,844



1,222



3,715



7,856Total contractual cash obligations

$
1,945,856


$
133,147


$
228,910


$
244,527


$
2,552,440     Amount of Commitment Expiration Per PeriodWithin








After1 Year


2-3 Years


4-5 Years


5 Years


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

$
175,568


$
43,258


$
908


$
282


$
220,016Consumer real estate


33,040



12,925



28,014



39,572



113,551Consumer














2,904



2,904Commercial


219,100



8,971



1,926



2,747



232,744Letters of credit


38,321



16,455



14,199



375



69,350Commitments to extend credit


111,159















111,159Total commercial commitments

$
577,188


$
81,609


$
45,047


$
45,880


$
749,724   Asset/Liability
    Management
  other-than-trading
   64




---



##### Table of Contents



Effects
    of Inflation
   65




---



##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    Change in Net Interest Income Over One Year HorizonGuidelineDecember 31, 2006


December 31, 2005


MaximumDollar


%


Dollar


%


%Change


Change


Change


Change


Change(Dollars in thousands)+200 bp

$
(3,172
)


(4.00
)%

$
167



0.26
%


(15.0
)%+100 bp


(1,683
)


(2.12
)


99



0.15



(15.0
)−100 bp


1,410



1.78



696



1.09



(15.0
)−200 bp


(1,511
)


(1.90
)


(3,481
)


(5.44
)


(15.0
)          66




---



##### Table of Contents



0-3


4-12





OverMonths


Months


1-5 Years


5 Years


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

$
8,902


$



$



$



$
8,902Securities
    available-for-sale,
    at fair value


23,118



63,784



270,699



232,380



589,981Securities
    held-to-maturity,
    at amortized cost


1,379



5,305



18,081



21,166



45,931Federal Reserve Bank and Federal
    Home Loan Bank stock














23,592



23,592Loans held for sale


2,672















2,672Loans


1,081,590



71,482



662,441



131,303



1,946,816Total interest-earning assets

$
1,117,661


$
140,571


$
951,221


$
408,441


$
2,617,894INTEREST-BEARING LIABILITIES:Interest-bearing demand deposits

$
1,939


$
5,817


$
31,024


$
122,805


$
161,585Money market deposits


2,589



7,768



41,432



220,788



272,577Savings deposits


1,212



3,636



19,390



81,140



105,378Time deposits


437,657



585,353



118,879







1,141,889Total interest-bearing deposits


443,397



602,574



210,725



424,733



1,681,429Federal funds purchased


66,000















66,000Securities sold under agreements
    to repurchase and federal funds purchased


106,079







10,000



85,000



201,079Advances from the Federal Home
    Loan Bank


115,000







204,883







319,883Junior subordinated debentures


55,672







10,140







65,812Total borrowings


342,751







225,023



85,000



652,774Total interest-bearing liabilities

$
786,148


$
602,514


$
435,748


$
509,733


$
2,334,203Interest sensitivity gap

$
331,513


$
(462,003
)

$
515,473


$
(101,292
)

$
283,691Cumulative interest sensitivity gap

$
331,513


$
(130,490
)

$
384,983


$
283,691Interest sensitivity gap to total
    assets


11.27
%


(15.70
)%


17.52
%


(3.44
)%Cumulative interest sensitivity
    gap to total assets


11.27
%


(4.44
)%


13.09
%


9.64
%   zero-to-12 month
     67




---



##### Table of Contents



Item 8.
    Consolidated
    Financial Statements and Supplementary Data  page F-1.
   Item 9.
    Changes
    in and Disagreements With Independent Accountants On Accounting
    and Financial Disclosure     Item 9A.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures
  Rule 13a-15(e)).
  Managements
    Report on Internal Control Over Financial
    Reporting
  Rule 13a-15(f)
      Item 9B.
    Other
    Information   68




---



##### Table of Contents



PART III  Item 10.
    Directors
    and Executive Officers of the Registrant            Item 11.
    Executive
    Compensation        Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters   69




---



##### Table of Contents



Item 13.
    Certain
    Relationships and Related Transactions      Item 14.
    Principal
    Accountant Fees and Services   70




---



##### Table of Contents



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

Stock Purchase Agreement between
    Western Illinois Bancshares, Inc. and Midwest Banc Holdings,
    Inc. (incorporated by reference to Registrants Report on
    Form 8-K
    filed June 1, 2005, File
    No. 001-13735).2
.2

Amendment to Stock Purchase
    Agreement between Western Illinois Bancshares, Inc. and Midwest
    Banc Holdings, Inc. (incorporated by reference to
    Registrants
    Form 10-Q
    for the quarter ended June 30, 2005, File
    No. 001-13735).2
.3

Second Amendment to Stock Purchase
    Agreement between Western Illinois Bancshares, Inc. and Midwest
    Banc Holdings, Inc. (incorporated by reference to
    Registrants Report on
    Form 8-K
    filed August 29, 2005, File
    No. 001-13735).2
.4

Third Amendment to Stock Purchase
    Agreement between Western Illinois Bancshares, Inc. and Midwest
    Banc Holdings, Inc. (incorporated by reference to
    Registrants Report on
    Form 8-K
    filed October 5, 2005, File
    No. 001-13735).2
.5

Fourth Amendment to Stock Purchase
    Agreement between Western Illinois Bancshares, Inc. and Midwest
    Banc Holdings, Inc. (incorporated by reference to
    Registrants Report on
    Form 8-K
    filed November 3, 2005, File
    No. 001-13735).2
.6

Agreement and Plan of Merger,
    dated as of February 8, 2006, by and between Midwest Banc
    Holdings, Inc. and Royal American Corporation (incorporated by
    reference to Registrants Report on
    Form 8-K
    filed February 8, 2006, File
    No. 001-13735).2
.7

Form of Stockholder Voting
    Agreement, dated as of February 8, 2006, by and among
    Midwest Banc Holdings, Inc. and certain stockholders of Royal
    American Corporation (incorporated by reference to
    Registrants Report on
    Form 8-K
    filed February 8, 2006, File
    No. 001-13735).3
.1

Amended and Restated Certificate
    of Incorporation, as amended (incorporated by reference to
    Registrants
    Form 10-Q
    for the quarter ended June 30, 2006, File
    No. 001-1375).3
.2

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

Specimen Common Stock Certificate
    (incorporated by reference to Registrants Registration
    Statement on
    Form S-1,
    Registration
    No. 333-42827).4
.2

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

Midwest Banc Holdings, Inc. Stock
    and Incentive Plan.*10
.4

Form of Transitional Employment
    Agreements (incorporated by reference to Registrants
    Registration Statement on
    Form S-1,
    Registration
    No. 333-42827). 71




---



##### Table of Contents



10
.5

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

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

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

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

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

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

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

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

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

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

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

Loan Agreement as of
    March 24, 2006, between the Company and M&I
    Marshall & Ilsley Bank (incorporated by reference to
    Registrants Report on
    Form 8-K
    filed March 24, 2006, File
    No. 001-13735).10
.25

