10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2008
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from          to

Commission file number 001-13735

Midwest Banc Holdings, Inc.

(Exact name of Registrant as specified in its charter)

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

501 West North Avenue, Melrose Park, Illinois 60160

(Address of principal executive offices including ZIP Code)

(708) 865-1053

(Registrant’s telephone number including Area Code)

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

Depositary Shares each representing 1/100^th of a Share of Series A

Noncumulative Redeemable Convertible Preferred Stock,

$25.00 liquidation preference, NASDAQ Global Market

(Title of Class)

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

Common Stock, $0.01 par value, NASDAQ Global Market

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o     No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer  Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller reporting company o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o     No þ

The aggregate market value of the voting and nonvoting common equity held by nonaffiliates of the registrant on June 30, 2008, based on the last sales price quoted on the NASDAQ Global Market System on that date, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $135.7 million.

As of March 10, 2009, the number of shares outstanding of the registrant’s common stock, par value $0.01 per share, was 27,924,779.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’s Proxy Statement for the 2009 Annual Meeting of Stockholders are incorporated by reference into Part III.

MIDWEST BANC HOLDINGS, INC.

FORM 10-K

INDEX

			Page
			No.
PART I
	Item 1.	Business		1
	Item 1A.	Risk Factors		27
	Item 1B.	Unresolved Staff Comments		39
	Item 2.	Properties		40
	Item 3.	Legal Proceedings		41
	Item 4.	Submission of Matters to a Vote of Security Holders		41
PART II
	Item 5.	Market for the Registrant’s Common Equity and Related Stockholder Matters		41
	Item 6.	Selected Consolidated Financial Data		44
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		47
	Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		81
	Item 8.	Consolidated Financial Statements and Supplementary Data		83
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		83
	Item 9A.	Controls and Procedures		83
	Item 9B.	Other Information		84
PART III
	Item 10.	Directors and Executive Officers of the Registrant		84
	Item 11.	Executive Compensation		84
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		84
	Item 13.	Certain Relationships and Related Transactions		84
	Item 14.	Principal Accounting Fees and Services		84
PART IV
	Item 15.	Exhibits and Financial Statement Schedules		85
Signature(s) Page				89
Contents of Consolidated Financial Statements				F-1
EX-10.62
EX-10.63
EX-10.64
EX-10.65
EX-10.66
EX-10.67
EX-12.1
EX-21.1
EX-23.1
EX-31.1
EX-31.2
EX-32.1

PART I

Item 1.   Business

The Company

Midwest Banc Holdings, Inc., the Company, a Delaware corporation founded in 1983, is a community-based bank holding company headquartered in Melrose Park, Illinois. Through its wholly owned subsidiaries, the Company provides a wide range of services, including traditional banking services, personal and corporate trust services, and insurance brokerage and retail securities brokerage services. The Company’s principal operating subsidiary is Midwest Bank and Trust Company, the Bank, an Illinois state bank that operates 27 banking centers in the Chicago metropolitan area. The Company operates in one business segment, community banking, providing a full range of services to individual and corporate customers. Midwest Financial and Investment Services, Inc., a subsidiary of the Bank, is a Financial Industry Regulatory Authority, FINRA, registered broker/dealer that provides securities brokerage and insurance services to customers of the Bank.

The Company focuses on establishing and maintaining long-term relationships with customers and is committed to providing for the financial services needs of the communities it serves. In particular, the Company continues to emphasize its relationships with individual customers and small-to-medium-sized businesses. The Company actively evaluates the credit needs of its markets, including low- and moderate-income areas, and offers products that are responsive to the needs of its customer base. The markets served by the Company provide a mix of real estate, commercial and industrial, and consumer lending opportunities, as well as a stable core deposit base. The Company has expanded its trust administration and trust services activities along with broker/dealer activities.

Recent Developments

On January 29, 2009, the Company announced that Jay Fritz had been appointed to serve as its President and Chief Executive Officer, and that the Bank appointed Mr. Fritz to serve as its Chief Executive Officer. Mr. Fritz has served as Executive Vice President of the Company and President and Chief Operating Officer of the Bank since July of 2006. Mr. Fritz is a seasoned executive with over thirty years of banking experience. Prior to joining the Company, he served as Chairman and Chief Executive Officer of Royal American Bank, which was acquired by the Company in July of 2006. He has served as Chief Executive Officer of First Chicago Bank of Mt. Prospect, Illinois, and has held various management positions at Northern Trust, First National Bank of Libertyville and Continental Illinois National Bank. Mr. Fritz replaced James J. Giancola.

In response to the financial crises affecting the overall banking system and financial markets, on October 3, 2008, the Emergency Economic Stabilization Act of 2008, EESA, was enacted. Under the EESA, the United States Treasury Department (the “U.S. Treasury”) has the authority to, among other things, purchase mortgages, mortgage backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets.

On October 3, 2008 the Troubled Asset Relief Program, TARP, became effective. The TARP gave the U.S. Treasury authority to deploy up to $700 billion into the financial system with an objective of improving liquidity in capital markets. On October 14, 2008, the U.S. Treasury announced plans to direct $250 billion of this authority into preferred stock investments in financial institutions. The general terms of this preferred stock program are as follows for a participant: pay 5% dividends on the U.S. Treasury’s preferred stock for the first five years and 9% dividends thereafter; cannot increase common stock dividends for three years while Treasury is an investor without their permission; the U.S. Treasury receives warrants entitling it to buy a participant’s common stock equal to 15% of the U.S. Treasury’s total initial investment in the participant; and the participating company’s executives must agree to certain compensation restrictions, and restrictions on the amount of executive compensation which is tax deductible and other detailed terms and conditions. The term of this preferred stock program could reduce investment returns to participating companies’ stockholders by restricting dividends to common stockholders, diluting existing stockholders’ interests, and restricting capital management practices. The TARP capital purchase program is a voluntary program designed to help healthy institutions build capital to support the U.S. economy by increasing the flow of financing to U.S. businesses and consumers.

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Although the Company exceeded all applicable regulatory capital requirements, it submitted an application for participation in the TARP capital purchase program and it sold 84,784 shares of Series T preferred stock to the U.S. Treasury for an aggregate purchase price of $84.784 million and issued a warrant to the U.S. Treasury which will allow it to acquire 4,282,020 shares of its common stock for $2.97 per share. The Series T preferred stock qualifies as Tier 1 capital and will pay cumulative dividends at a rate of 5% per annum for the first five years, and 9% per annum thereafter. The senior preferred stock is non-voting, other than class voting rights on certain matters that could amend the rights of or adversely affect the stock.

If the Company completes one or more qualified equity offerings on or prior to December 31, 2009 that result in its receipt of aggregate gross proceeds of not less than $84.784 million, which is equal to 100% of the aggregate liquidation preference of the Series T preferred stock, the number of shares of common stock underlying the warrant then held by the selling securityholders will be reduced by 50% to 2,141,010 shares. The number of shares for which the warrant may be exercised and the exercise price applicable to the warrant will be proportionately adjusted in the event the Company pays stock dividends or makes distributions of its common stock, subdivides, combines or reclassifies outstanding shares of its common stock.

The Federal Deposit Insurance Corporation, FDIC, insures deposits at FDIC insured financial institutions up to certain limits. The FDIC charges insured financial institutions premiums to maintain the Deposit Insurance Fund. Current economic conditions have increased expectations for bank failures, in which case the FDIC would take control of failed banks and ensure payment of deposits up to insured limits using the resources of the Deposit Insurance Fund. In 2009, the FDIC plans to increase premium assessments to maintain adequate funding of the Deposit Insurance Fund. Assessment rates set by the FDIC effective December 5, 2009 range from 5 to 43 basis points. These increases in premium assessments will increase the Company’s expenses. See “Item 1. Business — Supervision and Regulation — FDIC Insurance Premiums on Deposit Accounts.”

On February 27, 2009, the FDIC board agreed to impose an emergency special assessment of 20 basis points on all banks to restore the Deposit Insurance Fund to an acceptable level. The assessment, which will be payable on September 30, 2009, is in addition to a planned increase in premiums and a change in the way regular premiums are assessed, which the board also approved on that date. This emergency special assessment for the Company is projected to be $5.0 million based on December 31, 2008 data.

The EESA included a provision for an increase in the amount of deposits insured by the FDIC to $250,000 until December 2009. On October 14, 2008, the FDIC announced a new program, the Temporary Liquidity Guarantee Program, that provides unlimited deposit insurance on funds in noninterest-bearing transaction deposit accounts not otherwise covered by the existing deposit insurance limit of $250,000. The Company has elected to participate in the Temporary Liquidity Guarantee Program and will incur a 10 basis point surcharge as a cost of participation. The behavior of depositors in regard to the level of FDIC insurance could cause the Company’s existing customers to reduce the amount of deposits held at the Company, and or could cause new customers to open deposit accounts. The level and composition of the Company’s deposit portfolio directly impacts its funding cost and net interest margin.

The EESA followed, and has been followed by, numerous actions by the Federal Reserve, the U.S. Congress, U.S. Treasury, the FDIC, the SEC and others to address the current liquidity and credit crisis that has followed the sub-prime meltdown that commenced in 2007. These measures include homeowner relief that encourage loan restructuring and modification; the establishment of significant liquidity and credit facilities for financial institutions and investment banks; the lowering of the federal funds rate; emergency action against short selling practices; a temporary guaranty program for money market funds; the establishment of a commercial paper funding facility to provide back-stop liquidity to commercial paper issuers; and coordinated international efforts to address illiquidity and other weaknesses in the banking sector.

On February 17, 2009, President Barack Obama signed the American Recovery and Reinvestment Act of 2009, ARRA, more commonly known as the economic stimulus or economic recovery package. ARRA includes a wide variety of programs intended to stimulate the economy and provide for extensive infrastructure, energy, health and education needs. In addition, ARRA imposes new executive compensation and corporate governance limits on current and future participants in TARP, including the Company, which are in addition to those previously announced by U.S. Treasury. The new limits remain in place until the participant has redeemed the preferred stock

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sold to U.S. Treasury, which is now permitted under ARRA without penalty and without the need to raise new capital, subject to U.S. Treasury’s consultation with the recipient’s appropriate federal regulator.

There can also be no assurance as to the actual impact that the EESA, the ARRA and other programs will have on the financial markets, including the extreme levels of volatility and limited credit availability currently being experienced. The failure of the EESA, the ARRA and other programs to stabilize the financial markets and a continuation or worsening of current financial market conditions could materially and adversely affect our business, financial condition, results of operations, access to credit or the trading price of our common stock.

The EESA and the ARRA are relatively new legislation and, as such, is subject to change and evolving interpretation. This is particularly true given the change in administration that occurred on January 20, 2009. There can be no assurances as to the effects that such changes will have on the effectiveness of the EESA or on our business, financial condition or results of operations.

The purpose of these legislative and regulatory actions is to stabilize the U.S. banking system. The EESA, the ARRA and the other regulatory initiatives described above may not have their desired effects. If the volatility in the markets continues and economic conditions fail to improve or worsen, our business, financial condition, results of operations and cash flows could be materially and adversely affected.

2008 Developments

The Company recognized a non-cash, non-operating, other-than-temporary impairment charge of $47.8 million at September 30, 2008 on certain FNMA and FHLMC preferred equity securities similar to the impairment charge of $17.6 million taken in the first quarter of 2008. In September 2008, the Company sold a portion of its FNMA and FHLMC preferred equity securities recognizing a $16.7 million loss. It also recognized an impairment charge of $80.0 million on its goodwill intangible asset based upon an appraisal by an independent third party. The decline in value was primarily the result of a decline in market capitalization. During 2008, the Company recognized net loan charge-offs of $54.1 million and recorded a $71.8 million loan loss provision, reflecting management’s updated assessments of impaired loans and concerns about the continued deterioration of economic conditions. During the first quarter of 2008, the Company also incurred a $7.1 million loss on the early extinguishment of debt arising from the prepayment of $130.0 million in FHLB advances, and recognized a $15.2 million gain on the sale of real estate.

On December 16, 2008, the Board of Directors of the Company and the Bank elected Percy L. Berger Chairman of the Board of Directors of the Company and the Bank effective December 31, 2008. Mr. Berger replaced Homer J. Livingston, Jr. who resigned as a Director and Chairman of the Company and the Bank effective December 31, 2008.

2007 Developments

On October 1, 2007, the Company completed its acquisition of Northwest Suburban Bancorp, Inc., Northwest Suburban, in a cash and stock merger transaction. At acquisition, Northwest Suburban had total assets of $546.2 million. The agreement and plan of merger provided that the Company’s stock comprised up to 45% of the purchase price, at an exchange ratio of 2.4551 shares of Company common stock for each Northwest Suburban common share, and that the remainder be paid in cash at the rate of $42.75 for each share of Northwest Suburban common stock. The Company issued 3.7 million shares of common stock, paid $81.2 million in cash, and incurred $414,000 in costs which were capitalized for a total purchase price of $136.7 million. The Company used the proceeds from a $75.0 million term note under a borrowing facility it has with a correspondent bank to pay for a portion of the cash requirement of the acquisition. The term note had an initial rate of one-month LIBOR plus 140 basis points and matures on September 28, 2010.

This acquisition added five more branches and made the Company, based on deposits, the 17th largest bank in the Chicago area as well as expanding the Company’s geographic footprint in the northwest suburbs. Northwest Suburban’s branch locations in Des Plaines, Lakemoor, Lake Zurich, Mount Prospect, and North Barrington provided a complimentary addition to the Company’s branches in northwest Cook, Kane, Lake, and McHenry counties. In addition, the Company believes that this acquisition contributed to the expansion and diversification of its loan portfolio, its deposit base, and its noninterest income.

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In December 2007, the Company raised $41.4 million in new equity capital, net of issuance costs, through an offering of 1,725,000 depositary shares, including the over-allotment exercised by the underwriters, each representing 1/100th of a share of its Series A noncumulative redeemable convertible perpetual preferred stock, at $25.00 per depositary share. The infusion of capital strengthened the Company’s balance sheet as well as allowed it to partially pay down balances outstanding on its term note and revolving line of credit and contribute capital to the Bank.

Strategy

The Company’s strategic plan emphasizes expanded penetration of the community banking market in the Chicago metropolitan area, along with strong management of asset quality and risk. Among the strategies developed to achieve growth targets are:

Expand and diversify loan portfolio.  The Company has increased its staff of commercial loan officers and will continue to recruit or develop internally the best lending talent in the marketplace. Through acquisitions made in 2006 and 2007, the Company significantly enhanced loan portfolio diversification along with adding seasoned management with strong credit and new business development skills. Growth is expected in commercial and industrial lending, as construction lending continues to decline as a percentage of the total loan portfolio. The Company will continue to seek out quality real estate loans, using appropriate underwriting standards, in order to build strong borrower relationships as opposed to transaction volume. All loan growth will be consistent with serving our market while maintaining appropriate levels of liquidity and ensuring a safe and secure environment for our depositors.

Expand deposit base.  To fund loan growth, the Company is focused on core deposit generation, including demand, interest-bearing demand, money market, and savings deposits. Acquisitions in 2006 and 2007 added strong core deposit bases. The Company has changed and expanded staffing and management at its banking centers and initiated a number of customer outreach initiatives to expand deposits in a highly competitive market. The Company maintains a performance-driven sales environment and seeks to increase customer activity in its branches. The competitive Chicago market continues to be a challenging environment for attracting low cost core deposits.

Expand noninterest income.  The Company is focusing on opportunities to build the contribution of fees as a percentage of revenue, emphasizing corporate cash management, and insurance, investment, and trust services.

Management believes its growth strategies to be fundamentally sound and based on reasonable opportunities available in the Chicago market. The Company has established internal benchmarks for each growth initiative and has taken a number of steps to align compensation with achievement of these benchmarks.

The Company continues to pursue opportunities to control expenses. In July 2007, the Company entered into a joint marketing arrangement with the largest privately held mortgage bank in Chicago. Through this arrangement, approximately fifteen of the Company’s employees became employees of this mortgage bank, eliminating the fixed costs and inherent risks associated with this very cyclical business. This also enabled the Company to offer its customers an even broader array of residential mortgage products.

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Certain information with respect to the Bank and the Company’s nonbank subsidiaries as of December 31, 2008, is set forth below:

			Number of
			Banking Centers
Company Subsidiaries	Headquarters	Market Area	or Offices
Banks:
Midwest Bank and Trust Company	Elmwood Park, IL	Algonquin, Bensenville, Bloomingdale, Buffalo Grove, Chicago, Des Plaines, Downers Grove, Elgin, Elmwood Park, Franklin Park, Glenview, Hinsdale, Inverness, Island Lake, Lakemoor, Long Grove, McHenry, Melrose Park, Mount Prospect, Naperville, Norridge, North Barrington, Roselle, and Union		27
Non-banks:
MBTC Investment Company	Las Vegas, NV	*		2
Midwest Funding, L.L.C.	Melrose Park, IL	**		1
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	***		—
Northwest Capital Trust I	Melrose Park, IL	***		—
Midwest Financial and Investment
Services, Inc.	Elmwood Park, IL	****		24

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

History

The Bank

Midwest Bank and Trust Company was established in 1959 in Elmwood Park, Illinois to provide community and commercial banking services to individuals and businesses in the neighboring western suburbs of Chicago. The Company has pursued growth opportunities through acquisitions and the establishment of new branches. The more recent are described below.

•  On July 1, 2006, the Company completed its acquisition of Royal American. The Company issued 2.9 million common shares, paid $64.6 million in cash, and incurred $795,000 in costs that were capitalized for a total purchase price of $129.2 million. Royal American Bank merged into the Bank on July 1, 2006. Royal American had total assets of $561.2 million.

•  On October 1, 2007, the Company completed its acquisition of Northwest Suburban. The Company issued 3.7 million common shares, paid $81.2 million in cash, and incurred $414,000 in costs which were capitalized for a total purchase price of $136.7 million. Mount Prospect National Bank merged into the Bank on October 1, 2007. Northwest Suburban had total assets of $546.2 million.

•  During December 2008, the Company closed two unprofitable branches located in Addison and Lake Zurich, Illinois. The Company also took steps to relocate its Bucktown and Michigan Avenue Chicago branches and to open a second branch in the downtown Chicago business district.

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Non-bank Subsidiaries

The Company’s non-bank subsidiaries were established to support the retail and commercial banking activities of the Bank.

In August 2002, the Bank established MBTC Investment Company. This subsidiary was capitalized through the transfer of investment securities from the Bank and was formed to diversify management of that portion of the Company’s securities portfolio. In May 2006, MBTC Investment Company established Midwest Funding, L.L.C. This subsidiary holds real estate assets.

In July 2006, the Bank acquired Midwest Financial and Investment Services, Inc., Midwest Financial, a registered bank-affiliated securities broker-dealer and registered investment advisor, through the Royal American merger. Midwest Financial is registered with the SEC as a broker-dealer and is a member of FINRA. It operates a general securities business as an introducing broker-dealer.

The Company formed four statutory trusts between October 2002 and June 2005 to issue $54.0 million in floating-rate trust preferred securities. Through the Royal American merger in July 2006, the Company acquired a statutory trust that in April 2004 had issued $10.0 million in trust preferred securities which have a fixed rate until the optional redemption date of July 23, 2009 and a floating rate thereafter until maturity. Through the Northwest Suburban merger in October 2007, the Company acquired a statutory trust that in May 2004 had issued $10.0 million in floating-rate trust preferred securities. These offerings were pooled private placements exempt from registration under the Securities Act pursuant to Section 4(2) thereunder. In November 2007, the Company redeemed $15.0 million in trust preferred securities originally issued through MBHI Capital Trust II. The Company has provided a full, irrevocable, and unconditional subordinated guarantee of the obligations of the five existing trusts under the preferred securities. The Company is obligated to fund dividends on these securities before it can pay dividends on its shares of common and preferred stock. See Note 13 to the Notes to the Consolidated Financial Statements. These five trusts and their trust preferred securities are detailed below as follows:

					Mandatory	Optional
					Redemption	Redemption
Issuer	Issue Date	Amount		Rate	Date	Date(1)
		(In thousands)
MBHI Capital Trust III	December 19, 2003	$	9,000	LIBOR+3.00%	December 30, 2033	December 30, 2008
MBHI Capital Trust IV	December 19, 2003	$	10,000	LIBOR+2.85%	January 23, 2034	January 23, 2009
MBHI Capital Trust V	June 7, 2005	$	20,000	LIBOR+1.77%	June 15, 2035	June 15, 2010
Royal Capital Trust I	April 30, 2004	$	10,000	6.62% until July 23, 2009; LIBOR+2.75% thereafter	July 23, 2034	July 23, 2009
Northwest Suburban Capital Trust I	May 18, 2004	$	10,000	LIBOR+2.70%	July 23, 2034	July 23, 2009

(1) Redeemable at option of the Company.

Markets

The largest segments of the Company’s customer base live and work in relatively mature markets in Cook, DuPage, Kane, Lake, and McHenry Counties. The Company considers its primary market areas to be those areas immediately surrounding its offices for retail customers and generally within a 10-20 mile radius for commercial relationships. The Bank operates 27 full-service locations in the Chicago metropolitan area. The communities in which the Bank’s offices are located have a broad spectrum of demographic characteristics. These communities include a number of densely populated areas as well as suburban areas, and some extremely high-income areas as well as many middle-income and some low-to-moderate income areas.

Competition

The Company competes in the financial services industry through the Bank and Midwest Financial. The financial services business is highly competitive. The Company encounters strong direct competition for deposits, loans, and other financial services with the Company’s principal competitors including other commercial banks, savings banks, savings and loan associations, mutual funds, money market funds, finance companies, credit unions,

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mortgage companies, insurance companies and agencies, private issuers of debt obligations and suppliers of other investment alternatives, such as securities firms.

Several major multi-bank holding companies operate in the Chicago metropolitan market. Generally, these financial institutions are significantly larger than the Company and have access to greater capital and other resources. Over the past few years, several hundred new bank branches have opened in the Company’s marketplace. Deposit pricing is competitive with promotional rates frequently offered by competitors. In addition, many of the Company’s non-bank competitors are not subject to the same degree of regulation as that imposed on bank holding companies, federally insured banks, and Illinois-chartered banks. As a result, such non-bank competitors have advantages over the Company in providing certain services.

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

The Chicago market is highly competitive making it more difficult to retain and attract customer relationships. The Company recognizes this and has initiatives to address the competition. Part of the Company’s marketing strategy is to create a performance-driven sales environment, increase activity in its branches, launch a renewed promotional image, and build and market a strong private banking program. The Company competes for qualified personnel by offering competitive levels of compensation, management and employee cash incentive programs, and by augmenting compensation with stock options and restricted stock grants pursuant to its stock and incentive plan. Attracting and retaining high quality employees is important in enabling the Company to compete effectively for market share.

Products and Services

Deposit Products

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

Checking and Interest-bearing Checking Accounts.  The Company has developed a range of different checking account products (e.g., Free Checking and Business Advantage Checking) designed and priced to meet specific target segments of the local markets served by each branch.

Savings and Money Market Accounts.  The Company offers multiple types of money market accounts and savings accounts (e.g., Relationship Savings which offers higher rates with deeper banking relationships).

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

Lending Services

The Company’s loan portfolio consists of commercial loans, construction loans, commercial real estate loans, consumer real estate loans, and consumer loans. Management emphasizes credit quality and seeks to avoid undue concentrations of loans to a single industry or based on a single class of collateral. The Company generally requires personal guarantees of the principal except on cash secured, state or political subdivision, or not-for-profit organization loans. The Company has focused its efforts on building its lending business in the following areas:

Commercial Loans.  Commercial and industrial loans are made to small-to medium-sized businesses that are sole proprietorships, partnerships, and corporations. Generally, these loans are secured with collateral including accounts receivable, inventory and equipment. The personal guarantees of the principals may also be required. Frequently, these loans are further secured with real estate collateral. Beginning with the fourth quarter of 2007,

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owner-occupied commercial real estate loans, where repayment is not dependent on the real estate collateral, were reclassified as commercial loans where previously they were included in the commercial real estate classification.

Construction Loans.  Construction loans include loans for land development and for commercial and residential development and improvements. The majority of these loans are in-market to known and established borrowers. During the past two years, these types of loans decreased as a percentage of the loan portfolio to 14.6% at December 31, 2008 from 21.8% at December 31, 2006.

Commercial Real Estate Loans.  Commercial real estate loans are loans secured by real estate including farmland, multifamily residential properties, and other nonfarm-nonresidential properties. These loans are generally short-term balloon loans, with fixed or adjustable rate mortgages and terms of one to five years.

Consumer Real Estate Loans.  Consumer real estate loans are made to finance residential units that will house from one to four families. While the Company originates both fixed and adjustable rate consumer real estate loans, most medium-term fixed-rate loans originated pursuant to Fannie Mae and Freddie Mac guidelines were sold in the secondary market. In the normal course of business, the Company retains one-to five-year adjustable rate loans. The Company exited the residential mortgage origination business in June 2007.

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

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

Lending officers are assigned various levels of loan approval authority based upon their respective levels of experience and expertise. Loan approval is also subject to the Company’s formal loan policy, as established by the Bank’s Board of Directors. The Bank’s loan policies establish lending authority and limits on an individual and committee basis. The loan approval process is designed to facilitate timely decisions while adhering to policy parameters and risk management targets.

ATMs

The Bank maintains a network of 29 ATM sites generally located within the Bank’s local market. All ATMs are owned by the Bank. Twenty-five of the ATM sites are located at various banking centers and four are maintained off-site. The Bank is a member of the STAR, Allpoint/STARsf, and MoneyPass Networks. The Bank’s participation in the STARsf/Allpoint and MoneyPass networks allows customers to have surcharge free access to their accounts at thousands of ATMs nationwide.

Trust Activities

The Bank offers personal and corporate trust, employee benefit trust, land trust, and agencies, custody, and escrow services. As of December 31, 2008, the Bank maintained trust relationships holding an aggregate market value of $154.5 million in assets and administered 1,608 land trust accounts.

Insurance and Securities Brokerage

The Bank’s subsidiary, Midwest Financial is registered with the SEC as a broker-dealer and is a member of FINRA. Midwest Financial operates a general securities business as an introducing broker-dealer. The area served by Midwest Financial is the Chicago metropolitan area. It holds neither customer accounts nor customers’ securities. Licensed brokers serve all branches and provide insurance and investment-related services, including securities trading, financial planning, mutual funds sales, fixed and variable rate annuities, and tax-exempt and conventional unit trusts. This activity furthers one of the Company’s strategic goals of increasing revenues from investment sources to enhance the Company’s profitability.

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Employees

As of December 31, 2008, the Company and its subsidiaries had 536 full-time equivalent employees compared to 539 full-time equivalent employees a year ago. Management considers its relationship with its employees to be good.

Available Information

The Company’s internet address is www.midwestbanc.com. The Company is an SEC registrant and posts its SEC filings, including Forms 10-K, 10-Q, 8-K, proxy statements, and amendments thereto, on its website under Investor Relations on the day they are filed. The Company will also provide free copies of its filings upon written request to: Investor Relations, 501 West North Ave., Melrose Park, IL 60160.

The public may read and copy any materials filed with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The Company is an electronic filer. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at the SEC’s site: http://www.sec.gov.

The Company has a Corporate Governance webpage. The public can access information about the Company’s corporate governance at www.midwestbanc.com and by selecting Investor Relations and then Corporate Governance. The Company posts the following on its Corporate Governance webpage:

•  Asset/Liability Committee Charter

•  Code of Business Conduct and Ethics

•  Director Independence Standards

•  Audit Committee Charter

•  Compensation Committee Charter

•  Corporate Governance and Nominating Committee Charter

•  Enterprise Risk Management Committee Charter

•  Strategic Opportunities Committee Charter

SUPERVISION AND REGULATION

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

Recent Developments

In response to the financial crises affecting the overall banking system and financial markets, on October 3, 2008, the Emergency Economic Stabilization Act of 2008, was enacted. Under the EESA, the U.S. Treasury has the authority to, among other things, purchase mortgages, mortgage backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets.

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As indicated above, on December 5, 2008, the Company sold 84,784 shares of Series T preferred stock to the U.S. Treasury for an aggregate purchase price of $84.784 million and issued a warrant to the U.S. Treasury to acquire 4,282,020 shares of its common stock for $2.97 per share pursuant to the Letter Agreement.

The Company has agreed that, until such time as the U.S. Treasury ceases to own any of the Company’s debt or equity securities acquired pursuant to the Letter Agreement, the Company will take all necessary action to ensure that its benefit plans with respect to its senior executive officers comply with Section 111(b) of the EESA as implemented by any guidance or regulation under the EESA that has been issued and is in effect as of December 5, 2008 and has agreed to not adopt any benefit plans with respect to, or which covers, its senior executive officers that do not comply with the EESA, and the applicable executives have consented to the foregoing.

Section 111(b)(2)(A) of EESA requires limits on compensation which would encourage the Company’s senior executive officers subject to EESA to take unnecessary and excessive risks that threaten the value of the Company during the period that the U.S. Treasury holds an equity or debt position in the Company. The Company’s compensation committee must certify that it has conducted a review of the incentive compensation arrangements of these senior executive officers. This certification must appear in the Compensation Committee Report included in the Company’s proxy statement for its annual meeting of stockholders.

Section 111(b)(2)(B) of EESA requires that a provision be included in incentive compensation arrangements for the recovery of any bonus or incentive compensation paid to a senior executive officer subject to EESA based on statements of earnings, gains, or other criteria that are later proven to be materially inaccurate. Section 111(b)(2)(C) of EESA prohibits the Company from making any golden parachute payment to its senior executive officers subject to EESA during the period that the U.S. Treasury holds an equity or debt position in the Company. The Company also has to comply with Section 162m(5) of the Internal Revenue Code which limits the federal income tax deduction for executive remuneration to a senior executive officer subject to EESA to $500,000.

Under the rules, the Company’s CEO, CFO and the three next most highly compensated executive officers are subject to the EESA rules. All of the compensation arrangements between these officers and the Company were amended prior to the receipt of the funds from the U.S. Treasury so that such arrangements comply with EESA.

The Company’s CEO must certify to the U.S. Treasury within 135 days of the end of each fiscal year, the Company’s compliance with the EESA rules discussed above.

In addition, the Company expects that participation in the Capital Purchase Program, the CPP, will subject it to increased oversight by the U.S. Treasury, regulators and Congress. Under the terms of the CPP, the U.S. Treasury would have the power to unilaterally amend the terms of the purchase agreement to the extent required to comply with changes in applicable federal law and to inspect the Company’s corporate books and records through its federal banking regulator.

On January 12, 2009, the FDIC announced that State nonmember institutions should implement a process to monitor their use of capital injections, liquidity support and/or financing guarantees obtained through recent financial stability programs established by the Treasury, the FDIC and the Federal Reserve. In particular, the FDIC indicated that the monitoring processes should help to determine how participation in these federal programs has assisted institutions in supporting prudent lending and/or supporting efforts to work with existing borrowers to avoid unnecessary foreclosures. The FDIC has encouraged institutions to include a summary of this information in stockholder and public reports, annual reports and financial statements, as applicable. While the Company is not subject to this directive, it is foreseeable that similar requirements may be imposed on the Company by its primary banking regulator.

Congress has held hearings on implementation of TARP. On January 21, 2009, the U.S. House of Representatives approved legislation amending the TARP provisions of EESA to include quarterly reporting requirements with respect to lending activities, examinations by an institution’s primary federal regulator of use of funds and compliance with program requirements, restrictions on acquisitions by depository institutions receiving TARP funds, and authorization for the U.S. Treasury to have an observer at board meetings of recipient institutions, among other things. Although it is unclear whether this legislation will be enacted into law, its provisions, or similar ones, may be imposed administratively by the U.S. Treasury. In addition, Congress may adopt other legislation impacting financial institutions that obtain funding under the CPP or changing lending practices that legislators believe led to

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the current economic situation. Such provisions could restrict or require changes to the Company’s lending or governance practices or increase governmental oversight of our businesses. See “Item 1. Business — Supervision and Regulation” and “Item 1A. Risk Factors — The impact on us of recently enacted legislation and government programs to stabilize the financial markets cannot be predicted at this time.”

The EESA followed, and has been followed by, numerous actions by the Federal Reserve, the U.S. Congress, U.S. Treasury, the FDIC, the SEC and others to address the current liquidity and credit crisis that has followed the sub-prime meltdown that commenced in 2007. These measures include homeowner relief that encourage loan restructuring and modification; the establishment of significant liquidity and credit facilities for financial institutions and investment banks; the lowering of the federal funds rate; emergency action against short selling practices; a temporary guaranty program for money market funds; the establishment of a commercial paper funding facility to provide back-stop liquidity to commercial paper issuers; and coordinated international efforts to address illiquidity and other weaknesses in the banking sector.

On February 17, 2009, President Barack Obama signed the American Recovery and Reinvestment Act of 2009, ARRA, more commonly known as the economic stimulus or economic recovery package. ARRA includes a wide variety of programs intended to stimulate the economy and provide for extensive infrastructure, energy, health and education needs. In addition, ARRA imposes new executive compensation and corporate governance limits on current and future participants in TARP, including the Company, which are in addition to those previously announced by U.S. Treasury. The new limits remain in place until the participant has redeemed the preferred stock sold to U.S. Treasury, which is now permitted under ARRA without penalty and without the need to raise new capital, subject to U.S. Treasury’s consultation with the recipient’s appropriate federal regulator.

Bank Holding Company Regulation

The Company is registered as a “bank holding company” with the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and, accordingly, is subject to supervision and regulation by the Federal Reserve under the Bank Holding Company Act and the regulations issued thereunder, collectively referred to as the BHC Act. The Company is required to file with the Federal Reserve periodic reports and such additional information as the Federal Reserve may require pursuant to the BHC Act. The Federal Reserve examines the Company and the Bank, and may examine the Company’s other subsidiaries.

The BHC Act requires prior Federal Reserve approval for, among other things, the acquisition by a bank holding company of direct or indirect ownership or control of more than 5% of the voting shares or substantially all the assets of any bank, or for a merger or consolidation of a bank holding company with another bank holding company. With certain exceptions, the BHC Act prohibits a bank holding company from acquiring direct or indirect ownership or control of voting shares of any company which is not a bank or bank holding company and from engaging directly or indirectly in any activity other than banking or managing or controlling banks or performing services for its authorized subsidiaries. A bank holding company may, however, engage in or acquire an interest in a company that engages in activities which the Federal Reserve has determined, by regulation or order, to be so closely related to banking or managing or controlling banks as to be a proper incident thereto, such as performing functions or activities that may be performed by a trust company, or acting as an investment or financial advisor. The Federal Reserve, however, expects bank holding companies to maintain strong capital positions while experiencing growth. In addition, the Federal Reserve, as a matter of policy, may require a bank holding company to be well-capitalized at the time of filing an acquisition application and upon consummation of the acquisition.

Under the BHC Act, the Company and the Bank are prohibited from engaging in certain tie-in arrangements in connection with an extension of credit, lease, sale of property or furnishing of services. This means that, except with respect to traditional banking products, the Company may not condition a customer’s purchase of one of its services on the purchase of another service.

The Gramm-Leach-Bliley Act allows bank holding companies to become financial holding companies. Financial holding companies do not face the same prohibitions against the entry into certain business transactions that bank holding companies currently face.

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Under the Illinois Banking Act, any person (or person acting in concert) who acquires 25% or more of the Company’s stock may be required to obtain the prior approval of the Illinois Department of Financial and Professional Regulation (the “IDFPR”). Under the Change in Bank Control Act, a person may be required to obtain the prior approval of the Federal Reserve before acquiring the power to directly or indirectly control the management, operations or policies of the Company or before acquiring 10% or more of any class of its outstanding voting stock.

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

The Federal Reserve has adopted risk-based capital requirements for assessing bank holding company capital adequacy. These standards define regulatory capital and establish minimum ratios in relation to assets, both on an aggregate basis and as adjusted for credit risks and off-balance sheet exposures. The Federal Reserve’s risk-based guidelines apply on a consolidated basis to any bank holding company with consolidated assets of $500 million or more. The risk-based guidelines also apply on a consolidated basis to any bank holding company with consolidated assets of less than $500 million if the holding company is engaged in significant non banking activities either directly or through a non bank subsidiary; conducts significant off-balance sheet activities (including securitization and asset management or administration) either directly or through a non bank subsidiary; or has a material amount of debt or equity securities outstanding (other than trust preferred securities) that are registered with the Securities and Exchange Commission.

Under the Federal Reserve’s capital guidelines, bank holding companies are required to maintain a minimum ratio of qualifying total capital to risk-weighted assets of 8%, of which 4% must be in the form of Tier 1 Capital. The Federal Reserve also requires a minimum leverage ratio of Tier 1 Capital to total assets of 3% for strong bank holding companies, defined as those bank holding companies rated a composite “1” under the rating system used by the Federal Reserve. For all other bank holding companies, the minimum ratio of Tier 1 capital to total assets is 4.0 percent. Bank holding companies with supervisory, financial, operational, or managerial weaknesses, as well as those that are anticipating or experiencing significant growth, are expected to maintain capital ratios well above the minimum levels.

The Federal Reserve’s capital guidelines classify bank holding company capital into two categories. Tier 1, or “core capital” generally is defined as the sum of eligible core capital elements, less any amounts of goodwill and other items that are required to be deducted in accordance with the Federal Reserve capital guidelines. Eligible Tier 1 or core capital elements consist of qualifying common stockholders’ equity, qualifying noncumulative perpetual preferred stock (including related surplus), senior perpetual preferred stock issued to the U.S. Treasury under the TARP (including related surplus), minority interests related to qualifying common or noncumulative perpetual preferred stock directly issued by a consolidated U.S. depository institution or foreign bank subsidiary, and restricted core capital elements (“Tier I Capital”). Tier 1 Capital must represent at least 50% of a bank holding company’s qualifying total capital.

For purposes of determining bank holding company Tier 1 Capital, restricted core capital elements include cumulative perpetual preferred stock (including related interests), minority interests related to qualified perpetual preferred stock directly issued by a consolidated U.S. depository institution or foreign bank subsidiary, minority interests related to qualifying common stockholders equity or perpetual preferred stock issued by a consolidated subsidiary that is neither a US depository of a foreign bank, and qualifying trust preferred securities.

Eligible Tier 2, or “supplementary capital” includes allowance for loan and lease losses (subject to limitations), perpetual preferred stock and related surplus, hybrid capital instruments, perpetual debt and mandatory convertible debt securities, term subordinated debt and intermediate-term preferred stock, including related surplus (subject to limits) and unrealized holding gains on equity securities (subject to limitations). The maximum amount of Tier 2 Capital that may be included in a bank holding company’s total capital is limited to 100% of Tier 1 Capital, net of goodwill, other intangible assets, interest only strips receivables and non financial equity investments that are required to be deducted under the Federal Reserve capital guidelines.

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The Federal Reserve capital guidelines limit the amount of “restrictive core” elements that a bank holding company may include in Tier 1 Capital. Until March 31, 2009, the aggregate amount of “restrictive core” elements consisting of cumulative perpetual preferred stock (including related surplus) and qualifying trust preferred securities that a BHC may include in Tier 1 Capital is limited to 25% of the sum of (i) qualifying common stockholder equity, (ii) qualifying noncumulative and cumulative perpetual preferred stock (including related surplus), (iii) qualifying minority interest in the equity accounts of consolidated subsidiaries and (iv) qualifying trust preferred securities.

Further, after March 31, 2009, these Tier 1 “restrictive core” element limits will change. After that date, the aggregate amount of all restricted core capital elements that may be included by a bank holding company as Tier 1 Capital must not exceed 25% of the sum of all core capital elements, including restricted core capital elements, net of goodwill less any associated deferred tax liability.

The excess of restricted core capital not included in Tier I may generally be included in the Tier 2 Capital calculation. However, after March 31, 2009, the aggregate of excess qualifying trust preferred securities, excess Class C minority interests, term subordinated debt (excluding mandatory convertible debt) and limited life preferred stock that may be treated as Tier 2 capital is limited to 50% of Tier 1 capital. Amounts of these instruments in excess of this limit, although not included in Tier 2 capital, will be taken into account by the Federal Reserve in its overall assessment of a bank holding company’s funding and financial condition.

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

As of December 31, 2008, the Company had regulatory capital in excess of the Federal Reserve’s minimum requirements. The Company had a total capital to risk-weighted assets ratio of 10.1%, a Tier 1 capital to risk-weighted assets ratio of 8.3%, and a leverage ratio of 6.9% as of December 31, 2008. See “Capital Resources.”

The Sarbanes-Oxley Act of 2002 implemented legislative reforms intended to prevent corporate and accounting fraud. In addition to the establishment of a new accounting oversight board which enforces auditing, quality control and independence standards and is funded by fees from all publicly traded companies, the legislation and the related regulations restrict provision of both auditing and consulting services by accounting firms. To ensure auditor independence, any non-audit services being provided to an audit client require pre-approval by the company’s audit committee. In addition, audit partners must be rotated. The legislation and the related regulations require the principal chief executive officer and the principal chief financial officer to certify to the accuracy of periodic reports filed with the SEC and subject them to civil and criminal penalties if they knowingly or willfully violate this certification requirement. In addition, legal counsel is required to report evidence of a material violation of the securities laws or a breach of fiduciary duty by a company to its chief executive officer or its chief legal officer, and, if such officer does not appropriately respond, to report such evidence to the audit committee or other similar committee of the board of directors or the board itself.

The legislation provides for disgorgement of bonuses issued to top executives prior to restatement of a company’s financial statements if such restatement was due to corporate misconduct. Executives are also prohibited from insider trading during pension fund “blackout” periods, and loans to company executives are restricted. The legislation and the related regulations accelerated the time frame for disclosures by public companies, as they must immediately disclose any material changes in their financial condition or operations. Directors and executive officers must also provide information for most changes in ownership in a company’s securities within two business days of the change.

