Midwest Banc Holdings, Inc. Reports Q2 Results

Midwest Banc Holdings, Inc. (NASDAQ:MBHI), the holding company for Midwest Bank and Trust Company ("the Bank” or "Midwest Bank”) announced results for the second quarter of 2009. The company recorded a net loss of $76.5 million for the second quarter of 2009 compared to net income of $2.4 million in the second quarter of 2008, and a net loss of $5.3 million for the first quarter of 2009. On a per share basis, net loss per share was $2.78, compared to earnings per share of $0.06 in 2008 and net loss per share of $0.27 in the first quarter of 2009. As previously announced, during the second quarter, the company incurred tax charges of $57.9 million and $8.1 million related to a valuation allowance on deferred tax assets and liquidation of bank-owned life insurance ("BOLI"), respectively. Excluding these charges, the net loss would have been $10.5 million for the second quarter of 2009. Results include a $20.0 million provision for loan losses, which increased the allowance to 2.5% of loans from 2.1% at March 31, 2009.

"We have set an aggressive recovery path during my first 75 days at Midwest,” said Roberto R. Herencia, who became president and chief executive officer of the company and the Bank in May 2009.

"I accepted the position of CEO because I believe this organization – despite the great challenges we face at the moment – is a fine institution with committed employees, a solid platform for growth, a strong infrastructure and a loyal customer base. Two legacy issues impacted our company before the recession broke in late 2008 and have left us vulnerable to continuing asset quality deterioration,” Herencia said.

Those issues include:

• Significant losses ($82.1 million) on investments in government sponsored enterprises negatively impacted our capital base. Investments in Fannie Mae and Freddie Mac preferred stock, held by many community banks and thought to be safe, unfortunately were not as the housing market suffered and recession ensued; and
• The financing of our October 2007 acquisition with debt and preferred equity (which at the time seemed prudent) has stressed our company as the economy entered a period of negative growth.

"Since my arrival, we have faced these issues head-on. We are repositioning our assets to reduce risk and enhance liquidity, tightening our loan underwriting criteria, deferring payments when permissible, cutting costs and communicating with shareholders and regulators. In an accompanying press release today we outline our capital plan. Our Bank remains well-capitalized and has numerous points of strength, including most significantly our strong retail branch network and our employees. These make us a worthwhile and attractive franchise. To grow, we will seek additional capital. But when we do so, investors will know that we have worked aggressively to address our issues,” Herencia said.

Q2 Highlights

• On May 15, 2009, Roberto R. Herencia became president and CEO of our company and Midwest Bank.
• Despite being well-capitalized at the Bank with a 10.5% total risk-based capital ratio and adequately capitalized at the holding company as of June 30, 2009, during the second quarter we developed and began executing a capital plan designed to strengthen our capital position.
• To improve the company’s liquidity and capital position, we suspended dividend payments on the Series A Preferred Stock and deferred dividend payments on the Series T preferred stock (issued to the U.S. Treasury under the TARP Capital Purchase Plan) and interest on our outstanding trust preferred securities as permitted by the terms of such securities. As previously announced, we also did not make a $5.0 million principal payment due July 1, 2009, on a term loan and did not pay the aggregate $8.6 million outstanding principal on a revolving line of credit which matured on July 3, 2009, with the same correspondent bank. The lender advised the company that such non-compliance constitutes a continuing event of default under the loan agreements. The company is negotiating with the lender to extend the maturity of the line of credit and to seek to modify certain other terms of both loans.
• Key lending personnel were re-assigned to our special assets (loan workout) group.
• We repositioned our securities portfolio, reducing risk-weighted assets by $107.2 million compared to March 31, 2009. Liquidation of our BOLI policies further decreased risk-weighted assets and total assets by $85.5 million compared to March 31, 2009.
• We instituted stricter loan underwriting standards and further reduced the loan portfolio through paydowns and participations. Loans decreased $31.8 million compared to the first quarter 2009.
• Deposit growth was strong in the second quarter. Sales efforts produced an increase in average core deposits of $14.6 million compared to the first quarter, and a successful retail CD campaign produced over $66.2 million of new deposits.

Second quarter net interest income was $21.1 million, the same when compared to the first quarter, while the net interest margin declined 11 basis points due largely to the repositioning of the securities portfolio into shorter term, lower yielding investments. Non-interest expense increased $3.4 million compared to the first quarter, due largely to a $1.7 million FDIC special assessment, a $400,000 increase in quarterly FDIC insurance premiums and an increase in salaries and benefits related to severance costs.

Capital Plan

The company has developed a detailed capital plan and timeline for execution. Due to deteriorating economic conditions burdening many financial institutions in the United States, management believes that additional capital is necessary to strengthen the balance sheet. Management has completed, or is in the process of completing, a number of steps as part of the capital plan, including:

• Cost reduction initiatives which will eliminate $15 million in expenses on an annualized basis when compared to either our 2008 expenses excluding large non-run rate items (goodwill impairment and loss on extinguishment of debt) or our 2nd quarter 2009 expenses similarly excluding the FDIC special assessment and severance expenses. This will be accomplished through a reduction in force of over 100 employees, in-process and to be completed by September 30, 2009, salary reductions for employees led by our top executives’ salaries decreasing 7% to 10%, suspension of certain benefits, elimination of discretionary projects and initiatives and an increased focus on expense control;

• Retained independent consultants to refine credit loss projections through 2010;
• Broadened investment banking support to assist with the capital plan;
• Continued negotiations with the company’s primary lender to restructure $55.0 million senior debt and $15.0 million subordinated debt;
• Analyzed the ability to exchange $59.0 million of trust preferred securities into equity. We have been advised an exchange for equity cannot be facilitated for the collateral in a trust preferred pooled securitization as a consequence of the tax status of the trust prohibiting the ownership of an equity security; and
• Filed an application seeking an investment by the U.S. Treasury of up to approximately $138 million (based on June 30, 2009 risk weighted assets) pursuant to its Capital Assistance Program that would be used to redeem the $84.8 million outstanding preferred stock issued to the U.S. Treasury under its Capital Purchase Program in 2008. The company would seek to convert the CAP preferred stock to common stock following issuance of the CAP preferred stock to the U.S. Treasury (subject to regulatory approval).