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

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

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

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

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

Lease dated April 1, 1993, by
    and between Royal American Bank and LaSalle National Trust,
    N.A., as amended, assumed by the Company as of July 1, 2006
    (incorporated by reference to Registrants
    Form 10-Q
    for the quarter ended September 30, 2006, File
    No. 001-13735). 72




---



##### Table of Contents



10
.33

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

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

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

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

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

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

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

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

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

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

Lease dated November 9, 2005
    by and between Midwest Bank and Trust Company and Crossings
    Commercial, LLC (incorporated by reference to Registrants
    Form 10-Q
    for the quarter ended September 30, 2006, File
    No. 001-13735).21
.1

Subsidiaries.23
.1

Consent of PricewaterhouseCoopers
    LLP.23
.2

Consent of McGladrey &
    Pullen, LLP.31
.1

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

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

Certification Pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002, from the
    Companys Chief Executive Officer and Chief Financial
    Officer.     *
    
    Indicates management contracts or compensatory plans or
    arrangements required to be filed as an exhibit. 73




---



##### Table of Contents



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

Title

Date/s/  E.V.
    SilveriE.V.
    Silveri

Chairman of the Board, Director

March 15, 2007/s/  James
    J. GiancolaJames
    J. Giancola

President, Chief Executive
    Officer, and Director

March 15, 2007/s/  Angelo
    A. DipaoloAngelo
    A. DiPaolo

Director

March 15, 2007/s/  Barry
    I.
    ForresterBarry
    I. Forrester

Director

March 15, 2007/s/  Robert
    J. GenetskiRobert
    J. Genetski

Director

March 15, 2007/s/  Gerald
    F. HartleyGerald
    F. Hartley

Director

March 15, 2007/s/  Homer
    J. Livingston,
    Jr.Homer
    J. Livingston, Jr.

Director

March 15, 2007 74




---



##### Table of Contents



Signature

Title

Date/s/  J.
    J. FritzJ.
    J. Fritz

Director

March 15, 2007/s/  Joseph
    RizzaJoseph
    Rizza

Director

March 15, 2007/s/  Thomas
    A.
    RosenquistThomas
    A. Rosenquist

Director

March 15, 2007/s/  Kenneth
    VeloKenneth
    Velo

Director

March 15, 2007/s/  Leon
    WolinLeon
    Wolin

Director

March 15, 2007/s/  Daniel
    R. KadolphDaniel
    R. Kadolph

Executive Vice President, Chief
    Financial Officer, and Treasurer

March 15, 2007  75




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##### Table of Contents



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


F-2CONSOLIDATED
    STATEMENTS OF INCOME


F-3CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY


F-4CONSOLIDATED
    STATEMENTS OF CASH FLOWS


F-5NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS


F-7REPORTS OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS


F-38 F-1




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##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
 CONSOLIDATED
    BALANCE SHEETS December 31,2006


2005(In thousands except shareand per share data)ASSETSCash

$
91,630


$
58,329Federal funds sold and other
    short-term investments


8,902



12,270Total cash and cash equivalents


100,532



70,599Securities
    available-for-sale,
    at fair value


589,981



687,937Securities
    held-to-maturity,
    at amortized cost (fair value: $44,687 at December 31, 2006
    and $58,332 at December 31, 2005)


45,931



59,451Federal Reserve and Federal Home
    Loan Bank stock, at cost


23,592



14,661Loans held for sale


2,672



1,912Loans


1,946,816



1,349,996Allowance for loan losses


(23,229
)


(17,760
)Net loans


1,923,587



1,332,236Cash surrender value of life
    insurance


65,220



44,433Premises and equipment, net


21,960



22,247Other real estate


2,640



11,154Core deposit and other intangibles,
    net


11,273



1,788Goodwill


79,488



891Other assets


75,170



60,299Total assets

$
2,942,046


$
2,307,608LIABILITIES AND
    STOCKHOLDERS EQUITYLiabilitiesDepositsNoninterest-bearing

$
276,381


$
158,406Interest-bearing


1,681,429



1,364,978Total deposits


1,957,810



1,523,384Federal funds purchased


66,000



68,000Securities sold under agreements to
    repurchase


201,079



264,808Advances from the Federal Home
    Loan Bank


319,883



150,000Junior subordinated debentures


65,812



55,672Due to broker






1,301Other liabilities


44,220



28,317Total liabilities


2,654,804



2,091,482Commitments and contingencies (see
    note 18)Stockholders EquityPreferred stock, $0.01 par
    value, 1,000,000 shares authorized; none issued






Common stock, $0.01 par value,
    64,000,000 shares authorized; 25,504,095 shares issued
    and 24,663,417 outstanding at December 31, 2006 and
    22,139,089 shares issued and 21,813,778 outstanding at
    December 31, 2005


255



221Additional paid-in capital


200,797



134,857Retained earnings


97,807



92,121Restricted stock






(3,013
)Accumulated other comprehensive loss


(6,273
)


(7,606
)Treasury stock, at cost
    (840,678 shares at December 31, 2006 and
    325,311 shares at December 31, 2005)


(5,344
)


(454
)Total stockholders equity


287,242



216,126Total liabilities and
    stockholders equity

$
2,942,046


$
2,307,608    F-2




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##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
 CONSOLIDATED
    STATEMENTS OF INCOME  Year Ended December 31,2006


2005


2004(In thousands, except per share data)Interest incomeLoans

$
123,979


$
79,947


$
59,370SecuritiesTaxable


30,325



29,429



28,028Exempt from federal income taxes


3,570



1,248



615Trading securities


189



388



1,560Dividend income from Federal
    Reserve and Federal Home Loan Bank stock


693



727



1,058Federal funds sold and other
    short-term investments


506



505



1,331Total interest income


159,262



112,244



91,962Interest expenseDeposits


57,518



34,067



27,652Federal funds purchased


1,526



1,016



68Securities sold under agreements to
    repurchase


10,387



6,213



4,249Advances from the Federal Home
    Loan Bank


9,808



5,701



6,244Junior subordinated debentures


4,741



3,791



3,547Notes payable






9



20Total interest expense


83,980



50,797



41,780Net interest income


75,282



61,447



50,182Provision for loan losses


12,050



2,589



3,400Net interest income after
    provision for loan losses


63,232



58,858



46,782Noninterest incomeService charges on deposit accounts


5,733



5,139



5,255Net gains (losses) on securities
    transactions


(153
)


(17,440
)


(3,786
)Impairment loss on equity securities










(6,248
)Net trading profits


624



413



209Gains on sale of loans


760



357



537Insurance and brokerage commissions


1,990



1,519



1,424Trust


919



303



304Increase in cash surrender value of
    life insurance


2,394



1,765



1,450Life insurance benefit






789



Gain on extinguishment of debt


1,250







Other


1,034



910



767Total noninterest income


14,551



(6,245
)