The legislation and the related regulations also increase the oversight of, and codifies certain requirements relating to audit committees of public companies and how they interact with the company’s registered public accounting firm. Audit committee members must be independent and are barred from accepting consulting, advisory or other compensatory fees from the company. In addition, companies must disclose whether at least one member of the committee is a “financial expert” as defined by the SEC and if not, why not. The SEC has also prescribed rules requiring inclusion of an internal control report and assessment by management in the annual report

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to stockholders. The registered public accounting firm issues an audit report expressing an opinion on the fair presentation of the financial statements and on the effectiveness of internal control over financial reporting. See “Item 9A. Controls and Procedures” of this Annual Report on Form 10-K.

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

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

Delaware law also places certain limitations on the ability of the Company to pay dividends. For example, the Company may not pay dividends to its stockholders if, after giving effect to the dividend, the Company would not be able to pay its debts as they become due. Because a major source of the Company’s revenues is dividends the Company receives and expects to receive from the Bank, the Company’s ability to pay dividends to stockholders is likely to be dependent on the amount of dividends paid by the Bank. No assurance can be given that the Bank will pay such dividends to the Company on its stock. Because the Bank had a net loss of $151.1 million in 2008, the Bank will only be able to pay dividends in 2009 upon receipt of regulatory approval. In addition, under the terms of the Company’s Series T preferred stock sold to the U.S. Treasury, the Company will only be able to pay dividends with the approval of the U.S. Treasury.

Bank Regulation

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

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

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

As discussed above, under Illinois law, the Bank is subject to supervision and examination by IDFPR, and, as a member of the Federal Reserve System, by the Federal Reserve. Each of these regulatory agencies conducts routine, periodic examinations of the Bank and the Company.

Financial Institution Regulation

Transactions with Affiliates.  Transactions between a bank and its holding company or other affiliates are subject to various restrictions imposed by state and federal regulatory agencies. Such transactions include loans and other extensions of credit, purchases of securities and other assets and payments of fees or other distributions. In general, these restrictions limit the amount of transactions between a bank and an affiliate of such bank, as well as

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the aggregate amount of transactions between a bank and all of its affiliates, impose collateral requirements in some cases and require transactions with affiliates to be on terms comparable to those for transactions with unaffiliated entities.

Dividend Limitations.  As a state member bank, the Bank may not, without the approval of the Federal Reserve, declare a dividend if the total of all dividends declared in a calendar year exceeds the total of its net income for that year, combined with its retained net income of the preceding two years, less any required transfers to the surplus account. Under Illinois law, the Bank may not pay dividends in an amount greater than its net profits then on hand, after deducting losses and bad debts. For the purpose of determining the amount of dividends that an Illinois bank may pay, bad debts are defined as debts upon which interest is past due and unpaid for a period of six months or more, unless such debts are well-secured and in the process of collection.

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

Capital Requirements.  State member banks are required by the Federal Reserve to maintain certain minimum capital levels. The Federal Reserve’s capital guidelines for state member banks require state member banks to maintain a minimum ratio of qualifying total capital to risk-weighted assets of 8%, of which at least 4% must be in the form of Tier 1 Capital. In addition, the Federal Reserve requires a minimum leverage ratio of Tier 1 Capital to total assets of 3% for strong banking institutions (those rated a composite “1” under the Federal Reserve’s rating system) and a minimum leverage ratio of Tier 1 Capital to total assets of 4% for all other banks.

At December 31, 2008, the Bank has a Tier 1 capital to risk-weighted assets ratio and a total capital to risk-weighted assets ratio which meets the above requirements. The Bank has a Tier 1 capital to risk-weighted assets ratio of 8.2% and a total capital to risk-weighted assets ratio of 10.5%. See “Capital Resources.”

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

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

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

As part of their ongoing supervisory monitoring process, the federal regulatory agencies use certain criteria to identify institutions that are potentially exposed to significant loan concentration risks. In 2007, the regulatory agencies issued new guidelines relating to commercial real estate, CRE, lending risks. An institution experiencing rapid growth in CRE lending, having notable exposure to a specific type of CRE, or approaching or exceeding the specified CRE supervisory criteria may be subjected to further supervisory analysis. Because these are guidelines, the supervisory monitoring criteria do not constitute limits on an institution’s lending activity but rather serve as high-level indicators to identify institutions potentially exposed to CRE concentration risk. The criteria do not constitute a “safe harbor” for institutions if other risk indicators are present. Existing capital adequacy guidelines require an institution to hold capital commensurate with the level and nature of the risks to which it is exposed. Regulatory agencies may consider the level and nature of inherent risk in an institution’s CRE portfolio along with other factors to determine if an institution is maintaining an adequate capital level to serve as a buffer against unexpected losses and can require such an institution to develop a plan for reducing its CRE concentrations or for increasing or maintaining capital appropriate to the level and nature of its lending concentration risk.

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

FDIC Insurance Premiums on Deposit Accounts.  The Bank is required to pay deposit insurance premiums based on the risk it poses to the DIF. The FDIC has authority to raise or lower assessment rates on insured deposits in order to achieve statutorily required reserve ratios in the insurance funds and to impose special additional assessments.

On February 8, 2006, President Bush signed into law the Federal Deposit Insurance Reform Act of 2005, the Reform Act.

The FDIC merged the Bank Insurance Fund, BIF, and the Savings Association Insurance fund, SAIF, to form the DIF on March 31, 2006 in accordance with the Reform Act. The FDIC maintains the DIF by assessing depository institutions an insurance premium. The FDIC annually sets the reserve level of the DIF within a statutory range between 1.15% and 1.50% of insured deposits. The FDIC set the reserve level at 1.25% for 2008. If the reserve level of the insurance fund falls below 1.15%, or is expected to do so within six months, the FDIC must adopt a restoration plan that will restore the DIF to a 1.15% ratio generally within five years. If the reserve level exceeds 1.35%, the FDIC may return some of the excess in the form of dividends to insured institutions.

Effective January 1, 2007 the FDIC introduced a new risk based system for deposit insurance premium assessments. This risk based assessment system established four Risk Categories. Risk Category I includes well-

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capitalized institutions that are financially sound with only a few minor weaknesses. Approximately 95% of FDIC-insured institutions fall within Risk Category I. In 2008 Risk Category I institutions paid quarterly assessments for deposit insurance at annual rates of 5 to 7 basis points for every $100 of deposit accounts. The 2008 rates for FDIC-insured institutions that were assigned Risk Categories II, III, and IV paid an annual rate of 7, 28 and 43 basis points respectively for every $100 of deposit accounts.

During 2008, the FDIC determined that the DIF reserve ratio had fallen below the minimum 1.15% threshold and therefore announced a DIF reserve restoration plan. In connection with this restoration plan, the FDIC increased the 2009 first quarter DIF premium assessment rates uniformly by 7 basis points. Therefore, FDIC-insured institutions that are assigned as Risk Category I will pay a first quarter 2009 assessment of between 12 and 14 basis points for every $100 of deposit accounts. FDIC-insured institutions that are assigned Risk Categories II, III, and IV will pay a first quarter 2009 assessment of 17, 35 and 50 basis points respectively.

On February, 27, 2009, the FDIC Board of Directors adopted a new final rule that modifies the risk-based assessment fee system applied to FDIC insured financial institutions. The new final rule established new base assessment rates beginning on April 1, 2009. The new initial base assessment rates are as follows:

Initial Base Assessment Rates

Risk	Risk	Risk	Risk
Category	Category	Category	Category
I	II	III	IV
12-16	22	32	45

In addition, the new final rule introduced three possible adjustments to the base assessment rates. The new final rule provides for a possible adjustments that decreases the base assessment rate up to five basis points for long term unsecured debt, including senior unsecured debt (other than debt guaranteed under the Temporary Liquidity Guarantee Program) and subordinated debt and, for small institutions, a portion of Tier 1 capital. The new rule also provides for a potential adjusted increase of the base assessment rate in an amount of up to 50 percent of an institution’s prior assessment rate for secured liabilities that exceed 25 percent of its domestic deposits. In addition, a possible adjustment to the base rate assessment of up to an additional deposits in excess of 10 percent of their domestic deposits.

After applying all possible adjustments, minimum and maximum total assessment rates for each risk category are as follows:

Total Base Assessment Rates

	Risk	Risk	Risk	Risk
	Category	Category	Category	Category
	I	II	III	IV
Initial Base Assessment Rate	12-16	22	32	45
Unsecured Debt Adjustment	-5-0	-5-0	-5-0	-5-0
Secured Liability Adjustment	0-8	0-11	0-16	0-22.5
Brokered Deposit Adjustment	—	0-10	0-10	0-10
Total Base Assessment Rate	7-24.0	17-43.0	27-58.0	40-77.5

In addition to the new final rule regarding base rate assessments, on February 27, 2009, the FDIC adopted an interim rule that imposes an emergency 20 basis point special assessment on all insured depository institutions as of June 30, 2009. The special assessment will be collected September 30, 2009, at the same time that the risk-based assessments for the second quarter of 2009 are collected. Further, the interim rule also permits the FDIC to impose an emergency special assessment of up to 10 basis points on all insured depository institutions whenever, after June 30, 2009, the FDIC estimates that the fund reserve ratio will fall to a level that the FDIC believes would adversely affect public confidence or to a level close to zero or negative at the end of a calender quarter. This emergency special assessment for the Company is projected to be $5.0 million based on December 31, 2008 data.

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In addition to the FDIC insurance program, the Bank is required to pay a Financing Corporation, FICO, assessment (on a semi-annual basis) in order to share in the payment of interest due on bonds used to provide liquidity to the savings and loan industry in the 1980s. During 2008, the Bank’s FICO assessment totaled $275,000, or 1.12 basis points of its insured deposits.

The FDIC may terminate the deposit insurance of any insured depository institution, including the Bank, if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed by an agreement with the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If insurance of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the FDIC. There are no pending proceedings to terminate the deposit insurance of the Bank. The management of the Bank does not know of any practice, condition or violation that might lead to termination of deposit insurance.

On October 3, 2008, the Emergency Economic Stabilization Act of 2008 was signed into law. EESA included a provision for an increase in the amount of deposits insured by the FDIC to $250,000 until December 2009. On October 14, 2008, the FDIC announced a new program, the Temporary Liquidity Guarantee Program, the TLGP, that provides unlimited deposit insurance on funds in noninterest-bearing transaction deposit accounts otherwise covered by the existing deposit insurance limit of $250,000. The Company has elected to participate in the program and will be assessed a 10 basis point surcharge.

Another component of the TLGP is a voluntary program whereby the FDIC will temporarily guarantee newly issued senior unsecured debt of an eligible financial institution up to 125% of the par or face value of a debt that is scheduled to mature before June 30, 2009. The FDIC implemented an additional assessment for institutions that elected to participate in the Debt Guarantee program. The Debt Guarantee Program also allowed for financial institutions to opt out from coverage. The Company elected to participate in the Debt Guarantee Program.

Federal Reserve System.  The Bank is subject to Federal Reserve regulations requiring depository institutions to maintain non-interest-earning reserves against their transaction accounts (primarily NOW and regular checking accounts). The Federal Reserve regulations generally require 3% reserves on the first $44.4 million of transaction accounts and 10% on the remainder. The first $10.3 million of otherwise reservable balances (subject to adjustments by the Federal Reserve) are exempted from the reserve requirements. The Bank is in compliance with the foregoing requirements.

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

Brokered Deposits.  Well-capitalized institutions are not subject to limitations on brokered deposits, while an adequately capitalized institution is able to accept, renew or rollover brokered deposits only with a waiver from the

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FDIC and subject to certain restrictions on the yield paid on such deposits. Undercapitalized institutions are generally not permitted to accept brokered deposits.

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

Bank Secrecy Act and USA Patriot Act.  In 1970, Congress enacted the Currency and Foreign Transactions Reporting Act, commonly known as the Bank Secrecy Act, the BSA. The BSA requires financial institutions to maintain records of certain customers and currency transactions and to report certain domestic and foreign currency transactions, which may have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings. Under this law, financial institutions are required to develop a BSA compliance program. In 2001, the President signed into law comprehensive anti-terrorism legislation commonly known as the USA Patriot Act. The USA Patriot Act requires financial institutions to assist in detecting and preventing international money laundering and the financing of terrorism.

The U.S. Treasury has adopted additional rules and regulations in order to implement the USA Patriot Act. Under these regulations, law enforcement officials communicate names of suspected terrorists and money launderers to financial institutions so as to enable financial institutions to promptly locate accounts and transactions involving those suspects. Financial institutions receiving names of suspects must search their account and transaction records for potential matches and report positive results to the U.S. Department of the Treasury Financial Crimes Enforcement Network, FinCEN. Each financial institution must designate a point of contact to receive information requests. These regulations outline how financial institutions can share information concerning suspected terrorist and money laundering activity with other financial institutions under the protection of a statutory safe harbor if each financial institution notifies FinCEN of its intent to share information.

The U.S. Treasury has also adopted regulations intended to prevent money laundering and terrorist financing through correspondent accounts maintained by U.S. financial institutions on behalf of foreign banks. Financial institutions are required to take reasonable steps to ensure that they are not providing banking services directly or indirectly to foreign shell banks. In addition, banks must have procedures in place to verify the identity of the persons with whom they deal, and financial institutions must undertake additional due diligence when circumstances warrant and in the case of money service businesses.

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

The State of Illinois has adopted legislation “opting in” to interstate bank mergers, and allows out of state banks to enter the Illinois market through de novo branching or through branch-only acquisitions if Illinois state banks are afforded reciprocal treatment in the other state. It is anticipated that this interstate merger and branching ability will increase competition and further consolidate the financial institutions industry.

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

State banks are prohibited from assuming or guaranteeing any premium on an insurance policy issued through the bank. Moreover, state law expressly prohibits tying the provision of any insurance product to the making of any

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loan or extension of credit and requires state banks to make disclosures of this fact in some instances. Other consumer oriented safeguards are also required.

Insurance products are sold through Midwest Financial, a subsidiary of the Bank acquired in 2006 through the acquisition of Royal American Corporation. Midwest Financial is registered with, and subject to examination by, the Illinois Department of Insurance.

Securities Brokerage.  Midwest Financial, a registered bank-affiliated securities broker-dealer and registered investment advisor, operates a general securities business as an introducing broker-dealer. It is registered with the SEC as a broker-dealer and is a member of FINRA.

Consumer Compliance.  The Bank has been examined for consumer compliance on a regular basis. The Bank is subject to many federal consumer protection statutes and regulations including the Equal Credit Opportunity Act, the Fair Housing Act, the Truth in Lending Act, the Truth in Savings Act, the Real Estate Settlement Procedures Act and the Home Mortgage Disclosure Act. Among other things, these acts:

•  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.  The federal fair lending laws prohibit discriminatory lending practices. The Equal Credit Opportunity Act prohibits discrimination against an applicant in any credit transaction, whether for consumer or business purposes, on the basis of race, color, religion, national origin, sex, marital status, age (except in limited circumstances), receipt of income from public assistance programs or good faith exercise of any rights under the Consumer Credit Protection Act. Under the Fair Housing Act, it is unlawful for any lender to discriminate in its housing-related lending activities against any person because of race, color, religion, national origin, sex, handicap or familial status. Among other things, these laws prohibit a lender from denying or discouraging credit on a discriminatory basis, making excessively low appraisals of property based on racial considerations, or charging excessive rates or imposing more stringent loan terms or conditions on a discriminatory basis. In addition to private actions by aggrieved borrowers or applicants for actual and punitive damages, the U.S. Department of Justice and other regulatory agencies can take enforcement action seeking injunctive and other equitable relief for alleged violations.

Home Mortgage Disclosure Act.  The Federal Home Mortgage Disclosure Act, or HMDA, grew out of public concern over credit shortages in certain urban neighborhoods. One purpose of the HMDA is to provide public information that will help show whether financial institutions are serving the housing credit needs of the neighborhoods and communities in which they are located. The HMDA also includes a “fair lending” aspect that requires the collection and disclosure of data about applicant and borrower characteristics as a way of identifying possible discriminatory lending patterns and enforcing anti-discrimination statutes. The HMDA requires institutions to report data regarding applications for loans for the purchase or improvement of one-to four-family and multi-family dwellings, as well as information concerning originations and purchases of such loans. Federal bank regulators rely, in part, upon data provided under the HMDA to determine whether depository institutions engage in discriminatory lending practices.

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The appropriate federal banking agency, or in some cases, U.S. Department of Housing and Urban Development, enforces compliance with the HMDA and implements its regulations. Administrative sanctions, including civil money penalties, may be imposed by supervisory agencies for violations of this act.

Real Estate Settlement Procedures Act.  The Federal Real Estate Settlement Procedures Act, or RESPA, requires lenders to provide borrowers with disclosures regarding the nature and cost of real estate settlements. RESPA also prohibits certain abusive practices, such as kickbacks, and places limitations on the amount of escrow accounts. Violations of RESPA may result in imposition of penalties, including: (1) civil liability equal to three times the amount of any charge paid for the settlement services or civil liability of up to $1,000 per claimant, depending on the violation; (2) awards of court costs and attorneys’ fees; and (3) fines of not more than $10,000 or imprisonment for not more than one year, or both.

Truth in Lending Act.  The federal Truth in Lending Act is designed to ensure that credit terms are disclosed in a meaningful way so that consumers may compare credit terms more readily and knowledgeably. As result of the act, all creditors must use the same credit terminology and expressions of rates, and disclose the annual percentage rate, the finance charge, the amount financed, the total of payments and the payment schedule for each proposed loan.

On July 14, 2008, the Federal Reserve Board approved a final rule, which will become effective on October 1, 2009, amending Regulation Z (Truth in Lending) to prohibit unfair, abusive or deceptive home mortgage lending practices and restricts certain other mortgage practices. The final rule also establishes advertising standards and requires certain mortgage disclosures to be given to consumers earlier in the transaction.

The final rule adds four new protections for a newly defined category of “higher-priced mortgage loans” secured by a consumer’s principal dwelling. For loans in this category, these protections will: (1) prohibit a lender from making a loan without regard to borrowers’ ability to repay the loan from income and assets other than the home’s value; (2) require creditors to verify the income and assets they rely upon to determine repayment ability; (3) ban any prepayment penalty if the payment can change in the initial four years (and for certain other higher-priced loans, the prepayment penalty period cannot last for more than two years); and (4) require creditors to establish escrow accounts for property taxes and homeowner’s insurance for all first-lien mortgage loans.

In addition to the rules governing higher-priced loans, the rules adopted the new protections for loans secured by a consumer’s principal dwelling, regardless of whether the loan is considered to be a “higher-priced mortgage loan”. Under the new rules: (1) creditors and mortgage brokers are prohibited from coercing a real estate appraiser to misstate a home’s value; (2) companies that service mortgage loans are prohibited from engaging in certain practices, such as pyramiding late fees; (3) servicers are required to credit consumers’ loan payments as of the date of receipt and provide a payoff statement within a reasonable time of request; (4) creditors must provide a good faith estimate of the loan costs, including a schedule of payments, within three days after a consumer applies for any mortgage loan secured by a consumer’s principal dwelling, such as a home improvement loan or a loan to refinance an existing loan; and (5) consumers cannot be charged any fee until after they receive the early disclosures, except a reasonable fee for obtaining the consumer’s credit history.

For all mortgages, the new rules also set additional advertising standards. Advertising rules now require additional information about rates, monthly payments, and other loan features. The final rule bans seven deceptive or misleading advertising practices, including representing that a rate or payment is “fixed” when it can change.

The new rules take effect on October 1, 2009. The single exception is the escrow requirement, which will be phased in during 2010 to allow lenders to establish new systems as needed.

Violations of the Truth in Lending Act may result in regulatory sanctions and in the imposition of both civil and, in the case of willful violations, criminal penalties. Under certain circumstances, the Truth in Lending Act and Regulation Z of the Federal Reserve Act also provide a consumer with a right of rescission, which if exercised would require the creditor to reimburse any amount paid by the consumer to the creditor or to a third party in connection with the offending transaction, including finance charges, application fees, commitment fees, title search fees and appraisal fees. Consumers may also seek actual and punitive damages for violations of the Truth in Lending Act.

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Fair Credit Reporting Act In connection with the passage of the Fair and Accurate Credit Transactions (FACT) Act, the Bank’s financial regulator issued final rules and guidelines, effective November 1, 2008, requiring the Bank to adopt and implement a written identity theft prevention program, paying particular attention to 26 identified “red flag” events. The program must also assess the validity of address change requests for card issuers and for users of consumer reports to verify the subject of a consumer report in the event of notice of an address discrepancy.

The FACT Act also gives consumers the ability to challenge the Bank with respect to credit reporting information provided by the Bank. The new rule also prohibits the Bank from using certain information it may acquire from an affiliate to solicit the consumer for marketing purposes unless the consumer has been give notice and an opportunity to opt out of such solicitation for a period of five years.

Federal Home Loan Bank System The Bank is a member of the Federal Home Loan Bank system, which consists of 12 regional FHLBs. The FHLB system provides a central credit facility primarily for member institutions. The Bank, as a member of the FHLB of Chicago, FHLBC, is required to acquire and hold shares of capital stock in the FHLBC in an amount at least equal to 1% of the aggregate principal amount of its unpaid residential mortgage loans and similar obligations at the beginning of each year, or 1/20 of its advances (borrowings) from the FHLBC, whichever is greater. At December 31, 2008, the Bank had advances from the FHLBC with aggregate outstanding principal balances of $380.0 million, and the Bank’s investment in the FHLBC stock of $19.0 million was at its minimum requirement. FHLB advances must be secured by specified types of collateral and are available to member institutions primarily for funding purposes.

Regulatory directives, capital requirements and net income of the FHLBs affect their ability to pay dividends to the Bank. In addition, FHLBs are required to provide funds to cover certain obligations and to fund the resolution of insolvent thrifts and to contribute funds for affordable housing programs. These requirements could reduce the amount of dividends that the FHLBs pay to their members and could also result in the FHLBs imposing a higher rate of interest on advances to their members.

In October 2007, the FHLBC announced that it entered into a consensual cease and desist order with its regulator which prohibits it from redeeming or repurchasing any capital stock from members or declaring dividends on its capital stock without prior approval. The FHLBC announced in October 2007 that it would suspend dividends on its stock and no dividends have been declared or paid since that time. In July 2008, the FHLBC announced that it had received regulatory approval to make limited redemptions of its capital stock. The redemptions are limited to capital stock purchased in connection with member borrowing advances which will be redeemed when the advances are paid.

Monetary Policy and Economic Conditions

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

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

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EXECUTIVE OFFICERS OF THE REGISTRANT

Listed below are the executive officers of the Company as of March 10, 2009.

J. J. Fritz (60) was named President and Chief Executive Officer of the Company and Chief Executive Officer of the Bank on January 29, 2009. He was named Director and Executive Vice President of the Company and Director, President, and Chief Operating Officer of the Bank in July 2006. Mr. Fritz was also named director, president, and chief executive officer of Midwest Financial in July 2006. Mr. Fritz and other investors founded Royal American in 1991, where he served as chairman and chief executive officer, after he served as chief executive officer of First Chicago Bank of Mt. Prospect. His lengthy career in the Chicago metropolitan area also includes positions at Northern Trust, First National Bank of Libertyville and Continental Illinois National Bank.

JoAnn S. Lilek (52) was named Executive Vice President and Chief Financial Officer of the Company and the Bank in March 2008. Ms. Lilek was Chief Financial Officer for DSC Logistics, a Chicago-based national supply chain management firm. Before joining DSC, Lilek had a 23 year career at ABNAmro North American Inc. where her positions included Executive Vice President reporting directly to the Chairman, Executive Vice President and Chief Financial Officer Wholesale Banking North America and Group Senior Vice President and Corporate Controller.

Mary C. Ceas, SPHR, (51) was named Senior Vice President — Human Resources of the Company in 2000. Previously, Ms. Ceas was Vice President — Human Resources since 1997 and served as Director — Training and Development from 1995 to 1997.

Jan R. Thiry, CPA (56) was named Chief Accounting Officer of the Company effective March 15, 2007. Mr. Thiry was also named director of Midwest Financial in June 2007 and director and secretary of MBTC Investment Company in March 2008. Mr. Thiry was hired in December 2006 as Senior Vice President and Controller of the Company and the Bank. He served as senior vice president and controller of CIB Marine Bancshares in Pewaukee, Wisconsin from 1999 to 2006. Mr. Thiry has also held senior positions at M&I Corporation and Security Bank in Milwaukee, Wisconsin. Additionally, he was a senior auditor at KPMG LLP. Mr. Thiry is a member of the American Institute of Certified Public Accountants and the Financial Managers Society.

Sheldon Bernstein (62) was named Executive Vice President of the Bank in January 2005. He previously served as Senior Vice President of the Company from 2001 to 2005. Mr. Bernstein has served as President of the Bank, Cook County Region from 2000 to 2004. From 2000 through 2002, he served as Chief Operating Officer of the Bank. Previously, Mr. Bernstein served as Executive Vice President-Lending of the Bank since 1993. He was also served as director of Midwest Financial and Investment Services, Inc. from 2002 to 2005. Mr. Bernstein was a director of First Midwest Data Corp from 2001 to 2002.

Thomas J. Bell, III (42 ) was named Executive Vice President and Chief Investment Officer of the Company in December 2008. Mr. Bell previously served as Senior Vice President for ABN AMRO North America Inc., a Chicago-based bank holding company for the LaSalle Banks. In his fourteen years of service at ABN AMRO, Mr. Bell contributed to multiple disciplines within the asset and liability management, capital markets and treasury functions. Prior to ABN AMRO/LaSalle, Mr. Bell spent several years with the Federal Reserve Bank of Chicago.

Thomas A. Caravello (60) was named Executive Vice President and Chief Credit Officer of the Bank in January 2005. Mr. Caravello was named manager, president, and chief executive officer of Midwest Funding, L.L.C. in May 2006. He has served as Senior Vice President — Credit Administration from 2003 to 2005. Previously he served as Vice President — Credit Administration from 1998 to 2003.

Bruno P. Costa (48) was named Executive Vice President and Chief Operations and Technology Officer of the Bank in January 2005. He served as President of the Information Services Division of the Bank from 2002 to 2005. Mr. Costa served as President and Chief Executive Officer of First Midwest Data Corp. from 1995 to 2002. He held various management positions at the Bank since 1983.

Jonathan Gilfillan (48) was named Executive Vice President and Division Head of Commercial Real Estate Lending of the Bank in July 2008. Mr. Gilfillan previously served as Senior Vice President for Park National Bank

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since 2007. Prior to joining Park National, Mr. Gilfillan spent his career at LaSalle Bank NA, where he had been specializing in CRE lending since 1992.

Thomas H. Hackett (61) was named Executive Vice President of the Bank in November 2003. Mr. Hackett was named manager and vice president of Midwest Funding, L.L.C. in May 2006. He previously was division manager at Banc One, Chicago, Illinois from 2002 to 2003. Prior, he was first vice president of American National Bank of Chicago from 1997 to 2002. He has also served in similar capacities at First Chicago/NBD, Park Ridge, IL, NBD of Woodridge and Heritage Bank of Woodridge, Illinois.

Mary M. Henthorn (51) was named Executive Vice President of the Bank in January 2005. She previously served as Senior Vice President of the Company from 2001 to 2005 and served as President of the Bank, DuPage County Region from 2002 to 2004. Ms. Henthorn served as President and Chief Executive Officer of Midwest Bank of Hinsdale from 2000 to 2002. She held various management positions at Midwest Bank of Hinsdale and the Bank from 1992 until 2000.

Stephan L. Markovits (59) was named Executive Vice President of the Bank in October 2007. Mr. Markovits previously was president of Northwest Suburban Bancorp, Inc. from 2003 to 2007. He also held various management positions at Plains Bank of Illinois from 1998 to 2003.

Dennis M. Motyka (59) was named Executive Vice President of the Bank and director of Midwest Financial in October 2005. He previously was senior vice president and director of banking centers for Cole Taylor Bank in Rosemont from 2002 to 2005. He served as senior vice president and Illinois regional manager for LaSalle Bank in Chicago from 1996 to 2002. He also held positions with Comerica Bank and Affiliated Bank, both in Franklin Park, as well as with Western National Bank in Cicero.

Kelly J. O’Keeffe (48) was named Executive Vice President of the Bank in July 2006. Mr. O’Keeffe was a founder of Royal American Bank and its president from 1997 to 2006. Previously, he served at First Chicago Bank of Mt. Prospect and Northern Trust, in addition to a public service career with the Illinois Department of Financial and Professional Regulation.

Brogan M. Ptacin (48) was named Executive Vice President of the Bank in July 2006. He was named Division Head of Commercial Lending of the Bank in July 2008 and manager of Midwest Funding, L.L.C. in September 2006. Mr. Ptacin previously was executive vice president and senior loan officer at Royal American Bank. Ptacin joined Royal American Bank in 1995 after a twelve year career with American National Bank leaving as president of its Melrose Park subsidiary.

William H. Stoll (53) was named Executive Vice President of the Bank in January 2005 and manager of Midwest Funding, L.L.C. in May 2006. In February 2005, he was named director of Midwest Financial. He served as senior vice president and chief lending officer of Mercantile Bank, Hammond, Indiana from 2002 to 2005. He was national bank examiner of the Comptroller of the Currency, Chicago, IL from 2000 to 2002 and senior vice president — manager — commercial lending of Fifth Third Bank, Merrillville, Indiana from 1999 to 2000. He has also served in similar capacities at Mercantile National Bank, Hammond, Indiana and NBD — Gainer Bank, Merrillville, Indiana.

David Taylor (43) was named Executive Vice President of the Bank’s wealth management group in August 2008. Mr. Taylor previously held management positions at Bank of America US Trust Wealth Management (formerly LaSalle Bank) for 11 years. Mr. Taylor began his career in 1989 with Pioneer Bank & Trust Company.

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

This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended: Statement under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. The Company and its representatives may, from time to time, make written or oral statements that are “forward-looking” and provide information other than historical information, including statements contained in the Form 10-K, the Company’s other filings with the Securities and Exchange Commission or in communications to its stockholders. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any results, levels of activity, performance or achievements expressed or implied by any forward-looking statement. These factors include, among other things, the factors listed below.

In some cases, the Company has identified forward-looking statements by such words or phrases as “will likely result,” “is confident that,” “expects,” “should,” “could,” “may,” “will continue to,” “believes,” “anticipates,” “predicts,” “forecasts,” “estimates,” “projects,” “potential,” “intends,” or similar expressions identifying “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including the negative of those words and phrases. These forward-looking statements are based on management’s current views and assumptions regarding future events, future business conditions, and the outlook for the Company based on currently available information. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, these statements. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made.

In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the Company is hereby identifying important factors that could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any forward-looking statements.

Among the factors that could have an impact on the Company’s ability to achieve operating results, growth plan goals, and the beliefs expressed or implied in forward-looking statements are:

•  Management’s ability to effectively manage interest rate risk and the impact of interest rates in general on the volatility of the Company’s net interest income;

•  Fluctuations in the value of the Company’s investment securities;

•  The ability to attract and retain senior management experienced in banking and financial services;

•  The sufficiency of the allowance for loan losses to absorb the amount of actual losses inherent in the existing portfolio of loans;

•  The Company’s ability to adapt successfully to technological changes to compete effectively in the marketplace;

•  Credit risks and risks from concentrations (by geographic area and by industry) within the Bank’s loan portfolio and individual large loans;

•  The effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds, and other financial institutions operating in the Company’s market or elsewhere or providing similar services;

•  The failure of assumptions underlying the establishment of the allowance for loan losses and estimation of values of collateral or cash flow projections and various financial assets and liabilities;

•  Volatility of rate sensitive deposits;

•  Operational risks, including data processing system failures or fraud;

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•  Liquidity risks;

•  The ability to successfully acquire low cost deposits or funding;

•  The ability to successfully execute strategies to increase noninterest income;

•  Changes in the economic environment, competition, or other factors that may influence the anticipated growth rate of loans and deposits and the quality of the loan portfolio and loan and deposit pricing;

•  The impact from changes in federal and state tax laws relating to certain tax structures of the Company including an 80/20 company which holds a portion of the Company’s securities portfolio and a real estate investment trust which holds certain real estate loans previously held by the Bank;

•  The impact from liabilities arising from legal or administrative proceedings on the financial condition of the Company;

•  The ability of the Bank to pay dividends to the Company;

•  The Company’s ability to pay cash dividends on its common and preferred stock;

•  Possible administrative or enforcement actions of banking regulators in connection with any material failure of the Company or the Bank to comply with banking laws, rules or regulations;

•  Possible administrative or enforcement actions of the SEC in connection with the SEC inquiry of the restatement of the Company’s September 30, 2002 financial statements;

•  Governmental monetary and fiscal policies, as well as legislative and regulatory changes, that may result in the imposition of costs and constraints on the Company through higher FDIC insurance premiums, significant fluctuations in market interest rates, increases in capital requirements, and operational limitations;

•  Changes in general economic or industry conditions, nationally or in the communities in which the Company conducts business;

•  Changes in accounting principles, policies, or guidelines affecting the business conducted by the Company;

•  The impact of possible future non-cash goodwill impairment charges;

•  The effects of increased deposit insurance premiums;

•  Acts of war or terrorism; and

•  Other economic, competitive, governmental, regulatory, and technical factors affecting the Company’s operations, products, services, and prices.

The Company wishes to caution that the foregoing list of important factors may not be all-inclusive and specifically declines to undertake any obligation to publicly revise any forward-looking statements that have been made to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

With respect to forward-looking statements set forth in the notes to consolidated financial statements, including those relating to contingent liabilities and legal proceedings, some of the factors that could affect the ultimate disposition of those contingencies are changes in applicable laws, the development of facts in individual cases, settlement opportunities, and the actions of plaintiffs, judges, and juries.

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Item 1A.   Risk Factors

The Company’s business, financial condition or results of operations could be materially adversely affected by any of these risks.

Changes in economic conditions, in particular a continued economic slowdown in Chicago, Illinois, could hurt the Company’s business materially.

The Company’s business is directly affected by factors such as economic, political and market conditions, broad trends in industry and finance, legislative and regulatory changes, changes in government monetary and fiscal policies and inflation, all of which are beyond its control. Deterioration in economic conditions, in particular an economic slowdown in Chicago, Illinois, and surrounding areas, could result in the following consequences, any of which could hurt the Company’s business materially:

•  loan delinquencies may increase;

•  problem assets and foreclosures may increase;

•  demand for its products and services may decline;

•  low cost or noninterest bearing deposits may decrease; and

•  collateral for loans made by us, especially real estate, may decline in value, in turn reducing customers’ borrowing power, and reducing the value of assets and collateral associated with the Company’s existing loans.

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

A majority of the Company’s loan portfolio is comprised of loans at least partially collateralized by real estate; a substantial portion of this real estate collateral is located in the Chicago market. As of December 31, 2008, commercial real estate loans, where a portion of the collateral consists of real estate, totaled $1.2 billion, or 47.0% of its total loan portfolio, and construction loans, including land acquisition and development loans, totaled an additional $411.1 million, or 16.4% of its total loan portfolio.

Based on source of re-payment, as of December 31, 2008, commercial real estate loans totaled $729.7 million, or 29.1% of the Company’s total loan portfolio, and construction loans, including land acquisition and development, totaled an additional $366.2 million, or 14.6% of its total loan portfolio.

An adverse change in the economy affecting real estate values generally or in the Chicago market specifically could significantly impair the value of the Company’s collateral and its ability to sell the collateral upon foreclosure. In the event of a default with respect to any of these loans, amounts received upon sale of the collateral may be insufficient to recover outstanding principal and interest on the loans. As a result, the Company’s profitability could be negatively impacted by an adverse change in the real estate market.

Construction and land acquisition and development lending involve additional risks because funds may be advanced based upon values associated with the completed project, which is uncertain. Because of the uncertainties inherent in estimating construction costs, as well as the market value of the completed project and the effects of governmental regulation of real property, it is relatively difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio. As a result, construction loans often involve the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project and the ability of the borrower to sell or lease the property, rather than the ability of the borrower or guarantor to repay principal and interest. If the Company’s appraisal of the anticipated value of the completed project proves to be overstated, the Company may have inadequate security for the loan.

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

As a lender, the Company is exposed to the risk that its loan customers may not repay their loans according to their terms and that the collateral securing the payment of these loans may be insufficient to assure repayment. The Company may experience significant loan losses which could have a material adverse effect on its operating results. Management makes various assumptions and judgments about the collectibility of the Company’s loan portfolio, which are based in part on:

•  current economic conditions and their estimated effects on specific borrowers;

•  an evaluation of the existing relationships among loans, potential loan losses and the present level of the allowance;

•  management’s internal review of the loan portfolio; and

•  results of examinations of its loan portfolio by regulatory agencies.

The Company maintains an allowance for loan losses in an attempt to cover probable incurred loan losses inherent in its loan portfolio. Additional loan losses will likely occur in the future and may occur at a rate greater than experienced historically. In determining the amount of the allowance, the Company relies on an analysis of its loan portfolio, experience, and evaluation of general economic conditions. If the Company’s assumptions and analysis prove to be incorrect, its current allowance may not be sufficient. In addition, adjustments may be necessary to allow for unexpected volatility or deterioration in the local or national economy or other factors such as changes in interest rates that may be beyond its control. In addition, federal and state regulators periodically review its allowance for loan losses and may require the Company to increase its provision for loan losses or recognize further loan charge-offs, based on judgments different than those of management. Any increase in the Company’s loan allowance or loan charge-offs could have a material adverse effect on its results of operations.

In 2008, the Company charged off $11.6 million of loan balances related to the previously announced Large Problem Credit, reduced outstanding balances on these loans by a net $5.7 million through the sale of assets, and took title to a substantial piece of real estate previously serving as collateral at an estimated net realizable value of $5.3 million. At December 31, 2008, total outstanding loan balances related to the Large Problem Credit represented $6.1 million, or 10.0%, of nonaccrual loans. While the current carrying value of these loans at December 31, 2008 reflects management’s best current estimate of net realizable value, there can be no assurance that additional losses will not be recognized or that such additional losses would not have a material adverse effect on the Company’s results of operations or its financial condition.

The Company’s nonperforming assets, which consist of nonaccrual loans, troubled debt restructured loans, foreclosed real estate and other repossessed assets, may also impact the sufficiency of the Company’s allowance for loan losses. Nonperforming assets totaled $84.1 million as of December 31, 2008, an increase of $32.7 million, or 63.7%, from $51.4 million at December 31, 2007.

In addition to those loans currently identified and classified as nonperforming loans, management is aware that other possible credit problems may exist with some borrowers. These include loans that are migrating from grades with lower risk of loss probabilities into grades with higher risk of loss probabilities as performance and potential repayment issues surface. The Company monitors these loans and adjusts loss rates in its allowance for loan losses accordingly. The most severe of these loans are credits that are classified as substandard assets due to either less than satisfactory performance history, lack of borrower’s paying capacity, or inadequate collateral.

While the Company attempts to manage the risk from changes in market interest rates, interest rate risk management techniques are not exact. In addition, the Company may not be able to economically hedge its interest rate risk. A rapid or substantial increase or decrease in interest rates could adversely affect its net interest income and results of operations.

The Company’s net income depends primarily upon its net interest income. Net interest income is income that remains after deducting, from total income generated by earning assets the interest expense attributable to the acquisition of the funds required to support earning assets. Income from earning assets includes income from loans,

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investment securities and short-term investments. The amount of interest income is dependent on many factors, including the volume of earning assets, the general level of interest rates, the dynamics of changes in interest rates and the level of nonperforming loans. The cost of funds varies with the amount of funds required to support earning assets, the rates paid to attract and hold deposits, rates paid on borrowed funds and the levels of non-interest-bearing demand deposits and equity capital.

Different types of assets and liabilities may react differently, and at different times, to changes in market interest rates. The Company expects that it will periodically experience “gaps” in the interest rate sensitivities of its assets and liabilities. That means either its interest-bearing liabilities will be more sensitive to changes in market interest rates than its interest earning assets, or vice versa. When interest-bearing liabilities mature or reprice more quickly than interest earning assets, an increase in market rates of interest could reduce the Company’s net interest income. Likewise, when interest-earning assets mature or reprice more quickly than interest-bearing liabilities, falling interest rates could reduce net interest income. The Company is unable to predict changes in market interest rates which are affected by many factors beyond its control including inflation, recession, unemployment, money supply, domestic and international events and changes in the United States and other financial markets. Based on its net interest income simulation model, if market interest rates were to increase immediately by 100 or 200 basis points (a parallel and immediate shift of the yield curve) net interest income would be expected to increase by 3.7% and 8.2%, respectively, from what it would be if rates were to remain at December 31, 2008 levels. The actual amount of any increase or decrease may be higher or lower than that predicted by the Company’s simulation model. Net interest income is not only affected by the level and direction of interest rates, but also by the shape of the yield curve, relationships between interest sensitive instruments and key driver rates, balance sheet growth, client loan and deposit preferences and the timing of changes in these variables.

As result of current market conditions, the Company’s net interest income simulation model did not test the effects of 1.0% and 2.0% decreases in market interest rates at December 31, 2008 as those decreases would result in some deposit interest rate assumptions falling below zero. Nonetheless, the Company’s net interest income could decline in those scenarios as yields on earning assets could continue to adjust downward. Although the Company is seeking to mitigate this risk by instituting interest rate floors into its variable-rate loan products, continuation of the existing interest rate environment, featuring an historically low absolute level of market rates of interest, could have a material adverse effect on the Company.

The Company attempts to manage risk from changes in market interest rates, in part, by controlling the mix of interest rate-sensitive assets and interest rate-sensitive liabilities. The Company continually reviews its interest rate risk position and modifies its strategies based on projections to minimize the impact of future interest rate changes. The Company also uses financial instruments with optionality to modify its exposure to changes in interest rates. However, interest rate risk management techniques are not exact. A rapid increase or decrease in interest rates could adversely affect results of operations and financial performance.

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

Liquidity is essential to the Company’s business. An inability to raise funds through deposits, borrowings, the sale of loans, the capital markets and other sources could have a substantial negative effect on the Company’s liquidity. The Company’s access to funding sources in amounts adequate to finance its activities could be impaired by factors that affect it specifically or the financial services industry in general. Factors that could detrimentally impact the Company’s access to liquidity sources include a decrease in the level of its business activity due to a market downturn or adverse regulatory action against it. The Company’s ability to borrow could also be impaired by factors that are not specific to it, such as a severe disruption of the financial markets or negative views and expectations about the prospects for the financial services industry as a whole as evidenced by the recent turmoil faced by banking organizations and the deterioration in the domestic and worldwide credit markets.