Board of Directors

The Board of Directors of the Bank and the company accepted the resignation of three directors, reducing the Boards from eleven to eight members. The departing directors - Angelo A. DiPaolo, Dennis M. O'Hara and Joseph R. Rizza - provided many years of valued service to the Bank and the company. The Board of Directors thanks the outgoing directors for their service. Their resignations are effective immediately.

Loan Portfolio

Average total loans increased $41.0 million during the second quarter of 2009 due to strong growth late in the first quarter. From March 31, 2009 to June 30, 2009, loans declined $31.8 million, mostly due to stricter underwriting and pricing criteria. Average loans yielded 5.47 percent in the second quarter, with 74 percent of all loans tied to prime with interest rate floors in place; and 71 percent of those loans currently at their floors.

Loan Portfolio
As of June 30, 2009
($ in millions)
					Total			Total			Percent
Loan Type		Balance			Availability			Commitment			Availability
Land		$	110.3		$	1.9		$	112.2		1.7
Land Development, Residential			19.0			1.5			20.5		7.3
Land Development, Commercial			23.2			5.7			28.9		19.7
Land Development, Teardown			8.3			0.4			8.7		4.6
Condominium			68.7			12.4			81.1		15.3
Residential Construction			77.1			5.4			82.5		6.5
Commercial Construction			34.6			1.8			36.4		4.9
Residential Non-Builder			9.4			1.3			10.7		12.1
Other			0.1			-			0.1		-
Total Const. & Land Development			350.7			30.4			381.1		8.0
1-4 Residential			63.0			-			63.0		-
1-4 ARM			48.1			-			48.1		-
Total Residential			111.1			-			111.1		-
Home Equity Fixed			18.6			-			18.6		-
Home Equity Floating			207.2			112.2			319.4		35.1
Total Home Equity			225.8			112.2			338.0		33.2
CRE - Non-Owner Occupied			757.4			34.2			791.6		4.3
CRE - Owner Occupied			550.9			10.8			561.7		1.9
Total CRE			1,308.3			45.0			1,353.3		3.3
Commercial & Industrial			545.4			331.8			877.2		37.8
Agricultural			8.9			1.2			10.1		11.9
Consumer			5.7			2.4			8.1		29.6
Overdrafts, Settlement, Miscellaneous			3.4
Total Portfolio		$	2,559.3		$	523.0		$	3,078.9		17.0

• Total construction and land loan commitments are 92.0 percent funded.
• Land loans represent 4.3 percent of the loan portfolio.

Asset Quality

In the second quarter, we recorded a provision for loan losses of $20.0 million and recognized net loan charge-offs totaling $9.1 million. Nonaccrual loans increased $14.7 million compared to the prior quarter to $95.0 million, or 3.7 percent of loans.

Loan Quality
($ in millions)
																		2009
		As of June 30, 2009																Gross
					30-89 Days Past Due					Non Accrual					Specific			Charge-
Loan Type		Balance			($)			Percent		($)			Percent		Reserve			Offs
Land		$	110.3		$	6.0		5.4		$	5.5		5.0		$	0.5		$	0.2
Land Development, Residential			19.0			-		-			2.5		13.2			0.8			0.3
Land Development, Commercial			23.2			-		-			0.6		2.6			-			-
Land Development, Teardown			8.3			-		-			-		-			-			-
Condominium			68.7			7.8		11.4			9.8		14.3			0.9			-
Residential Construction			77.1			5.4		7.0			7.4		9.6			0.4			2.5
Commercial Construction			34.6			1.5		4.3			3.5		10.1			-			-
Residential Non-Builder			9.4			0.3		3.2			0.6		6.4			-			-
Other			0.1			-		-			-		-			-			-
Total Const. & Land Develop.			350.7			21.0		6.0			29.9		8.5			2.6			3.0
1-4 Residential			63.0			-		-			1.6		2.5			0.3			-
1-4 ARM			48.1			1.3		2.7			3.9		8.1			0.3			0.2
Total Residential			111.1			1.3		1.2			5.5		5.0			0.6			0.2
Home Equity Fixed			18.6			0.6		3.2			0.1		0.5			-			-
Home Equity Floating			207.2			3.0		1.4			2.0		1.0			0.2			0.1
Total Home Equity			225.8			3.6		1.6			2.1		0.9			0.2			0.1
CRE - Non-Owner Occupied			757.4			15.2		2.0			26.8		3.5			3.7			0.2
CRE - Owner Occupied			550.9			6.6		1.2			17.6		3.2			1.5			0.4
Total CRE			1,308.3			21.8		1.7			44.4		3.4			5.2			0.6
Commercial & Industrial			545.4			7.8		1.4			13.0		2.4			5.4			10.4
Agricultural			8.9			-		-			-		-			-			-
Consumer			5.7			0.3		5.3			0.1		1.8			-			-
Overdrafts, Settlement, Misc.			3.4			-		-			-		-			-			0.2
Total Portfolio		$	2,559.3		$	55.8		2.2		$	95.0		3.7		$	14.0		$	14.5

During the second quarter $9.7 million in loans were charged-off (gross) and $23.0 million in loans were moved to non-accrual status. During the second quarter we continued our review of loans and engaged outside consultants to review the loan portfolio and assess potential credit losses. The CRE portfolio experienced the most duress in the second quarter; non-accruing CRE loans increased $13.2 million, due in large part to the following three loan relationships:

• A $4.9 million loan for a commercial property in a western suburb of Chicago originated in 2003. The project has been stalled due to on-going litigation with a local municipality.
• A $4.1 million relationship with a contractor for the development of three residential properties in the northern suburbs of Chicago which have been slow to sell.
• A $2.4 million relationship with a real estate developer for eight investment properties near Rockford which have been negatively impacted by local economic conditions.