(88
)Noninterest expensesSalaries and employee benefits


34,476



26,693



24,284Occupancy and equipment


7,076



5,584



5,990Professional services


4,971



4,723



4,672Loss on extinguishment of debt






13,125



3,560Marketing


2,049



1,755



1,300Other real estate owned


311



2,551



317Merger related


1,595







Other


8,137



6,096



6,368Total noninterest expenses


58,615



60,527



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


19,168



(7,914
)


203Provision (benefit) for income taxes


1,422



(6,325
)


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


17,746



(1,589
)


3,072Discontinued operationsIncome (loss) from discontinued
    operations before income taxes






9,236



(2,002
)Provision (benefit) for income taxes






1,703



(1,306
)Income (loss) from discontinued
    operations






7,533



(696
)Net income

$
17,746


$
5,944


$
2,376Basic earnings per share from
    continuing operations

$
0.76


$
(0.08
)

$
0.17Basic earnings per share from
    discontinued operations

$



$
0.38


$
(0.04
)Basic earnings per share

$
0.76


$
0.30


$
0.13Diluted earnings per share from
    continuing operations

$
0.75


$
(0.08
)

$
0.17Diluted earnings per share from
    discontinued operations

$



$
0.38


$
(0.04
)Diluted earnings per share

$
0.75


$
0.30


$
0.13Cash dividends declared per common
    share

$
0.51


$
0.48


$
0.48    F-3




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##### Table of Contents



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





TotalCommon





Retained


Restricted


Comprehensive


Treasury


StockholdersStock


Surplus


Earnings


Stock


Income (Loss)


Stock


Equity(In thousands, except share and per share data)Balance, December 31, 2003

$
187


$
64,330


$
102,041


$



$
(15,824
)

$
(7,653
)

$
143,081Cash dividends declared
    ($0.48 per share)










(8,588
)














(8,588
)Issuance of common stock upon
    exercise of 70,521 stock options, net of tax benefits






345















677



1,022Issuance of 150,000 shares of
    restricted stock from treasury






1,106







(2,807
)






1,701



Stock-based compensation expense














165











165Comprehensive incomeNet income










2,376















2,376Net decrease in fair value of
    securities classified as
    available-for-sale,
    net of income taxes and reclassification adjustments


















(633
)






(633
)Total comprehensive loss


























1,743Balance, December 31, 2004


187



65,781



95,829



(2,642
)


(16,457
)


(5,275
)


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










(9,652
)














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


34



67,901



















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






606















4,146



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






569







(1,244
)






675



Stock-based compensation expense














873











873Comprehensive incomeNet income










5,944















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


















8,851







8,851Total comprehensive income


























14,795Balance, December 31, 2005


221



134,857



92,121



(3,013
)


(7,606
)


(454
)


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










(12,060
)














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


29



63,738



















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


2



2,551



















2,553Purchase of 204,188 treasury shares






















(4,770
)


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






(3,013
)






3,013











Issuance of 347,179 shares of
    restricted stock


3



(3
)


















Forfeiture of 9,250 shares of
    restricted stock






120















(120
)


Stock-based compensation expense






2,547



















2,547Comprehensive incomeNet income










17,746















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


















1,333







1,333Total comprehensive income


























19,079Balance, December 31, 2006

$
255


$
200,797


$
97,807


$



$
(6,273
)

$
(5,344
)

$
287,242    F-4




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
 CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Year Ended December 31,2006


2005


2004(In thousands)Cash flows from continuing
    operating activitiesNet income

$
17,746


$
5,944


$
2,376(Income) loss from discontinued
    operations






(7,533
)


696Adjustments to reconcile net income
    to net cash provided by operating activitiesDepreciation


2,546



2,324



2,322Provision for loan losses


12,050



2,589



3,400Amortization of other intangibles


933



429



362Proceeds from sales (purchases) of
    trading securities, net


624



597



(4,799
)Amortization of premiums and
    discounts on securities, net


832



1,967



2,361Realized loss on sales of
    available-for-sale
    securities


153



17,440



3,786Impairment loss on equity securities










6,248Net loss (gain) on sales of trading
    securities


(624
)


(413
)


4,901Net gain on sales of mortgage loans


(760
)


(357
)


(537
)Originations of loans held for sale


(61,163
)


(27,302
)


(40,625
)Proceeds from sales of loans held
    for sale


61,163



26,083



39,748Increase in cash surrender value of
    life insurance


(2,394
)


(1,765
)


(1,450
)Life insurance benefit






(789
)


Deferred income taxes


5,373



2,685



(4,685
)Gain on sale of other real estate,
    net






(89
)


(20
)Amortization of unearned stock
    based compensation


2,501



873



165Change in other assets


(15.943
)


(25,927
)


127Change in other liabilities


10,978



3,780



4,371Net cash provided by continuing
    operating activities


34,015



536



18,747Cash flows from continuing
    investing activitiesSales of securities
    available-for-sale


101,730



357,303



630,067Redemption of Federal Reserve Bank
    and Federal Home Loan Bank stock


1,427



148



5,126Maturities of securities
    available-for-sale


16,500



123,070



748Principal payments on securities


85,993



82,203



58,058Purchases of securities
    available-for-sale


(80,771
)


(793,034
)


(405,252
)Purchases of Federal Reserve Bank
    and Federal Home Loan Bank stock


(8,931
)


(979
)


(210
)Purchases of securities
    held-to-maturity






(1,010
)


(66,669
)Maturities of securities
    held-to-maturity


4,435



3,635



3,085Sale of futures contracts










(12,171
)Purchase of mortgage loans


(10,014
)






(42,690
)Loan originations and principal
    collections, net


(98,312
)


(257,360
)


(100,960
)Proceeds from sale/leaseback of
    branch property


4,403







Disposition of subsidiary, net






35,621



Cash paid, net of cash and cash
    equivalents in acquisition


(41,044
)






Proceeds from sale of other real
    estate


8,779



1,350



914Return of life insurance premium
    and benefit






1,351



Investment in life insurance


(5,926
)






(20,000
)Additions to property and equipment


(5,178
)


(1,083
)


(2,520
)Net cash (used in) provided by
    continuing investing activities


(26,909
)


(448,785
)


47,526Cash flows from continuing
    financing activitiesNet increase (decrease) in deposits


(32,218
)


21,738



80,619Issuance of junior subordinated
    debt owed to unconsolidated trusts, net of debt issuance costs






20,619



Payments of junior subordinated
    debt owed to unconsolidated trusts






(20,619
)


Proceeds from borrowings


365,000



152,000



Repayments on borrowings


(200,000
)


(123,500
)


(94,000
)Cash dividends paid


(11,439
)


(9,164
)


(8,583
)Change in federal funds purchased
    and securities sold under agreements to repurchase


(95,729
)


185,923



(1,208
)Issuance of common stock






68,453



Repurchase of common stock


(4,770
)






Proceeds from issuance of treasury
    stock under stock option plan


1,983



4,374



660Net cash provided by (used in)
    continuing financing activities


22,827



299,824



(22,512
) F-5




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##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS  (Continued)
  Year Ended December 31,2006


2005


2004(In thousands)Cash flows from discontinued
    operationsNet cash provided by operating
    activities of discontinued operations