The Bank derives liquidity through core deposit growth, maturity of money market investments, and maturity and sale of investment securities and loans. Additionally, the Bank has access to financial market borrowing sources on an unsecured, and a collateralized basis for both short-term and long-term purposes including, but not limited to,

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the Federal Reserve and Federal Home Loan Banks; the Bank is a member of both. If these funding sources are not sufficient, the Company may have to acquire funds through higher-cost sources.

The Company’s cost of funds for banking operations may increase as a result of general economic conditions, interest rates and competitive pressures.

The Bank has traditionally obtained funds principally through deposits and borrowings. As a general matter, deposits are a cheaper source of funds than borrowings, because interest rates paid for deposits are typically less than interest rates charged for borrowings. Historically and in comparison to commercial banking averages, the Bank has had a higher percentage of its time deposits in denominations of $100,000 or more and brokered certificates of deposit. Within the banking industry, the amounts of such deposits are generally considered more likely to fluctuate than deposits of smaller denominations. If, as a result of general economic conditions, market interest rates, competitive pressures or otherwise, the value of deposits at the Bank decrease relative to its overall banking operations, the Bank may have to rely more heavily on borrowings as a source of funds in the future.

Changes in the mix of the Company’s funding sources could have an adverse effect on its income. Almost 35.2% of the Company’s funding sources are in lower-rate transactional deposit accounts. Market rate increases or competitive pricing could heighten the risk of moving to higher-rate funding sources, which would cause an adverse impact on its net income.

The Company is party to loan agreements that require it to observe certain covenants that limit its flexibility in operating its business.

The Company currently has a $25.0 million short-term revolving line of credit and $55.0 million term note with a single lender. As of December 31, 2008, $8.6 million was outstanding under the revolving line of credit and $55.0 million was outstanding under the term loan. These loans are secured by the stock of the Bank.

The Company is obligated to meet certain covenants under the loan agreement relating to these loans. A breach of any of these covenants could result in a default under the loan agreements. Upon the occurrence of an event of default, all amounts outstanding under loan agreements could become immediately due and payable and our lender could terminate all commitments to extend further credit. The lender also could, at their option, increase the interest rate on those loans by 300 basis points. If the Company is unable to repay those amounts, the lender could proceed against the collateral granted to it to secure that indebtedness. If the lender accelerates the repayment of borrowings, we may not have sufficient assets to make the payments when due.

The revolving line of credit matures on April 3, 2009 and the term loan matures on September 28, 2010. Neither loan agreement includes a commitment to refinance the remaining outstanding balance of the loans when they mature and there is no guarantee that the lender will renew its loans on the maturity dates. Refusal to provide renewals or refinancing opportunities would cause the Company’s indebtedness to become immediately due and payable upon the contractual maturity of such indebtedness.

If we fail to meet our payment obligations under the loan agreements, such failure will constitute an event of default. When an event of default occurs, the lender, may among other remedies, (1) cease permitting us to borrow further under the line of credit, (2) terminate any outstanding commitment and (3) seize the outstanding shares of the Bank’s capital stock held by the Company which have been pledged as collateral for borrowings under the loan agreements. If the lender were to take one or more of these actions, it could have a material adverse affect on our reputation, operations and ability to continue as a going concern, and you could lose your investment in the securities.

If the Company is unable to renew, replace or expand our sources of financing on acceptable terms, it may have an adverse effect on the Company’s business and results of operations and its ability to make distributions to stockholders. Upon liquidation, holders of our debt securities and lenders with respect to other borrowings will receive, and any holders of preferred stock that is currently outstanding and that we may issue in the future may receive, a distribution of the available assets prior to holders of common stock. The decisions by investors and lenders to enter into equity and financing transactions with us will depend upon a number of factors, including our historical and projected financial performance, compliance with the terms of our current loan arrangements,

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industry and market trends, the availability of capital and our investors’ and lenders’ policies and rates applicable thereto, and the relative attractiveness of alternative investment or lending opportunities. There can be no assurance that the Company will be able to raise sufficient capital to pay the loans in full by the maturity dates. In the event the correspondent bank declares the Company to be in default of any covenants, the Company has 30 days to cure the default, or the lender could, at its option, call the term note and any amounts outstanding on the revolving line of credit due and payable or increase the rate on those loans by 300 basis points.

As a result of the effects of recent economic conditions, the increase in nonperforming assets, and the impairment charges on goodwill and the FNMA and FHLMC preferred securities, the Company sought covenant waivers on two occasions since December 31, 2007. First, the lender waived a covenant violation in the first quarter of 2008 resulting from the Company’s net loss recognized in that period. Second, the lender waived a covenant violation in the third quarter of 2008 resulting from the Company’s net loss recognized in that period, contingent upon the Company making accelerated principal payments under the aforementioned term loan agreement in the amounts and on or prior to the dates shown below:

July 1, 2009 — $5.0 million

October 1, 2009 — $5.0 million

January 4, 2010 — $5.0 million

Previously, no principal payments were due under the term loan agreement until the final maturity date of September 28, 2010. The waiver further provides that if the Company raises $15.0 million in new capital pursuant to an offering of common or convertible preferred stock, then the Company shall not be obligated to make any of the accelerated principal payments specified above that fall due after the date on which the Company receives such $15.0 million in new capital until the final maturity date of September 28, 2010. The Company has the capacity to satisfy all payment obligations outlined above. The Company was in compliance with the debt covenants at December 31, 2008.

The Bank will only be able to pay dividends on common stock in 2009 upon receipt of regulatory approval. The Company’s annual debt service currently includes approximate $6.2 million in annual interest expense related to its debt and trust preferred securities and $7.6 million in annual dividend obligations on the Company’s Series A Preferred Stock and Series T Preferred Stock. As of December 31, 2008, the Company had $43.5 million in cash on hand. In the event the Bank is unable to pay dividends, the Company may not be able to service debt, pay obligations or pay dividends on its Series A Preferred Stock (and, therefore, its Series A depository shares), Series T Preferred Stock, or its common stock.

Markets have experienced, and may continue to experience, periods of high volatility accompanied by reduced liquidity.

Financial markets are susceptible to severe events evidenced by rapid depreciation in asset values accompanied by a reduction in asset liquidity. Under these extreme conditions, hedging and other risk management strategies may not be as effective at mitigating trading losses as they would be under more normal market conditions. Moreover, under these conditions market participants are particularly exposed to trading strategies employed by many market participants simultaneously and on a large scale, such as crowded trades. The Company’s risk management and monitoring processes seek to quantify and mitigate risk to more extreme market moves. Severe market events have historically been difficult to predict, however, and the Company could realize significant losses if unprecedented extreme market events were to occur, such as the recent conditions in the global financial markets and global economy.

Concern of the Company’s customers over deposit insurance may cause a decrease in deposits.

With recent increased concerns about bank failures, customers increasingly are concerned about the extent to which their deposits are insured by the FDIC. Customers may withdraw deposits in an effort to ensure that the amount they have on deposit with their bank is fully insured. Decreases in deposits may adversely affect the Company’s funding costs, net income, and liquidity.

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The Company’s deposit insurance premium could be substantially higher in the future, which could have a material adverse effect on our future earnings.

The FDIC insures deposits at FDIC insured financial institutions, including the Bank. The FDIC charges the insured financial institutions premiums to maintain the Deposit Insurance Fund at a certain level. Current economic conditions have increased bank failures and expectations for further failures, in which case the FDIC ensures payments of deposits up to insured limits from the Deposit Insurance Fund.

On October 7, 2008, the FDIC released a five-year recapitalization plan and a proposal to raise premiums to recapitalize the fund. In order to implement the restoration plan, the FDIC proposed to change both its risk-based assessment system and its base assessment rates. Assessment rates would increase by seven basis points across the range of risk weightings. In December 2008, the FDIC adopted its rule, uniformly increasing the risk-based assessment rates by seven basis points, annually, resulting in a range of risk-based assessment of 12 basis points to 50 basis points. Changes to the risk-based assessment system would include increasing premiums for institutions that rely on excessive amounts of brokered deposits, increasing premiums for excessive use of secured liabilities, and lowering premiums for smaller institutions with very high capital levels.

On February 27, 2009, the FDIC board agreed to impose an emergency special assessment of 20 basis points on all banks to restore the Deposit Insurance Fund to an acceptable level. The assessment, which will be payable on September 30, 2009, is in addition to a planned increase in premiums and a change in the way regular premiums are assessed, which the board also approved on that date. This emergency special assessment for the Company is projected to be $5.0 million based on December 31, 2008 data.

Defaults by another financial institution could adversely affect financial markets generally.

Since mid-2007, the financial services industry as a whole, as well as the securities markets generally, have been materially and adversely affected by very significant declines in the values of nearly all asset classes and by a very serious lack of liquidity. Financial institutions in particular have been subject to increased volatility and an overall loss in investor confidence.

The commercial soundness of many financial institutions may be closely interrelated as a result of credit, trading, clearing, or other relationships between the institutions. As a result, concerns about, or a default or threatened default by, one institution could lead to significant market-wide liquidity and credit problems, losses, or defaults by other institutions. This is sometimes referred to as “systemic risk” and may adversely affect financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms and exchanges, with which the Company interacts on a daily basis, and therefore could adversely affect the Company.

The Company’s ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. As a result, defaults by, or even rumors or questions about, one or more financial services companies, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due us. There is no assurance that any such losses would not materially and adversely affect our business, financial condition or results of operations.

The widespread effect of falling housing prices on financial markets could adversely affect the Company’s profitability, liquidity, and financial condition.

Turmoil in the financial markets, precipitated by falling housing prices and rising delinquencies and foreclosures, has negatively impacted the valuation of securities supported by real estate collateral, including certain securities owned by the Company. The Company relies on its investment securities portfolio as a source of net interest income and as a means to manage its funding and liquidity needs. If defaults in the underlying collateral are such that the security can no longer meet its debt service requirements, the Company’s net interest income, cash flows, and capital will be reduced.

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The value of securities in the Company’s investment securities portfolio may be negatively affected by continued disruptions in securities markets.

The market for some of the investment securities held in the Company’s portfolio has become extremely volatile over the past twelve months. Volatile market conditions may detrimentally affect the value of these securities, such as through reduced valuations due to the perception of heightened credit and liquidity risks. There can be no assurance that the declines in market value associated with these disruptions will not result in other than temporary impairments of these assets, which would lead to accounting charges that could have a material adverse effect on our net income and capital levels.

If the Company is required to write down goodwill or other intangible assets or if it is required to mark-to-market certain of its assets or reduce its deferred tax assets by a valuation allowance, its financial condition and results of operations would be negatively affected.

When the Company acquires a business, a portion of the purchase price of the acquisition may be allocated to goodwill and identifiable intangible assets. The amount of the purchase price which is allocated to goodwill is determined by the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired. At December 31, 2008, the Company’s goodwill and identifiable intangible assets were approximately $93.5 million. Under generally accepted accounting principles, if the Company determines that the carrying value of its goodwill or intangible assets is impaired, the Company is required to write down the value of these assets. The Company conducts an annual review to determine whether goodwill and identifiable intangible assets are impaired.

The Company’s goodwill and intangible assets are reviewed annually for impairment as of September 30th of each year. This review in 2008 was conducted with the assistance of a third party valuation specialist. In conducting the review, the market value of the Company’s common stock, estimated control premiums, projected cash flow and various pricing analyses are all taken into consideration to determine if the fair value of the assets and liabilities in its business exceed their carrying amounts.

On September 30, 2008, the Company recorded a non-cash goodwill impairment charge of $80.0 million. This goodwill impairment charge was not tax deductible, did not impact its tangible equity or regulatory capital ratios, and did not adversely affect its overall liquidity position. It is classified as a noninterest expense item.

Under SFAS No. 142, goodwill must be tested for impairment annually and, under certain circumstances, at intervening interim dates. A goodwill impairment test also could be triggered between annual testing dates if an event occurs or circumstances change that would more likely than not reduce the fair value below the carrying amount. Examples of those events or circumstances would include the following:

•  Significant adverse change in business climate;

•  Significant unanticipated loss of clients/assets under management;

•  Unanticipated loss of key personnel;

•  Sustained periods of poor investment performance;

•  Significant loss of deposits or loans;

•  Significant reductions in profitability; or

•  Significant changes in loan credit quality.

The Company does not believe that any new events or changes in circumstance have occurred since September 30, 2008 (the date of our most recent annual test and resulting impairment recognition) that would require an interim impairment analysis to be conducted as of December 31, 2008. Management will continue to assess any shortfall in the Company’s market capitalization relative to its total book value and tangible book value, which management currently attributes to both industry-wide and Company-specific factors, and to evaluate whether any additional adjustments are required in the carrying value of goodwill. If the Company’s common stock

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continues to trade at a price below book value, the Company may be required in a future period to recognize an impairment of all, or some portion, of its remaining goodwill.

The Company cannot assure that it will not be required to take additional goodwill impairment charges in the future. Any impairment charge would have a negative effect on its stockholders’ equity and financial results.

If an impairment charge is significant enough to result in negative net income for the period, it could affect the ability of the Bank to upstream dividends to the Company, which could have a material adverse effect on the Company’s liquidity and its ability to pay dividends to stockholders.

If the Company decides to sell a loan or a portfolio of loans it is required to classify those loans as held for sale, which requires it to carry such loans at the lower of cost or market. If it decides to sell loans at a time when the fair market value of those loans is less than their carrying value, the adjustment will result in a loss. The Company may from time to time decide to sell particular loans or groups of loans, for example to resolve classified loans, and the required adjustment could negatively affect its financial condition or results of operations.

The Company is required, under generally accepted accounting principles, to assess the need for a valuation allowance on its deferred tax assets. If, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized, the Company would be required to reduce its deferred tax assets by a valuation allowance and increase income tax expense. At December 31, 2008, the Company’s net deferred tax asset was $56.5 million.

If the Company’s investment in the common stock of the Federal Home Loan Bank of Chicago is other than temporarily impaired, its financial condition and results of operations could be materially impaired.

The Bank owns common stock of the Federal Home Loan Bank of Chicago, FHLBC. The common stock is held to qualify for membership in the Federal Home Loan Bank System and to be eligible to borrow funds under the FHLBC’s advance program. The aggregate cost and fair value of the Company’s FHLBC common stock as of December 31, 2008 was $19.0 million based on its par value. There is no market for the FHLBC common stock.

On October 10, 2007, the FHLBC entered into a consensual cease and desist order with the Federal Housing Finance Board, now known as the Federal Housing Finance Agency, the FHFA. Under the terms of the order, capital stock repurchases and redemptions, including redemptions upon membership withdrawal or other termination, are prohibited unless the FHLBC receives the prior approval of the Director of the Office of Supervision of the FHFA, the Director. The order also provides that dividend declarations are subject to the prior written approval of the Director and required the FHLBC to submit a capital structure plan to the FHFA. The FHLBC has not declared any dividends since the order was issued and it has not received approval of a capital structure plan. In July of 2008, the FHFA amended the order to permit the FHLBC to repurchase or redeem newly-issued capital stock to support new advances, subject to certain conditions set forth in the order. The Company’s FHLBC common stock is not newly-issued and is not affected by this amendment.

Recent published reports indicate that certain member banks of the Federal Home Loan Bank System could have materially lower regulatory capital levels due to the application of certain accounting rules and asset quality issues. In an extreme situation, it is possible that the capitalization of a Federal Home Loan Bank, including the FHLBC, could be substantially diminished or reduced to zero. The Company’s FHLBC common stock is accounted for in accordance with the AICPS Statement of Position (“SOP”) No. 01-6, Accounting by Certain Entities that Lend to or Finance the Activities of Others. SOP 01-6 provides that, for impairment testing purposes, the value of long term investments such as FHLBC common stock is based on the “ultimate recoverability” of the par value of the security without regard to temporary declines in value. Consequently, if events occur that give rise to substantial doubt about the ultimate recoverability of the par value of the Companys’ FHLBC common stock, this investment could be deemed to be other-than-temporarily impaired, and the impairment loss that we would be required to record would cause our earnings to decrease by the after-tax amount of the impairment loss.

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As a bank holding company that conducts substantially all of the Company’s operations through its subsidiaries, its ability to pay dividends, repurchase its shares, or to repay its indebtedness depends upon liquid assets held by the bank holding company as well as the results of operations of the Company’s subsidiaries; the Company and its subsidiaries are subject to other restrictions.

The Company is a separate and distinct legal entity from its subsidiaries and it receives substantially all of its revenue from dividends from its subsidiaries. The Company’s net income depends primarily upon its net interest income. Net interest income is income that remains after deducting from total income generated by earning assets the interest expense attributable to the acquisition of the funds required to support earning assets. Income from earning assets includes income from loans, investment securities and short-term investments. The amount of interest income is dependent on many factors including the volume of earning assets, the general level of interest rates, the dynamics of changes in interest rates and the levels of nonperforming loans. The cost of funds varies with the amount of funds necessary to support earning assets, the rates paid to attract and hold deposits, rates paid on borrowed funds and the levels of noninterest-bearing demand deposits and equity capital.

Most of the Company’s ability to pay dividends and make payments on its debt securities come from amounts paid to it by the Bank. Under applicable banking law, the total dividends declared in any calendar year by the Bank may not, without the approval of the Federal Reserve exceed the aggregate of the Bank’s net profits and retained net profits for the preceding two years. The Bank is also subject to limits on dividends under the Illinois Banking Act. The Bank will not be able to pay dividends to the Company in 2009 without prior approval of the Federal Reserve.

If, in the opinion of the federal bank regulatory agency, a depository institution under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice (which, depending on the financial condition of the depository institution, could include the payment of dividends), the agency may require that the bank cease and desist from the practice. The Federal Reserve has similar authority with respect to bank holding companies. In addition, the federal bank regulatory agencies have issued policy statements which provide that insured banks and bank holding companies should generally only pay dividends out of current operating earnings. Finally, these regulatory authorities have established guidelines with respect to the maintenance of appropriate levels of capital by a bank, bank holding company or savings association under their jurisdiction. Compliance with the standards set forth in these guidelines could limit the amount of dividends that the Company and its affiliates may pay in the future.

Under the terms of junior subordinated debentures the Company has issued, it has agreed not to declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its common stock or preferred stock if, at that time, there is a default under the junior subordinated debentures or a related guarantee or it has delayed interest payments on the securities issued under the junior indenture.

The Company’s outstanding Series A and Series T preferred stock has preference over the Company’s common stock with respect to the payment of dividends and distribution of the Company’s assets in the event of a liquidation or dissolution.

Future dividend payments and common stock repurchases are restricted by the terms of the U.S. Treasury’s equity investment in the Company.

Under the terms of the Company’s agreement with the U.S. Treasury, for so long as any Series T preferred stock remains outstanding, the Company is prohibited from paying dividends on its common stock, and from making certain repurchases of equity securities, including its common stock, without the U.S. Treasury’s consent until the third anniversary of the U.S. Treasury’s investment or until the U.S. Treasury has transferred all of the Series T preferred stock to third parties. Furthermore, as long as the Series T preferred stock issued to the U.S. Treasury is outstanding, dividend payments and repurchases or redemptions relating to certain equity securities, including its common stock, are prohibited until all accrued and unpaid dividends are paid on such preferred stock, subject to certain limited exceptions.

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The Company may elect or be compelled to seek additional capital in the future, but capital may not be available when it is needed.

The Company is required by federal and state regulatory authorities to maintain adequate levels of capital to support its operations. To the extent the Company continues to expand its operations, the Company will be required to support the growth in its operations by increasing its capital. In that regard, a number of financial institutions have recently raised considerable amounts of capital as a result of deterioration in their results of operations and financial condition arising from the turmoil in the mortgage loan market, deteriorating economic conditions, declines in real estate values and other factors, which may diminish our ability to raise additional capital.

The Company’s ability to raise additional capital, if needed, will depend on conditions in the capital markets, economic conditions and a number of other factors, many of which are outside its control, and on its financial performance. Accordingly, the Company cannot be assured of its ability to raise additional capital if needed or on terms acceptable to it. If the Company cannot raise additional capital when needed, it may have a material adverse effect on its financial condition, results of operations and prospects. If the Company cannot raise additional capital when needed, it may be subject to increased regulatory supervision and the imposition of restrictions on its growth. These restrictions could negatively impact the Company’s ability to further expand its operations and may result in significant increases in its operating expenses or decreases in its revenues.

The Company’s effective tax rates may be adversely affected by changes in federal and state tax laws.

The Company’s effective tax rates may be adversely affected by changes in federal or state tax laws, regulations and agency interpretations. In this regard, recent changes in Illinois laws may adversely affect the Company’s results of operations. Under current tax law, the Company enjoyed favorable tax treatment with respect to the dividends it received from Midwest Funding, L.L.C., a captive real estate investment trust, or a REIT. A change in Illinois tax law relating to the deductibility of captive REIT dividends eliminated this tax benefit beginning January 1, 2009, and is likely to increase the Company’s effective tax rate beginning in that year.

In addition, in connection with the determination of the Company’s provision for income and other taxes and during the preparation of its tax returns, management makes certain judgments based upon reasonable interpretations of tax laws, regulations and agency interpretations which are inherently complex. Management’s interpretations are subject to challenge upon audit by the tax authorities, which have become increasingly aggressive in challenging tax positions taken by financial institutions, including certain positions that it has taken. If the Company is not successful in defending the tax positions that it has taken, the Company’s financial condition and results of operations may be adversely affected.

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

The Company relies heavily on communications and information systems to conduct its business. Any failure or interruptions or breach in security of these systems could result in failures or disruptions in its customer relationship management, general ledger, deposits, servicing, or loan origination systems. The occurrence of any failures or interruptions or breach in security could result in a loss of customer business, costly remedial actions, or legal liabilities and have a material adverse effect on the Company’s results of operations and financial condition.

Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations, cash flows and financial condition.

The Company relies heavily on communications and information systems to conduct its business. Any failure, interruption or breach in security of these systems could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan and other systems. While we have policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of the Company’s information systems, there

36

can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed. Additionally, the Company outsources a portion of its data processing to a third party. If our third party provider encounters difficulties or if we have difficulty in communicating with such third party, it will significantly affect our ability to adequately process and account for customer transactions, which would significantly affect our business operations. Furthermore, breaches of such third party’s technology may also cause reimbursable loss to our consumer and business customers, through no fault of our own. The occurrence of any failures, interruptions or security breaches of information systems used to process customer transactions could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition, results of operations and cash flows.

The Company continually encounters technological change.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. The Company’s future success depends, in part, upon its ability to address the needs of its customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many competitors have substantially greater resources to invest in technological improvements. The Company may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to its customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on the Company’s business and, in turn, its financial condition, results of operations and cash flows.

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

The Company is subject to extensive federal and state legislation, regulation and supervision. The burden of regulatory compliance has increased under current legislation and banking regulations and is likely to continue to have a significant impact on the financial services industry. Recent legislative and regulatory changes, as well as changes in regulatory enforcement policies and capital adequacy guidelines, are increasing the Company’s costs of doing business and, as a result, may create an advantage for its competitors who may not be subject to similar legislative and regulatory requirements. In addition, future regulatory changes, including changes to regulatory capital requirements, could have an adverse impact on the Company’s future results. In addition, the federal and state bank regulatory authorities who supervise the Company have broad discretionary powers to take enforcement actions against banks for failure to comply with applicable regulations and laws. If the Company fails to comply with applicable laws or regulations, it could become subject to enforcement actions that have a material adverse effect on its future results.

There can be no assurance that the recently enacted Emergency Economic Stabilization Act of 2008, the American Recovery and Reinvestment Act of 2009 and other recently enacted government programs will help stabilize the U.S. financial system.

On October 3, 2008, the Emergency Economic Stabilization Act of 2008, EESA, was enacted. The U.S. Treasury and banking regulators are implementing a number of programs under this legislation and otherwise to address capital and liquidity issues in the banking system, including the TARP Capital Purchase Program. In addition, other regulators have taken steps to attempt to stabilize and add liquidity to the financial markets, such as the FDIC Temporary Liquidity Guarantee Program, TLG Program, which we did not “opt-out” of. However, there can be no assurance that we will issue any guaranteed debt under the TLG Program, or that we will participate in any other stabilization programs in the future.

The EESA followed, and has been followed by, numerous actions by the Federal Reserve, the U.S. Congress, U.S. Treasury, the FDIC, the SEC and others to address the current liquidity and credit crisis that has followed the sub-prime meltdown that commenced in 2007. These measures include homeowner relief that encourage loan restructuring and modification; the establishment of significant liquidity and credit facilities for financial

37

institutions and investment banks; the lowering of the federal funds rate; emergency action against short selling practices; a temporary guaranty program for money market funds; the establishment of a commercial paper funding facility to provide back-stop liquidity to commercial paper issuers; and coordinated international efforts to address illiquidity and other weaknesses in the banking sector.

On February 17, 2009, President Barack Obama signed the American Recovery and Reinvestment Act of 2009, ARRA, more commonly known as the economic stimulus or economic recovery package. ARRA includes a wide variety of programs intended to stimulate the economy and provide for extensive infrastructure, energy, health and education needs. In addition, ARRA imposes new executive compensation and corporate governance limits on current and future participants in TARP, including the Company, which are in addition to those previously announced by U.S. Treasury. The new limits remain in place until the participant has redeemed the preferred stock sold to U.S. Treasury, which is now permitted under ARRA without penalty and without the need to raise new capital, subject to U.S. Treasury’s consultation with the recipient’s appropriate federal regulator.

There can also be no assurance as to the actual impact that the EESA, the ARRA and other programs will have on the financial markets, including the extreme levels of volatility and limited credit availability currently being experienced. The failure of the EESA, the ARRA and other programs to stabilize the financial markets and a continuation or worsening of current financial market conditions could materially and adversely affect our business, financial condition, results of operations, access to credit or the trading price of our common stock.

The EESA and the ARRA are relatively new legislation and, as such, is subject to change and evolving interpretation. This is particularly true given the change in administration that occurred on January 20, 2009. There can be no assurances as to the effects that such changes will have on the effectiveness of the EESA or on our business, financial condition or results of operations.

The purpose of these legislative and regulatory actions is to stabilize the U.S. banking system. The EESA, the ARRA and the other regulatory initiatives described above may not have their desired effects. If the volatility in the markets continues and economic conditions fail to improve or worsen, our business, financial condition, results of operations and cash flows could be materially and adversely affected.

The limitations on incentive compensation contained in the ARRA may adversely affect the Company’s ability to retain its highest performing employees.

The ARRA imposes new executive compensation limits on current and future participants in TARP, including the Company, which are in addition to those previously announced by U.S. Treasury. The ARRA contains restrictions on bonus and other incentive compensation payable to the five executives named in a company’s proxy statement, imposes restrictions on severance payments to the ten highest paid employees, and requires the repayment of bonuses in certain circumstances by the 25 highest paid employees. Depending upon the limitations placed on incentive compensation by the final regulations issued under the ARRA, it is possible that the Company may be unable to create a compensation structure that permits it to retain its highest performing employees. If this were to occur, the Company’s business and results of operations could be adversely affected, perhaps materially.

The Company is subject to claims and litigation pertaining to fiduciary responsibility.

From time to time, customers make claims and take legal action pertaining to our performance of our fiduciary responsibilities. Whether customer claims and legal action related to our performance of our fiduciary responsibilities are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to us, they may result in significant financial liability and/or adversely affect the market perception of us and our products and services as well as impact customer demand for our products and services. Any financial liability or reputation damage could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition, results of operations and cash flows.

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The Company is exposed to risk of environmental liabilities with respect to properties to which we take title.

In the course of our business, we may own or foreclose and take title to real estate, and could be subject to environmental liabilities with respect to these properties. We may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or may be required to investigate or clean up hazardous or toxic substances, or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. In addition, as the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. If we ever become subject to significant environmental liabilities, our business, financial condition, cash flows, liquidity and results of operations could be materially and adversely affected.

Severe weather, natural disasters, acts of war or terrorism and other external events could significantly impact our business.

Severe weather, natural disasters, acts of war or terrorism and other adverse external events could have a significant impact on our ability to conduct business. Such events could affect the stability of our deposit base; impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue and/or cause us to incur additional expenses. Although management has established disaster recovery policies and procedures and is insured for these situations, the occurrence of any such event could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition, results of operations and cash flows.

Non-Compliance with USA PATRIOT Act, Bank Secrecy Act, or Other Laws and Regulations Could Result in Fines or Sanctions, and Curtail Expansion Opportunities

Financial institutions are required under the USA PATRIOT and Bank Secrecy Acts to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. Financial institutions are also obligated to file suspicious activity reports with the U.S. Treasury Department’s Office of Financial Crimes Enforcement Network if such activities are detected. These rules also require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure or the inability to comply with these regulations could result in fines or penalties, curtailment of expansion opportunities, intervention or sanctions by regulators and costly litigation or expensive additional controls and systems. During the last few years, several banking institutions have received large fines for non-compliance with these laws and regulations. We have developed policies and continue to augment procedures and systems designed to assist in compliance with these laws and regulations.

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.

The Company’s amended and restated certificate of incorporation and its amended and restated by-laws contain provisions that may make it more difficult for a third party to gain control or acquire the Company without the consent of its board of directors. These provisions also could discourage proxy contests and may make it more difficult for dissident stockholders to elect representatives as directors and take other corporate actions.

These provisions of the Company’s governing documents may have the effect of delaying, deferring or preventing a transaction or a change in control that some or many of its stockholders might believe to be in their best interest.

Item 1B.   Unresolved Staff Comments

None.

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Item 2.   Properties

The following table sets forth certain information regarding the Company’s principal office and bank branches.

	Date		Net Book Value at		Leased or
Location	Acquired		December 31, 2008		Owned
	(In thousands)
Principal Office of the Company and Midwest Bank and Trust Company Banking Office
501 West North Avenue Melrose Park, Illinois 60160		1987	$	1,139		Owned
Other Midwest Bank and Trust Company Banking Offices
1606 North Harlem Avenue Elmwood Park, Illinois 60607		1959		3,228		Owned
2045 East Algonquin Road Algonquin, Illinois 60102		1994		580		Owned
1000 Tower Lane #125 Bensenville, Illinois 60106		2006		4		Leased
236 West Lake Street Bloomingdale, Illinois 60108		2006		477		Leased
1001 Johnson Drive Buffalo Grove, Illinois 60089		2006		55		Leased
300 South Michigan Avenue Chicago, Illinois 60604		1986		119		Leased
4012 North Pulaski Road Chicago, Illinois 60641		1993		756		Owned
7227 West Addison Street Chicago, Illinois 60634		1996		997		Owned
1601 North Milwaukee Avenue Chicago, Illinois 60647		2003		2		Leased
1545 Ellinwood Ave Des Plaines, Illinois 60016		2007		5,242		Owned
927 Curtiss Street Downers Grove, Illinois 60515		1996		101		Leased
645 Tollgate Road Elgin, Illinois 60123		2006		—		Leased
9668 Franklin Avenue Franklin Park, Illinois 60131		2006		151		Leased
1441 Waukegan Road Glenview, Illinois 60025		2003		409		Leased
500 West Chestnut Street Hinsdale, Illinois 60521		1991		1,308		Owned
1604 West Colonial Parkway Inverness, Illinois 60067		2006		—		Leased
204 E. State Road Island Lake, Illinois 60042		1998		306		Owned
274444 W. Route 120 Lakemoor, Illinois 60050		2007		2,262		Leased
1190 Old McHenry Road Long Grove, Illinois 60047		2003		—		Leased
5555 Bull Valley Road McHenry, Illinois 60050		1998		1,028		Owned
50 N. Main Street Mount Prospect, Illinois 60056		2007		5,141		Owned
1730 Park Street Naperville, Illinois 60563		2006		524		Owned
8301 West Lawrence Norridge, Illinois 60656		2003		280			*
444 N. Rand Road North Barrington, Illinois 60010		2007		4,567		Owned
505 North Roselle Road Roselle, Illinois 60172		1999		1,996		Owned
17622 Depot Street Union, Illinois 60180		1987		64		Owned

*  Land is leased and building is owned.

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Management believes that the facilities are of sound construction, in good operating condition, appropriately insured, and adequately equipped for carrying on the business of the Company. During December 2008, the Company closed two unprofitable branches located in Addison and Lake Zurich, Illinois.

Item 3.   Legal Proceedings

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

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

The Company held a special meeting of the holders of the Series A Noncumulative Redeemable Convertible Perpetual Preferred Stock (the “Series A preferred stock”) on December 5, 2008. One proposal was submitted to a vote of the Series A preferred stockholders as described in the Company’s proxy statement, dated November 21, 2008. The following is a brief description of the matter voted upon, which was approved by the holders of the Series A preferred stock:

•  To authorize the issuance by the Company of up to $85.5 million of fixed rate, cumulative perpetual preferred stock, Series T to the U.S. Treasury:

Votes For:	13,211
Against:	99
Abstain:	49

PART II

Item 5.   Market for the Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company’s common stock is traded over-the-counter and quoted on the NASDAQ Global Market under the symbol “MBHI.” As of March 10, 2009, the Company had approximately 879 stockholders of record, based upon securities position listings furnished by the Company’s transfer agent. The Company believes the number of beneficial owners is greater than the number of record holders because a large portion of the Company’s common stock is held through brokerage firms in “street name.” The table below sets forth the high and low sale prices of the common stock and the cash dividends declared during the periods indicated.

					Dividends Declared
	High		Low		Per Common Share
2007
First Quarter	$	24.44	$	17.40	$	0.13
Second Quarter		18.03		14.50		0.13
Third Quarter		15.95		12.78		0.13
Fourth Quarter		15.80		11.45		0.13
2008
First Quarter	$	13.93	$	9.63	$	0.13
Second Quarter		13.21		4.87		0.13
Third Quarter		7.50		2.90		—
Fourth Quarter		4.50		1.30		—

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Issuer Purchases of Equity Securities

On May 3, 2006, the Company announced a 5.0% stock repurchase program. During 2006, the Company repurchased 204,188 shares of its common stock at an average price of $23.37. During 2007, the Company repurchased 661,500 shares of its common stock at an average price of $14.25. These shares were acquired in private and public transactions as part of the Company’s stock repurchase program. No shares were repurchased during 2008. As of December 31, 2008, there were 374,111 shares remaining for repurchase under this program, should the Company decide to do so with the approval of the U.S. Treasury.

Information regarding the equity compensation plan is included in Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters and the information included therein is incorporated herein by reference.

Holders of common stock are entitled to receive such dividends that may be declared by the Board of Directors from time to time and paid out of funds legally available therefor. Because the Company’s consolidated net income consists largely of net income of the Bank, the Company’s ability to pay dividends depends upon its receipt of dividends from the Bank. The Bank’s ability to pay dividends is regulated by banking statutes. The Bank will not be able to pay dividends to the Company in 2009 without prior approval of the Federal Reserve. See “Supervision and Regulation, Financial Institution Regulation — Dividend Limitations.” The declaration of dividends by the Company is discretionary and depends on the Company’s earnings and financial condition, regulatory limitations, tax considerations and other factors including limitations imposed by the terms of the Company’s outstanding junior subordinated debentures owed to its unconsolidated trusts. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity.” The Company will only be able to pay dividends with the approval of the U.S. Treasury Department.

Issuance of Preferred Stock — Use of Proceeds

The Company, on December 5, 2008, issued and sold to the U.S. Treasury (i) 84,784 shares of the Company’s fixed rate cumulative perpetual preferred stock, Series T and (ii) a warrant to purchase for $2.97 per share 4,282,020 shares of the Company’s common stock, par value $0.01 per share, for an aggregate purchase price of $84.784 million in cash. The preferred stock and warrant were issued in a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933. The new equity strengthened the Company’s balance sheet and allowed it to infuse capital into the Bank through a subordinated debenture as well as allowed it to partially pay down $12.0 million in balances outstanding on its revolving line of credit.

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Performance Graph

The following graph shows a comparison of the cumulative returns for the Company, the S&P 500 Index, and the NASDAQ Market Bank Stocks Index for the period beginning December 31, 2003 and ending December 31, 2008. The information assumes that $100 was invested at the closing price on December 31, 2003 in the common stock of the Company and each index and that all dividends were reinvested.

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Item 6.   Selected Consolidated Financial Data

The following table sets forth certain selected consolidated financial data at or for the periods indicated. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the results of operations and gain on sale of Midwest Bank of Western Illinois are shown in the Company’s statements of income for 2004 and 2005 as “discontinued operations.” This information should be read in conjunction with the Company’s Consolidated Financial Statements and notes thereto included herein. See “Item 8, Consolidated Financial Statements and Supplementary Data.”

	Year Ended December 31,
	2008			2007		2006		2005			2004
	(Dollars in thousands, except per share data)
Statement of Income Data:
Total interest income	$	187,661		$	193,869	$	159,262	$	112,244		$	91,962
Total interest expense		100,695			111,237		83,980		50,797			41,780
Net interest income		86,966			82,632		75,282		61,447			50,182
Provision for loan losses		71,765			4,891		12,050		2,589			3,400
Noninterest income (loss)		(50,596	)		15,477		14,551		(6,245	)		(88	)
Noninterest expenses		177,951			71,395		58,615		60,527			46,491
Income (loss) before income taxes and discontinued operations		(213,346	)		21,823		19,168		(7,914	)		203
Provision (benefit) for income taxes		(55,073	)		3,246		1,422		(6,325	)		(2,869	)
Income (loss) from continuing operations		(158,273	)		18,577		17,746		(1,589	)		3,072
Income (loss) from discontinued operations		—			—		—		7,533			(696	)
Net income (loss)		(158,273	)		18,577		17,746		5,944			2,376
Preferred stock dividends		3,728			204		—		—			—
Net income available to common stockholders	$	(162,001	)	$	18,373	$	17,746	$	5,944		$	2,376
Per Common Share Data:
Earnings per share (basic) from continuing operations	$	(5.82	)	$	0.72	$	0.76	$	(0.08	)	$	0.17
Earnings per share (basic) from discontinued operations		—			—		—		0.38			(0.04	)
Earnings per share (basic)		(5.82	)		0.72		0.76		0.30			0.13
Earnings per share (diluted) from continuing operations		(5.82	)		0.72		0.75		(0.08	)		0.17
Earnings per share (diluted) from discontinued operations		—			—		—		0.38			(0.04	)
Earnings per share (diluted)		(5.82	)		0.72		0.75		0.30			0.13
Cash dividends declared		0.26			0.52		0.51		0.48			0.48
Book value at end of period		6.56			11.94		11.65		9.91			7.66
Tangible book value at end of period (non-GAAP measure)(10)		3.21			5.56		7.97		9.78			7.49

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	Year Ended December 31,
	2008			2007			2006			2005			2004
	(Dollars in thousands, except per share data)
Selected Financial Ratios:
Return on average assets from continuing operations(1)		(4.32	)%		0.58	%		0.67	%		(0.07	)%		0.13	%
Return on average equity from continuing operations(2)		(46.65	)		6.13			7.04			(0.95	)		2.17
Dividend payout ratio		N/M			73.04			67.95			162.38			279.59
Average equity to average assets		9.27			9.53			9.57			7.29			6.12
Tier 1 risk-based capital		8.30			9.21			11.92			16.97			13.27
Total risk-based capital		10.07			10.17			12.97			18.07			14.65
Net interest margin (tax equivalent)(3)(4)(5)		2.75			3.02			3.32			3.31			2.82
Loan to deposit ratio(5)		104.02			100.66			99.44			88.62			73.07
Net overhead expense to average assets(5)(6)		4.00			1.76			1.67			2.14			1.58
Efficiency ratio(5)(7)		144.87			68.29			60.55			75.44			72.79
Loan Quality Ratios(5):
Allowance for loan losses to total loans at the end of year		1.77			1.08			1.19			1.32			1.48
Provision for loan losses to total loans		2.86			0.20			0.62			0.19			0.31
Net loans charged off to average total loans		2.18			0.20			0.59			0.09			0.17
Nonaccrual loans to total loans at the end of year(8)		2.43			1.99			2.20			0.59			0.85
Nonperforming assets to total assets(9)		2.36			1.39			1.55			0.83			0.78
Allowance for loan losses to nonaccrual loans		0.73	x		0.54	x		0.54	x		2.25	x		1.74	x
Balance Sheet Data:
Total assets	$	3,570,212		$	3,692,782		$	2,942,046		$	2,307,608		$	2,236,813
Total earning assets(5)		3,195,408			3,266,461			2,617,894			2,126,227			1,807,609
Average assets		3,661,209			3,181,990			2,635,138			2,305,086			2,310,594
Loans(5)		2,509,759			2,474,327			1,946,816			1,349,996			1,097,299
Allowance for loan losses(5)		44,432			26,748			23,229			17,760			16,217
Deposits(5)		2,412,791			2,458,148			1,957,810			1,523,384			1,501,646
Borrowings(5)		817,041			821,063			652,774			538,480			320,636
Stockholders’ equity		305,834			375,164			287,242			216,126			137,423
Tangible stockholders’ equity(non-GAAP measure)(5)(10)		212,289			197,713			196,481			213,447			134,315

(1)	Net income divided by average assets.
(2)	Net income divided by average equity.
(3)	Net interest income, on a fully tax-equivalent basis, divided by average earning assets.