Liquidity

The Bank’s overall liquidity position improved as a result of an $81.7 million reduction in the securities portfolio, the liquidation of $85.8 million of BOLI, a $31.8 million reduction in loans and a reduction of $55.0 million in wholesale borrowings during the second quarter. Our liquid assets, including Federal Reserve Bank cash and unencumbered securities, increased by $61.0 million during the second quarter. As of June 30, 2009, total deposits excluding brokered deposits, increased by $25.5 million or 1.2 percent compared to the first quarter. Core deposit gathering continues to show favorable trends and continues to improve our liquidity position.

Net Interest Margin

Net interest margin decreased 11 basis points from 2.63 percent in the first quarter to 2.52 percent in the second quarter. The overall yield on the securities portfolio dropped to 3.03 percent in the second quarter from 4.52 percent in the first quarter. The 149 basis point decline in the securities portfolio was due largely to the $538.1 million replacement of bonds with lower-yielding U.S. Treasury Bills and Government National Mortgage Association mortgage backed securities. This reduced risk weighted assets by $107.2 million. Our net interest margin was positively impacted by average loans increasing $41.0 million in the second quarter and the benefits associated with 74 percent of loans tied to prime with contractual interest rate floors. Maturities of approximately $190 million of brokered CDs during the second quarter were replaced at lower rates helping to reduce overall costs.

Noninterest Income

Noninterest income for second quarter 2009 grew to $7.3 million from $3.3 million in the first quarter 2009. The increase was primarily attributable to net gains on the securities portfolio repositioning of $3.5 million. The sale of BOLI caused a $352,000 reduction in income.

Noninterest Expense

Noninterest expense for second quarter 2009 rose to $25.2 million, compared to $21.8 million in first quarter 2009. The increase of $3.4 million in the second quarter was primarily attributable to a FDIC special assessment and an increase in quarterly FDIC insurance premiums. Salaries and benefits increased $776,000 compared to the first quarter due largely to severance costs related to our previously mentioned cost reduction initiative. Professional fees were down $212,000, but are expected to increase in the third quarter with initiatives associated with the overall restructuring and capital plan. Marketing costs were down 51 percent, or $349,000 compared to the first quarter, as certain product programs were scaled back or put on hold in an effort to control our costs.

Financial Highlights

• Diluted earnings (loss) per share was ($2.78) for second quarter and ($3.05) for first six months of 2009
  • Compared to ($.27) for first quarter 2009
  • Compared to $.06 for second quarter 2008
  • Compared to ($.17) for first six months of 2008
• Net income (loss) was ($76.5) million for second quarter and ($81.8) million for first six months of 2009
  • Compared to ($5.3) million for first quarter 2009
  • Compared to $2.4 million for second quarter 2008
  • Compared to ($3.0) million for first six months of 2008

• Net interest margin was 2.52 percent for second quarter and 2.55 percent for first six months of 2009
  • Compared to 2.63 percent for first quarter 2009
  • Compared to 2.89 percent for second quarter 2008
  • Compared to 2.86 percent for first six months of 2008
• Top line revenue was $28.4 million for second quarter and $52.8 million for first six months of 2009
  • Up 16 percent from the first quarter 2009
  • Up 4 percent from the second quarter 2008
  • Up 3 percent from first six months of 2008

Loans and Loan Quality

• Loans in second quarter 2009 decreased
  • $31.8 million compared to first quarter 2009
• Annualized net charge-off rate was 1.41 percent for second quarter 2009
  • Compared to .70 percent for first quarter 2009
  • Compared to .35 percent for second quarter 2008
• Nonaccrual loans at June 30, 2009 were $95.0 million or 3.71 percent of loans
  • Compared to 3.10 percent at March 31, 2009
  • Compared to 1.64 percent at June 30, 2008
• Nonperforming assets at June 30, 2009 were $125.6 million, or 3.52 percent of assets
  • Compared to 2.96 percent at March 31, 2009
  • Compared to 1.16 percent at June 30, 2008
• Allowance for loan losses at June 30, 2009 was 2.50 percent of loans
  • Compared to 2.05 percent at March 31, 2009
  • Compared to .90 percent at June 30, 2008
• Allowance for loan losses to nonaccrual loans was 67 percent at June 30, 2009
  • Compared to 66 percent at March 31, 2009
  • Compared to 55 percent at June 30, 2008
• Delinquencies 30-89 days to loans were 2.18 percent at June 30, 2009
  • Compared to 1.48 percent at March 31, 2009
  • Compared to .35 percent at June 30, 2008

Capital Ratios at June 30, 2009:
		Company			Bank
-- Tier 1 common risk-based		0.33	%		7.28	%
-- Tier 1 risk-based		7.20	%		7.28	%
-- Total risk-based		9.03	%		10.48	%
-- Tier 1 leverage		5.35	%		5.42	%
Additional financial data are contained in the accompanying statements, tables and schedules.

Hosting a Conference Call

Midwest will conduct a conference call to discuss these results Wednesday, July 29, 2009, at 11:00 a.m. Eastern time / 10:00 a.m. Central time.