4,641



2,356Net cash provided by (used in)
    investing activities of discontinued operations






(29,161
)


11,856Net cash provided by (used in)
    financing activities of discontinued operations






113



(10,699
)Net cash provided by (used in)
    discontinued operations






(24,407
)


3,513Increase (decrease) in cash and
    cash equivalents


29,933



(172,832
)


47,274Cash and cash equivalents at
    beginning of year(1)


70,599



243,431



196,157Cash and cash equivalents at end
    of year(2)

$
100,532


$
70,599


$
243,431(1) Includes following balances
    from discontinued operations

$



$
24,407


$
21,254(2) Includes following balances
    from discontinued operations










24,407Supplemental
    disclosuresCash paid during the year for
    Interest

$
80,191


$
54,494


$
47,732Income taxes


2,811



3,219



3,731Cash received during the year forIncome taxes

$
8,060


$



$
Dividends declared not paid

$
3,258


$
2,638


$
2,149AcquisitionNoncash assets acquired

$
619,835


$



$
Liabilities assumed


515,024


$



$
Net noncash assets acquired

$
104,811


$



$
Cash and cash equivalents acquired

$
24,363


$



$
    F-6




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##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  Note 1 
    Nature of
    Operations    Note 2 
    Summary
    of Significant Accounting Policies  Basis of Presentation:
  Use of Estimates:
  Cash and Cash Equivalents:
  Securities: held-to-maturity available-for-sale available-for-sale held-to-maturity available-for-sale other-than-temporary
 F-7




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Derivatives:
  Loans:
    Deferred Loan Fees and Costs:
  Allowance for Loan Losses:
     F-8




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Premises and Equipment:
  Other Real Estate:
  Cash Surrender Value of Life Insurance:
  Goodwill:
  Other Intangibles:
  Income Taxes:
  Securities Sold Under Agreements to
    Repurchase:
  Transfers of Financial Assets:
  Fair Value of Financial Instruments and
    Derivatives:
 F-9




---



##### Table of Contents



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




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Note 3 
    Business
    Combination     F-11




---



##### Table of Contents



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

$
63,767Cash paid


64,612Total consideration


128,379Capitalized costs


795Total cost

$
129,174Historical net assets of Royal
    American

$
44,606Fair market value adjustments:Loans


(2,837
)Goodwill


78,597Core deposit intangible


10,488Building


41Deposits


1,867Federal Home Loan Bank Advance


146Junior subordinated debenture


204Deferred taxes on purchase
    accounting adjustment


(3,938
)Total adjustments to record the
    transaction

$
129,174  F-12




---



##### Table of Contents



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


Value


AsAmerican


Adjustment


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

$
24,363


$



$
24,363Securities
    available-for-sale


16,487







16,487Federal Reserve and Federal Home
    Loan Bank stock


1,427







1,427Loans, net


497,376



(2,837
)


494,539Cash value of life insurance


12,467







12,467Premises and equipment, net


1,254



41



1,295Core deposit intangible, net






10,488



10,488Goodwill






78,597



78,597Other assets


4,535







4,535Total assets acquired

$
557,909


$
86,289


$
644,198Liabilities assumed:Deposits

$
467,878


$
(1,867
)

$
466,011Federal funds purchased


30,000







30,000Advances from the Federal Home
    Loan Bank


5,000



(146
)


4,854Junior subordinated debentures


10,310



(204
)


10,106Other liabilities


115



3,938



4,053Total liabilities assumed

$
513,303


$
1,721


$
515,024Assets acquired less liabilities
    assumed

$
44,606


$
84,568


$
129,174     2006


2005


2004Net interest income

$
84,559


$
76,998


$
61,757Income from continuing operations


13,390



906



4,655Net income


13,390



8,439



3,959Basic earnings per share from
    continuing operations


0.54



0.04



0.22Basic earnings per share


0.54



0.38



0.19Diluted earnings per share form
    continuing operations


0.53



0.04



0.22Diluted earnings per share


0.53



0.37



0.19     Note 4 
    Discontinued
    Operations   F-13




---



##### Table of Contents



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


2004Interest income

$
10,386


$
13,446Interest expense


4,427



5,970Net interest income


5,959



7,476Provision for loan losses


(183
)


824Net interest income after
    provision for loan losses


6,142



6,652Noninterest income


(1,301
)


(2,412
)Noninterest expense


4,345



6,242Income (loss) before income taxes


496



(2,002
)Provision (benefit) for income
    taxes


(156
)


(1,306
)Operating income (loss) from
    discontinued operations


652



(696
)Gain on sale of discontinued
    operations


8,740



Tax on gain on sale of
    discontinued operations


1,859



Gain on sale of discontinued
    operations, net of tax


6,881



Income (loss) from discontinued
    operations

$
7,533


$
(696
)   Note 5 
    Securities  available-for-sale held-to-maturity
  December 31, 2006Gross


GrossAmortized


Unrealized


UnrealizedCost


Gains


Losses


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

$
6,958


$



$



$
6,958Obligations of states and
    political subdivisions


97,167



316



(496
)


96,987Mortgage-backed securities


444,392



18



(10,302
)


434,108Equity securities


41,131



533



(143
)


41,521Corporate and other debt securities


11,034







(627
)


10,407Total securities
    available-for-sale

$
600,682


$
867


$
(11,568
)

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

$
1,686


$
12


$
(1
)

$
1,697Mortgage-backed securities


44,245







(1,255
)


42,990Total securities
    held-to-maturity

$
45,931


$
12


$
(1,256
)

$
44,687   F-14




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  December 31, 2005Gross


GrossAmortized


Unrealized


UnrealizedCost


Gains


Losses


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

$
24,866


$



$
(147
)

$
24,719Obligations of states and
    political subdivisions


79,463



8



(1,121
)


78,350Mortgage-backed securities


521,896



21



(10,605
)


511,312Equity securities


63,574







(644
)


62,930Corporate and other debt securities


11,054







(428
)


10,626Total securities
    available-for-sale

$
700,853


$
29


$
(12,945
)

$
687,937Securities
    held-to-maturityObligations of states and
    political subdivisions

$
6,138


$
48


$
(4
)

$
6,182Mortgage-backed securities


53,313



6



(1,169
)


52,150Total securities
    held-to-maturity

$
59,451


$
54


$
(1,173
)

$
58,332   held-to-maturity available-for-sale
  December 31, 2006Less Than 12 Months


12 Months or More


TotalFair


Unrealized


Fair


Unrealized


Fair


UnrealizedValue


Losses


Value


Losses


Value


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

$
1,997


$



$



$



$
1,997


$
Obligations of states and
    political subdivisions


43,452



(305
)


12,500



(191
)


55,952



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










564



(9
)


564



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










432,749



(10,293
)


432,749



(10,293
)Equity securities(3)


18,876



(143
)










18,876



(143
)Corporate and other debt securities










10,407



(627
)


10,407



(627
)Total securities
    available-for-sale

$
64,325


$
(448
)