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

	2008		2007		2006		2005		2004
Net interest income	$	86,966	$	82,632	$	75,282	$	61,447	$	50,182
Tax-equivalent adjustment to net interest income		2,621		3,612		4,286		2,628		2,399
Net interest income, fully tax-equivalent basis	$	89,587	$	86,244	$	79,568	$	64,075	$	52,581

(5)	Reflects continuing operations due to the sale of bank subsidiary on September 30, 2005.
(6)	Noninterest expense less noninterest income, excluding security gains or losses, divided by average assets.
(7)	Noninterest expense excluding amortization of intangible assets and foreclosed properties expense divided by noninterest income, excluding security gains or losses, plus net interest income on a fully tax-equivalent basis.
(8)	Includes total nonaccrual, impaired and all other loans 90 days or more past due.
(9)	Includes total nonaccrual and all other loans 90 days or more past due, trouble-debt restructured loans and foreclosed properties.
(10)	Stockholders’ equity less goodwill, core deposit intangible and other intangible assets. Management believes that tangible stockholders’ equity (non-GAAP measure) is a more useful measure since it excludes the balances of intangible assets. The following table reconciles reported stockholders’ equity to tangible stockholders’ equity for the periods presented:

	2008		2007		2006		2005		2004
Stockholders’ equity	$	305,834	$	375,164	$	287,242	$	216,126	$	137,423
Core deposit intangible and other intangibles, net		14,683		17,044		11,273		1,788		2,217
Goodwill		78,862		160,407		79,488		891		891
Tangible stockholders’ equity	$	212,289	$	197,713	$	196,481	$	213,447	$	134,315

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Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The Company’s principal business is conducted by the Bank which provides of a full range of community-based financial services, including commercial and retail banking. The profitability of the Company’s operations depends primarily on its net interest income, provision for loan losses, noninterest income, noninterest expenses, and income taxes. Net interest income is the difference between the income the Company receives on its loan and securities portfolios and its cost of funds, which consists of interest paid on deposits and borrowings. The provision for loan losses reflects the cost of credit risk in the Company’s loan portfolio. Noninterest income consists of service charges on deposit accounts, securities gains or losses or impairments, net trading profits or losses, gains or losses on sales of loans, insurance and brokerage commissions, trust income, increase in cash surrender value of life insurance, gains on sale of property and extinguishment of debt, and other noninterest income. Noninterest expenses include salaries and employee benefits, occupancy and equipment expenses, professional services, marketing expenses, amortization of intangible assets, goodwill impairment, loss on extinguishment of debt, merger-related expenses, and other noninterest expenses. The Company is subject to state and federal income taxes.

Net interest income is dependent on the amounts of and yields on interest-earning assets as compared to the amounts of and rates on interest-bearing liabilities. Net interest income is sensitive to changes in market interest rates and is dependent on the Company’s asset/liability management procedures to react appropriately to such changes. The provision for loan losses is based upon management’s assessment of the collectibility of the loan portfolio under current economic conditions. Noninterest expenses are influenced by the growth of operations. Growth in the number of account relationships directly affects such expenses as data processing costs, supplies, postage, and other miscellaneous expenses. The provision for income taxes is affected by tax law and regulation, accounting principles and policies, and income tax strategies. See Note 2 and Note 22 of the Notes to the consolidated financial statements for more details.

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

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. By their nature, changes in these assumptions and estimates could significantly affect the Company’s financial position or results of operations. Actual results could differ from those estimates. Discussed below are those critical accounting policies that are of particular significance to the Company.

Allowance for Loan Losses:  The allowance for loan losses represents management’s estimate of probable credit losses inherent in the loan portfolio. Estimating the amount of the allowance for loan losses requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset type on the consolidated balance sheet. Loan losses are charged off against the allowance, while recoveries of amounts previously charged off are credited to the allowance. A provision for loan losses is charged to operations based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors.

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The Company’s methodology for determining the allowance for loan losses represents an estimation performed pursuant to SFAS No. 5, “Accounting for Contingencies,” and SFAS No. 114, “Accounting by Creditors for Impairment of a Loan.” The allowance reflects expected losses resulting from analyses developed through specific credit allocations for individual loans and historical loss experience for each loan category. The specific credit allocations are based on regular analyses of all loans over $300,000 where the internal credit rating is at or below a predetermined classification. These analyses involve a high degree of judgment in estimating the amount of loss associated with specific loans, including estimating the amount and timing of future cash flows and collateral values. The allowance for loan losses also includes consideration of concentrations and changes in portfolio mix and volume and other qualitative factors. In addition, regulatory agencies, as an integral part of their examinations, may require the Company to make additions to the allowance based on their judgment about information available to them at the time of their examinations.

There are many factors affecting the allowance for loan losses; some are quantitative while others require qualitative judgment. The process for determining the allowance (which management believes adequately considers all of the potential factors which potentially result in credit losses) includes subjective elements and, therefore, may be susceptible to significant change. To the extent actual outcomes differ from management estimates, additional provisions for credit losses could be required that could adversely affect the Company’s earnings or financial position in future periods.

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

Income Taxes:  The Company recognizes expense for federal and state income taxes currently payable as well as for deferred federal and state taxes for estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in the consolidated balance sheets, as well as loss carryforwards and tax credit carryforwards. Realization of deferred tax assets is dependent upon generating sufficient taxable income in either the carryforward or carryback periods to cover net operating losses generated by the reversal of temporary differences. A valuation allowance is provided by way of a charge to income tax expense if it is determined that it is not more likely than not that some or all of the deferred tax asset will be realized. If different assumptions and conditions were to prevail, the valuation allowance may not be adequate to absorb unrealized deferred taxes and the amount of income taxes payable may need to be adjusted by way of a charge or credit to expense. Furthermore, income tax returns are subject to audit by the IRS and state taxing authorities. Income tax expense for current and prior periods is subject to adjustment based upon the outcome of such audits. The Company believes it has adequately accrued for all probable income taxes payable. Accrual of income taxes payable and valuation allowances against deferred tax assets are estimates subject to change based upon the outcome of future events.

The Company has entered into tax allocation agreements with its subsidiary entities included in the consolidated US federal and unitary and combined state income tax returns. These agreements govern the timing and amount of income tax payments required by the various entities.

In June 2006, the Financial Accounting Standards Board (“FASB”) released FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting and reporting for uncertainties in the application of income tax laws, providing a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of income tax positions taken or expected to be taken in income tax returns. The Company’s adoption of FIN 48 on January 1, 2007 did not have a material impact on the Company’s consolidated financial position and results of operations. See Note 22 — Income Taxes of the Notes to the consolidated financial statements for more details.

Evaluation of Securities for Impairment:  Securities are classified as held-to-maturity when the Company has the ability and intent to hold those securities to maturity. Accordingly, they are stated at cost adjusted for amortization of premiums and accretion of discounts. Securities are classified as available-for-sale when the Company may decide to sell those securities due to changes in market interest rates, liquidity needs, changes in yields or alternative investments, and for other reasons. They are carried at fair value with unrealized gains and

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losses, net of taxes, reported in other comprehensive income (loss). Interest income is reported net of amortization of premium and accretion of discount. Realized gains and losses on the disposition of securities available-for-sale are based on the net proceeds and the adjusted carrying amounts of the securities sold, using the specific identification method. Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are recognized in earnings as realized losses. In estimating other than temporary losses, management considers (1) the length of time and extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Accounting Pronouncements

In September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” to provide guidance in the process of quantifying financial statement misstatements. SAB No. 108 requires registrants to quantify an error under two methods: (1) quantify the misstatement based on the amount of the error originating in the current-year income statement (“Rollover Approach”) and (2) quantify the misstatement based on the effects of correcting the misstatement existing in the balance sheet at the end of the current-year irrespective of the misstatement’s year(s) origination (“Iron Curtain Approach”). Consequently, a registrant’s financial statements would require adjustment when either approach results in quantifying a misstatement that is material, after considering all relevant quantitative and qualitative factors. SAB No. 108 was effective for financial statements issued for fiscal years ending after November 15, 2006. The application of SAB No. 108 as of January 1, 2007 did not have any impact on the Company’s results of operations or financial position.

The Company adopted SFAS No. 157, “Fair Value Measurements,” on January 1, 2008, which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS No. 157 applies to other accounting pronouncements that require or permit fair value measurements where the FASB had previously concluded in those pronouncements that fair value is the relevant measurement attribute. Accordingly, SFAS No. 157 does not require any new financial assets or liabilities to be measured at fair value. In February 2008, FASB issued FASB Staff Position (“FSP”) No. FAS 157-2, “Effective Date of FASB Statement No. 157.” This FSP delays the effective dates of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008. In October 2008, the FASB issued Staff Position 157-3, “Determining the Fair Value of a Financial Asset in a Market That Is Not Active” (“FSP No. 157-3”), which clarifies the application of SFAS No. 157 in an inactive market and provides an illustrative example to demonstrate how the fair value of a financial asset is to be determined when the market for that financial asset is not active. FSP No. 157-3 became effective for the Company’s interim financial statements as of September 30, 2008 and did not significantly impact the methods by which the Company determines the fair values of its financial assets. The adoption of SFAS No. 157 did not have a material effect on the Company’s results of operations or consolidated financial position. See Note 17 — Fair Value of the Notes to the consolidated financial statements for more details.

In December 2007, FASB issued SFAS No. 141R, “Business Combinations,” which replaces the current standard on business combinations, modifies the accounting for business combinations and requires, with limited exceptions, the acquirer in a business combination to recognize all of the assets acquired, liabilities assumed, and any noncontrolling interests in the acquiree at the acquisition-date, at fair value. SFAS No. 141R also requires certain contingent assets and liabilities acquired as well as contingent consideration to be recognized at fair value. In addition, the statement requires payments to third parties for consulting, legal, audit, and similar services associated with an acquisition to be recognized as expenses when incurred rather than capitalized as part of the cost of the acquisition. SFAS No. 141R is effective for fiscal years beginning on or after December 15, 2008 and early adoption is not permitted.

In June 2008, the FASB ratified the consensus reached by the Emerging Issues Task Force (“EITF”) on Issue No. 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF No. 07-5”). EITF No. 07-5 provides guidance for determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock. EITF No. 07-5 applies to any freestanding financial

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instrument or embedded feature that has all of the characteristics of a derivative or freestanding instrument that is potentially settled in an entity’s own stock (with the exception of share-based payment awards within the scope of SFAS 123(R)). To meet the definition of “indexed to own stock,” an instrument’s contingent exercise provisions must not be based on (a) an observable market, other than the market for the issuer’s stock (if applicable), or (b) an observable index, other than an index calculated or measured solely by reference to the issuer’s own operations, and the variables that could affect the settlement amount must be inputs to the fair value of a “fixed-for-fixed” forward or option on equity shares. EITF No. 07-5 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company does not anticipate a material effect on its results of operations or consolidated financial position from adopting EITF No. 07-5.

In December 2008, the FASB issued FASB Staff Position FAS 140-4 and FIN 46(R)-8, “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities” (“FSP No. FAS 140-4 and FIN 46(R)-8”). FSP No. FAS 140-4 and FIN 46(R)-8 amends SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities” and FIN No. 46, “Consolidation of Variable Interest Entities,” requiring additional disclosures about transfers of financial assets and the involvement with variable interest entities. These additional disclosures are intended to provide greater transparency about a transferor’s continuing involvement with transferred assets and variable interest entities. FSP No. FAS 140-4 and FIN 46(R)-8 is effective for fiscal years ending after December 15, 2008. The adoption of FSP No. FAS 140-4 and FIN 46(R)-8 did not have a material effect on the Company’s results of operations or consolidated financial position.

Recent Developments

On January 29, 2009, the Company announced that Jay Fritz had been appointed to serve as its President and Chief Executive Officer, and that the Bank appointed Mr. Fritz to serve as its Chief Executive Officer. Mr. Fritz has served as Executive Vice President of the Company and President and Chief Operating Officer of the Bank since July of 2006. Mr. Fritz is a seasoned executive with over thirty years of banking experience. Prior to joining the Company, he served as Chairman and Chief Executive Officer of Royal American Bank, which was acquired by the Company in July of 2006. He has served as Chief Executive Officer of First Chicago Bank of Mt. Prospect, Illinois, and has held various management positions at Northern Trust, First National Bank of Libertyville and Continental Illinois National Bank. Mr. Fritz replaced James J. Giancola.

On February 23, 2009, the Company granted 159,000 shares of restricted stock, with a grant-date fair value of $1.15 to certain officers of the Company under its incentive program. These shares of restricted stock will vest on the third anniversary of the date of grant and have voting and dividend rights. The Company also granted 409,146 options to purchase its common stock at an exercise price of $1.15, the fair value of the Company’s common stock at the date of grant, to certain officers of the Company under its incentive program. These stock options will become exercisable on the third anniversary of the date of grant and expire in 10 years from the date of grant. None of the shares of restricted stock or stock options were granted to executive vice presidents or above.

In response to the financial crises affecting the overall banking system and financial markets, on October 3, 2008, the Emergency Economic Stabilization Act of 2008, EESA, was enacted. Under the EESA, the United States Treasury Department, the U.S. Treasury, has the authority to, among other things, purchase mortgages, mortgage backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets.

On October 3, 2008 the Troubled Asset Relief Program, TARP, became effective. The TARP gave the U.S. Treasury authority to deploy up to $700 billion into the financial system with an objective of improving liquidity in capital markets. On October 14, 2008, the U.S. Treasury announced plans to direct $250 billion of this authority into preferred stock investments in financial institutions. The general terms of this preferred stock program are as follows for a participant: pay 5% dividends on the U.S. Treasury’s preferred stock for the first five years and 9% dividends thereafter; cannot increase common stock dividends for three years while Treasury is an investor without their permission; the U.S. Treasury receives warrants entitling it to buy a participant’s common stock equal to 15% of the U.S. Treasury’s total initial investment in the participant; and the participating company’s executives must agree to certain compensation restrictions, and restrictions on the amount of executive compensation which is tax deductible and other detailed terms and conditions. The terms of this preferred stock program

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could reduce investment returns to participating companies’ stockholders by restricting dividends to common stockholders, diluting existing stockholders’ interests, and restricting capital management practices. The TARP capital purchase program is a voluntary program designed to help healthy institutions build capital to support the U.S. economy by increasing the flow of financing to U.S. businesses and consumers.

Although the Company exceeds all applicable regulatory capital requirements, it submitted an application for participation in the TARP capital purchase program and, on December 5, 2008, it sold 84,784 shares of Series T preferred stock to the U.S. Treasury for an aggregate purchase price of $84.784 million and issued a warrant to the U.S. Treasury which will allow it to acquire 4,282,020 shares of its common stock for $2.97 per share. The Series T preferred stock qualifies as Tier 1 capital and will pay cumulative dividends at a rate of 5% per annum for the first five years, and 9% per annum thereafter. The Series T preferred stock may be redeemed by the Company after three years. Prior to the end of three years, the Series T preferred stock may be redeemed by the Company only with proceeds from the sale of qualifying equity securities. The senior preferred stock is non-voting, other than class voting rights on certain matters that could amend the rights of or adversely affect the stock.

If the Company completes one or more qualified equity offerings on or prior to December 31, 2009 that result in its receipt of aggregate gross proceeds of not less than $84.784 million, which is equal to 100% of the aggregate liquidation preference of the Series T preferred stock, the number of shares of common stock underlying the warrant then held by the selling securityholders will be reduced by 50% to 2,141,010 shares. The number of shares for which the warrant may be exercised and the exercise price applicable to the warrant will be proportionately adjusted in the event the Company pays stock dividends or makes distributions of its common stock, subdivide, combine or reclassify outstanding shares of its common stock.

The EESA included a provision for an increase in the amount of deposits insured by the FDIC to $250,000 until December 2009. On October 14, 2008, the FDIC announced a new program, the Temporary Liquidity Guarantee Program, that provides unlimited deposit insurance on funds in noninterest-bearing transaction deposit accounts not otherwise covered by the existing deposit insurance limit of $250,000. The Company has elected to participate in the Temporary Liquidity Guarantee Program and incur a 10 basis point surcharge as a cost of participation. The behavior of depositors in regard to the level of FDIC insurance could cause the Company’s existing customers to reduce the amount of deposits held at the Company, and or could cause new customers to open deposit accounts. The level and composition of the Company’s deposit portfolio directly impacts its funding cost and net interest margin.

The EESA followed, and has been followed by, numerous actions by the Federal Reserve, the U.S. Congress, U.S. Treasury, the FDIC, the SEC and others to address the current liquidity and credit crisis that has followed the sub-prime meltdown that commenced in 2007. These measures include homeowner relief that encourage loan restructuring and modification; the establishment of significant liquidity and credit facilities for financial institutions and investment banks; the lowering of the federal funds rate; emergency action against short selling practices; a temporary guaranty program for money market funds; the establishment of a commercial paper funding facility to provide back-stop liquidity to commercial paper issuers; and coordinated international efforts to address illiquidity and other weaknesses in the banking sector.

On February 17, 2009, President Barack Obama signed the American Recovery and Reinvestment Act of 2009, ARRA, more commonly known as the economic stimulus or economic recovery package. ARRA includes a wide variety of programs intended to stimulate the economy and provide for extensive infrastructure, energy, health and education needs. In addition, ARRA imposes new executive compensation and corporate governance limits on current and future participants in TARP, including the Company, which are in addition to those previously announced by U.S. Treasury. The new limits remain in place until the participant has redeemed the preferred stock sold to U.S. Treasury, which is now permitted under ARRA without penalty and without the need to raise new capital, subject to U.S. Treasury’s consultation with the recipient’s appropriate federal regulator.

On February 27, 2009, the FDIC board agreed to impose an emergency special assessment of 20 basis points on all banks to restore the Deposit Insurance Fund to an acceptable level. The assessment, which will be payable on September 30, 2009, is in addition to a planned increase in premiums and a change in the way regular premiums are assessed, which the board also approved on that date. This emergency special assessment for the Company is projected to be $5.0 million based on December 31, 2008 data.

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As a result of the effects of recent economic conditions, the increase in nonperforming assets, and the impairment charges on goodwill and the FNMA and FHLMC preferred securities, the Company sought covenant waivers on two occasions since December 31, 2007. First, the lender waived a covenant violation in the first quarter of 2008 resulting from the Company’s net loss recognized in that period. Second, the lender waived a covenant violation in the third quarter of 2008 resulting from the Company’s net loss recognized in that period, contingent upon the Company making accelerated principal payments under the aforementioned term loan agreement. See Note 14 — Credit Agreements of the Notes to the consolidated financial statements for more details.

2008 Developments

In December 2008, the Company raised $84.8 million in new equity through an offering of 84,784 shares of Series T fixed rate cumulative perpetual preferred stock and a warrant to purchase 4,282,020 shares of common stock at $2.97 per share to the Treasury under the TARP. The Series T preferred stock qualifies as Tier 1 capital and pays cumulative dividends at a rate of 5% per annum for the first five years, and 9% per annum thereafter. The new equity strengthened the Company’s balance sheet and allowed it to infuse capital into the Bank through a subordinated debenture.

The Company recognized a non-cash, non-operating, other-than-temporary impairment charge of $47.8 million at September 30, 2008 on certain FNMA and FHLMC preferred equity securities similar to the impairment charge of $17.6 million taken in the first quarter of 2008. In September 2008, the Company sold a portion of its FNMA and FHLMC preferred equity securities recognizing a $16.7 million loss. It also recognized an impairment charge $80.0 million on its goodwill intangible asset based upon an appraisal by an independent third party. The decline in value was primarily the result of a decline in market capitalization. During 2008, the Company recognized net loan charge-offs of $54.1 million and recorded a $71.8 million loan loss provision, reflecting management’s updated assessments of impaired loans and concerns about the continued deterioration of economic conditions. During the first quarter of 2008, the Company also incurred a $7.1 million loss on the early extinguishment of debt arising from the prepayment of $130.0 million in FHLB advances, and recognized a $15.2 million gain on the sale of real estate.

On December 16, 2008, the Board of Directors of the Company and the Bank elected Percy L. Berger Chairman of the Board of Directors of the Company and the Bank effective December 31, 2008. Mr. Berger replaced Homer J. Livingston, Jr. who resigned as a Director and Chairman effective December 31, 2008.

2007 Developments

On October 1, 2007, the Company completed its acquisition of Northwest Suburban in a cash and stock merger transaction. At acquisition, Northwest Suburban had total assets of $546.2 million. The agreement and plan of merger provided that the Company’s stock comprised up to 45% of the purchase price, at an exchange ratio of 2.4551 shares of Company common stock for each Northwest Suburban common share, and that the remainder be paid in cash at the rate of $42.75 for each share of Northwest Suburban common stock. The Company issued 3.7 million shares of common stock, paid $81.2 million in cash, and incurred $414,000 in costs that were capitalized for a total purchase price of $136.7 million. Mr. Dennis M. O’Hara, a director of Northwest Suburban, joined the Board of Directors of the Company and the Bank upon closing. Mr. John G. Eilering, Northwest Suburban’s Chairman and Chief Executive Officer joined the Bank as Area President — Northwest. Mr. Stephan L. Markovits, President of Northwest Suburban joined the Bank as Executive Vice President — Commercial Lending. The systems conversions were successfully completed during the weekend of October 27. The Company used the proceeds from a $75.0 million term note under a borrowing facility it has with a correspondent bank to pay for a portion of the cash requirement of the acquisition. The term note had an initial rate of one-month LIBOR plus 140 basis points and matures on September 28, 2010.

This acquisition added five more branches and made the Company, based on deposits, the 17th largest bank in the Chicago area as well as expanding the Company’s geographic footprint in the northwest suburbs. Northwest Suburban’s branch locations in Des Plaines, Lakemoor, Lake Zurich, Mount Prospect, and North Barrington provide a complimentary addition to the Company’s branches in northwest Cook, DuPage, Kane, Lake, and McHenry counties. In addition, the Company believes that this acquisition will contribute to expansion and

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diversification of its loan portfolio, its deposit base, and its noninterest income. All key sales professionals from Northwest Suburban were retained.

In December 2007, the Company raised $41.4 million in new equity capital, net of issuance costs, through an offering of 1,725,000 depositary shares, each representing 1/100th of a share of its Series A noncumulative redeemable convertible perpetual preferred stock, at $25.00 per depositary share. The infusion of capital strengthened the Company’s balance sheet as well as allowed it to partially pay down balances outstanding on its term note and revolving line of credit and contribute capital to the Bank.

Consolidated Results of Operations

2008 Compared to 2007

The Company had a net loss of $158.3 million for the year ended December 31, 2008. This loss was mainly attributed to the recognition of impairment charges on its securities and goodwill of $65.4 million and $80.0 million, respectively, and a $71.8 million provision for loan losses. Set forth below are some highlights of 2008 results compared to 2007.

•  Net loss was $158.3 million for the year ended December 31, 2008 compared to net income of $18.6 million for the prior year.

•  Basic and diluted (loss) earnings per share for the year ended December 31, 2008 were both $(5.82) compared to $0.72 for 2007.

•  The return on average assets was (4.32)% for 2008 compared to a 0.58% for 2007.

•  The return on average equity was (46.65)% in 2008 compared to a 6.13% in 2007.

•  Top line revenue (net interest income plus noninterest income) decreased by $61.7 million, or 62.9%, to $36.4 million for 2008 compared to $98.1 million in the prior year. Excluding the gains, losses and impairment charges on securities and the gain on sale of property, top line revenue increased 5.2%, or $5.1 million.

Net Interest Income.  Net interest income on a fully tax-equivalent basis increased $3.3 million, or 3.9%, to $89.6 million in 2008 from $86.2 million in 2007. This increase was due to interest expense decreasing to a greater extent than interest income due to the drops in the federal funds and prime rates. The Federal Open Market Committee (“FOMC”) cut the federal funds rate target by 225 basis points during 2008. As a result, the Company aggressively re-priced its deposits downward and benefited from the decreases in the federal funds rate. The Northwest Suburban acquisition completed on October 1, 2007 also contributed to this increase. The Company’s net interest margin (tax equivalent net interest income as a percentage of earning assets) decreased to 2.75% for 2008 compared to 3.02% for 2007. The increase in nonaccrual loans and decrease in dividends on FNMA and FHLMC preferred stock contributed to the decline in the net interest margin. Impairment charges on FNMA and FHLMC preferred stock and net charge-offs partially offset the overall increase in earning assets.

Trends in fully tax equivalent interest income and average earning assets include:

•  Interest income decreased $7.2 million to $190.3 million in 2008 compared to $197.5 million in 2007. Average earning assets increased by $398.4 million ($498.3 million of earning assets were acquired through the Northwest Suburban acquisition on October 1, 2007) but average yields decreased by 107 basis points.

•  Interest income on loans decreased $4.0 million to $151.4 million in 2008 from $155.3 million in 2007 due to a 134 basis point drop in yield despite an increase of $394.4 million in average loans; $439.2 million in loans were acquired in the Northwest Suburban acquisition on October 1, 2007. The decline in loan yield was primarily due to the re-pricing of variable-rate loans resulting from decreases in the prime rate as well as the increase in nonaccrual loans. Most new and renewing loans beginning in the fourth quarter of 2008 have floors in place which will help mitigate future margin contraction.

•  Interest income on securities decreased $2.6 million to $37.8 million in 2008 from $40.4 million in 2007 as a result of a decrease in yields from 5.55% in 2007 to 5.20% while average securities increased slightly. The

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decline in securities yield was primarily due to the decrease in dividends on FNMA and FHLMC preferred stock in the second half of the year.

•  Dividend income on FHLB stock was $333,000 in 2007 compared to none in 2008.

Trends in interest expense and average interest-bearing liabilities include:

•  Interest expense decreased $10.5 million to $100.7 million in 2008 from $111.2 million in 2007. Average balances on interest-bearing liabilities increased by $398.1 million in 2008 to $3.0 billion compared to $2.6 billion in the prior year while rates paid decreased 94 basis points to 3.40% during 2008 compared to 4.34% in 2007.

•  Interest expense on deposits decreased by $10.7 million to $66.0 million in 2008 from $76.7 million in 2007. Average interest-bearing deposits increased $240.2 million to $2.1 billion in 2008 compared to $1.9 billion in the prior year; $405.4 million in interest-bearing deposits were acquired in the Northwest Suburban acquisition on October 1, 2007. Average rates paid on interest-bearing deposits decreased by 98 basis points to 3.15% in 2008 compared to 4.13% in the prior year.

•  Average interest-bearing core deposits (interest-bearing demand deposit, money market, and savings accounts) increased $16.4 million in 2008 compared to 2007 and average rates paid decreased 115 basis points.

•  Average certificates of deposit less than $100,000 increased by $21.8 million and average rates paid decreased by 90 basis points. Average certificates of deposit greater than $100,000 increased $202.0 million in 2008 and average rates paid decreased 109 basis points. Average brokered deposits increased by $144.8 million in 2008 compared to the prior year.

•  Interest expense on borrowings increased slightly to $34.7 million in 2008 from $34.5 million in 2007. Average borrowings increased by $157.9 million to $866.7 million in 2008 compared to $708.8 million in the prior year, primarily as a result of the Company’s asset growth exceeding deposit growth and the $81.2 million cash used for the Northwest Suburban acquisition in October 2007.

•  Interest expense on Federal funds purchased and securities sold under agreements to repurchase increased by $2.2 million in 2008 as a result of the increases in average balances of $86.1 million, even as the average rates decreased 39 basis points.

•  Interest expense on FHLB advances decreased by $2.9 million in 2008 compared to the prior year while average balances increased by $17.8 million during the same period. Average rates paid on FHLB advances dropped by 113 basis points in 2008 to 3.53% compared to 4.66% in 2007. In March 2008, the Company prepaid $130.0 million of FHLB advances at a weighted average rate of 4.94% and recognized a loss on the early extinguishment of debt of $7.1 million. The Company replaced these borrowings at a weighted average rate of 2.57% in the second quarter of 2008.

•  Average junior subordinated debentures decreased by $5.4 million in 2008 compared to the prior year while rates paid decreased by 190 basis points. The Company acquired $10.3 million in junior subordinated debentures at LIBOR plus 2.70% through the Northwest Suburban acquisition on October 1, 2007, but redeemed $15.5 million at LIBOR plus 3.45% in November 2007.

•  Average notes payable, including revolving, term and subordinated notes, increased by $59.3 million in 2008 compared to the prior year. The Company used the proceeds from a $75.0 million term note it has with a correspondent bank to pay the cash portion of the Northwest Suburban acquisition.

•  Short-term LIBOR rates, to which many of the Company’s borrowings are indexed, did not decline as quickly as prime and other short-term rates which dropped quickly in late 2008 as the economy faltered.

Provision for Loan Losses.  The provision for loan losses increased by $66.9 million to $71.8 million in 2008 from $4.9 million in 2007; the large 2008 provision reflected the deterioration in credit quality of the portfolio as economic conditions reduced: (i) the borrowers ability to make debt service payments; and (ii) the value of the underlying collateral for many loans. As of December 31, 2008, the allowance for loan losses totaled $44.4 million,

54

or 1.77% of total loans, and 73% of nonaccrual loans compared to $26.7 million, or 1.08% of total loans, and 54% of nonaccrual loans at December 31, 2007.

Noninterest Income.  The Company’s total noninterest income was $(50.6) million in 2008 compared to $15.5 million in 2007. In 2008 losses on securities of $82.0 million were mostly related to sales and impairments recorded on FHLMC and FNMA preferred stock holdings. The Company also recorded a gain on the sale of a branch of $15.2 million in the first quarter. Ignoring those items, noninterest income for 2008 would have been $16.2 million or $746,000 million higher than 2007. Other changes in noninterest income are noted below:

•  $1.0 million increase in service charges on deposits as a result of the increased deposit base from the Northwest Suburban acquisition;

•  $446,000 increase in the cash surrender value of life insurance reflecting the addition of $12.9 million of such insurance acquired with Northwest Suburban;

•  $234,000 decrease in trust income due mostly to the drop in trust asset values from the difficult economy and the departure of trust customers;

•  $263,000 decrease in insurance and brokerage commissions mostly attributable to the difficult economy and the departure of employees; and

•  $518,000 decrease in gains on sale of loans resulting from the outsourcing of residential mortgage origination operations in mid-2007.

Noninterest Expense.  The Company’s total noninterest expense increased by $106.6 million, to $178.0 million in 2008, from $71.4 million in 2007. Noninterest expense for 2008 included an $80.0 million non-cash goodwill impairment charge and a $7.1 million loss on the early extinguishment of debt. Without those items, noninterest expense for 2008 would have been $90.8 million or 27.2% higher than 2007. Noninterest expense as a percentage of average assets was 4.86% for 2008 or 2.48% without the goodwill impairment charge and loss on extinguishment of debt, which management believes is a better measure of noninterest expense. This compares to 2.24% for 2007. Other changes in noninterest expense are noted below:

•  Salaries and employee benefits increased $8.2 million or 19.4% reflecting the additions to management and employees from the Northwest Suburban acquisition, some key additions to the management team and separation benefits of $1.2 million

•  Occupancy and equipment increased $3.2 million in 2008 compared to the prior year reflecting the five additional branches acquired in the Northwest Suburban acquisition;

•  Professional services increased $3.1 in 2008 due to an increase in loan workout legal fees and consulting expense;

•  Marketing expenses increased by $397,000 or 17.2% in 2008 compared to the prior year as deposit retention and Company image campaigns were increased;

•  Foreclosed properties expense increased by $298,000 in 2008 compared to the prior year as a result of the increase in properties;

•  Amortization of intangible assets increased by $659,000 as a direct result of the increase in intangible assets from the Northwest Suburban acquisition in October 2007; and

•  Non-capitalized merger related expense was $271,000 in 2008 compared to $1.3 million in 2007; and

•  Other expense increased $4.6 million or 51.8% in 2008 compared to the prior year. The Company was granted a one-time credit to offset FDIC premiums as a result of the Federal Deposit Insurance Reform Act of 2005 (“Reform Act”). This one-time credit artificially reduced the Company’s 2007 FDIC insurance expense, but the credit was fully utilized by the end of 2007, and as a result of the expiration of that credit and the addition of the Northwest Suburban deposits in late 2007, the Company incurred an FDIC insurance expense increase of $2.4 million in 2008. Additions to reserves for off-balance sheet losses related to letters of credit were $877,000 for 2008 compared to none for 2007.

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The efficiency ratio was 144.87% for the year ended December 31, 2008 compared to 68.29% in 2007.

Federal and State Income Tax.  The Company’s consolidated income tax rate varies from statutory rates. The Company recorded income tax benefit of $55.1 million in 2008 compared to expense of $3.2 million in 2007. Set forth below is a reconciliation of the effective tax rate for the years ended December 31, 2008 and 2007 to statutory rates.

	Year Ended December 31,
	2008					2007
	(Dollars in thousands)
Income taxes computed at the statutory rate	$	(74,671	)	35.0	%	$	7,638		35.0	%
Tax-exempt interest income on securities and loans		(802	)	0.4			(771	)	(3.5	)
General business credits		(661	)	0.3			(643	)	(2.9	)
State income taxes, net of federal tax benefit due to state operating loss		(4,419	)	2.1			(1,027	)	(4.7	)
Life insurance cash surrender value increase, net of premiums		(1,195	)	0.6			(1,072	)	(4.9	)
Dividends received deduction		(642	)	0.3			(1,214	)	(5.6	)
Goodwill impairment		27,733		(13.0	)		—		—
Annuity proceeds		—		—			267		1.2
Nondeductible costs and other, net		(416	)	0.2			68		0.3
Total provision (benefit) for income taxes	$	(55,073	)	25.8	%	$	3,246		14.9	%

2007 Compared to 2006

Set forth below are some highlights of 2007 results compared to 2006.

•  Net income was $18.6 million for the year ended December 31, 2007 compared to $17.7 million for the prior year.

•  Basic and diluted earnings per share for the year ended December 31, 2007 were both $0.72 compared to basic earnings per share of $0.76 and diluted of $0.75 for 2006.

•  The return on average assets was 0.58% for 2007 compared to a 0.67% for 2006.

•  The return on average equity was 6.13% in 2007 compared to a 7.04% in 2006.

•  Top line revenue (net interest income plus noninterest income) increased by $8.3 million, or 9.2%, to $98.1 million for 2007 compared to $89.8 million in the prior year.

•  The carrying cost of the previously disclosed Large Problem Credit continued to have a substantial negative impact on earnings, reducing net income by approximately $0.10 per diluted share in 2007. The Large Problem Credit accounted for $29.0 million of nonaccrual loans at year end 2007.

Net Interest Income.  Net interest income on a fully tax-equivalent basis increased $6.7 million, or 8.4%, to $86.2 million in 2007 from $79.6 million in 2006. The Northwest Suburban acquisition contributed to the increase in the net interest income for the year ended December 31, 2007 along with loan growth, but interest expense increased to a greater extent. The Company’s net interest margin (tax equivalent net interest income as a percentage of earning assets) decreased to 3.02% for 2007 compared to 3.32% for 2006.

Trends in fully tax equivalent interest income and average earning assets include:

•  Interest income increased $33.9 million to $197.5 million in 2007 compared to $163.5 million in 2006. Average earning assets increased by $464.1 million ($498.3 million of earning assets were acquired through the Northwest Suburban acquisition on October 1, 2007) and average yields increased by 8 basis points.

•  Interest income on loans increased $31.2 million to $155.3 million in 2007 from $124.1 million in 2006 due to an increase of $429.8 million in average loans; $439.2 million in loans were acquired in the Northwest Suburban acquisition on October 1, 2007.

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•  Interest income on securities increased $2.3 million to $40.4 million in 2007 from $38.1 million in 2006 as a result of an increase in yields on securities from 5.39% in 2006 to 5.55% while average securities increased $21.2 million, or 3.0%.

Trends in interest expense and average interest-bearing liabilities include:

•  Interest expense increased $27.3 million to $111.2 million in 2007 from $84.0 million in 2006. Average balances on interest-bearing liabilities increased by $436.4 million in 2007 to $2.6 billion compared to $2.1 billion in the prior year while rates paid increased 39 basis points to 4.34% during 2007 compared to 3.95% in 2006.

•  Interest expense on deposits increased by $19.2 million to $76.7 million in 2007 from $57.5 million in 2006. Average interest-bearing deposits increased $273.0 million to $1.9 billion in 2007 compared to $1.6 billion in the prior year; $405.4 million in interest-bearing deposits were acquired in the Northwest Suburban acquisition on October 1, 2007. Average rates paid on interest-bearing deposits increased by 50 basis points to 4.13% in 2007 compared to 3.63% in the prior year.

•  Average interest-bearing core deposits (interest-bearing demand deposit, money market, and savings accounts) increased $71.6 million in 2007 compared to 2006 and average rates paid increased 46 basis points.

•  Average certificates of deposit less than $100,000 decreased by $34.0 million while average rates paid increased by 65 basis points. Average certificates of deposit greater than $100,000 increased $247.1 million in 2007 and average rates paid increased 27 basis points. Average brokered deposits increased by $129.4 million in 2007 compared to the prior year.

•  Interest expense on borrowings increased by $8.1 million to $34.5 million in 2007 from $26.5 million in 2006. Average borrowings increased by $163.4 million to $708.8 million in 2007 compared to $545.4 million in the prior year, primarily a result of the Company’s asset growth exceeding deposit growth and $81.2 million cash used for the Northwest Suburban acquisition.

•  Interest expense on Federal funds purchased and securities sold under agreements to repurchase increased by $1.2 million in 2007 as a result of the increases in average balances of $48.4 million.

•  Interest expense on FHLB advances increased by $5.0 million in 2007 compared to the prior year while average balances increased by $88.4 million during the same period. Average rates paid on FHLB advances rose by 37 basis points in 2007 to 4.66% compared to 4.29% in 2006.

•  Average junior subordinated debentures decreased by $5.3 million in 2007 compared to the prior year while rates paid increased by 18 basis points. The Company acquired $10.3 million in junior subordinated debentures at LIBOR plus 2.70% through the Northwest Suburban acquisition, and redeemed $15.5 million at LIBOR plus 3.45% in November 2007.

•  Average notes payable increased by $21.2 million in 2007 compared to the prior year. The Company used the proceeds from a $75.0 million term note it has with a correspondent bank to pay the cash portion of the Northwest Suburban acquisition. The term note has an initial rate of one-month LIBOR plus 140 basis points.

Provision for Loan Losses.  The provision for loan losses decreased by $7.2 million to $4.9 million in 2007 from $12.1 million in 2006; the 2006 provision reflected the deterioration in the credit quality of the Large Problem Credit.

The Company recorded a $5.5 million provision for loan losses and charged off $7.5 million of Large Problem Credit loans in the fourth quarter of 2006. The Company recorded a loan loss provision of $5.0 million relating to this problem relationship in the second quarter of 2006. Net outstandings for the Large Problem Credit increased by $3.2 million from December 31, 2006 to $29.0 million representing 59.0% of total nonaccrual loans at December 31, 2007.

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As of December 31, 2007, the allowance for loan losses totaled $26.7 million, or 1.08% of total loans, and was equal to 54.4% of nonaccrual loans compared to $23.2 million, or 1.19% of total loans, and 54.2% of nonaccrual loans at December 31, 2006. The allowance was increased by $2.8 million as a result of the Northwest Suburban acquisition.

Noninterest Income.  The Company’s total noninterest income was $15.5 million in 2007 compared to $14.6 million in 2006. Noninterest income as a percentage of average assets was 0.49% for 2007 compared to 0.55% for the prior year. The changes in noninterest income are noted below:

•  $964,000 increase in service charges on deposits as a result of an increased deposit base;

•  $669,000 increase in the cash surrender value of life insurance reflecting an addition of $12.9 million of such insurance acquired from Northwest Suburban;

•  $938,000 increase in trust income reflecting an entire year’s earnings from the trust assets under management previously acquired from Royal American on July 1, 2006;

•  $297,000 increase in insurance and brokerage commissions mostly as a result of increased annuity sales;

•  $317,000 decrease in gains on sale of loans resulting from the outsourcing of residential mortgage origination operations;

•  $1.3 million gain on extinguishment of debt in 2006; and

•  $624,000 decrease in trading profits.

Noninterest Expense.  The Company’s total noninterest expense increased by $12.8 million, or 21.8%, to $71.4 million in 2007 from $58.6 million in 2006. Noninterest expense as a percentage of average assets was 2.24% for 2007 compared to 2.22% for 2006. Other changes in noninterest expense are noted below

•  Salaries and employee benefits increased $7.7 million reflecting the additions to management and employees from the Royal American and Northwest Suburban acquisitions;

•  Non-capitalized merger related expense was $1.3 million in 2007 compared to $1.6 million in 2006;

•  Occupancy and equipment increased $2.4 million in 2007 compared to the prior year reflecting the additional branches acquired in the Royal American and Northwest Suburban acquisitions;

•  Marketing expenses increased by $260,000 in 2007 compared to the prior year due to increased marketing activity;

•  Amortization of intangible assets increased by $700,000; and

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

The efficiency ratio was 68.29% for the year ended December 31, 2007 compared to 60.55% in 2006.

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Federal and State Income Tax.  The Company’s consolidated income tax rate varies from statutory rates. The Company recorded income tax expense of $3.2 million in 2007 compared to $1.4 million in 2006. Set forth below is a reconciliation of the effective tax rate for the years ended December 31, 2007 and 2006 to statutory rates.

	Year Ended December 31,
	2007					2006
	(Dollars in thousands)
Income taxes computed at the statutory rate	$	7,638		35.0	%	$	6,709		35.0	%
Tax-exempt interest income on securities and loans		(771	)	(3.5	)		(1,171	)	(6.1	)
General business credits		(643	)	(2.9	)		(665	)	(3.5	)
State income taxes, net of federal tax benefit due to state operating loss		(1,027	)	(4.7	)		(676	)	(3.5	)
Income tax reserve reversal		—		—			(591	)	(3.1	)
Life insurance cash surrender value increase, net of premiums		(1,072	)	(4.9	)		(838	)	(4.4	)
Dividends received deduction		(1,214	)	(5.6	)		(1,106	)	(5.8	)
Annuity proceeds		267		1.2			—		—
Merger related expenses		—		—			(278	)	(1.5	)
Stock based compensation, net		—		—			56		0.3
Other		68		0.3			(18	)	(0.0	)
Total provision for income taxes	$	3,246		14.9	%	$	1,422		7.4	%

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Interest-Earning Assets and Interest-Bearing Liabilities

The following table sets forth the average balances, net interest income and expense and average yields and rates for the Company’s interest-earning assets and interest-bearing liabilities for the indicated periods on a tax-equivalent basis assuming a 35.0% tax rate.