The webcast and call will be hosted by members of management. A brief discussion of results and trends will be followed by questions from professional investors and analysts invited to participate in the interactive portion of the discussion. Interested parties wishing to participate in the interactive portion of the call can dial in to 800-860-2442 or +1 412-858-4600 for international calls. The live webcast can be accessed at www.midwestbank.com and will be available for replay on that website. The audio replay may be accessed through October 1, 2009 at 877-344-7529 or +1 412-317-0088. The replay passcode is 431962.

About Midwest

We are a half century old community bank with $3.6 billion in assets at June 30, 2009. We have two principal operating subsidiaries; Midwest Bank and Trust Company and Midwest Financial and Investment Services, Inc. Midwest Bank has 26 full-service banking centers serving the diverse needs of both urban and suburban Chicagoland businesses and consumers through its Commercial Banking, Wealth Management, Corporate Trust and Retail Banking areas.

Forward-Looking Statements

This press release contains certain "Forward-Looking Statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and should be reviewed in conjunction with the company's Annual Report on Form 10-K and other publicly available information regarding the company, copies of which are available from the company upon request. Such publicly available information sets forth certain risks and uncertainties related to the company's business which should be considered in evaluating "Forward-Looking Statements."

Financial Highlights
Midwest Banc Holdings, Inc.
(In thousands, except per share data and percentages)
		Three Months Ended
			June 30,				March 31,				Dec. 31,			Sept. 30,				June 30,
			2009				2009				2008			2008				2008
Income Statement Data:
Net (loss) income		$	(76,467	)		$	(5,320	)		$	4,429		$	(159,714	)		$	2,428
Per Share Data:
Basic and diluted (loss) earnings (11)		$	(2.78	)		$	(0.27	)		$	0.11		$	(5.76	)		$	0.06
Cash dividends declared			—				—				—			—				0.13
Book value			3.45				6.38				6.56			5.89				11.76
"If converted” book value(10)			4.53				7.18				7.35			6.74				12.06
Tangible book value(1)			0.15				3.05				3.21			2.51				5.48
"If converted” tangible book value(1)(10)			1.53				4.16				4.31			3.68				6.37
Stock price at period end			0.75				1.01				1.40			4.00				4.87
Share Data:
Common shares outstanding – at period end			27,944				27,929				27,893			27,859				27,859
Basic - average			27,926				27,925				27,863			27,859				27,855
Diluted - average			27,926				27,925				27,863			27,859				27,958
Selected Financial Ratios:
Return on average assets			(8.38	)		percent	(0.59	)		percent	0.49		percent	(17.25	)		percent	0.26		percent
Return on average equity			(103.60	)			(7.12	)			7.17			(181.60	)			2.57
Net interest margin (tax equivalent)			2.52				2.63				2.51			2.77				2.89
Efficiency ratio(2)(3)			97				84				105			387				70
Dividend payout ratio (11)			—				—				—			—				238
Loans to deposits at period end			101				102				104			99				107
Loans to assets at period end			72				70				70			70				67
Equity to assets at period end			6.15				8.11				8.57			5.78				9.95
Tangible equity to tangible assets
at period end(1)(4)			3.66				5.75				6.11			3.24				5.51
Tier 1 common capital to risk-weighted assets			0.33				1.25				1.98			2.64				5.50
Tier 1 capital to risk-weighted assets			7.20				7.42				8.30			6.26				9.09
Total capital to risk-weighted assets			9.03				9.18				10.07			8.04				10.43
Tier 1 leverage ratio			5.35				6.24				6.90			4.94				7.38
Full time equivalent employees			497				542				536			550				543
Balance Sheet Data:
Total earning assets		$	3,382,725			$	3,339,448			$	3,195,408		$	3,176,629			$	3,275,580
Average earning assets			3,344,103				3,268,589				3,219,078			3,263,571				3,274,335
Average assets			3,660,670				3,648,873				3,590,313			3,682,449				3,686,350
Average loans			2,584,757				2,543,770				2,499,802			2,512,653				2,459,486
Average securities			669,494				688,334				668,830			715,219				762,889
Average deposits			2,529,526				2,474,262				2,478,948			2,411,013				2,384,764
Tangible shareholders’ equity(1)			127,272				208,098				212,289			113,101				195,751
Average equity			296,055				303,019				245,795			349,878				379,677
See footnotes at end of statements, tables and schedules.

Financial Highlights
Midwest Banc Holdings, Inc.
(In thousands, except per share data and percentages)
		Six Months Ended
			June 30,				June 30,
			2009				2008
Income Statement Data:
Net (loss) income		$	(81,787	)		$	(2,988	)
Per Share Data:
Basic and diluted (loss) earnings		$	(3.05	)		$	(0.17	)
Cash dividends declared			—				0.26
Share Data:
Common shares outstanding – at period end			27,944				27,859
Basic - average			27,926				27,847
Diluted - average			27,926				27,847
Selected Financial Ratios:
Return on average assets			(4.51	)		percent	(0.16	)		percent
Return on average equity			(55.07	)			(1.58	)
Net interest margin (tax equivalent)			2.55				2.86
Efficiency ratio(2)(3)			91				67
Dividend payout ratio			N/M				N/M
Full time equivalent employees			497				543
Balance Sheet Data:
Total earning assets		$	3,382,725			$	3,275,580
Average earning assets			3,306,555				3,275,650
Average assets			3,654,804				3,686,309
Average loans			2,564,377				2,459,658
Average securities			678,862				764,428
Average deposits			2,502,047				2,400,075
Tangible shareholders’ equity(1)			127,272				195,751
Average equity			299,517				381,140
See footnotes at end of statements, tables and schedules.