$
456,220


$
(11,120
)

$
520,545


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

$
516


$
(1
)

$



$



$
516


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


883



(11
)


8,767



(160
)


9,650



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


32







33,308



(1,084
)


33,340



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

$
1,431


$
(12
)

$
42,075


$
(1,244
)

$
43,506


$
(1,256
)Total temporarily impaired
    securities

$
65,756


$
(460
)

$
498,295


$
(12,364
)

$
564,051


$
(12,824
)  F-15




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (1)
    
    Includes obligations of the Federal Home Loan Mortgage
    Corporation (FHLMC) and Federal National Mortgage Association
    (FNMA).(2)
    
    Includes obligations of the Government National Mortgage
    Association (GNMA).(3)
    
    Includes issues from government-sponsored entities (FNMA and
    FHLMC).  December 31, 2005Less Than 12 Months


12 Months or More


TotalFair


Unrealized


Fair


Unrealized


Fair


UnrealizedValue


Losses


Value


Losses


Value


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

$
24,719


$
(147
)

$



$



$
24,719


$
(147
)Obligations of states and
    political subdivisions


67,994



(1,121
)










67,994



(1,121
)Mortgage-backed securitiesU.S. government agencies(2)


45



(1
)


682



(10
)


727



(11
)U.S. government-sponsored
    entities(1)


450,174



(8,606
)


59,792



(1,988
)


509,966



(10,594
)Equity securities(3)


62,930



(644
)










62,930



(644
)Corporate and other debt securities


6,742



(189
)


3,884



(239
)


10,626



(428
)Total securities
    available-for-sale

$
612,604


$
(10,708
)

$
64,358


$
(2,237
)

$
676,962


$
(12,945
)Securities
    held-to-maturityObligations of states and
    political subdivisions

$
1,004


$
(4
)

$



$



$
1,004


$
(4
)Mortgage-backed securitiesU.S. government agencies(2)


11,012



(76
)










11,012



(76
)U.S. government-sponsored
    entities(1)


10,188



(102
)


28,630



(991
)


38,818



(1,093
)Total securities
    held-to-maturity

$
22,204


$
(182
)

$
28,630


$
(991
)

$
50,834


$
(1,173
)Total temporarily impaired
    securities

$
634,808


$
(10,890
)

$
92,988


$
(3,228
)

$
727,796


$
(14,118
)     (1)
    
    Includes obligations of the Federal Home Loan Mortgage
    Corporation (FHLMC) and Federal National Mortgage Association
    (FNMA).(2)
    
    Includes obligations of the Government National Mortgage
    Association (GNMA).(3)
    
    Includes issues from government-sponsored entities (FNMA and
    FHLMC).  other-than-temporary available-for-sale
  
    The unrealized loss for U.S. government-sponsored entities
    mortgage-backed securities relate primarily to debt securities
    issued by FNMA and FHLMC; each security has a stated maturity
    date. FNMA is rated Aa3, AA- and A+ by Moodys, S&P and
    Fitch, respectively. FHLMC is rated Aa3 and AA- by Moodys
    and Fitch, respectively. The mortgage-backed securities are
    notes with a weighted average maturity of approximately
    23 years and a weighted average interest rate of 4.99%. F-16




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   
    The unrealized losses on corporate and other debt securities
    relate to securities which were rated A- or better by either
    Moodys or S&P. These debt securities have a weighted
    average maturity of approximately 7 years and a weighted
    average interest rate of 4.73%.      AmortizedCost


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

$
6,958


$
6,958Due after one year through five
    years


2,102



2,112Due after five years through ten
    years


86,502



85,967Due after ten years


19,597



19,315115,159



114,352Mortgage-backed securities


444,392



434,108Total debt securities


559,551



548,460Equity securities


41,131



41,521Total securities
    available-for-sale

$
600,682


$
589,981Securities
    held-to-maturityDue in one year or less

$
430


$
434Due after one year through five
    years


250



256Due after five years through ten
    years


1,006



1,0071,686



1,697Mortgage-backed securities


44,245



42,990Total securities
    held-to-maturity

$
45,931


$
44,687   available-for-sale
  Year Ended December 31,2006


2005


2004(In thousands)Proceeds from sales

$
101,730


$
357,303


$
630,525Gross realized gains

$
341


$
825


$
4,436Gross realized losses


(494
)


(18,265
)


(2,975
)Hedge ineffectiveness










(5,247
)Net gains (losses) on securities
    transactions

$
(153
)

$
(17,440
)

$
(3,786
)    F-17




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 6 
    Loans    December 31,2006


2005% of Gross





% of GrossAmount


Loans


Amount


Loans(Dollars in thousands)Commercial

$
376,944



19.4
%

$
201,284



14.9
%Construction


424,181



21.8



358,785



26.6Commercial real estate


761,742



39.0



496,819



36.8ConsumerHome equity


147,366



7.6



115,429



8.5Other consumer


9,373



0.5



4,273



0.3Total consumer


156,739



8.1



119,702



8.8Residential mortgage


227,762



11.7



174,184



12.9Total loans, gross


1,947,368



100.0
%


1,350,774



100.0
%Net deferred fees


(552
)






(778
)Total loans,net

$
1,946,816






$
1,349,996Loans held for sale

$
2,672






$
1,912   Note 7 
    Allowance
    for Loan Losses    Year Ended December 31,2006


2005(In thousands)Balance at beginning of year

$
17,760


$
16,217Addition resulting from acquisition


3,244



Provision for loan losses


12,050



2,589Loans charged off


(10,809
)


(2,519
)Recoveries on loans previously
    charged off


984



1,473Balance at end of year

$
23,229


$
17,760     December 31,2006


2005(In thousands)Impaired loans for which no
    allowance for loan losses is allocated

$
10,317


$
10,067Impaired loans with an allocation
    of the allowance for loan losses


41,845



16,280Total impaired loans

$
52,162


$
26,348Allowance for loan losses
    allocated to impaired loans

$
13,247


$
7,934   F-18




---



##### Table of Contents



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


2005(In thousands)Average impaired loans

$
44,792


$
29,012Interest income recognized on
    impaired loans on a cash basis


2,920



2,394       Note 8 
    Premises
    and Equipment    December 31,2006


2005(In thousands)Land and improvements

$
7,581


$
9,697Buildings and improvements


23,012



25,166Furniture and equipment


20,468



15,166Total cost


51,061



50,029Accumulated depreciation


(29,101
)


(27,782
)Premises and equipment, net

$
21,960


$
22,247   Note 9 
    Goodwill
    and Intangibles    December 31, 2006


December 31, 2005Gross








Gross





NetCarrying


Accumulated


Net Carrying


Carrying


Accumulated


CarryingAmount


Amortization


Amount


Amount


Amortization


AmountAmortizing intangible
    assets:Core deposit and other intangibles

$
13,618


$
(2,345
)

$
11,273


$
3,130


$
(1,342
)

$
1,788    F-19




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     2006Core Depositand OtherGoodwill