	Year Ended December 31,
	2008								2007								2006
	Average					Average			Average					Average			Average					Average
	Balance			Interest		Rate			Balance			Interest		Rate			Balance			Interest		Rate
	(Dollars in thousands)
Interest-Earning Assets:
Federal funds sold and interest-bearing deposits due from banks	$	17,320		$	327		1.89	%	$	17,124		$	839		4.90	%	$	10,009		$	506		5.06	%
Securities:
Taxable(1)		667,324			34,282		5.14			669,154			36,901		5.51			613,485			32,593		5.31
Exempt from federal income taxes(1)		60,704			3,563		5.87			58,844			3,491		5.93			93,347			5,492		5.88
Total securities		728,028			37,845		5.20			727,998			40,392		5.55			706,832			38,085		5.39
FRB and FHLB stock		29,975			741		2.47			24,697			839		3.40			18,105			693		3.83
Loans held for sale		—			—		—			1,450			89		6.14			2,028			125		6.16
Loans:
Commercial loans(1)(3)(4)		513,321			31,475		6.13			452,438			34,105		7.54			296,533			23,219		7.83
Commercial real estate loans(1)(3)(4)(6)		1,639,442			102,112		6.23			1,336,421			100,954		7.55			1,110,828			83,891		7.55
Agricultural loans(1)(3)(4)		6,287			403		6.41			3,406			268		7.87			2,456			191		7.78
Consumer real estate loans(3)(4)(6)		314,917			16,754		5.32			285,999			19,207		6.72			240,601			16,207		6.74
Consumer installment loans(3)(4)		9,103			625		6.87			10,432			788		7.55			8,502			631		7.42
Total loans		2,483,070			151,369		6.10			2,088,696			155,322		7.44			1,658,920			124,139		7.48
Total interest-earning assets	$	3,258,393		$	190,282		5.84	%	$	2,859,965		$	197,481		6.91	%	$	2,395,894		$	163,548		6.83	%
Noninterest-Earning Assets:
Cash	$	57,303							$	57,185							$	61,519
Premises and equipment, net		39,018								27,093								21,706
Allowance for loan losses		(28,093	)							(24,977	)							(22,115	)
Other assets		334,588								262,724								178,134
Total noninterest-earning assets		402,816								322,025								239,244
Total assets	$	3,661,209							$	3,181,990							$	2,635,138
Interest-Bearing Liabilities:
Deposits:
Interest-bearing demand deposits	$	200,869		$	1,977		0.98	%	$	182,276		$	3,366		1.85	%	$	150,503		$	1,759		1.17	%
Money-market demand accounts and savings accounts		384,496			4,994		1.30			386,722			9,949		2.57			346,933			7,571		2.18
Time deposits less than $100,000		619,828			25,106		4.05			598,012			29,603		4.95			631,993			27,202		4.30
Time deposits of $100,000 or more		891,354			33,948		3.81			689,335			33,774		4.90			442,199			20,455		4.63
Public funds		—			—		—			—			—		—			11,703			531		4.54
Total interest-bearing deposits		2,096,547			66,025		3.15			1,856,345			76,692		4.13			1,583,331			57,518		3.63
Borrowings:
Federal funds purchased and repurchase agreements		390,399			15,326		3.93			304,269			13,131		4.32			255,843			11,913		4.66
FHLB advance		335,039			11,824		3.53			317,232			14,769		4.66			228,811			9,808		4.29
Junior subordinated debt		60,758			3,696		6.08			66,114			5,275		7.98			60,776			4,741		7.80
Revolving note payable		10,550			474		4.49			3,007			186		6.19			—			—		—
Term note payable		58,689			2,643		4.50			18,205			1,184		6.50			—			—		—
Subordinated note payable		11,311			707		6.25			—			—		—			—			—		—
Total borrowings		866,746			34,670		4.00			708,827			34,545		4.87			545,430			26,462		4.85
Total interest-bearing liabilities	$	2,963,293		$	100,695		3.40	%	$	2,565,172		$	111,237		4.34	%	$	2,128,761		$	83,980		3.95	%
Noninterest-Bearing Liabilities:
Demand deposits	$	326,104							$	274,819							$	220,706
Other liabilities		32,551								38,804								33,495
Total noninterest-bearing liabilities		358,655								313,623								254,201
Stockholders’ equity		339,261								303,195								252,176
Total liabilities and stockholders’ equity	$	3,661,209							$	3,181,990							$	2,635,138
Net interest income (tax equivalent)(1)(5)				$	89,587		2.44	%				$	86,244		2.57	%				$	79,568		2.88	%
Net interest margin (tax equivalent)(1)							2.75	%							3.02	%							3.32	%
Net interest income(2)(5)				$	86,966							$	82,632							$	75,282
Net interest margin(2)							2.67	%							2.89	%							3.14	%
Average interest-earning assets to interest-bearing liabilities		109.96	%							111.49	%							112.53	%

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

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

	2008		2007		2006
Net interest income	$	86,966	$	82,632	$	75,282
Tax-equivalent adjustment to net interest income		2,621		3,612		4,286
Net interest income, fully tax-equivalent basis	$	89,587	$	86,244	$	79,568

(6) Includes construction loans.

Changes in Interest Income and Expense

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

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The following table sets forth an analysis of volume and rate changes in interest income and interest expense of the Company’s average interest-earning assets and average interest-bearing liabilities for the indicated periods on a tax-equivalent basis assuming a 35.0% tax rate. The table distinguishes between the changes related to average outstanding balances (changes in volume holding the interest rate constant) and the changes related to average interest rates (changes in average rate holding the outstanding balance constant). The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.

	Year Ended December 31,
	2008 Compared to 2007									2007 Compared to 2006
	Change Due to									Change Due to
	Net			Volume			Rate			Net			Volume			Rate
	(In thousands)
Interest-Earning Assets:
Federal funds sold and interest-bearing due from banks	$	(512	)	$	9		$	(521	)	$	333		$	349		$	(16	)
Securities taxable		(2,619	)		(101	)		(2,518	)		4,308			3,037			1,271
Securities exempt from federal income taxes		72			109			(37	)		(2,001	)		(2,047	)		46
FRB and FHLB stock		(98	)		158			(256	)		146			231			(85	)
Loans held for sale		(89	)		(89	)		—			(36	)		(35	)		(1	)
Commercial loans		(2,630	)		4,231			(6,861	)		10,886			11,782			(896	)
Commercial real estate loans		1,158			20,626			(19,468	)		17,063			17,041			22
Agricultural loans		135			192			(57	)		77			75			2
Consumer real estate loans		(2,453	)		1,810			(4,263	)		3,000			3,049			(49	)
Consumer installment loans		(163	)		(95	)		(68	)		157			146			11
Total interest-earning assets	$	(7,199	)	$	26,850		$	(34,049	)	$	33,933		$	33,628		$	305
Interest-Bearing Liabilities:
Interest-bearing demand deposits	$	(1,389	)	$	315		$	(1,704	)	$	1,607		$	429		$	1,178
Money market demand accounts and savings accounts		(4,955	)		(57	)		(4,898	)		2,378			929			1,449
Time deposits of less than $100,000		(4,497	)		1,047			(5,544	)		2,401			(1,520	)		3,921
Time deposits of $100,000 or more		174			8,646			(8,472	)		13,319			12,044			1,275
Public funds		—			—			—			(531	)		(531	)		—
Federal funds purchased and repurchase agreements		2,195			3,462			(1,267	)		1,218			2,136			(918	)
FHLB advances		(2,945	)		791			(3,736	)		4,961			4,057			904
Junior subordinated debentures		(1,579	)		(402	)		(1,177	)		534			424			110
Revolving note payable		288			351			(63	)		186			186			—
Term note payable		1,459			1,922			(463	)		1,184			1,184			—
Subordinated note payable		707			707			—			—			—			—
Total interest-bearing liabilities	$	(10,542	)	$	15,822		$	(26,364	)	$	27,257		$	19,338		$	7,919
Net interest	$	3,343		$	11,028		$	(7,685	)	$	6,676		$	14,290		$	(7,614	)

Financial Condition

Set forth below are some balance sheet highlights at December 31, 2008 compared to December 31, 2007.

•  Total assets decreased $122.6 million, or 3.3%, mainly as a result of the securities and goodwill impairment charges as well as loan charge-offs.

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•  Loans increased $35.4 million, or 1.4%, reflecting internal growth. Without charged off loans of $55.8 million and transfers of $10.4 million into foreclosed properties, loan growth would have been $101.6 million, or 4.1%.

•  Securities decreased by $96.3 million, or 12.9%, following impairment charges on certain FHLMC and FNMA preferred equity securities.

•  Deposits decreased by $45.4 million, or 1.9%.

Set forth below are some asset quality highlights at December 31, 2008 compared to December 31, 2007.

•  The allowance for loan losses was 1.77% of total loans at December 31, 2008 versus 1.08% at December 31, 2007. The allowance for loan losses increased by $17.7 million, reflecting management’s updated assessments of impaired loans and concerns about the continued deterioration of economic conditions.

•  Nonaccrual loans increased to 2.43% of total loans at December 31, 2008 from 1.99% at December 31, 2007. The Large Problem Credit accounted for $6.1 million, or 10.0%, of the $61.1 million in nonaccrual loans at December 31, 2008.

•  Allowance to nonaccrual loans coverage 0.73x for 2008 compared to 0.54x for 2007.

•  Net loans charged off to average total loans were 2.18% for 2008 compared to 0.20% for 2007.

Loans

The following table sets forth the composition of the Company’s loan portfolio as of the indicated dates.

	December 31,
	2008(1)			2007(1)(2)			2006(3)			2005(3)			2004(3)
	(In thousands)
Commercial	$	1,090,078		$	1,079,631		$	376,944		$	201,284		$	184,558
Construction		366,178			464,583			424,181			358,785			270,836
Commercial real estate		729,729			627,928			761,742			496,819			411,535
Home equity		194,673			142,158			147,366			115,429			100,322
Other consumer		6,332			10,689			9,373			4,273			4,377
Residential mortgage		123,161			149,703			227,762			174,184			126,047
Total loans, gross		2,510,151			2,474,692			1,947,368			1,350,774			1,097,675
Net deferred fees		(392	)		(365	)		(552	)		(778	)		(376	)
Total loans		2,509,759			2,474,327			1,946,816			1,349,996			1,097,299
Allowance for loan losses		(44,432	)		(26,748	)		(23,229	)		(17,760	)		(16,217	)
Net loans	$	2,465,327		$	2,447,579		$	1,923,587		$	1,332,236		$	1,081,082
Loans held for sale:
Consumer real estate	$	—		$	—		$	2,672		$	1,912		$	693

(1)	Source of repayment classification.
(2)	Amounts have been reclassified to conform to current period presentation.
(3)	Collateral-based classification.

During the fourth quarter of 2007, the Company revised its classification of commercial loans and commercial real estate loans, changing its prior practice of classifying as commercial real estate loans all loans to a business that included real estate as collateral (“collateral-based” classification). The classification of construction, home equity, and residential mortgages were also reviewed. The new method of presentation (“source of repayment” classification) recognizes that loans to owner-occupied businesses engaged in manufacturing, sales and/or services are commercial loans, regardless of whether real estate is taken as collateral. These loans generally have a lower risk profile than traditional commercial real estate loans. They are primarily dependent on the borrower’s business-

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generated cash flows for repayment, not on the conversion of real estate that may be pledged as collateral. Loans related to rental income producing properties and properties intended to be sold will continue to be classified as commercial real estate loans. Completing this change in methodology involved a loan-by-loan review of the Company’s commercial and commercial real estate loans. The new presentation methodology was implemented only as of December 31, 2007 and prospectively, as it is impracticable to apply it to prior years’ data.

Set forth below are other highlights of changes in the loan portfolio at December 31, 2008 compared to December 31, 2007.

•  Total loans increased $35.4 million, or 1.4%. Without charged off loans of $55.8 million and transfers of $10.4 million into foreclosed properties, loan growth would have been $101.6 million, or 4.1%.

•  Commercial loans increased $10.4 million, or 1.0%.

•  Construction loans decreased by $98.4 million, or 21.2%.

•  A reduction in construction lending that began earlier in the 2008 continued throughout the year with construction and land development loans declining to 14.6% of the total loan portfolio, down from 18.8% one year ago.

•  Commercial real estate loans rose by $101.8 million, or 16.2%.

•  Home equity loans increased $52.5 million, or 36.9%.

•  Consumer loans decreased $4.4 million, or 40.8%.

•  Residential mortgage loans decreased $26.5 million, or 17.7%.

•  The Company had loan growth in the latter part of the fourth quarter of 2008 which was facilitated by the new capital raised in December 2008 under the TARP program. In addition, most new and renewing loans beginning in the fourth quarter of 2008 have floors in place which will help mitigate future margin contraction.

There were no loans held for sale at December 31, 2008 and 2007. In July 2007, the Company entered into a joint marketing arrangement with a leading privately held mortgage bank in Chicago and exited the mortgage banking business resulting in no loans held for sale at year-end 2007. Management believes that this arrangement enabled the Company to provide better pricing to its customers while also providing the Company with a high quality source of additional loan volume.

The Company attempts to balance the types of loans in its portfolio with the objective of managing risk. Some of the risks the Company evaluates in its lending business include:

•  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.

The Company does not hold any sub-prime loans in its portfolio.

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Loan Maturities

The following table sets forth the remaining maturities, based upon contractual dates, for selected loan categories (source of repayment classification) as of December 31, 2008.

	One Year		1-5 Years				Over 5 Years
	Or Less		Fixed		Variable		Fixed		Variable		Total
	(In thousands)
Commercial	$	498,986	$	453,690	$	56,074	$	61,859	$	19,469	$	1,090,078
Construction		324,696		10,442		31,040		—		—		366,178
Commercial real estate		265,978		410,443		38,823		14,485		—		729,729
Home equity		7,237		13,403		7,821		225		101,987		194,673
Other consumer		2,636		3,274		422		—		—		6,332
Residential mortgage		8,457		23,975		417		44,443		45,869		123,161
Total loans, gross		1,107,990		915,227		198,597		121,012		167,325		2,510,151
Net deferred fees												(392	)
Total loans	$	1,107,990	$	915,227	$	198,597	$	121,012	$	167,325	$	2,509,759

Nonaccrual Loans

The accrual of interest on loans is discontinued at the time a loan is 90 days past due unless the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. A loan is returned to accrual status when all the principal and interest amounts contractually due are current and future payments are reasonably assured.

Under SFAS No. 114 and No. 118, the Company currently defines loans that are individually evaluated for impairment to include all loans over $300,000 where the internal credit rating is at or below a predetermined classification. All other smaller balance loans with similar attributes are evaluated for impairment in total.

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

Loans that are considered to be impaired are reduced to the present value of expected future cash flows or to the fair value of the related collateral, adjusted for selling and other discounts, by allocating a portion of the allowance to such loans. If these allocations require an increase to be made to the allowance for loan losses, such increases are included in the provision for loan losses charged to expense.

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

	December 31,
	2008			2007			2006			2005			2004
	(Dollars in thousands)
Impaired and other loans 90 days past due and accruing	$	—		$	—		$	34		$	4		$	21
Nonaccrual and impaired loans not accruing	$	61,104		$	49,173		$	42,826		$	7,905		$	9,296
Troubled-debt restructuring		11,006			—			—			—			—
Foreclosed properties		12,018			2,220			2,640			11,154			8,064
Total nonperforming assets	$	84,128		$	51,393		$	45,466		$	19,059		$	17,360
Total nonaccrual loans to total loans		2.43	%		1.99	%		2.20	%		0.59	%		0.85	%
Total nonperforming assets to total loans and foreclosed properties		3.34			2.08			2.33			1.40			1.57
Total nonperforming assets to total assets		2.36			1.39			1.55			0.83			0.78

In addition to the loans summarized above, on December 31, 2008, the Company had $71.0 million of loans currently performing that have been internally assigned higher credit risk ratings. The higher risk ratings are primarily due to internally identified specific or collective credit characteristics including decreased capacity to repay loan obligations due to adverse market conditions, a lack of borrower or guarantor’s capital capacity and reduced collateral valuations securing the loans as a secondary source of repayment. These loans continue to accrue interest. Management does not expect losses on these loans, but recognizes that a higher level of scrutiny is prudent under the circumstances. Similarly rated loans were $43.0 million as of September 30, 2008 and $3.5 million as of December 31, 2007.

Interest payments on impaired loans are generally applied to principal, unless the loan principal is considered to be fully collectible, in which case interest is recognized on a cash basis. During 2008, 2007, and 2006, the Company recognized interest income on impaired loans of $836,000, $1.4 million, and $2.9 million, respectively.

Nonaccrual loans increased $11.9 million to $61.1 million at December 31, 2008 from $49.2 million at December 31, 2007. This increase in nonaccrual loans is net of $53.3 million of nonaccrual loans charged-off during the year and reflects the continued deterioration of economic conditions.

In 2008, the Company charged off $11.6 million of loan balances related to the previously announced Large Problem Credit, reduced outstanding balances on these loans by a net $5.7 million through the sale of assets, and took title to a substantial piece of real estate previously serving as collateral at an estimated net realizable value of $5.3 million. At December 31, 2008, total outstanding loan balances related to the Large Problem Credit represented $6.1 million, or 10.0%, of nonaccrual loans. While the current carrying value of these loans at December 31, 2008 reflects management’s best current estimate of net realizable value, there can be no assurance that additional losses may not be incurred.

Foreclosed properties increased to $12.0 million in 2008 from $2.2 million in 2007 mainly as a result of the $5.3 million Large Problem Credit property and a condominium development property. Foreclosed properties are carried at their estimated net realizable value.

Total nonperforming assets increased by $32.7 million from $51.4 million in 2007 to $84.1 million in 2008. The Company had $11.0 million in troubled-debt restructuring to one borrower as of December 31, 2008 and none as of December 31, 2007. In order to improve the collectibility of the troubled-debt restructuring, the Company restructured the terms of the debt by terminating the forebearance agreement and lowering the interest rates including changing them from fixed to floating rates. No additional commitments were outstanding on the troubled-debt restructured loans as of December 31, 2008. These troubled-debt restructured loans were still accruing and no allowance was allocated at December 31, 2008.

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Analysis of Allowance for Loan Losses

The Company recognizes that credit losses will be experienced and the risk of loss will vary with, among other things; general economic conditions; the type of loan being made; the creditworthiness of the borrower over the term of the loan; and in the case of a collateralized loan, the quality of the collateral. The allowance for loan losses represents the Company’s estimate of the amount deemed necessary to provide for probable future losses to be incurred in the portfolio. In making this determination, the Company analyzes the ultimate collectibility of the loans in its portfolio by incorporating feedback provided by internal loan staff.

On a quarterly basis, management of the Bank meets to review the adequacy of the allowance for loan losses. Each loan officer grades his or her individual commercial credits and the Company’s independent loan review personnel review the officers’ grades. In the event that the loan is downgraded during this review, the loan is included in the allowance analysis at the lower grade. The grading system is in compliance with the regulatory classifications, and the allowance is allocated to the loans based on the regulatory grading, except in instances where there are known differences (e.g., collateral value is nominal).

Estimating the amount of the allowance for loan losses requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset type on the consolidated balance sheet. Loan losses are charged off against the allowance, while recoveries of amounts previously charged off are credited to the allowance. A provision for loan losses is charged to operations based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors.

The Company’s methodology for determining the allowance for loan losses represents an estimation performed pursuant to SFAS No. 5, “Accounting for Contingencies,” and SFAS No. 114, “Accounting by Creditors for Impairment of a Loan.” The allowance reflects expected losses resulting from analyses developed through specific credit allocations for individual loans and historical loss experience for each loan category. The specific credit allocations are based on regular analyses of all loans over $300,000 where the internal credit rating is at or below a predetermined classification. These analyses involve a high degree of judgment in estimating the amount of loss associated with specific loans, including estimating the amount and timing of future cash flows and collateral values. The allowance for loan losses also includes consideration of concentrations and changes in portfolio mix and volume and other qualitative factors. In addition, regulatory agencies, as an integral part of their examinations, may require the Company to make additions to the allowance based on their judgment about information available to them at the time of their examinations.

There are many factors affecting the allowance for loan losses; some are quantitative while others require qualitative judgment. The process for determining the allowance (which management believes adequately considers all of the potential factors which potentially result in credit losses) includes subjective elements and, therefore, may be susceptible to significant change. To the extent actual outcomes differ from management estimates, additional provisions for credit losses could be required that could adversely affect the Company’s earnings or financial position in future periods.

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

	Year Ended December 31,
	2008			2007			2006			2005			2004
	(Dollars in thousands)
Average total loans	$	2,483,070		$	2,088,696		$	1,658,920		$	1,210,873		$	984,976
Total loans at end of year	$	2,509,759		$	2,474,327		$	1,946,816		$	1,349,996		$	1,097,299
Total nonaccrual loans	$	61,104		$	49,173		$	42,826		$	7,905		$	9,296
Allowance at beginning of year	$	26,748		$	23,229		$	17,760		$	16,217		$	14,459
Addition resulting from acquisition		—			2,767			3,244			—			—
Charge-offs:
Commercial loans		11,475			5,092			5,912			1,668			819
Consumer real estate loans(1)		3,846			458			360			15			37
Commercial real estate loans(1)		40,389			336			4,401			772			1,162
Agricultural loans		—			—			—			—			—
Consumer installment loans		139			89			136			64			130
Total charge-offs		55,849			5,975			10,809			2,519			2,148
Recoveries:
Commercial loans		1,149			885			616			1,448			163
Consumer real estate loans(1)		91			9			4			5			32
Commercial real estate loans(1)		508			927			339			6			261
Agricultural loans		—			—			—			—			—
Consumer installment loans		20			15			25			14			50
Total recoveries		1,768			1,836			984			1,473			506
Net charge-offs		54,081			4,139			9,825			1,046			1,642
Provision for loan losses		71,765			4,891			12,050			2,589			3,400
Allowance at end of the year	$	44,432		$	26,748		$	23,229		$	17,760		$	16,217
Net charge-offs to average total loans		2.18	%		0.20	%		0.59	%		0.09	%		0.17	%
Allowance to total loans at end of year		1.77			1.08			1.19			1.32			1.48
Allowance to nonaccrual loans		0.73	x		0.54	x		0.54	x		2.25	x		1.74x

(1) Includes construction loans.

The provision for loan losses increased $66.9 million to $71.8 million for the year ended December 31, 2008 from $4.9 million for the year ended December 31, 2007, reflecting management’s updated assessments of impaired loans and concerns about the continued deterioration of economic conditions. The allowance for loan losses was $44.4 million at December 31, 2008 and $26.7 million at December 31, 2007. Total recoveries on loans previously charged off were $1.8 million for the year ended December 31, 2008 and 2007.

Net charge-offs increased $49.9 million to $54.1 million, or 2.18% of average loans, in 2008 compared to $4.1 million, or 0.20% of average loans in 2007. Allowance for loan losses to nonaccrual loans ratio was 0.73x at December 31, 2008 and 0.54x at December 31, 2007.

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The following table sets forth the Company’s allocation of the allowance for loan losses by types of loans (collateral based classification) as of the indicated dates.

	December 31,
	2008					2007					2006					2005					2004
			Loan					Loan					Loan					Loan					Loan
			Category					Category					Category					Category					Category
			To					To					To					To					To
			Gross					Gross					Gross					Gross					Gross
	Amount		Loans			Amount		Loans			Amount		Loans			Amount		Loans			Amount		Loans
	(Dollars in thousands)
Commercial	$	8,829		20.80	%	$	6,369		21.52	%	$	6,156		19.87	%	$	7,727		14.54	%	$	8,124		16.72	%
Commercial real estate		24,518		65.79			19,336		65.15			16,166		65.35			7,807		69.24			6,837		68.92
Agricultural		171		0.29			2		0.20			3		0.13			3		0.15			—		0.11
Consumer real estate		6,258		12.67			603		12.64			352		14.10			864		15.76			385		13.90
Consumer installment		302		0.25			81		0.49			90		0.55			46		0.31			438		0.35
Unallocated		4,354		—			357		—			462		—			1,313		—			44		—
Total allowance for loan losses	$	44,432		100.00	%	$	26,748		100.00	%	$	23,229		100.00	%	$	17,760		100.00	%	$	16,217		100.00	%

Due to concerns about the collectibility of loan balances that could grow due to letter of credit draw downs, the Company increased the accrual for losses on unfunded commitments to $1.1 million at December 31, 2008 from $233,000 at December 31, 2007.

The Company uses an internal asset classification system as a means of reporting problem and potential problem assets. At each scheduled Bank Board of Directors meeting, a watch list is presented, showing significant loan relationships listed by internal risk rating as Special Mention, Substandard, and Doubtful. Set forth below is a discussion of each of these classifications.

Special Mention:  A special mention extension of credit is defined as having potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may, at some future date, result in the deterioration of the repayment prospects for the credit or the institution’s credit position. Special mention credits are not considered as part of the classified extensions of credit category and do not expose an institution to sufficient risk to warrant classification. They are currently protected but are potentially weak. They constitute an undue and unwarranted credit risk.

Loans in this category have some identifiable problem but, in management’s opinion, offer no immediate risk of loss. An extension of credit that is not delinquent also may be identified as special mention. These loans are classified due to Bank management’s actions or the servicing of the loan. The lending officer may be unable to properly supervise the credit because of an inadequate loan or credit agreement. There may be questions regarding the condition of and/or control over collateral. Economic or market conditions may unfavorably affect the obligor in the future. A declining trend in the obligor’s operations or an imbalanced position in the balance sheet may exist, although it is not to the point that repayment is jeopardized. Another example of a special mention credit is one that has other deviations from prudent lending practices.

If the Bank may have to consider relying on a secondary or alternative source of repayment, then collection may not yet be in jeopardy, but the loan may be considered special mention. Other trends that indicate that the loan may deteriorate further include such “red flags” as continuous overdrafts, negative trends on a financial statement, such as a deficit net worth, a delay in the receipt of financial statements, accounts receivable ageings, etc. These loans on a regular basis can be 30 days or more past due. Judgments, tax liens, delinquent real estate taxes, cancellation of insurance policies and exceptions to Bank policies are other “red flags.”

Substandard:  A substandard extension of credit is one inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Extensions of credit so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. In other words, there is more than a normal risk of loss. Loss potential, while existing in the aggregate amount of substandard credits, does not have to exist in individual extensions of credit classified substandard.

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The likelihood that a substandard loan will be paid from the primary source of repayment may also be uncertain. Financial deterioration is underway and very close attention is warranted to insure that the loan is collected without a loss. The Bank may be relying on a secondary source of repayment, such as liquidating collateral, or collecting on guarantees. The borrower cannot keep up with either the interest or principal payments. If the Bank is forced into a subordinated or unsecured position due to flaws in documentation, the loan may also be substandard. If the loan must be restructured, or interest rate concessions made, it should be classified as such. If the bank is contemplating foreclosure or legal action, the credit is likely substandard.

Doubtful:  An extension of credit classified doubtful has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The possibility of loss is extremely high; however, because of certain important and reasonably specific pending factors that may work to the advantage of and strengthen the credit, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors may include a proposed merger or acquisition, liquidation proceedings, capital injection, perfecting liens on additional collateral, or refinancing plans.

If the primary source of repayment is gone, and there is doubt as to the quality of the secondary source, then the loan will be considered doubtful. If a court suit is pending, and is the only means of collection, a loan is generally doubtful. As stated above, the loss amount in this category is often undeterminable, and the loan is classified doubtful until said loss can be determined.

The Company’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the Bank’s primary regulators in the course of its regulatory examinations, which can order the establishment of additional general or specific loss allowances. There can be no assurance that regulators, in reviewing the Company’s loan portfolio, will not request the Company to materially increase its allowance for loan losses. Although management believes that adequate specific and general loan loss allowances have been established, actual losses are dependent upon future events and, as such, further additions to the level of specific and general loan loss allowances may become necessary. The Company’s allowance for loan losses at December 31, 2008 is considered by management to be adequate.

The Company holds certain loans that are accounted for under Statement of Position 03-3, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer” (“SOP 03-3”), which addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor’s initial investment in loans or debt securities acquired in a transfer if those differences are attributable, at least in part, to credit quality. It includes loans acquired in purchase business combinations and applies to all nongovernmental entities. SOP 03-3 does not apply to loans originated by the Company. The Company’s assessment identified $5.9 million in acquired loans to which the application of the provisions of SOP 03-3 was required. As a result of the application of SOP 03-3, the Company recorded purchase accounting adjustments reflecting a reduction in loans of $2.0 million related to acquired impaired loans, thus reducing the carrying value of these loans to $3.9 million as of December 31, 2007. See Note 3 — Business Combinations to the consolidated financials statements. The carrying value of these loans was $778,000 as of December 31, 2008, and there continues to be no allowance for loan losses regarding these loans. The Company does not consider prepayments in the determination of contractual or expected cash flows.

Securities

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

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The following tables set forth the composition of the Company’s securities portfolio by major category as of the indicated dates. The securities portfolio as of December 31, 2008, 2007, and 2006 has been categorized as either available-for-sale or held-to-maturity in accordance with SFAS No. 115.

	December 31, 2008
	Held-to-Maturity				Available-for-Sale				Total
													% of
	Amortized		Fair		Amortized		Fair		Amortized		Fair		Amortized
	Cost		Value		Cost		Value		Cost		Value		Cost
	(Dollars in thousands)
U.S. Treasury and obligations of U.S. government-sponsored entities	$	—	$	—	$	263,483	$	265,435	$	263,483	$	265,435		40.3	%
Obligations of states and political subdivisions		1,251		1,263		57,309		56,664		58,560		57,927		9.0
Mortgage-backed securities		29,016		29,124		281,592		283,679		310,608		312,803		47.4
Equity securities		—		—		2,749		930		2,749		930		0.4
Other bonds		—		—		19,176		15,241		19,176		15,241		2.9
Total	$	30,267	$	30,387	$	624,309	$	621,949	$	654,576	$	652,336		100.0	%

	December 31, 2007
	Held-to-Maturity				Available-for-Sale				Total
													% of
	Amortized		Fair		Amortized		Fair		Amortized		Fair		Amortized
	Cost		Value		Cost		Value		Cost		Value		Cost
	(Dollars in thousands)
U.S. Treasury and obligations of U.S. government-sponsored entities	$	—	$	—	$	181,983	$	183,613	$	181,983	$	183,613		23.6	%
Obligations of states and political subdivisions		1,254		1,268		60,985		61,400		62,239		62,668		8.1
Mortgage-backed securities		36,347		35,644		383,633		379,040		419,980		414,684		54.4
Equity securities		—		—		85,139		65,979		85,139		65,979		11.0
Other bonds		—		—		22,095		20,849		22,095		20,849		2.9
Total	$	37,601	$	36,912	$	733,835	$	710,881	$	771,436	$	747,793		100.0	%

	December 31, 2006
	Held-to-Maturity				Available-for-Sale				Total
													% of
	Amortized		Fair		Amortized		Fair		Amortized		Fair		Amortized
	Cost		Value		Cost		Value		Cost		Value		Cost
	(Dollars in thousands)
U.S. Treasury and obligations of U.S. government-sponsored entities	$	—	$	—	$	6,958	$	6,958	$	6,958	$	6,958		1.1	%
Obligations of states and political subdivisions		1,686		1,697		97,167		96,987		98,853		98,684		15.3
Mortgage-backed securities		44,245		42,990		444,392		434,108		488,637		477,098		75.5
Equity securities		—		—		41,131		41,521		41,131		41,521		6.4
Other bonds		—		—		11,034		10,407		11,034		10,407		1.7
Total	$	45,931	$	44,687	$	600,682	$	589,981	$	646,613	$	634,668		100.0	%

As of December 31, 2008, the Company held no securities of a single issuer with a book value exceeding 10% of stockholders’ equity other than those of the U.S. government or government-sponsored entities.

The total fair value of the securities portfolio was $652.3 million as of December 31, 2008, or 99.7% of amortized cost. The total fair value of the securities portfolio was $747.8 million and $634.7 million as of December 31, 2007 and 2006, respectively.

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Securities available-for-sale are carried at fair value, with related unrealized net gains or losses, net of deferred income taxes, recorded as an adjustment to equity capital. At December 31, 2008, unrealized losses on securities available-for-sale were $2.4 million, or $1.4 million net of taxes, compared to $23.0 million, or $13.9 million net of taxes, at December 31, 2007. The Company recognized an other-than-temporary impairment charge of $17.6 million at March 31, 2008 on certain FNMA and FHLMC preferred equity securities with a cost basis of $85.1 million. In September 2008, the Company sold $16.9 million of the remaining $67.5 million recognizing a $16.7 million loss. The Company recognized an additional other-than-temporary impairment charge of $47.8 million at September 30, 2008 on the remaining securities and thereby reduced the amortized cost to their fair value of $2.7 million. Management believes this impairment was primarily attributable to economic conditions at that time, FNMA and FHLMC being placed into the Federal Housing Finance Agency’s conservatorship, and the discontinued dividend payments. Since recovery did not appear likely in the near future, the Company recognized the impairment losses. See Note 4 — Securities of the Notes to the consolidated financial statements for more details on the Company’s securities portfolio. The securities portfolio does not contain any sub-prime or Alt-A mortgage-backed securities.

The Company’s securities available-for-sale portfolio decreased $88.9 million, or 12.5%, in 2008 compared to 2007 mainly as a result of the impairment charges and sales of the FNMA and FHLMC preferred equity securities. The Company also changed the mix of its securities portfolio to improve earnings through the sale of certain mortgage-backed securities and the investment in higher-yielding U.S. government-sponsored entities notes during 2008. Set forth below is a summary of the change in the available-for-sale securities:

•  U.S. Treasury and obligations of U.S. government-sponsored entities increased by $81.8 million to $265.4 million, or 40.3% of the securities portfolio, at December 31, 2008 compared to $183.6 million at year end 2007.

•  U.S. government agency and government-sponsored entity mortgage-backed securities decreased 25.2%, or $95.4 million, from $379.0 million at December 31, 2007 to $283.7 million at December 31, 2008.

•  As noted above, the Company recognized a impairment charges of $65.4 million on the FHLMC and FNMA preferred equities in 2008 bringing the amortized cost to $2.7 million. During 2008, $16.9 million in equity securities were sold at a loss of $16.7 million. Equity securities were $930,000 at December 31, 2008 compared to $66.0 million at December 31, 2007. Equity securities included capital securities of U.S. government-sponsored entities.

•  Obligations of state and political subdivisions decreased $4.7 million to $56.7 million at December 31, 2008 from $61.4 million at December 31, 2007.

•  Other bonds decreased by $5.6 million to $15.2 million at December 31, 2008 compared to $20.8 million at December 31, 2007. Other bonds include high grade corporate bonds primarily issued by financial institutions.

Securities held-to-maturity decreased $7.3 million, or 19.5%, from $37.6 million at December 31, 2007 to $30.3 million at December 31, 2008, due to paydowns and sales of mortgage-backed securities as permitted under SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” These securities sold had paid down to less than 15% of their original face value.

There were no trading securities held at December 31, 2008 or December 31, 2007. When acquired, the Company holds trading securities and derivatives on a short-term basis based on market and liquidity conditions.

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Investment Maturities and Yields

The following tables set forth the contractual or estimated maturities of the components of the Company’s securities portfolio as of December 31, 2008 and the weighted average yields. The table assumes estimated fair values for available-for-sale securities and amortized cost for held-to-maturity securities:

	Maturing
						After One But					After Five But
	Within One					Within					Within					After
	Year					Five Years					Ten Years					Ten Years					Total
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
	(Dollars in thousands)
Available- for-Sale-Securities:
U.S. Treasury and obligations of U.S. government-sponsored entities	$	7,687		2.81	%	$	52,617		3.43	%	$	205,131		5.34	%	$	—		—	%	$	265,435		4.90	%
Obligations of states and political subdivisions		682		3.61			8,135		3.60			36,034		3.74			11,813		4.08			56,664		3.79
Mortgage-backed securities		27,795		5.40			255,884		4.09			—		—			—		—			283,679		4.23
Equity securities(1)		—		—			—		—			—		—			930		—			930		—
Other bonds		—		—			3,745		4.53			3,063		4.39			8,433		1.91			15,241		2.96
Total	$	36,164		4.82	%	$	320,381		3.98	%	$	244,228		5.09	%	$	21,176		3.04	%	$	621,949		4.44	%
Held-to-Maturity Securities:
Obligations of states and political subdivisions	$	—		—	%	$	451		4.31	%	$	800		3.85	%	$	—		—	%	$	1,251		4.02	%
Mortgage-backed securities		—		—			29,016		4.42			—		—			—		—			29,016		4.42
Total	$	—		—	%	$	29,467		4.42	%	$	800		3.85	%	$	—		—	%	$	30,267		4.40	%

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

Deposits

The following table sets forth the changes in deposits as of the periods presented.

	December 31,
	2008		2007
	(Dollars in thousands)
Noninterest-bearing demand	$	334,495	$	321,317
Interest-bearing demand		176,224		226,225
Money market		208,484		291,501
Savings		129,101		129,476
Certificates of deposit less than $100,000		689,896		633,022
Certificates of deposit over $100,000		435,687		511,743
Brokered certificates of deposit		438,904		344,864
Total interest-bearing deposits		2,078,296		2,136,831
Total deposits	$	2,412,791	$	2,458,148
Total core deposits(1)	$	848,304	$	968,519

(1) Includes noninterest-bearing and interest-bearing demand, money market, and savings.

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Set forth below is a summary of the change in the Company’s deposits:

•  Deposits decreased by $45.4 million, or 1.8%; noninterest-bearing deposits increased by $13.2 million while interest-bearing deposits decreased by $58.5 million.

•  Core deposits, which include noninterest-bearing demand, interest-bearing demand, money market, and savings deposits, decreased $120.2 million, or 12.4%.

•  Certificates of deposits less than $100,000 increased 9.0% or $56.9 million.

•  Certificates of deposit over $100,000 decreased $76.1 million, or 14.9%.

•  Brokered certificates of deposit increased $94.0 million, or 27.3%. The Company purchased brokered certificates of deposit in order to move away from purchasing Federal funds during the financial system disruption. The underlying certificates of deposits of the brokered certificates of deposit are in denominations of less than $100,000.

The Company continues to participate in the FDIC’s Temporary Liquidity Guarantee Program. This program consists of two components. The first is the Transaction Account Guarantee Program where all noninterest-bearing transaction deposit accounts, including all personal and business checking deposit accounts, and NOW accounts, which are capped at a rate no higher than 0.50% are fully guaranteed, through December 31, 2009, regardless of dollar amount. All other deposit accounts continue to be covered by the FDIC’s expanded deposit insurance limit of $250,000 through December 31, 2009. The second component is the Debt Guarantee Program, which guarantees newly issued senior unsecured debt.

In 2009, the FDIC plans to increase premium assessments to maintain adequate funding of the Deposit Insurance Fund. Assessment rates set by the FDIC effective December 5, 2009 range from 5 to 43 basis points. These increases in premium assessments will increase the Company’s expenses. See “Item 1. Business — Supervision and Regulation — FDIC Insurance Premiums on Deposit Accounts.”

On February 27, 2009, the FDIC board agreed to impose an emergency special assessment of 20 basis points on all banks to restore the Deposit Insurance Fund to an acceptable level. The assessment, which will be payable on September 30, 2009, is in addition to a planned increase in premiums and a change in the way regular premiums are assessed, which the board also approved on that date. This emergency special assessment for the Company is projected to be $5.0 million based on December 31, 2008 data.

The Company competes for core deposits in the heavily-banked Chicago Metropolitan Statistical Area. Competitive pricing has made it difficult to maintain and grow these types of deposits. The level of competition for core deposits is not expected to ease in the near term. To overcome this challenge, the Company has changed and expanded staffing and management at its banking centers and initiated a number of customer outreach initiatives. The Company is also pursuing a new on-line account opening process to further develop the growth of core deposit relationships. The Company’s “Big Bank Relief” marketing campaign is focused on building relationships.

The Company’s recent campaigns have been promoting relationship savings accounts and other core products. In conjunction with this strategy, the Bank’s retail incentive program has shifted its focus to relationship building, with incentives being paid for cross-selling achievements. Relationship building, along with a continued focus on providing excellent customer service, is key to solidifying and growing the Bank’s customer base.

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

	Year Ended December 31,
	2008								2007								2006
	Average		Percent of						Average		Percent of						Average		Percent of
	Balance		Deposits			Rate			Balance		Deposits			Rate			Balance		Deposits			Rate
	(Dollars in thousands)
Noninterest-bearing demand deposits	$	326,104		13.46	%		0.00	%	$	274,819		12.90	%		0.00	%	$	220,706		12.23	%		0.00	%
Interest-bearing demand deposits		200,869		8.29			0.98			182,276		8.55			1.85			150,503		8.34			1.17
Savings and money market accounts		384,496		15.87			1.30			386,722		18.15			2.57			346,933		19.23			2.18
Time Deposits:
Certificates of deposit, less than $100,000(1)		619,829		25.58			4.05			598,012		28.06			4.95			631,993		35.03			4.30
Certificates of deposit, over $100,000(1)(2)		891,354		36.80			3.81			689,335		32.34			4.90			442,199		24.51			4.63
Public funds		—		—			—			—		—			—			11,703		0.65			4.54
Total time deposits		1,511,183		62.38			3.91			1,287,347		60.40			4.92			1,085,895		60.19			4.44
Total deposits	$	2,422,652		100.00	%		2.73	%	$	2,131,164		100.00	%		3.60	%	$	1,804,037		100.00	%		3.19	%

(1)	Certificates of deposit exclusive of public funds.
(2)	Includes brokered deposits.

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

	December 31,
	2008		2007		2006
	(In thousands)
Three months or less	$	402,122	$	308,259	$	271,994
Over three months through six months		172,417		241,765		63,168
Over six months through twelve months		229,867		230,985		160,478
Over twelve months		70,185		75,598		58,020
Total	$	874,591	$	856,607	$	553,660

Borrowings

The following table summarizes the Company’s borrowings as of the dates indicated.