Statement of Income
Midwest Banc Holdings, Inc.
(In Thousands, except per share data)
			Three Months Ended
				June 30,				March 31,				Dec. 31,				Sept. 30,						June 30,
				2009				2009				2008				2008						2008
Interest Income
	Loans		$	35,348			$	34,549			$	35,558			$	37,364					$	37,392
	Securities
		Taxable		4,663				6,940				7,381				7,739						8,977
		Exempt from federal income taxes		406				550				551				574						593
	Dividends from FRB and FHLB stock			170				190				190				184						184
	Short-term investments			75				37				54				27						98
		Total interest income		40,662				42,266				43,734				45,888						47,244
Interest Expense
	Deposits			12,210				13,685				15,524				15,301						16,111
	Federal funds purchased and
	FRB discount window advances			20				29				14				563						672
	Securities sold under repurchase agreements			3,229				3,205				3,264				3,338						3,482
	Advances from the FHLB			3,035				3,029				3,126				2,779						2,437
	Junior subordinated debentures			615				739				911				864						876
	Revolving note payable			88				43				204				96						94
	Term note payable			266				282				616				565						575
	Subordinated debt			144				152				243				229						232
		Total interest expense		19,607				21,164				23,902				23,735						24,479
Net interest income				21,055				21,102				19,832				22,153						22,765
Provision for loan losses				20,000				13,000				20,000				41,950						4,415
Net interest income after provision
	for loan losses			1,055				8,102				(168	)			(19,797	)					18,350
Noninterest Income
	Service charges on deposit accounts			1,953				1,894				1,908				1,918						1,953
	(Losses) gains on securities transactions			4,251				—				—				(16,652	)					44
	Impairment loss on securities			(740	)			—				—				(47,801	)					—
	Gains on sales of loans			—				—				—				(75	)					—
	Insurance and brokerage commissions			338				320				333				448						683
	Trust			296				282				241				451						482
	Increase in CSV of life insurance			490				842				875				911						865
	Gain on sale of property			—				—				—				—						—
	Other			707				5				375				288						367
		Total noninterest income (loss)		7,295				3,343				3,732				(60,512	)					4,394
Noninterest Expenses
	Salaries and employee benefits			11,859				11,083				13,819				12,515						11,015
	Occupancy and equipment			3,356				3,245				3,511				3,211						3,093
	Professional services			1,890				2,102				3,240				2,016						1,796
	Marketing			339				688				842				575						713
	Foreclosed properties			450				345				66				24						237
	Amortization of intangible assets			573				573				590				590						591
	Merger related charges			—				—				—				77						80
	Goodwill impairment charge			—				—				—				80,000						—
	Other			6,703				3,725				3,610				4,288						2,843
		Total noninterest expenses		25,170				21,761				25,678				103,296						20,368
(Loss) income before income taxes				(16,820	)			(10,316	)			(22,114	)			(183,605	)					2,376
Provision (benefit) for income taxes				59,647				(4,996	)			(26,543	)			(23,891	)					(52	)
Net (Loss) Income			$	(76,467	)		$	(5,320	)		$	4,429			$	(159,714	)				$	2,428
Net (loss) income available to common shareholders (11)			$	(77,757	)		$	(7,443	)		$	3,138			$	(160,550	)				$	1,557
Basic and diluted (loss) earnings per share (11)			$	(2.78	)		$	(0.27	)		$	0.11			$	(5.76	)				$	0.06
Cash dividends declared per share			$	—			$	—			$	—			$	—					$	0.13
Top line revenue (5)			$	28,350			$	24,445			$	23,564			$	(38,359	)				$	27,159
Noninterest income to top line revenue				26			percent	14			percent	16			percent	N/M						16		percent
See footnotes at end of statements, tables and schedules.

Statement of Income
Midwest Banc Holdings, Inc.
(In Thousands, except per share data)
				Six Months Ended
					June 30,			June 30,			Increase					Increase
					2009			2008			(Decrease)					(Decrease)
Interest Income
	Loans			$	69,897		$	78,198		$	(8,301)					(10.6)		percent
	Securities
		Taxable			11,603			18,037			(6,434)					(35.7)
		Exempt from federal income taxes			956			1,191			(235)					(19.7)
	Dividends from FRB and FHLB stock				360			367			(7)					(1.9)
	Short-term investments				112			246			(134)					(54.5)
		Total interest income			82,928			98,039			(15,111)					(15.4)
Interest Expense
	Deposits				25,895			35,200			(9,305)					(26.4)
	Federal funds purchased and
	FRB discount window advances				49			1,487			(1,438)					(96.7)
	Securities sold under repurchase agreements				6,434			6,660			(226)					(3.4)
	Advances from the FHLB				6,064			5,919			145					2.4
	Junior subordinated debentures				1,354			1,921			(567)					(29.5)
	Revolving note payable				131			174			(43)					(24.7)
	Term note payable				548			1,462			(914)					(62.5)
	Subordinated debt				296			235			61					26.0
		Total interest expense			40,771			53,058			(12,287)					(23.2)
Net interest income					42,157			44,981			(2,824)					(6.3)
Provision for loan losses					33,000			9,815			23,185					236.2
Net interest income after provision
	for loan losses				9,157			35,166			(26,009)					(74.0)
Noninterest Income
	Service charges on deposit accounts				3,847			3,916			(69)					(1.8)
	(Losses) gains on securities transactions				4,251			56			4,195					7,491.1
	Impairment loss on securities				(740)			(17,586)			16,846					(95.8)
	Gains on sales of loans				—			—			-					-
	Insurance and brokerage commissions				658			1,243			(585)					(47.1)
	Trust				578			931			(353)					(37.9)
	Increase in CSV of life insurance				1,332			1,723			(391)					(22.7)
	Gain on sale of property				—			15,196			(15,196)					(100.0)
	Other				712			705			7					1.0
		Total noninterest income (loss)			10,638			6,184			4,454					72.0
Noninterest Expenses
	Salaries and employee benefits				22,942			24,055			(1,113)					(4.6)
	Occupancy and equipment				6,601			5,992			609					10.2
	Professional services				3,992			3,334			658					19.7
	Marketing				1,027			1,289			(262)					(20.3)
	Foreclosed properties				795			242			553					228.5
	Amortization of intangible assets				1,146			1,181			(35)					(3.0)
	Merger related charges				—			194			(194)					(100.0)
	Loss on extinguishment of debt				—			7,121			(7,121)					(100.0)
	Goodwill impairment charge				—			—			—					—
	Other				10,428			5,569			4,859					87.3
		Total noninterest expenses			46,931			48,977			(2,046)					(4.2)
(Loss) income before income taxes					(27,136)			(7,627)			(19,509)					255.8
Provision (benefit) for income taxes					54,651			(4,639)			59,290					(1,278.1)
Net (Loss) Income				$	(81,787)		$	(2,988)		$	(78,799)					2,637.2
Net (loss) income available to common shareholders				$	(85,200)		$	(4,659)		$	(80,541)					1,728.7
Basic and diluted (loss) earnings per share				$	(3.05)		$	(0.17)		$	(2.88)					1,694.1
Cash dividends declared per share				$	—		$	0.26		$	0.26					100.0
Top line revenue (5)				$	52,795		$	51,165		$	1,630					3.2
Noninterest income to top line revenue					20		percent	12		percent
See footnotes at end of statements, tables and schedules.