IntangiblesBalance at beginning of year

$
891


$
1,788Addition resulting from acquisition


78,597



10,488Amortization






(1,003
)Balance at end of year

$
79,488


$
11,273   2005Core Depositand OtherGoodwill


IntangiblesBalance at beginning of year

$
891


$
2,217Amortization






(429
)Balance at end of year

$
891


$
1,788   Note 10 
    Income
    Taxes    Year Ended December 31,2006


2005


2004(In thousands)CurrentFederal

$
7,307


$
(9,010
)

$
2,428State










(612
)Deferred


(5,885
)


2,685



(4,685
)Total provision (benefit) for
    income taxes

$
1,422


$
(6,325
)

$
(2,869
)  F-20




---



##### Table of Contents



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


2005


2004(In thousands)Income taxes computed at the
    statutory rate

$
6,709



35.0
%

$
(2,770
)


35.0
%

$
71



35.0
%Tax-exempt interest income on
    securities and loans


(1,171
)


(6.1
)


(563
)


7.1



(404
)


(198.8
)General business credits


(665
)


(3.5
)


(255
)


3.2



(100
)


(49.2
)State income taxes, net of federal
    tax benefit due to state operating loss


(676
)


(3.5
)


(952
)


12.0



(1,105
)


(543.1
)Income tax reserve adjustment


(591
)


(3.1
)














Life insurance cash surrender
    value increase, net of premiums


(838
)


(4.4
)


(615
)


7.8



(503
)


(247.4
)Life insurance death benefit










(276
)


3.5







Dividends received deduction


(1,106
)


(5.8
)


(868
)


11.0



(1,053
)


(517.6
)Merger related expenses


(278
)


(1.5
)














Stock based compensation, net


56



0.3















Other


(18
)


(0.2
)


(26
)


0.3



225



110.9Total provision (benefit) for
    income taxes

$
1,422



7.4
%

$
(6,325
)


79.9
%

$
(2,869
)


1,410.2
%  F-21




---



##### Table of Contents



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


2005(In thousands)Gross deferred tax assetsUnrealized loss on securities
    available-for-sale

$
4,127


$
5,002Allowance for loan losses


9,232



7,059Deferred compensation


1,583



1,204Net operating loss carryforward


5,278



1,739Income from partnerships


58



85Deferred tax credits


2,101



105Capital loss


293



Other real estate writedowns


966



Other






110Total gross deferred tax assets


23,638



15,304Gross deferred tax liabilitiesDepreciation


(1,582
)


(1,682
)FHLB stock dividends


(1,499
)


(1,454
)Amortizing intangible assets


(4,043
)


(520
)Other


(369
)


Total gross deferred tax
    liabilities


(7,493
)


(3,656
)Net deferred tax asset

$
16,145


$
11,648     Note 11 
    Securities
    Sold Under Agreements to Repurchase    2006


2005(In thousands)Outstanding at end of year

$
201,079


$
264,808Weighted average interest at year
    end


4.40
%


3.83
%Maximum amount outstanding as of
    any month end

$
294,599


$
264,808Average amount outstanding


226,369



204,438Approximate weighted average rate
    during the year


4.59
%


3.04
%  F-22




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Collateral Mortgage-Backed SecuritiesRepurchase


Weighted Average


AmortizedOriginal Term

Liability


Interest Rate


Cost


Fair Value(In thousands)30 to 90 days

$
67,458



5.32
%

$
68,235


$
67,119Over 90 to 180 days


18,621



5.31



23,972



22,990Over 3 years


115,000



3.71



129,212



126,688$
201,079



4.40
%

$
221,419


$
216,797   Note 12 
    Advances
    from the FHLB    December 31,2006


2005Weighted Average





Weighted AverageRate


Amount


Rate


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


4.16
%

$
4,883




%

$
2010


4.51



150,000



3.48



150,0002011


4.85



75,000







2016


4.37



90,000







Total


4.54
%

$
319,883



3.48
%

$
150,000     Note 13 
    Junior
    Subordinated Debentures Owed   F-23




---



##### Table of Contents



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

OptionalIssuer

Issue Date

Amount


Rate

Redemption Date

Redemption Date(In thousands)MBHI Capital Trust II

October 29, 2002

$
15,464


LIBOR+3.45%

November 7, 2032

November 7, 2007MBHI Capital Trust III

December 19, 2003


9,279


LIBOR+3.00%

December 30, 2033

December 30, 2008MBHI Capital Trust IV

December 19, 2003


10,310


LIBOR+2.85%

January 23, 2034

January 23, 2009MBHI Capital Trust V

June 7, 2005


20,619


LIBOR+1.77%

June 15, 2035

June 15, 2010Royal Capital Trust I

April 30, 2004


10,310


6.62% until July 23, 2009;

July 23, 2034

July 23, 2009LIBOR+2.75%Fair value adjustment




(170
)Total juniorsubordinated debentures



$
65,812   Note 14 
    Employee
    Benefit Plans        Note 15 
    Time
    Deposits   F-24




---



##### Table of Contents



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

$
1,022,7812008


93,5462009


22,8742010


2,0402011


648Thereafter


$
1,141,889   Note 16 
    Related
    Party Transactions    (In thousands)Balance at December 31, 2005

$
38,762New loans


12,509Repayments


(18,652
)Balance at December 31, 2006

$
32,619   Note 17 
    Capital
    Requirements     F-25




---



##### Table of Contents



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


To Be WellActual


Adequacy Purposes


CapitalizedAmount


Ratio


Amount


Ratio


Amount


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

$
290,158



13.0
%

$
178,984



8.0
%


n/a



n/aBank


272,619



12.2



178,113



8.0



222,641



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


266,753



11.9



89,492



4.0



n/a



n/aBank


249,214



11.2



89,056



4.0



133,584



6.0Tier 1 Capital (to average
    assets)Company


266,753



9.1



117,855



4.0



n/a



n/aBank


249,214



8.5



117,140



4.0



146,425



5.0As of December 31,
    2005Total Capital (to risk-weighted
    assets)Company

$
292,168



18.1
%

$
129,381



8.0
%


n/a



n/aBank


205,866



12.8



128,844



8.0



161,055



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


274,408



17.0



64,691



4.0



n/a



n/aBank


188,106



11.7



64,422



4.0



96,633



6.0Tier 1 Capital (to average
    assets)Company


274,408



12.2



90,083



4.0



n/a



n/aBank


188,106



8.4



89,635



4.0



112,044



5.0  F-26




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 18 
    Off-Balance-Sheet
    Risk and Concentrations of Credit Risk    Amount of Commitment Expiration Per PeriodWithin








After1 Year


1-3 Years


4-5 Years


5 Years


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

$
175,568


$
43,258


$
908


$
282


$
220,016Consumer real estate


33,040



12,925



28,014



39,572



113,551Consumer














2,904



2,904Commercial


219,100



8,971



1,926



2,747



232,744Letters of credit


38,321



16,455



14,199



375



69,350Commitments to extend credit


111,159















111,159Total commercial commitments

$
577,188


$
81,609


$
45,047


$
45,880


$
749,724       Note 19 
    Stock
    Compensation and Restricted Stock Awards     F-27