	December 31,
	2008		2007		2006
	(In thousands)
Federal funds purchased	$	—	$	81,000	$	66,000
Revolving note payable		8,600		2,500		—
Securities sold under agreements to repurchase		297,650		283,400		201,079
Advances from the Federal Home Loan Bank		380,000		323,439		319,883
Junior subordinated debentures		60,791		60,724		65,812
Subordinated debt		15,000		—		—
Term note payable		55,000		70,000		—
Total	$	817,041	$	821,063	$	652,774

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The Company’s borrowings include overnight federal funds purchased, securities sold under agreements to repurchase, FHLB advances, junior subordinated debentures, and commercial bank notes payable and subordinated debt. The following tables set forth categories and the balances of the Company’s borrowings for the periods indicated.

	Year Ended December 31,
	2008			2007			2006
	(Dollars in thousands)
Federal funds purchased:
Balance at end of year	$	—		$	81,000		$	66,000
Weighted average interest rate at end of year		—	%		4.15	%		5.30	%
Maximum amount outstanding(1)	$	184,500		$	109,000		$	95,000
Average amount outstanding		77,000			35,630			29,474
Weighted average interest rate during year(2)		2.62	%		5.13	%		5.18	%

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

	Year Ended December 31,
	2008			2007			2006
	(Dollars in thousands)
Securities sold under repurchase agreements:
Balance at end of year	$	297,650		$	283,400		$	201,079
Weighted average interest rate at end of year		4.29	%		4.21	%		4.40	%
Maximum amount outstanding(1)	$	394,764		$	317,118		$	294,599
Average amount outstanding		311,346			268,639			226,369
Weighted average interest rate during year		4.26	%		4.21	%		4.59	%

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

The Bank is a member of the FHLB. Membership requirements include common stock ownership in the FHLB. At December 31, 2008, the majority of the FHLB advances have various call provisions ranging from three months to two years. The Bank is currently in compliance with the FHLB’s membership requirements.

The following table sets forth categories and the balances of the Company’s FHLB advances as of the indicated dates or for the indicated periods.

	Year Ended December 31,
	2008			2007			2006
	(Dollars in thousands)
FHLB advances:
Balance at end of year	$	380,000		$	323,439		$	319,883
Weighted average interest rate at end of year		3.38	%		4.49	%		4.54	%
Maximum amount outstanding(1)	$	380,000		$	323,439		$	319,883
Average amount outstanding		335,039			317,232			228,811
Weighted average interest rate during year		3.53	%		4.66	%		4.29	%

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

The Company’s credit agreements with a correspondent bank at December 31, 2008 consisted of a revolving line of credit, a term note loan, and subordinated debenture in the amounts of $8.6 million, $55.0 million, and $15.0 million, respectively.

The revolving line of credit has a maximum availability of $25.0 million, an interest rate of one-month LIBOR plus 155 basis points, and matures on April 3, 2009. During the fourth quarter of 2007, the Company utilized the

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proceeds from a $75.0 million term note loan to pay for the cash requirements of the Northwest Suburban acquisition. On March 31, 2008, the Company converted $15.0 million of this term note into subordinated debt and further reduced the remaining term note balance to $55.0 million. The resulting term note had an interest rate of one-month LIBOR plus 155 basis points at December 31, 2008 and matures on September 28, 2010.

The subordinated debt had an interest rate of one-month LIBOR plus 350 basis points at December 31, 2008, matures on March 31, 2018, and qualifies as Tier 2 capital.

The revolving line of credit and term note included the following covenants at December 31, 2008: (1) the Bank must not have nonperforming loans (loans on nonaccrual status and 90 days or more past due and troubled-debt restructured loans) in excess of 3.00% of total loans, (2) the Bank must report a quarterly profit, excluding charges related to acquisitions, and (3) the Bank must remain well capitalized. The Company was in compliance with these debt covenants at December 31, 2008.

As a result of the effects of recent economic conditions, the increase in nonperforming assets, and the impairment charges on goodwill and the FNMA and FHLMC preferred securities, the Company sought covenant waivers on two occasions since December 31, 2007. First, the lender waived a covenant violation in the first quarter of 2008 resulting from the Company’s net loss recognized in that period. Second, the lender waived a covenant violation in the third quarter of 2008 resulting from the Company’s net loss recognized in that period, contingent upon the Company making accelerated principal payments under the aforementioned term loan agreement. See Note 14 — Credit Agreement of the Notes to the consolidated financial statements for more details.

At December 31, 2008, the Company had $60.8 million in junior subordinated debentures owed to unconsolidated trusts that were formed to issue trust preferred securities.

The following table details the unconsolidated trusts and their common and trust preferred securities:

		December 31,
		2008			2007				Mandatory	Optional
Issuer	Issue Date	Amount			Amount			Rate	Redemption Date	Redemption Date(1)
		(In thousands)
MBHI Capital Trust III	December 19, 2003	$	9,279		$	9,279		LIBOR+3.00%	December 30, 2033	December 30, 2008
MBHI Capital Trust IV	December 19, 2003		10,310			10,310		LIBOR+2.85%	January 23, 2034	January 23, 2009
MBHI Capital Trust V	June 7, 2005		20,619			20,619		LIBOR+1.77%	June 15, 2035	June 15, 2010
Royal Capital Trust I	April 30, 2004		10,310			10,310		6.62% until July	July 23, 2034	July 23, 2009
								23, 2009; then
								LIBOR+2.75%
Unamortized purchase accounting adjustment			(37	)		(104	)
Northwest Suburban Capital Trust I	May 18, 2004		10,310			10,310		LIBOR+2.70%	July 23, 2034	July 23, 2009
Total		$	60,791		$	60,724

(1) Redeemable at option of the Company.

Capital Resources

The Company monitors compliance with bank and bank-holding company regulatory capital requirements, focusing primarily on risk-based capital guidelines. Under the risk-based capital method of capital measurement, the ratio computed is dependent upon the amount and composition of assets recorded on the balance sheet and the amount and composition of off-balance-sheet items, in addition to the level of capital. Included in the risk-based capital method are two measures of capital adequacy: Tier 1, or core capital, and total capital, which consists of Tier 1 plus Tier 2 capital. See “Business — Supervision and Regulation — Bank Holding Company Regulation” for definitions of Tier 1 and Tier 2 capital and Note 16 to the Notes to the consolidated financial statements.

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

	Risk-Based Capital Ratios December 31,
	2008					2007					2006
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
Tier 1 capital to risk-weighted assets	$	238,873		8.30	%	$	258,862		9.21	%	$	266,753		11.92	%
Tier 1 capital minimum requirement		115,123		4.00			112,457		4.00			89,492		4.00
Total capital to risk-weighted assets		289,967		10.07			285,843		10.17			290,158		12.97
Total capital minimum requirements		230,247		8.00			224,914		8.00			178,984		8.00
Total risk-weighted assets		2,878,087					2,811,423					2,237,305

In December 2008, the Company issued 84,784 shares of Series T fixed cumulative perpetual preferred stock at $1,000 per share to the U.S. Treasury under the TARP CPP raising $84.8 million in capital, which qualifies for Tier I capital.

In October 2007, the Company issued 3.7 million shares of common stock as a result of the Northwest Suburban acquisition increasing capital by $55.1 million. In December 2007, the Company issued 1,725,000 depositary shares each representing 1/100th of a share of its Series A noncumulative redeemable convertible perpetual preferred stock at $25.00 per share through a public offering raising net new equity capital of $41.4 million.

In July 2006, the Company issued 2.9 million shares of common stock as a result of the Royal American acquisition increasing capital by $63.8 million. In August 2005, the Company issued 3.5 million new common shares through a public offering raising a net amount of new capital of $67.9 million.

The Company includes $59.0 million for 2008 and 2007 and $64.0 million for 2006 of trust preferred securities in Tier I capital based on regulatory limitations.

Liquidity

The Company manages its liquidity position with the objective of maintaining access to sufficient funds to respond to the needs of depositors and borrowers and to take advantage of earnings enhancement opportunities. At December 31, 2008, the Company had cash and cash equivalents of $63.1 million. In addition to the normal inflow of funds from its securities portfolio, and repayments and maturities of loans and securities, the Company utilizes other short-term, intermediate-term and long-term funding sources such as securities sold under agreements to repurchase and overnight funds purchased from correspondent banks.

The FHLB provides an additional source of liquidity which has been used by the Bank since 1999. The Bank also has various funding arrangements with commercial and investment banks in the form of Federal funds lines, repurchase agreements, and brokered certificate of deposit programs. The Bank maintains these funding arrangements to achieve favorable costs of funds, manage interest rate risk, and enhance liquidity in the event of deposit withdrawals. The FHLB advances and repurchase agreements are subject to the availability of collateral. The Company believes it has sufficient liquidity to meet its current and future liquidity needs.

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

The Company classifies the majority of its securities as available-for-sale, thereby maintaining significant liquidity. Certain available-for-sale securities were temporarily impaired at December 31, 2008, primarily due to changes in interest rates as well as current economic conditions that appear to be cyclical in nature. The Company has both the intent and ability to hold each of the temporarily impaired securities for the time necessary to recover its

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amortized cost. See the “Securities” section and “Risk Factors” for more details. The Company’s liquidity position is further enhanced by the structuring of a majority of its loan portfolio interest payments as monthly.

The Company’s cash flows are comprised of three classifications: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. See Statement of Cash Flows in the Consolidated Financial Statements.

The Company continues to seek opportunities to diversify the customer base, enhance the product suite, and improve the overall liquidity position. The Company has developed analytical tools to help support the overall liquidity forecasting and contingency planning. In addition, the Company is developing a more efficient collateral management process which will further strengthen the Company’s liquidity.

Contractual Obligations, Commitments, and Off-Balance Sheet Arrangements

	December 31, 2008
	Payments Due By Period
	Within						After
	1 Year		2-3 Years		4-5 Years		5 Years		Other(1)		Total
	(In thousands)
Deposits without a stated maturity	$	848,304	$	—	$	—	$	—	$	—	$	848,304
Consumer and brokered certificates of deposits		1,406,407		143,367		14,702		11		—		1,564,487
Revolving note payable		8,600		—		—		—		—		8,600
Securities sold under agreements to repurchase		—		—		—		297,650		—		297,650
FHLB advances		40,000		—		—		340,000		—		380,000
Junior subordinated debentures		—		—		—		60,791		—		60,791
Subordinated debt		—		—		—		15,000		—		15,000
Term note payable		10,000		45,000		—		—		—		55,000
Operating leases		1,530		2,749		2,381		14,141		—		20,801
FIN 48 liability		—		—		—		—		2,378		2,378
Total contractual cash obligations	$	2,314,841	$	191,116	$	17,083	$	727,593	$	2,378	$	3,253,011

(1) Duration of liability is not determinable.

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The following table details the amounts and expected maturities of significant commitments as of December 31, 2008.

	Amount of Commitment Expiration Per Period
	Within						After
	1 Year		2-3 Years		4-5 Years		5 Years		Total
	(In thousands)
Lines of Credit:
Commercial real estate	$	104,884	$	13,098	$	5,319	$	133	$	123,434
Consumer real estate		26,757		37,496		33,252		54,481		151,986
Consumer		—		—		—		2,220		2,220
Commercial		235,855		18,364		1,765		3,238		259,222
Letters of credit		43,934		11,602		3,496		—		59,032
Commitments to extend credit		68,213		—		—		—		68,213
Total commitments	$	479,643	$	80,560	$	43,832	$	60,072	$	664,107

Asset/Liability Management

The business of the Company and the composition of its consolidated balance sheet consist of investments in interest-earning assets (primarily loans, mortgage-backed securities, and other securities) that are primarily funded by interest-bearing liabilities (deposits and borrowings). All of the financial instruments of the Company as of December 31, 2008 were held for other-than-trading purposes. Such financial instruments have varying levels of sensitivity to changes in market rates of interest. The Company’s net interest income is dependent on the amounts of and yields on its interest-earning assets as compared to the amounts of and rates on its interest-bearing liabilities. Net interest income is therefore sensitive to changes in market rates of interest.

The Company’s asset/liability management strategy is to maximize net interest income while limiting exposure to risks associated with changes in interest rates. This strategy is implemented by the Company’s ongoing analysis and management of its interest rate risk. A principal function of asset/liability management is to coordinate the levels of interest-sensitive assets and liabilities to manage net interest income fluctuations within limits in times of fluctuating market interest rates.

Interest rate risk results when the maturity or repricing intervals and interest rate indices of the interest-earning assets, interest-bearing liabilities, and off-balance-sheet financial instruments are different, thus creating a risk that will result in disproportionate changes in the value of and the net earnings generated from the Company’s interest-earning assets, interest-bearing liabilities, and off-balance-sheet financial instruments. The Company’s exposure to interest rate risk is managed primarily through the Company’s strategy of selecting the types and terms of interest-earning assets and interest-bearing liabilities that generate favorable earnings while limiting the potential negative effects of changes in market interest rates. Because the Company’s primary source of interest-bearing liabilities is customer deposits, the Company’s ability to manage the types and terms of such deposits may be somewhat limited by customer maturity preferences in the market areas in which the Company operates. Over the past decade, hundreds of new bank branches have opened in the Company’s marketplace. Deposit pricing is competitive with promotional rates frequently offered by competitors. Ongoing competition for core and time deposits are driving up yields paid. Borrowings, which include FHLB advances, short-term borrowings, and long-term borrowings, are generally structured with specific terms which, in management’s judgment, when aggregated with the terms for outstanding deposits and matched with interest-earning assets, reduce the Company’s exposure to interest rate risk. The rates, terms, and interest rate indices of the Company’s interest-earning assets result primarily from the Company’s strategy of investing in securities and loans (a substantial portion of which have adjustable rates). This permits the Company to limit its exposure to interest rate risk, together with credit risk, while at the same time achieving a positive interest rate spread from the difference between the income earned on interest-earning assets and the cost of interest-bearing liabilities.

Management uses a duration model for the Bank’s internal asset/liability management. The model uses cash flows and repricing information from loans and certificates of deposit, plus repricing assumptions on products

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without specific repricing dates (e.g., savings and interest-bearing demand deposits), to calculate the durations of the Bank’s assets and liabilities. Securities are stress tested, and the theoretical changes in cash flow are key elements of the Company’s model. The model also projects the effect on the Company’s earnings and theoretical value for a change in interest rates. The model computes the duration of the Bank’s rate sensitive assets and liabilities, a theoretical market value of the Bank’s rate sensitive assets and liabilities and the effects of rate changes on the Bank’s earnings and market value. The Bank’s exposure to interest rates is reviewed on a monthly basis by senior management and the Company’s Board of Directors.

Effects of Inflation

Interest rates are significantly affected by inflation, but it is difficult to assess the impact, since neither the timing nor the magnitude of the changes in the various inflation indices coincide with changes in interest rates. Inflation does impact the economic value of longer term, interest-earning assets and interest-bearing liabilities, but the Company attempts to limit its long-term assets and liabilities, as indicated in the tables set forth under “Financial Condition” and “Item 7A. Quantitative and Qualitative Disclosures about Market Risk.”

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

The Company performs a net interest income analysis as part of its asset/liability management practices. Net interest income analysis measures the change in net interest income in the event of hypothetical changes in interest rates. This analysis assesses the risk of change in net interest income in the event of sudden and sustained 1.0% and 2.0% increases in market interest rates. The tables below present the Company’s projected changes in net interest income for the various rate shock levels at December 31, 2008 and December 31, 2007, respectively. As result of current market conditions, 1.0% and 2.0% decreases in market interest rates are not applicable for 2008 as those decreases would result in some deposit interest rate assumptions falling below zero. Nonetheless, the Company’s net interest income could decline in those scenarios as yields on earning assets could continue to adjust downward.

	Change in Net Interest Income Over One Year Horizon
												Guideline
	December 31, 2008					December 31, 2007						Maximum
	Dollar		%			Dollar			%			%
	Change		Change			Change			Change			Change
	(Dollars in thousands)
+200 bp	$	6,274		8.23	%	$	(2,161	)		(2.36	)%		(10.0	)%
+100 bp		2,850		3.74			694			0.76			—
−100 bp		N/A		N/A			(225	)		(0.25	)		—
−200 bp		N/A		N/A			(3,507	)		(3.83	)		(10.0	)

As shown above, at December 31, 2008, the effect of an immediate 200 basis point increase in interest rates would increase the Company’s net interest income by 8.23%, or $6.3 million. Overall net interest income sensitivity remains within the Company’s and recommended regulatory guidelines.

The changes in the Company’s net interest income sensitivity were due, in large part, to the addition of optionality on both sides of the balance sheet. The changes in net interest income over the one year horizon for December 31, 2008 under the 1.0% and 2.0% increases in market interest rates scenarios are reflective of this optionality. In a rising rate environment, yields on floating rate loans and investment securities are expected to re-price upwards more quickly than the cost of funds. The Company believes it manages such volatility to acceptable levels and is being appropriately compensated for the additional risk.

The Company does not have any sub-prime or Alt-A mortgage-backed securities in its securities portfolio nor does it have any sub- prime loans.

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“Gap” analysis is used to determine the repricing characteristics of the Company’s assets and liabilities. The following table sets forth the interest rate sensitivity of the Company’s assets and liabilities as of December 31, 2008, and provides the repricing dates of the Company’s interest-earning assets and interest-bearing liabilities as of that date, as well as the Company’s interest rate sensitivity gap percentages for the periods presented.

	0-3			4-12						Over
	Months			Months			1-5 Years			5 Years			Total
	(Dollars in thousands)
INTEREST-EARNING ASSETS:
Federal funds sold and other short-term investments	$	1,735		$	—		$	—		$	—		$	1,735
Securities available-for-sale, at fair value		224,510			106,857			186,407			104,175			621,949
Securities held-to-maturity, at amortized cost		1,659			4,378			13,947			10,283			30,267
Federal Reserve Bank and Federal Home Loan Bank stock		31,698			—			—			—			31,698
Loans		1,211,502			338,705			876,678			82,874			2,509,759
Total interest-earning assets	$	1,471,104		$	449,940		$	1,077,032		$	197,332		$	3,195,408
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits	$	15,860		$	47,580		$	—		$	112,784		$	176,224
Money market deposits		18,764			56,291			—			133,429			208,484
Savings deposits		11,619			34,857			—			82,625			129,101
Time deposits		524,127			883,728			156,621			11			1,564,487
Total interest-bearing deposits		570,370			1,022,456			156,621			328,849			2,078,296
Federal funds purchased		—			—			—			—			—
Revolving note payable		8,600			—			—			—			8,600
Securities sold under agreements to repurchase		—			—			—			297,650			297,650
Advances from the Federal Home Loan Bank		40,000			—						340,000			380,000
Junior subordinated debentures		50,481			10,310			—			—			60,791
Subordinated debt		15,000			—			—			—			15,000
Term note payable		55,000			—			—			—			55,000
Total borrowings		169,081			10,310			—			637,650			817,041
Total interest-bearing liabilities	$	739,451		$	1,032,766		$	156,621		$	966,499		$	2,895,337
Interest sensitivity gap	$	731,653		$	(582,826	)	$	920,411		$	(769,167	)	$	300,071
Cumulative interest sensitivity gap	$	731,653		$	148,827		$	1,069,238		$	300,071
Interest sensitivity gap to total assets		20.5	%		(16.3	)%		25.8	%		(21.5	)%
Cumulative interest sensitivity gap to total assets		20.5	%		4.2	%		29.9	%		8.4	%

The chart above shows the Company was asset sensitive or had a positive Gap in the short-term (0-3 months) meaning a greater amount of interest-earning assets are repricing or maturing than the amount of interest-bearing liabilities during the same time period. A positive gap generally indicates the Company is positioned to benefit from a rising interest rate environment. The cumulative interest sensitivity Gap is still positive but substantially decreased in the 4-12 month period, indicating the Company’s GAP position is much more closely matched through that time period and rate changes would theoretically have much less effect on net interest income. In the 1-5 year period the cumulative interest sensitivity Gap becomes much more positive again showing the Company’s benefit from rising interest rates would increase. The Gap position does not necessarily indicate the level of the Company’s interest rate sensitivity or the impact to net interest income because the interest-earning assets and interest-bearing liabilities are repricing off of different indices.

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Mortgage-backed securities, including adjustable rate mortgage pools, are included in the above table based on their estimated principal paydowns obtained from outside analytical sources. Loans are included in the above table based on contractual maturity or contractual repricing dates. Deposits are based on management’s analysis of industry trends and customer behavior.

Computations of the prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit decay rates. These computations should not be relied upon as indicative of actual results. Actual values may differ from those projections set forth above, should market conditions vary from assumptions used in preparing the analyses. Further, the computations do not contemplate any actions the Company may undertake in response to changes in interest rates. The “Gap” analysis is based upon assumptions as to when assets and liabilities will reprice in a changing interest rate environment. Because such assumptions can be no more than estimates, certain assets and liabilities indicated as maturing or otherwise repricing within a stated period may, in fact, mature or reprice at different times and at different volumes than those estimated. Also, the renewal or repricing of certain assets and liabilities can be discretionary and subject to competitive and other pressures. Therefore, the gap table included above does not and cannot necessarily indicate the actual future impact of general interest rate movements on the Company’s net interest income. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Asset/Liability Management.”

Item 8.   Consolidated Financial Statements and Supplementary Data

See “Consolidated Financial Statements” beginning on page F-1.

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

None.

Item 9A.   Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures as of December 31, 2008 are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). The Company’s internal control over financial reporting was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. There are inherent limitations to the effectiveness of any control system. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework.

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Based on management’s assessment, it determined that, as of December 31, 2008, the Company’s internal control over financial reporting is effective based on those criteria.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2008, has been audited by PricewaterhouseCoopers LLP, the independent registered public accounting firm who also audited the Company’s consolidated financial statements, as stated in their report included under Item 8.

Item 9B.   Other Information

None.

PART III

Item 10.   Directors and Executive Officers and Corporate Governance

Information regarding directors of the Company is included in the Company’s Proxy Statement for its 2009 Annual Meeting of Stockholders (the “Proxy Statement”) under the heading “Election of Directors” and the information included therein is incorporated herein by reference. Information regarding the executive officers of the Company is included in Item 1. Business of this report.

Information regarding compliance with the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934 by the Company’s directors and certain officers, and certain other owners of the Company’s common stock is included in the Proxy Statement under the heading “Section 16(a) Beneficial Ownership Compliance” and the information included therein is incorporated herein by reference.

Information regarding the Company’s director nomination procedures is included in the Proxy Statement under the heading “Director Nomination Procedures” and the information included therein is incorporated herein by reference.

Information regarding the Company’s audit committee is included in the Proxy Statement under the heading “Audit Committee” and the information included therein is incorporated herein by reference.

Information regarding the Company’s Code of Business and Conduct and Ethics is included in the Proxy Statement under the heading “Code of Business and Conduct and Ethics” and the information included therein is incorporated herein by reference.

Item 11.   Executive Compensation

Information regarding compensation of executive officers and directors, compensation committee, and compensation committee interlocks, are included in the Proxy Statement under the headings “Directors’ Compensation,” “Executive Compensation,” “Compensation Committee Report,” and “Compensation Committee Interlocks and Insider Participation” and the information included therein is incorporated herein by reference.

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

Information regarding the equity compensation plan and security ownership of certain beneficial owners and management are included in the Proxy Statement under the heading “Equity Compensation Plan Information” and “Security Ownership of Certain Beneficial Owners,” and the information included therein is incorporated herein by reference.

Item 13.   Certain Relationships and Related Transactions, and Director Independence

Information regarding certain relationships and related transactions and the independence of the Company’s directors under its director independence standards are included in the Proxy Statement under the heading “Transactions with Certain Related Persons” and “Director Independence,” and the information included therein is incorporated herein by reference.

Item 14.   Principal Accountant Fees and Services

Information regarding principal accountant fees and services is included in the Proxy Statement under the heading “Independent Auditor,” and the information included therein is incorporated herein by reference.

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PART IV

Item 15.   Exhibits and Financial Statement Schedules

(a) (1) Index to Financial Statements

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

(a) (2) Financial Statement Schedules

All financial statement schedules as required by Item 8 and Item 15 of Form 10-K have been omitted because the information requested is either not applicable or has been included in the consolidated financial statements or notes thereto.

(a) (3) Exhibits

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

2	.1	Letter Agreement, dated December 5, 2008, between the Company and United States Department of the Treasury (incorporated by reference to Registrant’s Report on Form 8-K filed December 8, 2008, File No. 001-13735).
3	.1	Amended and Restated Certificate of Incorporation, as amended (incorporated by reference to Registrant’s Form 10-Q for the quarter ended September 30, 2007, File No. 001-13735).
3	.1.1	Certificate of Designation for the Series A Preferred Stock (incorporated by reference to Registrant’s Report on Form 8-K filed December 7, 2007, File No. 001-13735).
3	.1.2	Deposit Agreement, dated December 5, 2007, among the Registrant, Illinois Stock Transfer Company and the holders from time to time of the Depositary Receipts issued pursuant to the Deposit Agreement (incorporated by reference to Registrant’s Report on Form 8-K filed December 7, 2007, File No. 001-13735).
3	.2	Amended and Restated By-laws (incorporated by reference to Registrant’s Report on Form 8-K filed March 2, 2009, File No. 001-13735).
3	.3	Certificate of Designation for the Series T Preferred Stock (incorporated by reference to Registrant’s Report on Form 8-K filed December 8, 2008, File No. 001-13735).
4	.1	Specimen Common Stock Certificate (incorporated by reference to Registrant’s Registration Statement on Form S-1, Registration No. 333-42827).
4	.1.1	Form of Certificate for the Series A Preferred Stock (incorporated by reference to Registrant’s Report on Form 8-K filed December 7, 2007, File No. 001-13735).
4	.1.2	Form of Depositary Receipt for the Depositary Shares (incorporated by reference to Registrant’s Report on Form 8-K filed December 7, 2007, File No. 001-13735).
4	.1.3	Form of Certificate for the Series T Preferred Stock (incorporated by reference to Registrant’s Report on Form 8-K filed December 8, 2008, File No. 001-13735).
4	.1.4	Warrant for Purchase of Shares of Common Stock, Dated December 5, 2008 (incorporated by reference to Registrant’s Report on Form 8-K filed December 8, 2008, File No. 001-13735).
4	.2	Certain instruments defining the rights of the holders of long-term debt of the Company and certain of its subsidiaries, none of which authorize a total amount of indebtedness in excess of 10% of the total assets of the Company and its subsidiaries on a consolidated basis, have not been filed as Exhibits. The Company hereby agrees to furnish a copy of any of these agreements to the SEC upon request.
*10	.1	Midwest Banc Holdings, Inc. Stock and Incentive Plan (incorporated by reference to Registrant’s Form 10-K for the year ended December 31, 2006, File No. 001-13735).
10	.5	Lease dated as of December 24, 1958, between Western National Bank of Cicero and Midwest Bank and Trust Company, as amended (incorporated by reference to Registrant’s Registration Statement on Form S-1, Registration No. 333-42827).

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10	.6	Britannica Centre Lease, dated as of May 1, 1994, between Chicago Title and Trust Company, as Trustee under Trust Agreement dated November 2, 1977 and known as Trust No. 1070932 and Midwest Bank and Trust Company (incorporated by reference to Registrant’s Registration Statement on Form S-1, Registration No. 333-42827).
10	.7	Lease dated as of March 20, 1996 between Grove Lodge No. 824 Ancient Free and Accepted Masons and Midwest Bank of Hinsdale (incorporated by reference to Registrant’s Registration Statement on Form S-1, Registration No. 333-42827)
10	.8	Office Lease, undated, between Grove Lodge No. 824 Ancient Free and Accepted Masons and Midwest Bank of Hinsdale (incorporated by reference to Registrant’s Registration Statement on Form S-1, Registration No. 333-42827).
*10	.15	Form of 2001 Supplemental Executive Retirement Agreement (incorporated by reference to Registrant’s Form 10-Q for the quarter ended September 30, 2001, File No. 001-13735).
*10	.16	Form of Transitional Employment Agreement (Executive Officer Group) (incorporated by reference to Registrant’s Form 10-Q for the quarter ended September 30, 2001, File No. 001-13735).
*10	.17	Form of Restricted Stock Award Agreement for Officers, Restricted Stock Grant Notice for Officers, Incentive and Nonqualified Stock Options Award Agreements, and Stock Option Grant Notice for Officers (incorporated by reference to Registrant’s Report on Form 8-K filed August 29, 2005, File No. 001-13735).
*10	.18	Form of 2005 Supplemental Executive Retirement Agreement (incorporated by reference to Registrant’s Report on Form 8-K filed October 28, 2005, File No. 001-13735).
*10	.19	Form of Restricted Stock Award Agreement for Non-employee Directors and Restricted Stock Grant Notice for Non-employee Directors (incorporated by reference to Registrant’s Report on Form 8-K filed October 28, 2005, File No. 001-13735).
10	.21	Lease dated as of April 29, 1976, between Joseph C. and Grace Ann Sanfilippo and Fairfield Savings and Loan Association, as amended (incorporated by reference to Registrant’s Form 10-K for the year ended December 31, 2003, File No. 001-13735).
10	.22	Lease dated as of August 28, 2002 between Glen Oak Plaza and Midwest Bank and Trust Company (incorporated by reference to Registrant’s Form 10-K for the year ended December 31, 2003, File No. 001-13735).
10	.24	Loan Agreement as of April 4, 2007, between the Company and M&I Marshall & Ilsley Bank (incorporated by reference to Registrant’s Report on Form 8-K filed April 6, 2007, File No. 001-13735).
*10	.25	Employment Agreement as of September 28, 2004 between the Company and the Chief Executive Officer (incorporated by reference to Registrant’s Form 10-Q for the quarter ended September 30, 2004, File No. 001-13735).
*10	.27	Midwest Banc Holdings, Inc. Severance Policy as of June 28, 2005 (incorporated by reference to Registrant’s Form 8-K dated June 28, 2005, File No. 001-13735).
10	.29	Midwest Banc Holdings, Inc. Directors Deferred Compensation Plan (incorporated by reference to Registrant’s Report on Form 8-K filed December 19, 2008, File No. 001-13735).
*10	.30	Amendment to Employment Agreement as of September 28, 2004 between the Company and the Chief Executive Officer (incorporated by reference to Registrant’s Report on Form 8-K filed March 24, 2006, File No. 001-13735).
*10	.31	Amended and Restated Employment Agreement dated February 8, 2006 by and between Royal American Bank and Jay Fritz, assumed by the Company as of July 1, 2006 (incorporated by reference to Registrant’s Report on Form 8-K filed July 7, 2006, File No. 001-13735).
10	.32	Lease dated April 1, 1993, by and between Royal American Bank and LaSalle National Trust, N.A., as amended, assumed by the Company as of July 1, 2006 (incorporated by reference to Registrant’s Form 10-Q for the quarter ended September 30, 2006, File No. 001-13735).
10	.33	Lease dated April 19, 1993 by and between Royal American Bank and Hamilton Forsythe 1000 Tower Lane LLC, successor-in-interest to Bensenville Office Venture, as amended, assumed by the Company as of July 1, 2006 (incorporated by reference to Registrant’s Form 10-Q for the quarter ended September 30, 2006, File No. 001-13735).

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10	.34	Sublease dated January 31, 2006 by and between Royal American Bank and JPMorgan Chase Bank, National Association, assumed by the Company as of July 1, 2006 (incorporated by reference to Registrant’s Form 10-Q for the quarter ended September 30, 2006, File No. 001-13735).
10	.35	Lease dated January 20, 2006 by and between Royal American Bank and MEG Associates Limited Partnership, assumed by the Company as of July 1, 2006 (incorporated by reference to Registrant’s Form 10-Q for the quarter ended September 30, 2006, File No. 001-13735).
10	.36	Lease dated October 28, 1996 by and between Royal American Bank and Tiffany Pointe, Inc./Marquette Bank, as amended, assumed by the Company as of July 1, 2006 (incorporated by reference to Registrant’s Form 10-Q for the quarter ended September 30, 2006, File No. 001-13735).
10	.37	Lease dated September 24, 1999, by and between Royal American Bank and Moats Office Properties, Inc., as amended, assumed by the Company as of July 1, 2006 (incorporated by reference to Registrant’s Form 10-Q for the quarter ended September 30, 2006, File No. 001-13735).
10	.38	Lease dated July 14, 2006 by and between Midwest Bank and Trust Company and William C. Moran (incorporated by reference to Registrant’s Form 10-Q for the quarter ended September 30, 2006, File No. 001-13735).
*10	.41	Form of 2006 Supplemental Executive Retirement Agreement (incorporated by reference to Registrant’s Form 10-Q for the quarter ended September 30, 2006, File No. 001-13735).
*10	.42	First Amendment to the Form of 2005 Supplemental Executive Retirement Agreement (incorporated by reference to Registrant’s Form 10-Q for the quarter ended September 30, 2006, File No. 001-13735).
10	.43	Lease dated November 9, 2005 by and between Midwest Bank and Trust Company and Crossings Commercial, LLC (incorporated by reference to Registrant’s Form 10-Q for the quarter ended September 30, 2006, File No. 001-13735).
10	.44	Lease dated August 17, 2005 by and between Royal American Bank and L.F.A.J.J. Partners, LLC, assumed by the Company as of July 1, 2006 (incorporated by reference to Registrant’s Form 10-Q for the quarter ended March 31, 2007, File No. 001-13735).
10	.45	Loan Agreement dated as of September 28, 2007 and amendment of loan agreement dated April 4, 2007, between the Company and M&I Marshall & Ilsley Bank (incorporated by reference to Registrant’s Report on Form 8-K filed October 1, 2007, File No. 001-13735).
*10	.46	Form of 2007 Transitional Employment Agreement (incorporated by reference to Registrant’s Report on Form 8-K filed October 1, 2007, File No. 001-13735).
*10	.47	Form of 2007 Supplemental Executive Retirement Agreement (incorporated by reference to Registrant’s Report on Form 8-K filed October 1, 2007, File No. 001-13735).
*10	.48	First Amendment to the Midwest Banc Holdings, Inc. Stock and Incentive Plan (incorporated by reference to Registrant’s Report on Form 8-K filed October 1, 2007, File No. 001-13735).
10	.49	Lease dated December 27, 2007 by and between Midwest Bank and Trust Company and George Garner and Barbara Garner (incorporated by reference to Registrants Form 10-K for the year ended December 31, 2007, File No. 001-13735).
*10	.51	Second amendment to Employment Agreement as of September 28, 2004 between the Company and the Chief Executive Officer (incorporated by reference to Registrant’s Form 10-Q for the quarter ended March 31, 2008, File No. 001-13735).
*10	.52	Second amendment to the Amended and Restated Employment Agreement dated February 8, 2006 by and between Royal American Bank and Jay Fritz, assumed by the Company as of July 1, 2006 (incorporated by reference to Registrant’s Form 10-Q for the quarter ended March 31, 2008, File No. 001-13735).
10	.53	Agreement of Purchase and Sale as of March 10, 2008 between the Company and PGG, LLC (incorporated by reference to Registrant’s Form 10-Q for the quarter ended March 31, 2008, File No. 001-13735).
10	.54	First Amendment to Real Estate Purchase Agreement as of March 26, 2008 between the Company and PGG, LLC (incorporated by reference to Registrant’s Form 10-Q for the quarter ended March 31, 2008, File No. 001-13735).

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10	.55	Post-closing Occupancy Agreement as of March 28, 2008 between the Company and NMD Investments, LLC (incorporated by reference to Registrant’s Form 10-Q for the quarter ended March 31, 2008, File No. 001-13735).
10	.56	Amendment to Loan Agreement dated as of September 28, 2007 and Loan Agreement dated March 31, 2008, between the Company and M&I Marshall & Ilsley Bank (incorporated by reference to Registrant’s Form 10-Q for the quarter ended March 31, 2008, File No. 001-13735).
10	.57	Second Amendment of Loan Agreement dated April 4, 2007, between the Company and M&I Marshall & Ilsley Bank (incorporated by reference to Registrant’s Form 10-Q for the quarter ended March 31, 2008, File No. 001-13735).
*10	.58	Midwest Banc Holdings, Inc. Management Incentive Plan (incorporated by reference to Registrant’s Form 10-Q for the quarter ended March 31, 2008, File No. 001-13735).
*10	.59	Midwest Banc Holdings, Inc. Employee Stock Purchase Plan (incorporated by reference to Registrant’s Proxy Statement filed April 7, 2008, File No. 001-13735).
*10	.60	Form of Waiver, executed by each of the Senior Executive Officers (incorporated by reference to Registrant’s Report on Form 8-K filed December 8, 2008, File No. 001-13735).
*10	.61	EESA Amendment to Officer Employment Benefits executed by each of the Senior Executive Officers (incorporated by reference to Registrant’s Report on Form 8-K filed December 8, 2008, File No. 001-13735).
*10	.62	Settlement Agreement between the Company and James J. Giancola.
10	.63	Lease dated August 7, 2008 by and between Midwest Bank and Trust Company and Buckingham Master Tenant, LLC.
10	.64	Lease dated November 18, 2008 by and between Midwest Bank and Trust Company and Broadway 500 West Monroe Fee LLC.
10	.65	Lease dated December 1, 2008 by and between Midwest Bank and Trust Company and 2150 I Corporation.
*10	.66	Letter agreement dated January 30, 2009 by and between the Company and the Chief Financial Officer.
10	.67	M&I Marshall & Ilsley Bank Loan Agreement Covenant Waiver Letter dated March 4, 2009.
12	.1	Ratios of Earnings To Fixed Charges and Preferred Stock Dividends.
21	.1	Subsidiaries.
23	.1	Consent of PricewaterhouseCoopers LLP.
31	.1	Rule 13a-14(a) Certification of Principal Executive Officer.
31	.2	Rule 13a-14(a) Certification of Principal Financial Officer.
32	.1	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, from the Company’s Chief Executive Officer and Chief Accounting Officer.

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

88

SIGNATURES

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

Midwest Banc Holdings, Inc.

By:  /s/  J. J. Fritz

J. J. Fritz

President and Chief Executive Officer

Date: March 11, 2009

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

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

Signature	Title	Date
/s/  Percy L. Berger Percy L. Berger	Chairman of the Board, Director	March 11, 2009
/s/  J. J. Fritz J. J. Fritz	President, Chief Executive Officer, and Director	March 11, 2009
/s/  Angelo A. DiPaolo Angelo A. DiPaolo	Director	March 11, 2009
/s/  Barry I. Forrester Barry I. Forrester	Director	March 11, 2009
/s/  Robert J. Genetski Robert J. Genetski	Director	March 11, 2009
/s/  Gerald F. Hartley Gerald F. Hartley	Director	March 11, 2009
/s/  Dennis M. O’Hara Dennis M. O’Hara	Director	March 11, 2009

89

Signature	Title	Date
/s/  Joseph Rizza Joseph Rizza	Director	March 11, 2009
/s/  Thomas A. Rosenquist Thomas A. Rosenquist	Director	March 11, 2009
/s/  E.V. Silveri E.V. Silveri	Director	March 11, 2009
/s/  Kenneth Velo Kenneth Velo	Director	March 11, 2009
/s/  JoAnn Sannasardo Lilek JoAnn Sannasardo Lilek	Executive Vice President and Chief Financial Officer	March 11, 2009
/s/  Jan R. Thiry Jan R. Thiry	Senior Vice President and Chief Accounting Officer	March 11, 2009

90

MIDWEST BANC HOLDINGS, INC.

CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS

FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS	F-2
CONSOLIDATED STATEMENTS OF OPERATIONS	F-3
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY	F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS	F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	F-7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F-48

F-1

MIDWEST BANC HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

	December 31,
	2008			2007
	(In thousands, except share and per share data)
ASSETS
Cash	$	61,330		$	70,111
Federal funds sold and other short-term investments		1,735			14,388
Total cash and cash equivalents		63,065			84,499
Securities available-for-sale, at fair value		621,949			710,881
Securities held-to-maturity, at amortized cost (fair value:
$30,387 at December 31, 2008 and $36,912 at December 31, 2007)		30,267			37,601
Total securities		652,216			748,482
Federal Reserve Bank and Federal Home Loan Bank stock, at cost		31,698			29,264
Loans		2,509,759			2,474,327
Allowance for loan losses		(44,432	)		(26,748	)
Net loans		2,465,327			2,447,579
Cash surrender value of life insurance		84,675			81,166
Premises and equipment, net		38,313			41,821
Foreclosed properties		12,018			2,220
Core deposit and other intangibles, net		14,683			17,044
Goodwill		78,862			160,407
Other assets		129,355			80,300
Total assets	$	3,570,212		$	3,692,782
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits
Noninterest-bearing	$	334,495		$	321,317
Interest-bearing		2,078,296			2,136,831
Total deposits		2,412,791			2,458,148
Federal funds purchased		—			81,000
Revolving note payable		8,600			2,500
Securities sold under agreements to repurchase		297,650			283,400
Advances from the Federal Home Loan Bank		380,000			323,439
Junior subordinated debentures		60,791			60,724
Subordinated debt		15,000			—
Term note payable		55,000			70,000
Other liabilities		34,546			38,407
Total liabilities		3,264,378			3,317,618
Commitments and contingencies (see note 18)
Stockholders’ Equity
Preferred stock, $0.01 par value, 1,000,000 shares authorized;
Series A, $2,500 liquidation preference, 17,250 shares issued and outstanding at December 31, 2008 and 2007 Series T, $1,000 liquidation preference, 84,784 shares issued and outstanding at December 31, 2008 and none issued at December 31, 2007		1			—
Common stock, $0.01 par value, 64,000,000 shares authorized; 29,530,878 shares issued and 27,892,578 outstanding at December 31, 2008 and 29,275,687 shares issued and 27,803,794 outstanding at December 31, 2007		296			293
Additional paid-in capital		383,491			300,762
Warrant		5,229			—
(Accumulated deficit) retained earnings		(66,325	)		102,762
Accumulated other comprehensive loss		(2,122	)		(13,917	)
Treasury stock, at cost (1,638,300 shares at December 31, 2008 and 1,471,893 shares at December 31, 2007)		(14,736	)		(14,736	)
Total stockholders’ equity		305,834			375,164
Total liabilities and stockholders’ equity	$	3,570,212		$	3,692,782

See accompanying notes to consolidated financial statements.