Balance Sheet
Midwest Banc Holdings, Inc.
(In thousands)
			June 30,				March 31,				Dec. 31,				Sept. 30,				June 30,
			2009				2009				2008				2008				2008
Assets
Cash		$	36,965			$	56,516			$	61,330			$	111,769			$	85,015
Short-term investments			160,538				1,762				1,735				1,674				3,042
Securities available-for-sale			633,282				685,858				621,949				618,215				710,803
Securities held-to-maturity			-				29,082				30,267				30,817				31,389
Total securities			633,282				714,940				652,216				649,032				742,192
Federal Reserve and FHLB stock, at cost			29,648				31,698				31,698				31,698				29,264
Loans			2,559,257				2,591,048				2,509,759				2,494,225				2,501,082
Allowance for loan losses			(63,893	)			(53,011	)			(44,432	)			(39,428	)			(22,606	)
Net loans			2,495,364				2,538,037				2,465,327				2,454,797				2,478,476
Cash value of life insurance			—				85,517				84,675				83,800				82,889
Premises and equipment			40,795				38,528				38,313				38,216				38,739
Foreclosed properties			19,588				18,534				12,018				8,025				2,375
Goodwill and other intangibles			92,399				92,972				93,546				94,136				174,947
Other			60,620				134,560				129,354				110,230				89,781
Total assets		$	3,569,199			$	3,713,064			$	3,570,212			$	3,583,377			$	3,726,720
Liabilities and Shareholders' Equity
Liabilities
Deposits
Noninterest-bearing		$	336,347			$	343,422			$	334,495			$	334,545			$	334,813
Interest-bearing			2,202,143				2,200,583				2,078,296				2,178,459				2,005,230
Total deposits			2,538,490				2,544,005				2,412,791				2,513,004				2,340,043
Federal funds purchased & FRB discount window			—				55,000				—				—				198,000
Securities sold under repurchase agreements			297,650				297,650				297,650				297,650				297,650
FHLB advances			340,000				340,000				380,000				380,000				340,000
Junior subordinated debentures			60,824				60,807				60,791				60,774				60,757
Revolving note payable			8,600				8,600				8,600				20,600				7,600
Term note payable			55,000				55,000				55,000				55,000				55,000
Subordinated debt			15,000				15,000				15,000				15,000				15,000
Other			33,964				35,932				34,546				34,112				41,972
Total liabilities			3,349,528				3,411,994				3,264,378				3,376,140				3,356,022
Shareholders’ Equity
Preferred equity			123,206				122,976				122,748				43,125				43,125
Common equity			102,047				178,362				185,208				175,806				335,662
Accumulated other comprehensive income (loss)			(5,582	)			(268	)			(2,122	)			(11,694	)			(8,089	)
Total shareholders' equity			219,671				301,070				305,834				207,237				370,698
Total liabilities and shareholders' equity		$	3,569,199			$	3,713,064			$	3,570,212			$	3,583,377			$	3,726,720
Loan Portfolio Composition – Source of Repayment						June 30, 2009									Dec. 31, 2008
											Percent of								Percent of
							($ in millions)				Total				($ in millions)				Total
Commercial						$	1,101				43			$	1,090				43
Construction							351				14				366				15
Commercial real estate							766				30				730				29
Consumer							231				9				201				8
Residential mortgage							111				4				123				5
Total loans, gross excluding deferred fees						$	2,560				100			$	2,510				100