---



##### Table of Contents



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


Weighted AverageNumber of


Exercise Price


Grant-Date FairOptions


Per Share


Value Per ShareOutstanding at December 31,
    2003


1,076,545


$
11.67


$
3.76Granted during 2004


120,000



22.03



7.82Exercised during 2004


(70,521
)


9.37



2.90Forfeited during 2004


(10,938
)


16.78



6.29Outstanding at December 31,
    2004


1,115,086



12.88



3.42Granted during 2005


30,500



19.43



5.50Exercised during 2005


(397,051
)


11.02



3.43Forfeited during 2005


(60,593
)


17.57



6.15Outstanding at December 31,
    2005


687,942



13.83



4.57Granted during 2006










Exercised during 2006


(151,894
)


13.03



4.26Forfeited during 2006


(19,000
)


18.46



6.82Outstanding at December 31,
    2006


517,048



13.90



4.58     Weighted AverageNumber of


Exercise PriceOptions


Per Share2004


805,836


$
10.962005


588,190



13.182006


475,548



13.45     OutstandingWeighted Average


ExercisableRemaining





Weighted AverageRange of Exercise Price

Number


Contractual Life


Number


Exercise Price$8.50-10.59


208,548



3.55



208,548


$
9.63$10.75-14.90


156,000



3.77



156,000



13.35$18.34-22.03


152,500



7.31



111,000



20.78Outstanding at year end


517,048



4.70



475,548



13.45  F-28




---



##### Table of Contents



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


2003Fair value

$
5.50


$
7.31Risk-free interest rate


4.05
%


3.40
%Expected option life


5 years



7.6 yearsExpected stock price volatility


22.06
%


28.53
%       Year Ended December 31,2005


2004(In thousands, except per share data)Net income as reported

$
5,944


$
2,376Deduct: Stock-based compensation
    expense determined under fair value-based method


583



494Pro forma net income

$
5,361


$
1,882Basic earnings per share from
    continuing operations as reported

$
0.30


$
0.13Pro forma basic earnings per share


0.27



0.11Diluted earnings per share from
    continuing operations as reported


0.30



0.13Pro forma diluted earnings per
    share


0.27



0.10     out-of-the-money out-of-the-money
 F-29




---



##### Table of Contents



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


Weighted AverageRestricted


Grant-Date Fair ValueShares


Per ShareOutstanding at
    December 31, 2003





$
Granted


150,000



18.71Vested






Forfeited






Outstanding at
    December 31, 2004


150,000



18.71Granted


64,700



19.53Vested


(35,000
)


18.88Forfeited


(1,000
)


19.43Outstanding at
    December 31, 2005


178,700



18.97Granted


347,179



22.61Vested


(36,000
)


18.97Forfeited


(9,250
)


19.43Outstanding at
    December 31, 2006


480,629



21.59     Note 20 
    Derivative Instruments
  10-year
   F-30




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 21 
    Parent Company Financial Statements
    CONDENSED
    BALANCE SHEETS
  December 31,2006


2005(In thousands)ASSETSCash

$
15,291


$
83,389Investment in subsidiaries with
    continuing operations


335,668



185,545Other assets


8,588



7,574Total assets

$
359,547


$
276,508LIABILITIES AND
    STOCKHOLDERS EQUITYJunior subordinated debentures

$
65,812


$
55,672Other liabilities


6,493



4,710Stockholders equity


287,242



216,126Total liabilities and
    stockholders equity

$
359,547


$
276,508   CONDENSED
    STATEMENTS OF INCOME
  Year Ended December 31,2006


2005


2004(In thousands)Operating incomeDividends from continuing
    subsidiaries

$
10,477


$
3,346


$
6,571Fees from continuing subsidiaries


999



1,897



1,672Noninterest income


240



59



37Interest expense


(4,741
)


(3,801
)


(3,567
)Noninterest expense


(5,662
)


(6,733
)


(8,633
)Income (loss) before income taxes
    and equity in undistributed income of continuing subsidiaries


1,314



(5,232
)


(3,920
)Income tax benefit


3,904



3,434



3,932Equity in undistributed income of
    continuing subsidiaries


12,528



209



3,060Income (loss) from continuing
    operations


17,746



(1,589
)


3,072Income (loss) from discontinued
    operations






7,533



(696
)Net income

$
17,746


$
5,944


$
2,376  F-31




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    STATEMENTS OF CASH FLOWS
  Year Ended December 31,2006


2005


2004(In thousands)Cash flows from continuing
    operating activitiesNet income

$
17,746


$
5,944


$
2,376(Income) loss from discontinued
    operations






(7,533
)


696Adjustments to reconcile net
    income to net cash provided by (used in) continuing operating
    activities Equity in undistributed income of continuing
    subsidiaries


(12,528
)


(209
)


(3,060
)Depreciation


85



101



73Amortization of stock-based
    compensation


2,501



873



165Amortization of intangibles


34







Change in other assets


(159
)


(171
)


(2,175
)Change in other liabilities


3,752



(1,517
)


1,881Net cash provided by (used in)
    continuing operating activities


11,431



(2,512
)


(44
)Cash flows from continuing
    investing activitiesCash paid, net of cash and cash
    equivalents in acquisition


(65,286
)






Investment in continuing
    subsidiaries






(15,200
)


Property and equipment expenditures


(17
)


(39
)


(207
)Disposition of subsidiary






35,621



Net cash (used in) provided by
    continuing investing activities


(65,303
)


20,382



(207
)Cash flows from continuing
    financing activitiesIssuance of junior subordinated
    debentures, net of debenture issuance costs






20,619



Payments of junior subordinated
    debentures






(20,619
)


Proceeds from notes payable






2,000



Repayments on notes payable






(2,000
)


(2,000
)Cash dividends paid


(11,439
)


(9,164
)


(8,583
)Issuance of common stock






68,453



Repurchase of common stock


(4,770
)






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


1,983



4,374



660Net cash (used in) provided by
    continuing financing activities


(14,226
)


63,663



(9,923
)Cash flows from discontinued
    operationsNet cash provided by (used in)
    operating activities of discontinued operations






187



1,127Net cash used in investing
    activities of discontinued operations






(1,000
)


Net cash provided by (used in)
    discontinued operations






(813
)


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


(68,098
)


80,720



(9,047
)Cash and cash equivalents at
    beginning of year


83,389



2,669



11,716Cash and cash equivalents at
    end of year

$
15,291


$
83,389


$
2,669  F-32




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 22 
    Earnings Per Share
  Year Ended December 31,2006


2005


2004(In thousands, except per share data)BasicIncome (loss) from continuing
    operations

$
17,746


$
(1,589
)

$
3,072Income (loss) from discontinued
    operations






7,533



(696
)Net income

$
17,746


$
5,944


$
2,376Weighted average common shares
    outstanding


23,348



19,573



17,888Basic earnings per share from
    continuing operations

$
0.76


$
(0.08
)