F-2

MIDWEST BANC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended December 31,
	2008			2007		2006
	(In thousands, except per share data)
Interest income
Loans	$	151,120		$	155,044	$	123,854
Loans held for sale		—			89		125
Securities
Taxable		33,157			34,787		30,325
Exempt from federal income taxes		2,316			2,269		3,570
Trading securities		—			2		189
Dividend income from Federal Reserve Bank and Federal Home Loan Bank stock		741			839		693
Federal funds sold and other short-term investments		327			839		506
Total interest income		187,661			193,869		159,262
Interest expense
Deposits		66,025			76,692		57,518
Federal funds purchased and FRB discount window advances		2,064			1,829		1,526
Revolving note payable		474			186
Securities sold under agreements to repurchase		13,262			11,302		10,387
Advances from the Federal Home Loan Bank		11,824			14,769		9,808
Junior subordinated debentures		3,696			5,275		4,741
Subordinated debt		707			—		—
Term note payable		2,643			1,184		—
Total interest expense		100,695			111,237		83,980
Net interest income		86,966			82,632		75,282
Provision for loan losses		71,765			4,891		12,050
Net interest income after provision for loan losses		15,201			77,741		63,232
Noninterest income
Service charges on deposit accounts		7,742			6,697		5,733
Net (losses) gains on securities transactions		(16,596	)		32		(153	)
Impairment loss on securities		(65,387	)
Net trading profits		—			—		624
(Loss) gains on sale of loans		(75	)		443		760
Insurance and brokerage commissions		2,024			2,287		1,990
Trust		1,623			1,857		919
Increase in cash surrender value of life insurance		3,509			3,063		2,394
Gain on sale of property		15,196			—		—
Gain on extinguishment of debt		—			—		1,250
Other		1,368			1,098		1,034
Total noninterest (loss) income		(50,596	)		15,477		14,551
Noninterest expense
Salaries and employee benefits		50,389			42,215		34,476
Occupancy and equipment		12,714			9,482		7,076
Professional services		8,590			5,470		4,971
Goodwill impairment		80,000			—		—
Loss on extinguishment of debt		7,121			—		—
Marketing		2,706			2,309		2,049
Foreclosed properties		332			34		311
Amortization of intangible assets		2,361			1,702		1,002
Merger related		271			1,312		1,595
Other		13,467			8,871		7,135
Total noninterest expense		177,951			71,395		58,615
(Loss) income before income taxes		(213,346	)		21,823		19,168
(Benefit) provision for income taxes		(55,073	)		3,246		1,422
Net (loss) income		(158,273	)		18,577		17,746
Preferred stock dividends		3,728			204		—
Net (loss) income available to common stockholders	$	(162,001	)	$	18,373	$	17,746
Basic (loss) earnings per share	$	(5.82	)	$	0.72	$	0.76
Diluted (loss) earnings per share	$	(5.82	)	$	0.72	$	0.75
Cash dividends declared per common share	$	0.26		$	0.52	$	0.51

See accompanying notes to consolidated financial statements

F-3

MIDWEST BANC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

										(Accumulated						Accumulated
					Additional					Deficit)						Other						Total
	Preferred		Common		Paid in					Retained			Restricted			Comprehensive			Treasury			Stockholders’
	Stock		Stock		Capital			Warrant		Earnings			Stock			Loss			Stock			Equity
	(In thousands, except share and per share data)
Balance, December 31, 2005	$	—	$	221	$	134,857		$	—	$	92,121		$	(3,013	)	$	(7,606	)	$	(454	)	$	216,126
Cash dividends declared ($0.51 per share)		—		—		—			—		(12,060	)		—			—			—			(12,060	)
Issuance of 2,865,933 shares of stock upon acquisition		—		29		63,738			—		—			—			—			—			63,767
Issuance of common stock upon exercise of 151,894 stock options, net of tax benefits		—		2		2,551			—		—			—			—			—			2,553
Purchase 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			—		—			—			—			—			2,547
Comprehensive income
Net income		—		—		—			—		17,746			—			—			—			17,746
Net increase in fair value of securities classified as available-for-sale, net of income taxes and reclassification adjustments		—		—		—			—		—			—			1,333			—			1,333
Total comprehensive income																							19,079
Balance, December 31, 2006		—		255		200,797			—		97,807			—			(6,273	)		(5,344	)		287,242
Cash dividends declared ($11.84 per share) on preferred stock		—		—		—			—		(204	)		—			—			—			(204	)
Cash dividends declared ($0.52 per share) on common stock		—		—		—			—		(13,418	)		—			—			—			(13,418	)
Issuance of 17,250 shares of preferred stock, net of issuance costs		—		—		41,441			—		—			—			—			—			41,441
Issuance of 3,680,725 shares of stock upon acquisition		—		37		54,953			—		—			—			—			—			54,990
Issuance of common stock upon exercise of 36,443 stock options, net of tax benefits		—		—		429			—		—			—			—			—			429
Purchase of 661,500 treasury shares		—		—		—			—		—			—			—			(9,392	)		(9,392	)
Issuance of 59,700 shares of restricted stock		—		1		(1	)		—		—			—			—			—			—
Stock-based compensation expense		—		—		3,143			—		—			—			—			—			3,143
Comprehensive income
Net income		—		—		—			—		18,577			—			—			—			18,577
Net decrease in fair value of securities classified as available-for-sale, net of income taxes and reclassification adjustments		—		—		—			—		—			—			(7,644	)		—			(7,644	)
Total comprehensive income																							10,933
Balance, December 31, 2007		—		293		300,762			—		102,762			—			(13,917	)		(14,736	)		375,164
Cash dividends declared ($193.75 per share) on preferred stock		—		—		—			—		(3,342	)		—			—			—			(3,342	)
Cash dividends declared ($0.26 per share) on common stock		—		—		—			—		(7,404	)		—			—			—			(7,404	)
Issuance of 84,784 shares of preferred stock		1		—		79,554			—		—			—			—			—			79,555
Issuance of warrant to purchase 4,282,020 shares of common stock		—		—		—			5,229		—			—			—			—			5,229
Issuance of common stock upon exercise of 16,500 stock options, net of tax benefits		—		—		178			—		—			—			—			—			178
Issuance of 24,168 shares of common stock to employee stock purchase plan		—		—		35			—		—			—			—			—			35
Issuance of 278,324 shares of restricted stock		—		3		(3	)		—		—			—			—			—			—
Accreted discount on preferred stock		—		—		68			—		(68	)		—			—			—			—
Stock-based compensation expense		—		—		2,897			—		—			—			—			—			2,897
Comprehensive income
Net loss		—		—		—			—		(158,273	)		—			—			—			(158,273	)
Prior service cost resulting from the application of SFAS No. 87, net of income taxes		—		—		—			—		—			—			(433	)		—			(433	)
Net decrease in the projected benefit obligation, net of income taxes		—		—		—			—		—			—			(240	)		—			(240	)
Net increase in fair value of securities classified as available-for-sale, net of income taxes and reclassification adjustments		—		—		—			—		—			—			12,468			—			12,468
Total comprehensive loss																							(146,478	)
Balance, December 31, 2008	$	1	$	296	$	383,491		$	5,229	$	(66,325	)	$	—		$	(2,122	)	$	(14,736	)	$	305,834

See accompanying notes to consolidated financial statements.

F-4

MIDWEST BANC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2008			2007			2006
	(In thousands)
Cash flows from operating activities
Net (loss) income	$	(158,273	)	$	18,577		$	17,746
Adjustments to reconcile net (loss) income to net cash provided by operating activities
Depreciation		4,206			3,288			2,546
Provision for loan losses		71,765			4,891			12,050
Amortization of other intangibles and purchase accounting adjustments		989			912			933
Goodwill impairment charge		80,000			—			—
Proceeds from sales of trading securities, net		—			—			624
Amortization of premiums and discounts on securities, net		630			819			832
Realized loss(gain) on sales of securities		16,596			(32	)		153
Impairment loss on securities		65,387			—			—
Net gain on sales of trading securities		—			—			(624	)
Net gain on sales of mortgage loans		—			(443	)		(760	)
Originations of loans held for sale		—			(40,800	)		(61,163	)
Proceeds from sales of loans held for sale		—			43,915			61,163
Loss on sale of loans		75			—			—
Gain on sale of property		(15,196	)		—			—
Loss of early extinguishment of debt		7,121			—			—
Increase in cash surrender value of life insurance		(3,509	)		(3,063	)		(2,394	)
Deferred income taxes		(43,757	)		(323	)		5,373
Loss on sale of other real estate, net		222			12			—
Amortization of unearned stock based compensation		2,897			3,085			2,501
Change in other assets		(12,122	)		7,602			(15,943	)
Change in other liabilities		(15	)		(14,569	)		10,978
Net cash provided by operating activities		17,016			23,871			34,015
Cash flows from investing activities
Sales of securities available-for-sale		108,770			189,495			101,730
Redemption of Federal Reserve Bank and Federal Home Loan Bank stock		1,000			499			1,427
Sales of securities held-to maturity		4,262			2,039			—
Maturities of securities available-for-sale		137,725			93,571			16,500
Principal payments on securities available-for-sale		50,875			69,254			77,164
Purchases of securities available-for-sale		(270,533	)		(428,468	)		(80,771	)
Purchases of Federal Reserve Bank and Federal Home Loan Bank stock		(4,974	)		(3,128	)		(8,931	)
Maturities of securities held-to-maturity		—			430			4,435
Principal payments on securities held-to-maturity		2,966			5,665			8,829
Purchase of mortgage loans		—			(5,776	)		(10,014	)
Proceeds from sale of mortgages		5,789			—			—
Loan originations and principal collections, net		(103,298	)		(85,378	)		(98,312	)
Proceeds from sale of branch property		18,259			—			4,403
Cash paid, net of cash and cash equivalents in acquisition		—			(71,658	)		(41,044	)
Proceeds from sale of other real estate		244			225			8,779
Investment in life insurance		—			—			(5,926	)
Additions to property and equipment		(3,889	)		(3,869	)		(5,178	)
Net cash used in investing activities		(52,804	)		(237,099	)		(26,909	)

F-5

MIDWEST BANC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)

	Year Ended December 31,
	2008			2007			2006
	(In thousands)
Cash flows from financing activities
Net (decrease) increase in deposits		(44,997	)		29,324			(32,218	)
Payments of junior subordinated debt owed to unconsolidated trusts		—			(15,000	)		—
Proceeds from borrowings		289,600			192,500			365,000
Repayments on borrowings		(234,075	)		(120,000	)		(200,000	)
Preferred cash dividends paid		(3,342	)		(204	)		—
Common cash dividends paid		(11,076	)		(13,004	)		(11,439	)
Change in federal funds purchased and securities sold under agreements to repurchase		(66,750	)		91,151			(95,729	)
Issuance of common stock to employee stock purchase plan		35			—			—
Issuance of preferred stock and warrant		84,784			41,441			—
Repurchase of common stock		—			(9,392	)		(4,770	)
Proceeds from issuance of treasury stock under stock option plan		175			379			1,983
Net cash provided by financing activities		14,354			197,195			22,827
(Decrease) increase in cash and cash equivalents		(21,434	)		(16,033	)		29,933
Cash and cash equivalents at beginning of year		84,499			100,532			70,599
Cash and cash equivalents at end of year	$	63,065		$	84,499		$	100,532
Supplemental disclosures
Cash paid during the year for:
Interest	$	103,436		$	109,483		$	80,191
Income taxes		2,700			10,100			2,811
Dividends declared not paid	$	—		$	3,672		$	3,258
Acquisition
Noncash assets acquired	$	—		$	624,270		$	619,835
Liabilities assumed		—			497,622		$	515,024
Net noncash assets acquired	$	—		$	126,648		$	104,811
Cash and cash equivalents acquired	$	—		$	10,066		$	24,363

See accompanying notes to consolidated financial statements.

F-6

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Nature of Operations

Midwest Banc Holdings, Inc. (the “Company”) is a bank holding company organized under the laws of the State of Delaware. Through its commercial bank and non-bank subsidiaries, the Company provides a full line of financial services to corporate and individual customers located in the greater Chicago metropolitan area. These services include demand, time, and savings deposits; lending; brokerage and insurance products; and trust services. While the Company’s management monitors the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. The Company operates in one business segment, community banking, providing a full range of services to individual and corporate customers. The following disclosures are all related to continuing operations. The Company acquired Northwest Suburban Bancorp., Inc. and Royal American Corporation effective October 1, 2007 and July 1, 2006, respectively. See Note 3 — Business Combinations for more details.

Note 2 — Summary of Significant Accounting Policies

Basis of Presentation:  The consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiary, Midwest Bank and Trust Company (the “Bank”). Included in the Bank are its wholly owned subsidiaries MBTC Investment Company, Midwest Funding, L.L.C., and Midwest Financial and Investment Services, Inc. (formerly known as Royal American Investment Services, Inc.). Significant intercompany balances and transactions have been eliminated.

Use of Estimates:  The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to change are the allowance for loan losses, income taxes, and the fair value of financial instruments.

Cash and Cash Equivalents:  Cash and cash equivalents include cash, deposits with other financial institutions under 90 days, and federal funds sold. The Bank is required to maintain reserve balances in cash or on deposit with the Federal Reserve Bank, based on a percentage of deposits. The total of those reserve balances was $3.0 million at December 31, 2008.

Securities:  Securities are classified as held-to-maturity when the Company has the ability and the positive intent to hold those securities to maturity. Accordingly, they are stated at cost adjusted for amortization of premiums and accretion of discounts. Securities are classified as available-for-sale when the Company may decide to sell those securities due to changes in market interest rates, liquidity needs, changes in yields or alternative investments, and for other reasons. They are carried at fair value with unrealized gains and losses, net of taxes, reported in other comprehensive income. Interest income is reported net of amortization of premium and accretion of discount. Realized gains and losses on disposition of securities available-for-sale are based on the net proceeds and the adjusted carrying amounts of the securities sold, using the specific identification method. Trading securities are carried at fair value. Realized and unrealized gains and losses on trading securities are recognized in the statement of income as they occur. No trading securities were held at December 31, 2008 or 2007. Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary, if any, are reflected in earnings as realized losses. In estimating other-than-temporary losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Loans:  Loans are reported net of the allowance for loan losses and deferred fees. Impaired loans are carried at the present value of expected future cash flows or the fair value of the related collateral, if the loan is considered to be collateral dependent. Interest on loans is included in interest income over the term of the loan based upon the

F-7

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

principal balance outstanding. The accrual of interest on loans is discontinued at the time the loan becomes 90 days past due unless the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not collected for loans that are placed on nonaccrual is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Deferred Loan Fees and Costs:  Loan origination fees and origination costs are deferred and amortized over the life of the loan as an adjustment to yield.

Allowance for Loan Losses:  The allowance for loan losses represents management’s estimate of probable credit losses inherent in the loan portfolio. Estimating the amount of the allowance for loan losses requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows and collateral values on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. Loan losses are charged off against the allowance, while recoveries of amounts previously charged off are credited to the allowance. A provision for loan losses is charged to operations based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors.

The Company’s methodology for determining the allowance for loan losses represents an estimation pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 5, “Accounting for Contingencies,” and SFAS No. 114, “Accounting by Creditors for Impairment of a Loan.” The allowance reflects expected losses resulting from analyses developed through specific credit allocations for individual loans and historical loss experience for each loan category. The specific credit allocations are based on regular analyses of all loans over $300,000 where the internal credit rating is at or below a predetermined classification. These analyses involve a high degree of judgment in estimating the amount of loss associated with specific loans, including estimating the amount and timing of future cash flows and collateral values. The allowance for loan losses also includes consideration of concentrations and changes in portfolio mix and volume, and other qualitative factors. In addition, regulatory agencies, as an integral part of their examinations, may require the Company to make additions to the allowance based on their judgment about information available to them at the time of their examinations.

There are many factors affecting the allowance for loan losses; some are quantitative while others require qualitative judgment. The process for determining the allowance includes subjective elements and, therefore, may be susceptible to significant change. To the extent actual outcomes differ from management estimates, additional provision for loan losses could be required that could adversely affect earnings or financial position in future periods.

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

Cash Surrender Value of Life Insurance:  The Company has purchased life insurance policies on certain executive and other officers. Life insurance is recorded at its cash surrender value or the amount that can be realized.

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

F-8

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Foreclosed Properties:  Real estate acquired in settlement of loans is recorded at fair value when acquired, establishing a new cost basis. Expenditures that increase the fair value of properties are capitalized as an adjustment to the cost basis. If fair value declines below the cost basis, a valuation allowance is recorded through expense.

Core Deposit and Other Intangibles:  Other intangible assets consist of core deposit and acquired customer relationship intangible assets arising from whole bank, branch, and non-bank acquisitions. They are initially measured at fair value and then are amortized on an accelerated method over their estimated useful lives.

Goodwill:  Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired net tangible assets and identifiable intangible assets. Goodwill is not amortized but assessed at least annually, at September 30, for impairment, and any such impairment is recognized in the period it is identified.

Income Taxes:  Deferred tax assets and liabilities are recognized for temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. Deferred taxes are recognized for the estimated taxes ultimately payable or recoverable based on enacted tax laws. Changes in enacted tax rates and laws are reflected in the financial statements in the periods they occur. Deferred tax assets are reduced by a valuation allowance when, in the judgment of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Securities Sold Under Agreements to Repurchase:  All securities sold under agreements to repurchase represent amounts advanced by various primary dealers. Securities are pledged to secure these liabilities.

Transfers of Financial Assets:  Transfers of financial assets are accounted for as sales only when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Fair Value of Financial Instruments and Derivatives:  Fair values of financial instruments, including derivatives, are estimated using relevant market information and other assumptions. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. There is no readily available market for a significant portion of the Company’s financial instruments. Accordingly, fair values are based on various factors relative to expected loss experience, current economic conditions, risk characteristics, and other factors. The assumptions and estimates used in the fair value determination process are subjective in nature and involve uncertainties and significant judgment. As a consequence, fair values cannot be determined with precision. Changes in assumptions or in market conditions could significantly affect these estimates.

Stock Compensation:  Employee compensation cost relating to share-based payment transactions, including grants of employee stock options and restricted stock awards, are measured at fair value and recognized in the financial statements as prescribed by SFAS No. 123(R), “Share-Based Payment.” The Company adopted SFAS No. 123(R) in 2006 using the modified prospective method. Employee compensation expense for stock options and restricted stock granted is recorded in the consolidated income statement based on the grant’s vesting schedule. Forfeitures of stock options and restricted stock grants are estimated for those grants where the requisite service is not expected to be rendered. The grant-date fair value for each stock options grant is calculated using the Black-Scholes option pricing model.

Comprehensive Income:  Comprehensive income includes both net income and other comprehensive income elements, including the change in unrealized gains and losses on securities available-for-sale as well as the prior service cost and unrealized gains and losses related to the projected benefit obligation of the Supplemental Executive Retirement plan, net of tax.

F-9

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Earnings Per Common Share:  Basic earnings per common share is net income available to common stockholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock options, the warrant, and restricted stock awards as well as under the “if converted” method for the noncumulative redeemable convertible perpetual preferred stock. Earnings and dividends per share are restated for all stock splits and dividends through the date of issue of the financial statements.

Dividend Restriction:  Banking regulations require the Company and the Bank to maintain certain capital levels and may limit the dividends paid by the Bank to the Company or by the Company to stockholders. The Company will only be able to pay dividends with the approval of the U.S. Treasury Department.

Reclassifications:  Certain items in the prior year financial statements were reclassified to conform to the current year’s presentation. Such reclassifications had no effect on net income.

Accounting Pronouncements:

In June 2006, the FASB released FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting and reporting for uncertainties in the application of income tax laws, providing a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of income tax positions taken or expected to be taken in income tax returns. The Company’s adoption of FIN 48 on January 1, 2007 did not have a material impact on the Company’s consolidated financial position and results of operations. See Note 22 — Income Taxes for more details.

In September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” to provide guidance in the process of quantifying financial statement misstatements. SAB No. 108 requires registrants to quantify an error under two methods: (1) quantify the misstatement based on the amount of the error originating in the current-year income statement (“Rollover Approach”) and (2) quantify the misstatement based on the effects of correcting the misstatement existing in the balance sheet at the end of the current-year irrespective of the misstatement’s year(s) origination (“Iron Curtain Approach”). Consequently, a registrant’s financial statements would require adjustment when either approach results in quantifying a misstatement that is material, after considering all relevant quantitative and qualitative factors. SAB No. 108 was effective for financial statements issued for fiscal years ending after November 15, 2006. The application of SAB No. 108 as of January 1, 2007 did not have any impact on the Company’s results of operations or financial position.

The Company adopted SFAS No. 157, “Fair Value Measurements,” on January 1, 2008, which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS No. 157 applies to other accounting pronouncements that require or permit fair value measurements where the FASB had previously concluded in those pronouncements that fair value is the relevant measurement attribute. Accordingly, SFAS No. 157 does not require any new financial assets or liabilities to be measured at fair value. In February 2008, FASB issued FASB Staff Position (“FSP”) No. FAS 157-2, “Effective Date of FASB Statement No. 157.” This FSP delays the effective dates of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008. In October 2008, the FASB issued Staff Position 157-3, “Determining the Fair Value of a Financial Asset in a Market That Is Not Active” (“FSP No. 157-3”), which clarifies the application of SFAS No. 157 in an inactive market and provides an illustrative example to demonstrate how the fair value of a financial asset is to be determined when the market for that financial asset is not active. FSP No. 157-3 became effective for the Company’s interim financial statements as of September 30, 2008 and did not significantly impact the methods by which the Company determines the fair values of its financial assets. The adoption of SFAS No. 157 did not have a material effect on the Company’s results of operations or consolidated financial position. See Note 17 — Fair Value for more information.

F-10

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In December 2007, FASB issued SFAS No. 141(R), “Business Combinations,” which replaces the current standard on business combinations, modifies the accounting for business combinations and requires, with limited exceptions, the acquirer in a business combination to recognize all of the assets acquired, liabilities assumed, and any noncontrolling interests in the acquiree at the acquisition-date, at fair value. SFAS No. 141(R) also requires certain contingent assets and liabilities acquired as well as contingent consideration to be recognized at fair value. In addition, the statement requires payments to third parties for consulting, legal, audit, and similar services associated with an acquisition to be recognized as expenses when incurred rather than capitalized as part of the cost of the acquisition. SFAS No. 141(R) is effective for fiscal years beginning on or after December 15, 2008 and early adoption is not permitted.

In June 2008, the FASB ratified the consensus reached by the Emerging Issues Task Force (“EITF”) on Issue No. 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF No. 07-5”). EITF No. 07-5 provides guidance for determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock. EITF No. 07-5 applies to any freestanding financial instrument or embedded feature that has all of the characteristics of a derivative or freestanding instrument that is potentially settled in an entity’s own stock (with the exception of share-based payment awards within the scope of SFAS 123(R)). To meet the definition of “indexed to own stock,” an instrument’s contingent exercise provisions must not be based on (a) an observable market, other than the market for the issuer’s stock (if applicable), or (b) an observable index, other than an index calculated or measured solely by reference to the issuer’s own operations, and the variables that could affect the settlement amount must be inputs to the fair value of a “fixed-for-fixed” forward or option on equity shares. EITF No. 07-5 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company does not anticipate a material effect on its results of operations or consolidated financial position from adopting EITF No. 07-5.

In December 2008, the FASB issued FASB Staff Position FAS 140-4 and FIN 46(R)-8, “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities” (“FSP No. FAS 140-4 and FIN 46(R)-8”). FSP No. FAS 140-4 and FIN 46(R)-8 amends SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities” and FIN No. 46, “Consolidation of Variable Interest Entities,” requiring additional disclosures about transfers of financial assets and the involvement with variable interest entities. These additional disclosures are intended to provide greater transparency about a transferor’s continuing involvement with transferred assets and variable interest entities. FSP No. FAS 140-4 and FIN 46(R)-8 is effective for fiscal years ending after December 15, 2008. The adoption of FSP No. FAS 140-4 and FIN 46(R)-8 did not have a material effect on the Company’s results of operations or consolidated financial position.

Note 3 — Business Combinations

Northwest Suburban Bancorp, Inc.

On October 1, 2007, the Company acquired Northwest Suburban Bancorp, Inc. (“Northwest Suburban”), in a cash and stock merger transaction. The agreement and plan of merger provided that the Company’s stock comprise up to 45% of the purchase price, at an exchange ratio of 2.4551 shares of Company common stock for each Northwest Suburban common share, and that the remainder be paid in cash at the rate of $42.75 for each share of Northwest Suburban common stock. The Company issued 3.7 million shares of common stock, paid $81.2 million in cash, and incurred $414,000 in acquisition costs which were capitalized for a total purchase price of $136.7 million at the closing on October 1, 2007. The Company used the proceeds from a $75.0 million term note it has under a borrowing facility with a correspondent bank to pay for a portion of the cash requirement of the acquisition. Northwest Suburban was merged into the Company, thus canceling 100% of Northwest Suburban’s voting shares outstanding.

The acquisition of Northwest Suburban constituted a business combination under SFAS No. 141, “Business Combinations,” and was accounted for using the purchase method. Accordingly, the purchase price was allocated to the respective assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition.

F-11

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The excess of purchase price over the fair value of net assets acquired was recorded as goodwill, which is not deductible for tax purposes. The purchase price allocation was finalized in the third quarter of 2008. The results of operations of Northwest Suburban have been included in the Company’s results of operations since October 1, 2007, the date of acquisition.

The following are the adjustments made to record the transaction and to adjust Northwest Suburban’s assets and liabilities to their estimated fair values at acquisition.

	(In thousands)
Purchase price of Northwest Suburban:
Market value of the Company’s stock issued	$	55,137
Cash paid		81,163
Total consideration		136,300
Capitalized costs		414
Total cost	$	136,714
Historical net assets of Northwest Suburban	$	52,388
Fair market value adjustments:
Securities available-for-sale		(323	)
Loans		(970	)
Goodwill		80,550
Core deposit intangible		8,061
Premises and equipment		1,726
Deposits		(2,140	)
Severance		(88	)
Deferred taxes on purchase accounting adjustment		(2,490	)
Total adjustments to record the transaction	$	136,714

F-12

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following are the assets acquired and liabilities assumed from Northwest Suburban at October 1, 2007, including the adjustments made to record the transaction and to adjust the assets and liabilities to their estimated fair values.

			Fair Market
	Northwest		Value			As
	Suburban		Adjustment			Adjusted
	(In thousands)
Assets acquired:
Cash and cash equivalents	$	10,066	$	—		$	10,066
Securities available-for-sale		57,920		(323	)		57,597
Federal Reserve Bank and Federal Home Loan Bank stock		1,503		—			1,503
Loans, net		437,452		(970	)		436,482
Cash value of life insurance		12,884		—			12,884
Premises and equipment, net		17,553		1,726			19,279
Core deposit intangible, net		—		8,061			8,061
Goodwill		—		80,550			80,550
Other assets		7,914		—			7,914
Total assets acquired		545,292		89,044			634,336
Liabilities assumed:
Deposits		468,520		2,140			470,660
Federal funds purchased		6,170		—			6,170
Advances from the Federal Home Loan Bank		3,500		—			3,500
Junior subordinated debentures		10,310		—			10,310
Other liabilities (including severance)		4,404		2,578			6,982
Total liabilities assumed		492,904		4,718			497,622
Assets acquired less liabilities assumed	$	52,388	$	84,326		$	136,714

Royal American Corporation

Effective July 1, 2006, the Company acquired Royal American Corporation (“Royal American”), a bank holding company, in a cash and stock merger transaction. At acquisition, Royal American had total assets of $561.2 million. The Company’s stock comprised approximately 50% of the purchase price, at an exchange ratio of 3.58429 shares of Company common stock for each Royal American common share, and the remainder was paid in cash at the rate of $80 for each share of Royal American common stock. The Company issued 2.9 million common shares, paid $64.6 million in cash, and incurred $795,000 in costs which were capitalized for a total purchase price of $129.2 million. Royal American was merged into the Company, thus canceling 100% of Royal American’s voting shares outstanding.

The acquisition of Royal American constituted a business combination under SFAS No. 141, “Business Combinations,” and was accounted for using the purchase method. Accordingly, the purchase price was allocated to the respective assets acquired and liabilities assumed, based on their estimated fair values on the date of acquisition. The excess of purchase price over the fair value of net assets acquired was recorded as goodwill, which is not deductible for tax purposes. The purchase price allocation was finalized in the first quarter of 2007. The results of operations of Royal American have been included in the Company’s results of operations since July 1, 2006, the date of acquisition.

F-13

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following are the adjustments made to record the transaction and to adjust Royal American’s assets and liabilities to their estimated fair values at July 1, 2006.

	(In thousands)
Purchase price of Royal American:
Market value of the Company’s stock issued	$	63,767
Cash paid		64,612
Total consideration		128,379
Capitalized costs		795
Total cost	$	129,174
Historical net assets of Royal American	$	44,606
Fair market value adjustments:
Loans		(2,837	)
Goodwill		78,597
Core deposit intangible		10,488
Premises and equipment		41
Deposits		1,867
Federal Home Loan Bank Advance		146
Junior subordinated debenture		204
Deferred taxes on purchase accounting adjustment		(3,938	)
Total adjustments to record the transaction	$	129,174

F-14

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following are the assets acquired and liabilities assumed from Royal American at July 1, 2006, including the adjustments made to record the transaction and to adjust the assets and liabilities to their estimated fair values.

			Fair Market
	Royal		Value			As
	American		Adjustment			Adjusted
	(In thousands)
Assets acquired:
Cash and cash equivalents	$	24,363	$	—		$	24,363
Securities available-for-sale		16,487		—			16,487
Federal Reserve Bank and Federal Home Loan Bank stock		1,427		—			1,427
Loans, net		497,376		(2,837	)		494,539
Cash value of life insurance		12,467		—			12,467
Premises and equipment, net		1,254		41			1,295
Core deposit intangible, net		—		10,488			10,488
Goodwill		—		78,597			78,597
Other assets		4,535		—			4,535
Total assets acquired		557,909		86,289			644,198
Liabilities assumed:
Deposits		467,878		(1,867	)		466,011
Federal funds purchased		30,000		—			30,000
Advances from the Federal Home Loan Bank		5,000		(146	)		4,854
Junior subordinated debentures		10,310		(204	)		10,106
Other liabilities		115		3,938			4,053
Total liabilities assumed		513,303		1,721			515,024
Assets acquired less liabilities assumed	$	44,606	$	84,568		$	129,174

The following are the unaudited pro forma consolidated results of operations of the Company for the years ended December 31, 2007 and 2006 as though Northwest Suburban and Royal American had been acquired as of January 1, 2006.

	2007		2006
	(In thousands, except per share data)
Net interest income	$	96,429	$	106,061
Net income		16,983		20,386
Basic earnings per share		0.60		0.72
Diluted earnings per share		0.60		0.71

Included in the pro forma results of operations for the years ended December 31, 2007 and 2006 were merger-related expenses, primarily change-in-control and severance payments, investment banker, legal and audit fees, net of tax of $4.3 million and $6.8 million, respectively.

F-15

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 4 — Securities

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

	December 31, 2008
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
	(In thousands)
Securities available-for-sale
Obligations of U.S. Treasury and U.S. government-sponsored entities(1)	$	263,483	$	1,952	$	—		$	265,435
Obligations of states and political subdivisions		57,309		241		(886	)		56,664
Mortgage-backed securities(1)(2)		281,592		3,363		(1,276	)		283,679
Equity securities(3)		2,749		—		(1,819	)		930
Corporate and other debt securities		19,176		—		(3,935	)		15,241
Total securities available-for-sale	$	624,309	$	5,556	$	(7,916	)	$	621,949
Securities held-to-maturity
Obligations of states and political subdivisions	$	1,251	$	12	$	—		$	1,263
Mortgage-backed securities(1)(2)		29,016		138		(30	)		29,124
Total securities held-to-maturity	$	30,267	$	150	$	(30	)	$	30,387

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

	December 31, 2007
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
	(In thousands)
Securities available-for-sale
Obligations of U.S. government-sponsored entities(1)	$	181,983	$	1,630	$	—		$	183,613
Obligations of states and political subdivisions		60,985		550		(135	)		61,400
Mortgage-backed securities(1)(2)		383,633		58		(4,651	)		379,040
Equity securities(3)		85,139		—		(19,160	)		65,979
Corporate and other debt securities		22,095		—		(1,246	)		20,849
Total securities available-for-sale	$	733,835	$	2,238	$	(25,192	)	$	710,881
Securities held-to-maturity
Obligations of states and political subdivisions	$	1,254	$	14	$	—		$	1,268
Mortgage-backed securities(1)(2)		36,347		8		(711	)		35,644
Total securities held-to-maturity	$	37,601	$	22	$	(711	)	$	36,912

(1) Includes obligations of the FHLMC and FNMA.

F-16

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(2)	Includes obligations of the GNMA.
(3)	Includes issues from government-sponsored entities (FNMA and FHLMC).

The following is a summary of the fair value of securities held-to-maturity and available-for-sale with unrealized losses and the time period of those unrealized losses:

	December 31, 2008
	Less Than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
	(In thousands)
Securities available-for-sale
Obligations of states and political subdivisions	$	34,293	$	(886	)	$	—	$	—		$	34,293	$	(886	)
Mortgage-backed securities
U.S. government-sponsored entities(1)		60,117		(198	)		39,778		(1,078	)		99,895		(1,276	)
Equity securities(2)		899		(1,819	)		—		—			899		(1,819	)
Corporate and other debt securities		3,746		(287	)		11,495		(3,648	)		15,241		(3,935	)
Total securities available-for-sale		99,055		(3,190	)		51,273		(4,726	)		150,328		(7,916	)
Securities held-to-maturity
Obligations of states and political subdivisions		250		—			—		—			250		—
Mortgage-backed securities
U.S. government-sponsored entities(1)		—		—			20,521		(30	)		20,521		(30	)
Total securities held-to-maturity		250		—			20,521		(30	)		20,771		(30	)
Total temporarily impaired securities	$	99,305	$	(3,190	)	$	71,794	$	(4,756	)	$	171,099	$	(7,946	)

(1)	Includes obligations of the FHLMC and FNMA.
(2)	Includes issues from government-sponsored entities (FNMA and FHLMC).

F-17

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	December 31, 2007
	Less Than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
	(In thousands)
Securities available-for-sale
Obligations of states and political subdivisions	$	5,121	$	(35	)	$	9,900	$	(100	)	$	15,021	$	(135	)
Mortgage-backed securities
U.S. government-sponsored entities(1)		39,127		(182	)		331,054		(4,469	)		370,181		(4,651	)
Equity securities(2)		65,979		(19,160	)		—		—			65,979		(19,160	)
Corporate and other debt securities		10,479		(603	)		10,370		(643	)		20,849		(1,246	)
Total securities available-for-sale		120,706		(19,980	)		351,324		(5,212	)		472,030		(25,192	)
Securities held-to-maturity
Mortgage-backed securities
U.S. government agencies(3)		—		—			8,105		(54	)		8,105		(54	)
U.S. government-sponsored entities(1)		—		—			26,394		(657	)		26,394		(657	)
Total securities held-to-maturity		—		—			34,499		(711	)		34,499		(711	)
Total temporarily impaired securities	$	120,706	$	(19,980	)	$	385,823	$	(5,923	)	$	506,529	$	(25,903	)

(1)	Includes obligations of the FHLMC and FNMA.
(2)	Includes issues from government-sponsored entities (FNMA and FHLMC).
(3)	Includes obligations of the GNMA.

The unrealized loss on available-for-sale securities is included, net of tax, in other comprehensive loss on the consolidated balance sheets. Management does not believe any individual unrealized loss as of December 31, 2008, identified in the preceding table, represents other-than-temporary impairment. These unrealized losses are primarily attributable to the current credit environment and turmoil in the market for securities related to the housing industry. The Company has both the intent and ability to hold each of the securities shown in the table for the time necessary to recover its amortized cost.

•  The unrealized loss for U.S. government-sponsored entities’ mortgage-backed securities relate primarily to debt securities issued by FNMA and FHLMC. Each of these securities has a stated maturity date. FNMA has an issuer rating of Aaa by Moody’s and a long-term issuer default rating of AAA by Fitch. FHLMC has senior secured and unsecured debt ratings of Aaa by Moody’s and a long-term issuer default rating of AAA by Fitch. These mortgage-backed securities are notes with a weighted average maturity of approximately 26 years and a weighted average interest rate of 4.06%.

•  The unrealized losses on corporate and other debt securities relate to securities which were rated A- or better by either Moody’s or S&P as of December 31, 2008. These debt securities have a weighted average maturity of approximately 19 years and a weighted average interest rate of 3.35%.

F-18

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company recognized an other-than-temporary impairment charge of $17.6 million at March 31, 2008 on certain FNMA and FHLMC preferred equity securities with a cost basis of $85.1 million. In September 2008, the Company sold $16.9 million of the remaining $67.5 million recognizing a $16.7 million loss. The Company recognized an additional other-than-temporary impairment charge of $47.8 million at September 30, 2008 on the remaining securities and thereby reduced the amortized cost to their fair value of $2.7 million. Management believes this impairment was primarily attributable to economic conditions at that time, FNMA and FHLMC being placed into the Federal Housing Finance Agency’s conservatorship and the discontinued dividend payments. Since recovery did not appear likely in the near future, the Company recognized the impairment losses.

Securities with an approximate carrying value of $623.7 million and $600.2 million at December 31, 2008 and 2007 were pledged to secure public deposits, borrowings, and for other purposes as required or permitted by law. Included in securities pledged at December 31, 2008 and 2007 are $113.5 million and $183.9 million, respectively, which have been pledged for FHLB borrowings.

The amortized cost and fair value of securities by contractual maturity at December 31, 2008 are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized
	Cost		Fair Value
	(In thousands)
Securities available-for-sale
Due in one year or less	$	8,243	$	8,369
Due after one year through five years		63,791		64,497
Due after five years through ten years		244,611		244,228
Due after ten years		23,323		20,246
		339,968		337,340
Mortgage-backed securities		281,592		283,679
Total debt securities		621,560		621,019
Equity securities		2,749		930
Total securities available-for-sale	$	624,309	$	621,949
Securities held-to-maturity
Due in one year or less	$	—	$	—
Due after one year through five years		451		455
Due after five years through ten years		800		808
		1,251		1,263
Mortgage-backed securities		29,016		29,124
Total securities held-to-maturity	$	30,267	$	30,387

F-19

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

	Year Ended December 31,
	2008			2007			2006
	(In thousands)
Proceeds from sales	$	108,770		$	189,495		$	101,730
Gross realized gains	$	325		$	893		$	341
Gross realized losses		(17,111	)		(831	)		(494	)
Net gains (losses) on securities transactions	$	(16,786	)	$	62		$	(153	)

As permitted under SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” certain securities held-to-maturity, where a substantial portion of their principal outstanding was collected and had a carrying value of $4.3 million were sold in 2008 at a gain of $151,000 and securities held-to-maturity with a carrying value of $2.1 million were sold in 2007 at a loss of $30,000. These securities had paid down to less than 15% of their original face value.

Note 5 — Loans

Major classifications of loans are summarized as follows:

	December 31,
	2008						2007(1)
				% of Gross						% of Gross
	Amount			Loans			Amount			Loans
	(Dollars in thousands)
Commercial	$	1,090,078			43.3	%	$	1,079,631			43.6	%
Construction		366,178			14.6			464,583			18.8
Commercial real estate		729,729			29.1			627,928			25.4
Home equity		194,673			7.8			142,158			5.8
Other consumer		6,332			0.3			10,689			0.4
Residential mortgage		123,161			4.9			149,703			6.0
Total loans, gross		2,510,151			100.0	%		2,474,692			100.0	%
Net deferred fees		(392	)					(365	)
Total loans,net	$	2,509,759					$	2,474,327

(1) Amounts have been reclassified to conform to current period presentation.

During the fourth quarter of 2007, the Company revised its classification of commercial loans and commercial real estate loans, changing its prior practice of classifying as commercial real estate loans all loans to businesses that included real estate as collateral (“collateral-based” classification). The classification of construction, home equity, and residential mortgages were also reviewed. The new method of presentation (“source of repayment” classification) recognizes that loans to owner-occupied businesses engaged in manufacturing, sales and/or services are commercial loans regardless of whether real estate is taken as collateral. These loans generally have a lower risk profile than traditional commercial real estate loans. They are primarily dependent on the borrower’s business-generated cash flows for repayment, not on the conversion of real estate that may be pledged as collateral. Loans related to rental income producing properties and properties intended to be sold will continue to be classified as commercial real estate loans. Completing this change in methodology involved a loan-by-loan review of the Company’s commercial and commercial real estate loans.

F-20

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company reclassified $5.0 million and $1.9 million in overdraft deposits to loans as of December 31, 2008 and 2007, respectively.

Statement of Position 03-3, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer” (“SOP 03-3”) addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor’s initial investment in loans or debt securities acquired in a transfer if those differences are attributable, at least in part, to credit quality. It includes loans acquired in purchase business combinations and applies to all nongovernmental entities. SOP 03-3 does not apply to loans originated by the Company. The Company’s assessment of loans acquired in the acquisition of Northwest Suburban as of October 1, 2007 identified $5.9 million in acquired loans to which the application of the provisions of SOP 03-3 was required. As a result of the application of SOP 03-3, the Company recorded purchase accounting adjustments reflecting a reduction in loans of $2.0 million related to acquired impaired loans, thus reducing the carrying value of these loans to $3.9 million as of December 31, 2007. The carrying value of these loans was $778,000 as of December 31, 2008, and there continues to be no allowance for loan losses regarding these loans. The Company does not consider prepayments in the determination of contractual or expected cash flows.

The following is the carrying value by source of repayment category for loans subject to SOP 03-3:

	December 31,		December 31,
	2008		2007
	(In thousands)
Commercial	$	531	$	726
Construction		—		211
Commercial real estate		—		2,736
Residential mortgage		247		260
Total carrying value	$	778	$	3,933

The following is a summary of changes in the accretable yield for the year ended December 31, 2008 and 2007:

	2008			2007
	(In thousands)
Balance at beginning of period	$	249		$	—
Additions		—			393
Accretion		(216	)		(144	)
Balance at end of period	$	33		$	249

The full contractual payment was received on a loan originally accounted for under SOP 03-3, and goodwill was reduced in second quarter of 2008 by the remaining fair value adjustment of that loan.