Net Interest Margin
Midwest Banc Holdings, Inc.
(In thousands)
		For the Three Months Ended
			June 30, 2009								March 31, 2009								June 30, 2008
			Average			Average					Average			Average					Average			Average
			Balance			Rate					Balance			Rate					Balance			Rate
Interest-Earning Assets:
Short-term investments		$	59,551			0.50		percent		$	4,787			3.09		percent		$	22,696			1.73		percent
Securities:
Taxable(6)			626,489			2.98					629,783			4.41					701,254			5.43
Exempt from federal income taxes(6)			43,005			3.78					58,551			5.78					61,635			5.92
Total securities			669,494			3.03					688,334			4.52					762,889			5.47
FRB and FHLB stock			30,301			2.24					31,698			2.40					29,264			2.52
Loans (7)(8)(9)			2,584,757			5.47					2,543,770			5.44					2,459,486			6.09
Total interest-earning assets		$	3,344,103			4.86		percent		$	3,268,589			5.22		percent		$	3,274,335			5.88		percent
Noninterest-Earning Assets:
Cash		$	44,037							$	69,006							$	52,693
Premises and equipment			39,331								38,166								38,144
Allowance for loan losses			(58,211	)							(46,503	)							(20,412	)
Other			291,410								319,615								341,590
Total noninterest-earning assets			316,567								380,284								412,015
Total assets		$	3,660,670							$	3,648,873							$	3,686,350
Interest-Bearing Liabilities:
Deposits:
Interest-bearing demand deposits		$	178,231			0.50		percent		$	173,291			0.59		percent		$	215,076			0.92		percent
Money-market demand and savings accounts			358,791			0.80					351,778			0.86					399,380			1.20
Time deposits			1,658,904			2.72					1,618,236			3.13					1,448,198			3.98
Total interest-bearing deposits			2,195,926			2.22					2,143,305			2.55					2,062,654			3.12
Borrowings:
Fed funds purch & repurchase agreements			319,397			4.07					333,990			3.87					451,351			3.68
FHLB advances			342,637			3.54					363,000			3.34					296,044			3.29
Junior subordinated debentures			60,816			4.04					60,799			4.86					60,749			5.77
Revolving note payable			8,600			4.09					8,600			2.00					8,896			4.23
Term note payable			55,000			1.93					55,000			2.05					55,000			4.18
Subordinated debt			15,000			3.84					15,000			4.05					15,000			6.19
Total borrowings			801,450			3.69					836,389			3.58					887,040			3.77
Total interest-bearing liabilities		$	2,997,376			2.62		percent		$	2,979,694			2.84		percent		$	2,949,694			3.32		percent
Noninterest-Bearing Liabilities:
Noninterest-bearing demand deposits		$	333,600							$	330,957							$	322,110
Other liabilities			33,639								35,203								34,869
Total noninterest-bearing liabilities			367,239								366,160								356,979
Shareholders’ equity			296,055								303,019								379,677
Total liabilities and shareholders’ equity		$	3,660,670							$	3,648,873							$	3,686,350
Net interest margin (tax equivalent) (6)(9)						2.52		percent						2.63		percent						2.89		percent
See footnotes at end of statements, tables and schedules.

Net Interest Margin
Midwest Banc Holdings, Inc.
(In thousands)
		For the Six Months Ended
			June 30, 2009								June 30, 2008
			Average			Average					Average			Average
			Balance			Rate					Balance			Rate
Interest-Earning Assets:
Short-term investments		$	32,320			0.69		percent		$	22,317			2.20		percent
Securities:
Taxable(6)			628,127			3.69					702,687			5.43
Exempt from federal income taxes(6)			50,735			3.77					61,741			5.93
Total securities			678,862			3.70					764,428			5.47
FRB and FHLB stock			30,996			2.32					29,247			2.51
Loans (7)(8)(9)			2,564,377			5.45					2,459,658			6.37
Total interest-earning assets		$	3,306,555			5.02		percent		$	3,275,650			6.10		percent
Noninterest-Earning Assets:
Cash		$	56,453							$	54,164
Premises and equipment			38,752								39,735
Allowance for loan losses			(52,389	)							(23,850	)
Other			305,433								340,610
Total noninterest-earning assets			348,249								410,659
Total assets		$	3,654,804							$	3,686,309
Interest-Bearing Liabilities:
Deposits:
Interest-bearing demand deposits		$	175,775			0.55		percent		$	216,296			1.14		percent
Money-market demand and savings accounts			355,304			0.83					405,235			1.49
Time deposits			1,638,682			2.92					1,459,235			4.24
Total interest-bearing deposits			2,169,761			2.39					2,080,766			3.38
Borrowings:
Fed funds purch & repurchase agreements			326,653			3.97					427,063			3.82
FHLB advances			352,762			3.44					305,601			3.87
Junior subordinated debentures			60,808			4.45					60,741			6.33
Revolving note payable			8,600			3.05					7,632			4.56
Term note payable			55,000			1.99					62,417			4.68
Subordinated debt			15,000			3.95					7,582			6.20
Total borrowings			818,823			3.63					871,036			4.10
Total interest-bearing liabilities		$	2,988,584			2.73		percent		$	2,951,802			3.59		percent
Noninterest-Bearing Liabilities:
Noninterest-bearing demand deposits		$	332,286							$	319,309
Other liabilities			34,417								34,058
Total noninterest-bearing liabilities			366,703								353,367
Shareholders’ equity			299,517								381,140
Total liabilities and shareholders’ equity		$	3,654,804							$	3,686,309
Net interest margin (tax equivalent)(6)(9)						2.55		percent						2.86		percent
See footnotes at end of statements, tables and schedules.