$
0.17Basic earnings per share from
    discontinued operations

$



$
0.38


$
(0.04
)Basic earnings per share

$
0.76


$
0.30


$
0.13DilutedIncome (loss) from continuing
    operations

$
17,746


$
(1,589
)

$
3,072Income (loss) from discontinued
    operations






7,533



(696
)Net income

$
17,746


$
5,944


$
2,376Weighted average common shares
    outstanding


23,348



19,573



17,888Dilutive effect of stock options(1)


200



234



403Dilutive effect of restricted
    stock(1)


242



38



Diluted average common shares


23,790



19,845



18,291Diluted average common
    shares  continuing operations(1)


23,790



19,573



18,291Diluted average common
    shares  discontinued operations(1)






19,845



17,888Diluted earnings per share from
    continuing operations

$
0.75


$
(0.08
)

$
0.17Diluted earnings per share from
    discontinued operations

$



$
0.38


$
(0.04
)Diluted earnings per share

$
0.75


$
0.30


$
0.13     (1)
    
    No dilutive shares from stock options or restricted stock were
    included in the computation of diluted earnings per share for
    any period there was a loss from continuing or discontinued
    operations.   F-33




---



##### Table of Contents



MIDWEST
    BANC HOLDINGS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 23 
    Other Comprehensive Income
    Years Ended December 31,2006


2005


2004(In thousands)Unrealized holding gains (losses)
    on securities
    available-for-sale

$
(2,063
)

$
(5,710
)

$
(15,504
)Reclassification adjustment for
    (gains) losses recognized in income from continuing operations


153



17,440



10,034Reclassification adjustment for
    (gains) losses recognized in income from discontinued operations






2,982



4,544Accretion of unrealized gains on
    securities transferred from
    available-for-sale
    to
    held-to-maturity


(7
)


(40
)


(123
)Net unrealized gains (losses)


2,209



14,672



(1,049
)Tax effect


(876
)


(5,821
)


416Other comprehensive income (loss)

$
1,333


$
8,851


$
(633
)   Note 24 
    Quarterly Results of Operations (Unaudited)
  Three Months Ended,


Year Ended,2006

March 31


June 30


September 30


December 31


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

$
33,359


$
35,290


$
45,903


$
44,710


$
159,262Interest expense


16,198



17,737



24,510



25,535



83,980Net interest income


17,161



17,553



21,393



19,175



75,282Provision for loan losses






5,000



1,550



5,500



12,050Noninterest income


3,013



3,601



4,147



3,790



14,551Noninterest expense


11,885



13,041



17,194



16,495



58,615Income from continuing
    operations before income taxes


8,289



3,113



6,796



970



19,168Provision (benefit) for income
    taxes


2,348



223



814



(1,963
)


1,422Income from continuing
    operations


5,941



2,890



5,982



2,933



17,746 F-34




---



##### Table of Contents



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


Year Ended,2006

March 31


June 30


September 30


December 31


December 31(In thousands, except per share data)Discontinued
    operationsIncome from discontinued
    operations before income taxes


















Provision for income taxes


















Income from discontinued operations


















Net income

$
5,941


$
2,890


$
5,982


$
2,933


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

$
0.27


$
0.13


$
0.24


$
0.12


$
0.76Basic from discontinued operations


















Basic


0.27



0.13



0.24



0.12



0.76Diluted from continuing operations


0.27



0.13



0.24



0.12



0.75Diluted from discontinued
    operations


















Diluted


0.27



0.13



0.24



0.12



0.75   Three Months Ended,


Year Ended,2005

March 31


June 30


September 30


December 31


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

$
24,532


$
26,731


$
28,880


$
32,101


$
112,244Interest expense


11,294



12,661



12,457



14,385



50,797Net interest income


13,238



14,070



16,423



17,716



61,447Provision for loan losses


814



813



813



149



2,589Noninterest income


2,081



(14,426
)


3,562



2,538



(6,245
)Noninterest expense


10,716



27,670



11,277



10,864



60,527Income (loss) from continuing
    operations before income taxes


3,789



(28,839
)


7,895



9,241



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


812



(11,690
)


1,982



2,571



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


2,977



(17,149
)


5,913



6,670



(1,589
) F-35




---



##### Table of Contents



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


Year Ended,2005

March 31


June 30


September 30


December 31


December 31(In thousands, except per share data)Discontinued
    operationsIncome from discontinued
    operations before income taxes


1,632



1,050



6,554







9,236Provision for income taxes


527



251



925







1,703Income from discontinued operations


1,105



799



5,629







7,533Net income (loss)

$
4,082


$
(16,350
)

$
11,542


$
6,670


$
5,944Earnings per common
    share(a)Basic from continuing operations

$
0.16


$
(0.94
)

$
0.30


$
0.31


$
(0.08
)Basic from discontinued operations


0.06



0.04



0.28



0.00



0.38Basic


0.22



(0.90
)


0.58



0.31



0.30Diluted from continuing operations


0.16



(0.94
)


0.29



0.30



(0.08
)Diluted from discontinued
    operations


0.06



0.04



0.28



0.00



0.38Diluted


0.22



(0.90
)


0.57



0.30



0.30     (a)
    
    Earnings per share for the quarters and fiscal years have been
    calculated separately. Accordingly, quarterly amounts may not
    add to the annual amounts because of differences in the average
    common shares outstanding during each period.  Note 25 
    Fair Value of Financial Instruments
     F-36




---



##### Table of Contents



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


2005Carrying


Estimated


Carrying


EstimatedAmount


Fair Value


Amount


Fair Value(In thousands)Financial assetsCash and cash equivalents

$
100,532


$
100,532


$
70,599


$
70,599Securities
    available-for-sale


589,981



589,981



687,937



687,937Securities
    held-to-maturity


45,931



44,687



59,451



58,332Federal Reserve and Federal Home
    Loan Bank stock


23,592



23,592



14,661



14,661Loans held for sale


2,672



2,672



1,912



1,912Loans, net of allowance for loan
    losses


1,923,587



1,914,196



1,332,236



1,328,314Accrued interest receivable


12,331



12,331



9,705



9,705Financial liabilitiesDepositsNoninterest-bearing


(276,381
)


(276,381
)


(158,406
)


(158,406
)Interest-bearing


(1,681,429
)


(1,682,140
)


(1,364,978
)


(1,324,025
)Securities sold under agreements
    to repurchase and federal funds purchased


(267,079
)


(263,214
)


(332,808
)


(331,260
)FHLB advances


(319,883
)


(323,259
)


(150,000
)


(148,414
)Junior subordinated debentures


(65,812
)


(65,960
)


(55,672
)


(57,538
)Accrued interest payable


(8,023
)


(8,023
)


(3,683
)


(3,683
)Due to broker










(1,301
)


(1,301
)      F-37




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm      Consolidated financial statements
    Internal control over financial reporting
  Internal Control  Integrated Framework Internal Control 
    Integrated Framework
          F-38




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    ON THE FINANCIAL STATEMENTS
                 F-39