Credit Risk Management
Midwest Banc Holdings, Inc.
(In thousands)
		Three Months Ended
			June 30,					March 31,					Dec. 31,					Sept. 30,					June 30,
			2009					2009					2008					2008					2008
Loan Quality
Nonaccrual loans		$	95,023				$	80,332				$	61,104				$	60,474				$	40,956
Troubled debt restructuring			11,006					11,006					11,006					—					—
Nonperforming loans			106,029					91,338					72,110					60,474					40,956
Foreclosed properties			19,588					18,534					12,018					8,025					2,375
Nonperforming assets		$	125,617				$	109,872				$	84,128				$	68,499				$	43,331
90+ days past due and accruing		$	—				$	—				$	—				$	—				$	4,320
Loans		$	2,559,257				$	2,591,048				$	2,509,759				$	2,494,225				$	2,501,082
Loan-related assets		$	2,578,845				$	2,609,582				$	2,521,777				$	2,502,250				$	2,503,457
Nonaccrual loans to loans			3.71		percent			3.10		percent			2.43		percent			2.42		percent			1.64		percent
Nonperforming assets to loan-related assets			4.87		percent			4.21		percent			3.34		percent			2.74		percent			1.73		percent
Nonperforming assets to total assets			3.52		percent			2.96		percent			2.36		percent			1.91		percent			1.16		percent
Allowance for Loan Losses
Beginning balance		$	53,011				$	44,432				$	39,428				$	22,606				$	20,344
Provision for loan losses			20,000					13,000					20,000					41,950					4,415
Net chargeoffs (recoveries)			9,118					4,421					14,996					25,128					2,153
Ending balance		$	63,893				$	53,011				$	44,432				$	39,428				$	22,606
Net chargeoffs to average loans			1.41		percent			0.70		percent			2.39		percent			3.98		percent			0.35		percent
Delinquencies 30 – 89 days to loans			2.18		percent			1.48		percent			1.03		percent			0.99		percent			0.35		percent
Allowance for loan losses to
Loans at period end			2.50		percent			2.05		percent			1.77		percent			1.58		percent			0.90		percent
Nonaccrual loans			67		percent			66		percent			73		percent			65		percent			55		percent

Footnotes
Midwest Banc Holdings, Inc.
(In thousands)
(1)	Shareholders’ equity less goodwill and net core deposit intangible and other intangibles.
				June 30,				March 31,				Dec. 31,				Sept. 30,				June 30,
				2009				2009				2008				2008				2008
	Shareholders’ equity		$	219,671			$	301,070			$	305,834			$	207,237			$	370,698
	Core deposit intangible & other intangibles, net			(13,537	)			(14,110	)			(14,683	)			(15,274	)			(15,864	)
	Goodwill			(78,862	)			(78,862	)			(78,862	)			(78,862	)			(159,083	)
	Tangible shareholders’ equity		$	127,272			$	208,098			$	212,289			$	113,101			$	195,751
(2)	Excludes net gains or losses on securities transactions.
(3)	Noninterest expense less amortization and foreclosed properties expenses divided by the sum of net interest income (tax equivalent) plus noninterest income.
(4)	Total assets less goodwill and net core deposit intangible and other intangibles.
				June 30,				March 31,				Dec. 31,				Sept. 30,				June 30,
				2009				2009				2008				2008				2008
	Total assets		$	3,569,199			$	3,713,064			$	3,570,212			$	3,583,377			$	3,726,720
	Core deposit intangible & other intangibles, net			(13,537	)			(14,110	)			(14,683	)			(15,274	)			(15,864	)
	Goodwill			(78,862	)			(78,862	)			(78,862	)			(78,862	)			(159,083	)
	Tangible assets		$	3,476,800			$	3,620,092			$	3,476,667			$	3,489,241			$	3,551,773
(5)	Includes net interest income and noninterest income.
(6)	Adjusted for 35 percent tax rate and for the dividends-received deduction where applicable, except for the quarter and six months ended June 30, 2009 as a result of the Company's current tax position.
(7)	Nonaccrual loans are included in the average balance; however, these loans are not earning any interest.
(8)	Includes loan fees.
(9)	Reconciliation of reported net interest income to tax equivalent net interest income.
			Three Months Ended
				June 30,				March 31,				June 30,
				2009				2009				2008
	Net interest income		$	21,055			$	21,102			$	22,765
	Tax equivalent adjustment to net interest income			-				357				909
	Net interest income, tax equivalent basis		$	21,055			$	21,459			$	23,674
			Six Months Ended
				June 30,				June 30,
				2009				2008
	Net interest income		$	42,157			$	44,981
	Tax equivalent adjustment to net interest income			-				1,801
	Net interest income, tax equivalent basis		$	42,157			$	46,782
(10)	Reconciliation of common equity to shareholders’ equity.
				June 30,				March 31,				Dec. 31,				Sept. 30,				June 30,
				2009				2009				2008				2008				2008
	Preferred equity		$	123,206			$	122,976			$	122,748			$	43,125			$	43,125
	Common equity			96,465				178,094				183,086				164,112				327,573
	Shareholders’ equity		$	219,671			$	301,070			$	305,834			$	207,237			$	370,698
	Reconciliation of tangible common equity to tangible shareholders’ equity.
				June 30,				March 31,				Dec. 31,				Sept. 30,				June 30,
				2009				2009				2008				2008				2008
	Preferred equity		$	123,206			$	122,976			$	122,748			$	43,125			$	43,125
	Tangible common equity			4,066				85,122				89,541				69,976				152,626
	Tangible shareholders’ equity		$	127,272			$	208,098			$	212,289			$	113,101			$	195,751
	Reconciliation of common shares outstanding at period end to "if converted” shares outstanding.
				June 30,				March 31,				Dec. 31,				Sept. 30,				June 30,
				2009				2009				2008				2008				2008
	Common shares outstanding			27,944				27,929				27,893				27,859				27,859
	Resulting common shares if
	preferred shares were converted			2,875				2,875				2,875				2,875				2,875
	"If converted” shares outstanding			30,819				30,804				30,768				30,734				30,734
(11)	Prior periods with earnings were re-stated per FSP EITF 03-6-1 to allocate earnings to restricted shares of common stock that are considered participating securities.