Note 6 — Related Party Transactions

Certain executive officers, directors, and their related interests are loan customers of the Bank. These loans were made under comparable terms as for non-related parties and were determined to be arms-length transactions. A summary of loans made by the Bank to or for the benefit of directors, executive officers, and their related interests is as follows:

	(In thousands)
Balance at December 31, 2007	$	40,984
New loans		12,213
Repayments		(5,822	)
Balance at December 31, 2008	$	47,375

F-21

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 7 — Allowance for Loan Losses

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

	Year Ended December 31,
	2008			2007
	(In thousands)
Balance at beginning of year	$	26,748		$	23,229
Addition resulting from acquisition		—			2,767
Provision for loan losses		71,765			4,891
Loans charged off		(55,849	)		(5,975	)
Recoveries on loans previously charged off		1,768			1,836
Net loans charged off		(54,081	)		(4,139	)
Balance at end of year	$	44,432		$	26,748

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

	Year Ended December 31,
	2008		2007
	(In thousands)
Impaired loans for which no allowance for loan losses is allocated	$	21,784	$	15,490
Impaired loans with an allocation of the allowance for loan losses		43,180		43,652
Total impaired loans	$	64,964	$	59,142
Allowance for loan losses allocated to impaired loans	$	4,546	$	14,029

	Year Ended December 31,
	2008		2007
	(In thousands)
Average impaired loans	$	57,058	$	54,956
Interest income recognized on impaired loans on a cash basis		836		1,432

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

Nonaccrual loans were $61.1 million and $49.2 million as of December 31, 2008 and 2007, respectively. There were no loans past due 90 days but still accruing as of December 31, 2008 and 2007. There was $11.0 million in troubled-debt restructured loans as of December 31, 2008 and none as of December 31, 2007. In order to improve the collectibility of the troubled-debt restructuring, the Company restructured the terms of the debt by lifting the forebearance agreement and lowering the interest rates including changing them from fixed to floating rates. No additional commitments were outstanding on the troubled-debt restructured loans as of December 31, 2008. These troubled-debt restructured loans were still accruing and no allowance was allocated at December 31, 2008.

F-22

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 8 — Premises and Equipment

Premises and equipment are summarized as follows:

	December 31,
	2008			2007
	(In thousands)
Land and improvements	$	14,456		$	15,609
Buildings and improvements		33,992			35,686
Furniture and equipment		28,696			26,509
Total cost		77,144			77,804
Accumulated depreciation		(38,831	)		(35,983	)
Premises and equipment, net	$	38,313		$	41,821

On March 28, 2008, the Company sold two pieces of real property for $18.4 million creating a pre-tax gain of $15.2 million. The properties (a building with a parking lot and a second parking lot) are located in the Bucktown area of Chicago at 1601 North Milwaukee Avenue and 1617-1622 North Damen Avenue. The Company will continue to operate its existing Milwaukee Avenue branch in Bucktown through a continuing occupancy arrangement with the buyer after which it expects to relocate to a new branch in close proximity to the existing branch location in the second quarter of 2009. The Company pays $75,000 per month to rent the Milwaukee Avenue space and has vacated the Damen Avenue parking lot. The Company is responsible for one-half of the real estate taxes and the premiums for casualty and liability insurance on the Milwaukee Avenue property during the occupancy period.

Note 9 — Goodwill and Core Deposit Intangibles

The following table presents the carrying amount and accumulated amortization of intangible assets (in thousands):

	December 31, 2008							December 31, 2007
	Gross							Gross					Net
	Carrying		Accumulated			Net Carrying		Carrying		Accumulated			Carrying
	Amount		Amortization			Amount		Amount		Amortization			Amount
Amortizing intangible assets:
Core deposit intangibles	$	21,091	$	(6,408	)	$	14,683	$	21,091	$	(4,047	)	$	17,044

The amortization of intangible assets was $2.4 million for the year ended December 31, 2008. At December 31, 2008, the projected amortization of intangible assets is $2.3 million, $2.2 million, $1.9 million, $1.8 million, $1.7 million for the years ending December 31, 2009, 2010, 2011, 2012, 2013, respectively, and $4.8 million in total for the subsequent years. The weighted average amortization period for the core deposit intangibles is approximately eight years as of December 31, 2008.

F-23

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table presents the changes in the carrying amount of goodwill and other intangibles during the years ended December 31, 2008 and 2007 (in thousands):

	2008						2007
				Core Deposit					Core Deposit
				and Other					and Other
	Goodwill			Intangibles			Goodwill		Intangibles
Balance at beginning of year	$	160,407		$	17,044		$	79,488	$	11,273
Addition resulting from acquisition		—			—			80,550		8,061
Impairment		(80,000	)		—			—		—
Amortization		—			(2,361	)		—		(1,702	)
Purchase price adjustment(1)		(1,545	)		—			369		—
Core deposit intangible retired(1)		—			—			—		(588	)
Balance at end of year	$	78,862		$	14,683		$	160,407	$	17,044

(1) On January 3, 2003, the Company purchased Big Foot Financial Corp. As a result of this acquisition, the Company had unrecognized tax benefits related to employee severance payments and acquisition costs. These unrecognized tax benefits were recognized in the first quarter of 2007, when the statute of limitations for Internal Revenue Service (“IRS”) audit of the final short period return closed. These unrecognized tax benefits, totaling $429,000, were credited to the core deposit intangible created as a result of the acquisition. A reversal of $283,000 in tax liability established on the date of acquisition was also credited to the core deposit intangible in the first quarter of 2007. During the third quarter of 2007, the core deposit intangible was increased by $124,000 due to an adjustment related the estimated tax liability established on the date of acquisition. Goodwill was reduced in the second quarter of 2008 by the remaining fair value adjustment of a loan accounted for under SOP 03-3 for which full contractual payment was received. Goodwill was also adjusted in the third quarter of 2008 for the final purchase price allocation for the Northwest Suburban acquisition.

Goodwill is not amortized but assessed at least annually for impairment, and any impairment recognized in the period it is identified. As of September 30, 2008, based upon the guidelines contained in SFAS No. 142, “Goodwill and Other Intangible Assets,” it was determined that the fair value of the Company’s assets and liabilities was lower than amounts recorded in the Company’s financial statements. Accordingly, the Company recognized a goodwill impairment charge of $80.0 million. Management believes this impairment was primarily attributable to the weakened economic conditions at that time as well as lower market valuations for banking institutions. The method for estimating the value of the Company included a weighted average of the discounted cash flows method, the guideline company method, and the guideline transaction methods. The Company cannot assure that it will not be required to take goodwill impairment charges in the future.

Note 10 — Time Deposits

Interest-bearing time deposits in denominations of $100,000 and greater were $874.6 million as of December 31, 2008 and $856.6 million as of December 31, 2007. Interest expense related to deposits in denominations of $100,000 and greater was $33.9 million for 2008, $33.8 million for 2007, and $20.5 million for 2006.

F-24

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Certificates of deposit have scheduled maturities for the years 2009 through 2013 and thereafter as follows:

	(In thousands)
2009	$	1,406,407
2010		104,617
2011		38,751
2012		13,742
2013		959
Thereafter		11
	$	1,564,487

Note 11 — Securities Sold Under Agreements to Repurchase

The Company has repurchase agreements with brokerage firms, which are in possession of the underlying securities. The same securities are returned to the Company at the maturity of the agreements. The following summarizes certain information relative to these borrowings:

	2008			2007
	(In thousands)
Outstanding at end of year	$	297,650		$	283,400
Weighted average interest rate at year end		4.29	%		4.21	%
Maximum amount outstanding as of any month end	$	394,764		$	317,118
Average amount outstanding		311,346			268,639
Approximate weighted average rate during the year		4.26	%		4.21	%

At December 31, 2008, securities sold under agreements to repurchase are summarized below:

						Collateral
						U.S. Government-Sponsored
						Entities Obligations and
						Mortgage-Backed
						Securities
	Repurchase		Weighted Average			Amortized
Original Term	Liability		Interest Rate			Cost		Fair Value
	(In thousands)
Over 3 years	$	297,650		4.29	%	$	365,449	$	368,714

F-25

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 12 — Advances from the Federal Home Loan Bank

Advances from the Federal Home Loan Bank are summarized as follows:

	December 31, 2008
	Weighted
	Average
	Rate			Amount
	(In thousands)
Advances from the Federal Home Loan Bank due
2009		2.12	%	$	40,000
2010		—			—
2011		—			—
2012		—			—
2013		—			—
Thereafter		3.53			340,000
Total		3.38	%	$	380,000

At December 31, 2008, the majority of the Federal Home Loan Bank advances have various call provisions ranging from three months to two years. Various securities are pledged as collateral as discussed in Note 4 — Securities. In addition, the Company has collateralized the advances with a blanket lien arrangement at December 31, 2008 and 2007.

Note 13 — Junior Subordinated Debentures

At December 31, 2008, the Company had $60.8 million in junior subordinated debentures owed to unconsolidated trusts that were formed to issue trust preferred securities. The trust preferred securities offerings were pooled private placements exempt from registration under the Securities Act pursuant to Section 4(2) thereunder. The Company has provided a full, irrevocable, and unconditional subordinated guarantee of the obligations of these trusts under the preferred securities. The Company is obligated to fund dividends on these securities before it can pay dividends on shares of its common stock and preferred stock. The Company is not deemed to have a controlling financial interest in these variable interest entities, and therefore is required to deconsolidate them.

The following table details the unconsolidated trusts and their common and trust preferred securities:

									Mandatory	Optional
		December 31,							Redemption	Redemption
Issuer	Issue Date	2008			2007			Rate	Date	Date(1)
		(In thousands)
MBHI Capital Trust III	December 19, 2003	$	9,279		$	9,279		LIBOR+3.00%	December 30, 2033	December 30, 2008
MBHI Capital Trust IV	December 19, 2003		10,310			10,310		LIBOR+2.85%	January 23, 2034	January 23, 2009
MBHI Capital Trust V	June 7, 2005		20,619			20,619		LIBOR+1.77%	June 15, 2035	June 15, 2010
Royal Capital Trust I	April 30, 2004		10,310			10,310		6.62% until July	July 23, 2034	July 23, 2009
								23, 2009; then
								LIBOR+2.75%
Unamortized purchase accounting adjustment			(37	)		(104	)
Northwest Suburban Capital Trust I	May 18, 2004		10,310			10,310		LIBOR+2.70%	July 23, 2034	July 23, 2009
Total		$	60,791		$	60,724

(1) Redeemable at option of the Company.

F-26

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company acquired $10.3 million in junior subordinated debentures at LIBOR plus 2.70% through the acquisition of Northwest Suburban effective October 1, 2007 and redeemed $15.5 million in junior subordinated debentures at LIBOR plus 3.45% on November 7, 2007.

Note 14 — Credit Agreements

The Company’s credit agreements with a correspondent bank at December 31, 2008 consisted of a revolving line of credit, a term note loan, and a subordinated debenture in the amounts of $8.6 million, $55.0 million, and $15.0 million, respectively.

The revolving line of credit has a maximum availability of $25.0 million, $16.4 million available at December 31, 2008, an interest rate of one-month LIBOR plus 155 basis points, and matures on April 3, 2009. During the fourth quarter of 2007, the Company utilized the proceeds from a $75.0 million term note loan to pay for the cash requirements of the Northwest Suburban acquisition. On March 31, 2008, the Company converted $15.0 million of this term note into subordinated debt and further reduced the remaining term note balance to $55.0 million. The resulting term note had an interest rate of one-month LIBOR plus 155 basis points at December 31, 2008 and matures on September 28, 2010. The subordinated debt had an interest rate of one-month LIBOR plus 350 basis points at December 31, 2008, matures on March 31, 2018, and qualifies as Tier 2 capital.

The revolving line of credit and term note included the following covenants at December 31, 2008: (1) the Bank must not have nonperforming loans (loans on nonaccrual status and 90 days or more past due and troubled-debt restructured loans) in excess of 3.00% of total loans, (2) the Bank must report a quarterly profit, excluding charges related to acquisitions, and (3) the Bank must remain well capitalized. The Company was in compliance with these debt covenants at December 31, 2008.

As a result of the effects of recent economic conditions, the increase in nonperforming assets, and the impairment charges on goodwill and the FNMA and FHLMC preferred securities, the Company sought covenant waivers on two occasions since December 31, 2007. First, the lender waived a covenant violation in the first quarter of 2008 resulting from the Company’s net loss recognized in that period. Second, the lender waived a covenant violation in the third quarter of 2008 resulting from the Company’s net loss recognized in that period, contingent upon the Company making accelerated principal payments under the aforementioned term loan agreement in the amounts and on or prior to the dates shown below:

July 1, 2009 — $5.0 million

October 1, 2009 — $5.0 million

January 4, 2010 — $5.0 million

Previously, no principal payments were due under the term loan agreement until the final maturity date of September 28, 2010. The waiver further provides that if the Company raises $15.0 million in new capital pursuant to an offering of common or convertible preferred stock, then the Company shall not be obligated to make any of the accelerated principal payments specified above that fall due after the date on which the Company receives such $15.0 million in new capital until the final maturity date of September 28, 2010. The Company has the capacity to satisfy all payment obligations outlined above.

In the event the lender declares the Company to be in default of any covenants, the Company has 30 days to cure the default, or the correspondent bank could, at its option, call the term note and any amounts outstanding on the revolving line of credit due and payable or increase the rate on those loans by 300 basis points.

Note 15 — Preferred Stock and Warrant

Series T In December 2008, the Company raised $84.8 million in new equity through an offering of 84,784 shares of Series T fixed rate cumulative perpetual preferred stock and issued a warrant to purchase

F-27

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4,282,020 shares of common stock at $2.97 per share to the U.S. Treasury Department (“Treasury”) under the Troubled Assets Relief Program (“TARP”) Capital Purchase Program. The Series T preferred stock has a cumulative dividend rate of 5.00% per annum of the stated liquidation preference for five years and increases to 9.00% thereafter.

The Series T preferred stock qualifies as Tier 1 capital. The Company may redeem the Series T preferred stock at its liquidation preference ($1,000 per share) plus accrued and unpaid dividends under the American Recovery and Reinvestment Act of 2009, subject to the Treasury’s consultation with the Company’s appropriate federal regulator.

Prior to the third anniversary of the Treasury’s purchase of the Series T preferred stock, unless the preferred stock has been redeemed or the Treasury has transferred all of the Series T preferred stock to third parties, the consent of the Treasury will be required for the Company to (i) pay any dividend on its common stock or (ii) repurchase its common stock or other equity or capital securities, including trust preferred securities, other than in connection with benefit plans consistent with past practice and certain other circumstances specified in the Purchase Agreement. The Series T preferred stock will be non-voting except for the class voting rights on matters that would adversely affect the rights of the holders of the Series T preferred stock.

Warrant The warrant has a 10-year term and is immediately exercisable upon its issuance, with an initial per share exercise price of $2.97. The warrant provides for the adjustment of the exercise price and the number of shares of common stock issuable upon exercise pursuant to customary anti-dilution provisions, such as upon stock splits or distributions of securities or other assets to holders of common stock, and upon certain issuances of common stock at or below a specified price relative to the initial exercise price. If the Company receives aggregate gross cash proceeds of not less than $84.784 million from qualified equity offerings on or prior to December 31, 2009, the number of shares of common stock issuable pursuant to Treasury’s exercise of the warrant will be reduced by one half of the original number of shares, taking into account all adjustments, underlying the warrant.

Series A In December 2007, the Company raised $41.4 million in new equity capital, net of issuance costs, through an offering of 1,725,000 depositary shares each representing 1/100th of a share of its Series A noncumulative redeemable convertible perpetual preferred stock, at $25.00 per depositary share. The depositary shares have a dividend rate of 7.75% per annum of the stated liquidation preference, which is initially equivalent to $1.937500 per year and $0.484375 per quarter per depositary share. Dividends are noncumulative and are payable if, when and as declared by the Company’s board of directors.

The depositary shares are convertible, at the option of the holder, at any time into the number of shares of the Company’s common stock equal to $25.00 divided by the conversion price then in effect. The depositary shares are convertible, at the option of the Company, on or after the fifth anniversary of the issue date, into the number of shares of the Company’s common stock equal to $25.00 divided by the conversion price then in effect. The current conversion price is $15.00. The Company may exercise this conversion option only if its common stock price equals or exceeds 130% of the then prevailing conversion price for at least 20 trading days in a period of 30 consecutive trading days and the Company has paid full dividends on the depositary shares for four consecutive quarters.

The depositary shares are redeemable, at the option of the Company, on or after the fifth anniversary of the issue date, for $25.00 per share, plus declared and unpaid dividends, if any, provided that the payment of dividends for prior periods has been approved by the Federal Reserve Board.

The preferred stock outstanding has preference over the Company’s common stock with respect to the payment of dividends and distribution of the Company’s assets in the event of a liquidation or dissolution. The holders of preferred stock have no voting rights, except in certain circumstances.

Note 16 — Capital Requirements

The Company and the Bank are subject to regulatory capital requirements administered by the federal banking agencies. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, banks must

F-28

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require banks and bank holding companies to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets and Tier 1 capital to average assets. If a bank does not meet these minimum capital requirements, as defined, bank regulators can initiate certain actions that could have a direct material effect on the bank’s financial statements. Management believes that, as of December 31, 2008 and 2007, the Company and the Bank met all capital adequacy requirements to which they were subject.

As of December 31, 2008, the most recent Federal Deposit Insurance Corporation notification categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s categories. To be categorized as well capitalized, banks must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios.

The risk-based capital information for the Company is as follows:

	December 31,			December 31,
	2008			2007
	(In thousands)
Risk-weighted assets	$	2,878,087		$	2,811,423
Average assets		3,590,313			3,721,444
Capital components:
Stockholders’ equity	$	305,834		$	375,164
Plus: Guaranteed trust preferred securities		59,000			59,000
Less: Core deposit and other intangibles, net		(14,683	)		(17,044	)
Less: Goodwill		(78,862	)		(160,407	)
Less: Disallowed deferred tax assets		(32,748	)		—
Plus: Unrealized losses on securities, net of tax		1,449			13,917
Less: Unrealized losses on equity securities, net of tax		(1,117	)		(11,768	)
Tier I capital		238,873			258,862
Allowance for loan losses		44,432			26,748
Reserve for unfunded commitments		1,068			233
Disallowed allowance for loan losses		(9,406	)		—
Qualifying subordinated debt		15,000			—
Total risk-based capital	$	289,967		$	285,843

F-29

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The actual capital amounts and ratios for the Company and the Bank are presented in the following table:

						Minimum Required
						For Capital					To Be Well
	Actual					Adequacy Purposes					Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
As of December 31, 2008
Total Capital (to risk-weighted assets)
Company	$	289,967		10.1	%	$	230,247		8.0	%		n/a		n/a
Bank		301,993		10.5			229,244		8.0			286,555		10.0
Tier 1 Capital (to risk-weighted assets)
Company		238,873		8.3			115,123		4.0			n/a		n/a
Bank		236,054		8.2			114,622		4.0			171,933		6.0
Tier 1 Capital (to average assets)
Company		238,873		6.7			143,613		4.0			n/a		n/a
Bank		236,054		6.6			143,000		4.0			178,750		5.0
As of December 31, 2007
Total Capital (to risk-weighted assets)
Company	$	285,843		10.2	%	$	224,814		8.0	%		n/a		n/a
Bank		351,352		12.6			223,959		8.0			279,949		10.0
Tier 1 Capital (to risk-weighted assets)
Company		258,862		9.2			112,457		4.0			n/a		n/a
Bank		324,370		11.6			111,980		4.0			167,969		6.0
Tier 1 Capital (to average assets)
Company		258,862		7.0			148,858		4.0			n/a		n/a
Bank		324,370		8.7			148,407		4.0			185,508		5.0

Note 17 — Fair Value of Financial Instruments

The Company adopted SFAS No. 157, “Fair Value Measurement,” on January 1, 2008. SFAS No. 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between willing market participants on the measurement date. SFAS No. 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

•  Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

•  Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

•  Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company’s available-for-sale investment securities are the only financial assets that are measured at fair value on a recurring basis; it does not hold any financial liabilities that are measured at fair value on a recurring basis. The fair values of available-for-sale securities are determined by obtaining either quoted prices on nationally

F-30

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

recognized securities exchanges or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on these securities’ relationship to other benchmark quoted securities. If quoted prices or matrix pricing are not available, the fair value is determined by an adjusted price for similar securities including unobservable inputs. The fair values of the available-for-sale securities were measured at December 31, 2008 using the following:

	Total		Quoted Prices or		Significant		Significant
	Fair Value		Identical Assets in		Other Observable		Unobservable
	at December 31,		Active Markets		Inputs		Inputs
	2008		(Level 1)		(Level 2)		(Level 3)
			(In thousands)
Assets:
Available-for-sale securities	$	621,949	$	930	$	612,586	$	8,433

The following is a summary of changes in the fair value of the available-for-sale securities that were measured using significant unobservable inputs for the year ended December 31, 2008:

	(In thousands)
Beginning balance	$	10,479
Paydowns received		(35	)
Total gains or losses (realized/unrealized):
Included in earnings		—
Included in other comprehensive income		(2,011	)
Ending balance	$	8,433

The Company’s impaired loans that are measured using the fair value of the underlying collateral are measured on a non-recurring basis. Once a loan is identified as individually impaired, management measures impairment in accordance with SFAS No. 114, “Accounting by Creditors for Impairment of a Loan.” At December 31, 2008, $41.3 million of the total impaired loans were evaluated based on the fair value of the collateral. The fair value of the collateral is determined by obtaining an observable market price or by obtaining an appraised value with management applying selling and other discounts to the underlying collateral value. If an appraised value is not available, the fair value of the impaired loan is determined by an adjusted appraised value including unobservable cash flows.

At December 31, 2008, the fair values of the impaired loans based on the fair value of the collateral were measured using the following:

			Quoted Prices or		Significant		Significant
			Identical Assets in		Other Observable		Unobservable
	December 31,		Active Markets		Inputs		Inputs
	2008		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
Assets:
Impaired loans	$	37,098	$	—	$	—	$	37,098

Loans which are measured for impairment using the fair value of collateral for collateral dependent loans, had a gross carrying amount of $41.3 million, with an associated valuation allowance of $4.2 million for a fair value of $37.1 million at December 31, 2008. The provision for loan losses for the year ended December 31, 2008, included $39.0 million of specific allowance allocations for impaired loans.

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

F-31

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The carrying amount is equivalent to the estimated fair value for cash and cash equivalents, federal funds purchased, Federal Reserve Bank and Federal Home Loan Bank stock, accrued interest receivable and payable, due from and to broker, noninterest-bearing deposits, short-term borrowings, and variable rate loans, interest-bearing deposits, or notes payable that reprice frequently and fully. The fair values of securities are determined by obtaining either quoted prices on nationally recognized securities exchanges or matrix pricing. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, and securities sold under agreements to repurchase, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair values for impaired loans are estimated using discounted cash flow analysis or underlying collateral values. The fair value of fixed rate debt is based on current rates for similar financing. The fair value of off-balance-sheet items, loan commitments, is not material.

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

	December 31,
	2008				2007
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
	(In thousands)
Financial assets
Cash and cash equivalents	$	63,065	$	63,065	$	84,499	$	84,499
Securities available-for-sale		621,949		621,949		710,881		710,881
Securities held-to-maturity		30,267		30,387		37,601		36,912
Federal Reserve Bank and Federal Home Loan Bank stock		31,698		31,698		29,264		29,264
Loans, net of allowance for loan losses		2,465,327		2,485,011		2,447,579		2,452,466
Accrued interest receivable		13,302		13,302		14,519		14,519
Financial liabilities
Deposits
Noninterest-bearing		334,495		334,495		321,317		321,317
Interest-bearing		2,078,296		2,008,100		2,136,831		2,000,618
Federal funds purchased		—		—		81,000		81,000
Revolving note payable		8,600		8,600		2,500		2,500
Securities sold under agreements to repurchase		297,650		369,376		283,400		305,394
Advances from Federal Home Loan Bank		380,000		410,992		323,439		339,108
Junior subordinated debentures		60,791		56,572		60,724		61,154
Subordinated debt		15,000		15,000		—		—
Term note payable		55,000		55,000		70,000		70,000
Accrued interest payable		8,553		8,553		11,014		11,014

The remaining other assets and liabilities of the Company are not considered financial instruments and are not included in the above disclosures.

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

F-32

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 18 — Off-Balance-Sheet Risk and Concentrations of Credit Risk

In the normal course of business and to meet financing needs of customers, the Company is a party to financial instruments with off-balance-sheet risk. Since many commitments to extend credit expire without being used, the amounts below do not necessarily represent future cash commitments. These financial instruments include lines of credit, letters of credit, and commitments to extend credit. These are summarized as of December 31, 2008 as follows:

	Amount of Commitment Expiration Per Period
	Within						After
	1 Year		1-3 Years		4-5 Years		5 Years		Total
	(In thousands)
Lines of credit:
Commercial real estate	$	104,884	$	13,098	$	5,319	$	133	$	123,434
Consumer real estate		26,757		37,496		33,252		54,481		151,986
Consumer		—		—		—		2,220		2,220
Commercial		235,855		18,364		1,765		3,238		259,222
Letters of credit		43,934		11,602		3,496		—		59,032
Commitments to extend credit		68,213		—		—		—		68,213
Total commercial commitments	$	479,643	$	80,560	$	43,832	$	60,072	$	664,107

At December 31, 2008, commitments to extend credit included $26.0 million of fixed rate loan commitments. These commitments are due to expire within 30 to 90 days of issuance and have rates ranging from 5.25% to 8.00%. Substantially all of the unused lines of credit are at adjustable rates of interest.

In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material adverse effect on the Company’s financial position or results of operations.

Note 19 — Leases

The Bank leases a portion of its premises. The leases expire in various years through the year 2029. Future rental commitments under these noncancelable operating leases for the years 2009 through 2013 and thereafter are as follows:

	(In thousands)
2009	$	1,529
2010		1,451
2011		1,298
2012		1,184
2013		1,197
Thereafter		14,142
	$	20,801

Rent expense included in occupancy and equipment expense was $2.1 million, $1.3 million, and $1.1 million for the years ended December 31, 2008, 2007, and 2006. Occupancy expense has been reduced by $566,000, $494,000, and $475,000 for the years ended December 31, 2008, 2007, and 2006 due to rental income received on leased premises.

F-33

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 20 — Stock Compensation and Restricted Stock Awards

Under the Company’s Stock and Incentive Plan (the “Plan”), officers, directors, and key employees may be granted incentive stock options to purchase the Company’s common stock at no less than 100% of the market price on the date the option is granted. Options can be granted to become exercisable immediately or in installments of 25% a year on each of the first through the fourth anniversaries of the grant date or may be issued subject to performance targets. In all cases, the options have a maximum term of ten years. The Plan also permits the issuance of nonqualified stock options, stock appreciation rights, restricted stock, and restricted stock units. The Plan authorizes a total of 3,900,000 shares for issuance. There are 1,881,507 shares remaining for issuance under the Plan at December 31, 2008. It is the Company’s policy to issue new shares of its common stock in conjunction with the exercise of stock options or grants of restricted stock.

During 2008, 16,500 employee stock options were exercised. Total employee stock options outstanding at December 31, 2008 were 379,371 with exercise prices ranging between $8.83 and $22.03, with a weighted average exercise price of $14.28, and expiration dates between 2009 and 2015. No stock options have been granted since 2005.

Information about option grants follows:

				Weighted Average		Weighted Average
	Number of			Exercise Price		Grant-Date Fair
	Options			Per Share		Value Per Share
Outstanding at December 31, 2005		687,942		$	13.83	$	4.57
Granted during 2006		—			—		—
Exercised during 2006		(151,894	)		13.03		4.26
Forfeited during 2006		(19,000	)		18.46		6.82
Outstanding at December 31, 2006		517,048			13.90		4.58
Granted during 2007		—			—		—
Exercised during 2007		(36,443	)		10.38		3.19
Forfeited during 2007		(1,453	)		15.21		5.57
Outstanding at December 31, 2007		479,152			14.03		4.63
Granted during 2008		—			—		—
Exercised during 2008		(16,500	)		10.61		3.01
Forfeited during 2008		(83,281	)		13.56		4.17
Outstanding at December 31, 2008		379,371			14.28		4.80

Options exercisable at year end are as follows:

			Weighted Average
	Number of		Exercise Price
	Options		Per Share
2006		475,548	$	13.45
2007		451,652		13.70
2008		355,871		13.94

F-34

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Options outstanding at December 31, 2008 were as follows:

	Outstanding
			Weighted Average		Exercisable
			Remaining				Weighted Average
Range of Exercise Price	Number		Contractual Life		Number		Exercise Price
$8.83-10.59		157,121		1.57		157,121	$	9.66
$10.75-14.90		93,750		1.74		93,750		13.71
$18.34-22.03		128,500		5.33		105,000		20.57
Outstanding at year end		379,371		3.04		355,871		13.94

At December 31, 2008, the aggregate intrinsic value of the options outstanding and exercisable were $1.8 million and $1.7 million, respectively. The total intrinsic value of options exercised during the years ended December 31, 2008, 2007, and 2006 was $50,000, $116,000, and $647,000, respectively.

The Company adopted SFAS No. 123(R), “Share-Based Payment,” in the first quarter of 2006 using the modified prospective application. Employee compensation expense for stock options previously granted was recorded in the consolidated income statement based on the grant’s vesting schedule. Forfeitures of stock option grants are estimated for those stock options where the requisite service is not expected to be rendered. The grant-date fair value for each grant was calculated using the Black-Scholes option pricing model, using the following weighted-average assumptions as of grant date. The following table reflects the only grant (those options granted in 2005) included in employee compensation expense.

	2005
Fair value	$	5.50
Risk-free interest rate		4.05	%
Expected option life		5 years
Expected stock price volatility		22.06	%

For the years ended December 31, 2008 and 2007, employee compensation expense related to stock options was $19,000 and $22,000, respectively. The total compensation cost related to nonvested stock options not yet recognized was $13,600 at December 31, 2008 and the weighted average period over which this cost is expected to be recognized is 18 months.

Under the Plan, officers, directors, and key employees may also be granted awards of restricted shares of the Company’s common stock. Holders of restricted shares are entitled to receive cash dividends paid to the Company’s common stockholders and have the right to vote the restricted shares prior to vesting. The existing restricted share grants vest over various time periods not exceeding five years and some may be accelerated subject to achieving certain performance targets. Compensation expense for the restricted shares equals the market price of the related stock at the date of grant and is amortized on a straight-line basis over the vesting period assuming certain performance targets are met when applicable. All restricted shares had a grant-date fair value equal to the market price of the underlying common stock at date of grant.

F-35

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Information about restricted share grants follows:

	Number of			Weighted Average
	Restricted			Grant-Date Fair Value
	Shares			Per Share
Outstanding at December 31, 2005		178,700		$	18.97
Granted		347,179			22.61
Vested		(36,000	)		18.97
Forfeited		(9,250	)		19.43
Outstanding at December 31, 2006		480,629			21.59
Granted		59,700			14.99
Vested		(84,709	)		20.85
Forfeited		(7,226	)		20.77
Outstanding at December 31, 2007		448,394			20.87
Granted		278,324			9.45
Vested		(42,996	)		17.77
Forfeited		(73,821	)		16.40
Outstanding at December 31, 2008		609,901			16.42

For the years ended December 31, 2008, 2007, and 2006, the Company recognized $2.9 million, $3.1 million, and $2.2 million, respectively, in compensation expense related to the restricted stock grants. The Company realized a tax benefit of $3,000 and $54,000 for the years ended December 31, 2008 and 2007, respectively. The total fair value of shares outstanding was $10.0 million as of December 31, 2008. The total fair value of shares vested during the years ended December 31, 2008, 2007, and 2006 was $764,000, $1.8 million, and $683,000, respectively. The total compensation cost related to nonvested restricted shares not yet recognized was $4.6 million at December 31, 2008 and the weighted average period over which this cost is expected to be recognized is 37 months.

Note 21 — Other Employee Benefit Plans

The Company maintains a 401(k) plan covering substantially all employees. Eligible employees may elect to make tax deferred contributions within a specified range of their compensation as defined in the plan. The Company contributes 1% more than the employee’s contribution up to a maximum 5% employer contribution. Contributions to the plan are expensed currently and were $1.2 million, $1.1 million, and $812,000 for the years ended December 31, 2008, 2007, and 2006, respectively.

The Company and various members of senior management have entered into a Supplemental Executive Retirement Plan (“SERP”). The SERP is an unfunded plan that provides for guaranteed payments, based on a percentage of the individual’s final salary, for 15 years after age 65. The benefit amount is reduced if the individual retires prior to age 65.

Effective April 1, 2008, the SERP agreements with employees constituted a pension plan under SFAS No. 87, “Employers’ Accounting for Pensions.” The objective of SFAS No. 87 is to recognize the compensation cost of pension benefits (including prior service cost) over that employee’s approximate service period. The benefit obligation was $6.4 million and $3.5 million as of December 31, 2008 and 2007, respectively, and is included in other liabilities. Expense of $1.8 million, $1.1 million, and $451,000 was recorded for the years ended December 31, 2008, 2007, and 2006, respectively, and has been included in salaries and employee benefits expense in the statements of operations.

F-36

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following is a summary of changes in the benefit obligation for the year ended December 31, 2008:

	(In thousands)
Beginning balance	$	3,477
Service cost		611
Interest cost		224
Amendment(1)		192
Prior service cost		776
Benefits paid		(10	)
Actuarial loss		391
Pre-application of SFAS No. 87 expense		742
Ending balance	$	6,403

(1) Reflects acceleration of benefits to a participant.

The following is a summary of the net periodic costs for the year ended December 31, 2008:

	(In thousands)
Service cost	$	611
Interest cost		224
Amortization of prior service cost		71
Amendment		192
Pre-application of SFAS No. 87 expense		742
Net periodic benefit cost	$	1,840

The following are the weighted-average assumptions used to determine the benefit obligation at December 31, 2008:

Discount rate
Net periodic pension cost	6.00	%
Benefit obligation	5.75
Rate of compensation increase	4.00

The Company weighted-average assumptions were determined at December 31, 2008, the measurement date, based on common benchmarks used for measuring benefit liabilities, the Moody’s As corporate bond rate and Citigroup pension liability discount rate.

The Company recognized a $477,000 reduction associated with the prior service in accumulated other comprehensive income as of April 1, 2008. The prior service cost amortization expense for 2008 was $44,000, net of tax; $433,000 was unamortized as of December 31, 2008. The prior service cost amortization expense is projected to be $95,000 for 2009. The Company recognized a $240,000 actuarial loss in accumulated other comprehensive income as of December 31, 2008.

F-37

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

	(In thousands)
2009	$	125
2010		173
2011		280
2012		430
2013		486
Years 2014 — 2018	$	4,239

The Company has purchased life insurance policies on various members of management. The Company is the beneficiary of these life insurance policies, which have an aggregate death benefit of approximately $217.0 million at December 31, 2008. In addition, the policies had aggregate cash surrender values of approximately $84.7 million at December 31, 2008 and $81.2 million at December 31, 2007.

Note 22 — Income Taxes

The provision for income taxes from continuing operations consists of the following:

	Year Ended December 31,
	2008			2007			2006
	(In thousands)
Current
Federal	$	(11,316	)	$	2,923		$	7,307
State		—			—			—
Deferred
Federal		(36,756	)		1,903			(4,846	)
State		(7,001	)		(1,580	)		(1,039	)
Total (benefit) provision for income taxes	$	(55,073	)	$	3,246		$	1,422

F-38

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

	Year Ended December 31,
	2008					2007					2006
	(Dollars in thousands)
Income taxes computed at the statutory rate	$	(74,671	)	35.0	%	$	7,638		35.0	%	$	6,709		35.0	%
Tax-exempt interest income on securities and loans		(802	)	0.4			(771	)	(3.5	)		(1,171	)	(6.1	)
General business credits		(661	)	0.3			(643	)	(2.9	)		(665	)	(3.5	)
State income taxes, net of federal tax benefit due to state operating loss		(4,419	)	2.1			(1,027	)	(4.7	)		(676	)	(3.5	)
Income tax reserve adjustment		—		—			—		—			(591	)	(3.1	)
Life insurance cash surrender value increase, net of premiums		(1,195	)	0.6			(1,072	)	(4.9	)		(838	)	(4.4	)
Dividends received deduction		(642	)	0.3			(1,214	)	(5.6	)		(1,106	)	(5.8	)
Goodwill impairment		27,733		(13.0	)		—		—			—		—
Annuity proceeds		—		—			267		1.2			—		—
Merger related expenses		—		—			—		—			(278	)	(1.5	)
Stock based compensation, net		—		—			—		—			56		0.3
Nondeductible costs and other, net		(416	)	0.2			68		0.3			(18	)	(0.0	)
Total (benefit) provision for income taxes	$	(55,073	)	25.8	%	$	3,246		14.9	%	$	1,422		7.4	%

F-39

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

	December 31,
	2008			2007
	(In thousands)
Gross deferred tax assets
Unrealized loss on securities available-for-sale	$	911		$	8,742
Allowance for loan losses		17,543			10,519
Deferred compensation		4,675			3,116
Net operating loss carryforward		13,446			3,999
Income from partnerships		—			51
Deferred tax credits		1,351			786
Nonaccrual loan interest		—			2,326
Impairment charges		25,816			—
Other		433			—
Total gross deferred tax assets		64,175			29,539
Gross deferred tax liabilities
Depreciation		(612	)		(1,087	)
FHLB stock dividends		(1,526	)		(1,536	)
Amortizing intangible assets		(4,729	)		(5,960	)
Loss from partnerships		(812	)		—
Other		—			(810	)
Total gross deferred tax liabilities		(7,679	)		(9,393	)
Net deferred tax asset	$	56,496		$	20,146

As of December 31, 2008 and 2007, the Company believes it is more likely than not that deferred tax assets will be realized and, therefore, no allowance was considered necessary.

The unrecognized tax benefits at December 31, 2008 were as follows:

	Unrecognized Income
	Tax Benefits
	2008		2007
	(In thousands)
Balance, at beginning of period	$	1,122	$	1,238
Additions based on tax positions taken in current year		304		481
Additions (reductions) based on tax positions taken in prior year additions		1,835		(168	)
Reductions due to statute of limitations		—		(429	)
Balance, at end of period	$	3,261	$	1,122

The Company adopted the provisions of FIN No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109,” on January 1, 2007. The adoption of this standard did not have an impact on the Company’s consolidated financial position and results of operations. The Company recognizes interest accrued related to unrecognized tax benefits and penalties, if any, in income tax expense. As of the date of adoption, the Company had approximately $20,000 of interest accrued for potential income tax exposures and

F-40

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

$526,000 of unrecognized tax benefits that, if recognized, would affect the effective tax rate and $429,000 of unrecognized tax benefits that, if recognized, would not affect the effective tax rate. During the year ended December 31, 2007, the Company recognized approximately $20,000 in interest expense. At December 31, 2007, the Company had approximately $40,000 of interest accrued for potential income tax exposures and $729,000 of unrecognized tax benefits that, if recognized, would affect the effective tax rate. During the year ended December 31, 2008, the Company recognized approximately $127,000 in interest expense and $91,000 of penalty. At December 31, 2008, the Company had approximately $167,000 of interest and $91,000 of penalty accrued for potential income tax exposures and $2.1 million of unrecognized tax benefits that, if recognized, would affect the effective tax rate.

On January 3, 2003, the Company purchased Big Foot Financial Corp. As a result of the acquisition, the Company had various unrecognized tax benefits related to the acquisition. These unrecognized tax benefits were recognized in the first quarter of 2007, when the statute of limitations for IRS audit of the final short period return closed. These unrecognized tax benefits, totaling $429,000, were credited to a core deposit intangible created at the acquisition.

The Company is currently being audited by the Illinois Department of Revenue for the years 2003 through 2005. Thus it anticipates that it is reasonably possible within twelve months of December 31, 2008, that significant changes in the balance of the unrecognized tax benefit of up to $1.4 million may occur as a result of settlement of the Illinois income tax audit. The primary issue under exam is fully reserved for and relates to the exclusion from taxable income of interest on certain state-qualified U.S. obligations. The Company does not anticipate any adjustments that would result in a significant change to its financial position. An IRS audit for the years 2002 to 2005 was completed during the second quarter of 2007 and there were no changes made to the reported tax amounts for those years. Years that remain subject to examination include Federal from 2006 to present, Illinois from 2003 to present, 2005 to present for Indiana, and 2005 to present for Federal and Illinois for various acquired entities.

F-41

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 23 — Earnings Per Share

	Year Ended December 31,
	2008			2007		2006
	(In thousands, except per share data)
Net (loss) income	$	(158,273	)	$	18,577	$	17,746
Series A preferred stock dividends		3,342			204		—
Series T preferred stock dividends		318			—		—
Series T discount accretion		68			—		—
Total preferred stock dividends		3,728			204		—
Net (loss) income available to common stockholders	$	(162,001	)	$	18,373	$	17,746
Basic
Weighted average common shares outstanding		27,854			25,426		23,348
Basic (loss) earnings per share	$	(5.82	)	$	0.72	$	0.76
Diluted
Weighted average common shares outstanding		27,854			25,426		23,348
Dilutive effect of stock options(1)		—			98		200
Dilutive effect of restricted stock(1)		—			56		242
Dilutive effect of warrant(1)		—			—		—
Diluted average common shares		27,854			25,580		23,790
Diluted (loss) earnings per share	$	(5.82	)	$	0.72	$	0.75

(1) No dilutive shares from stock options or restricted stock were included in the computation of diluted earnings per share for any period there was a loss.

Options to purchase 379,371 shares at a weighted average exercise price of $14.28 and 117,750 shares at $20.56 were not included in the computation of diluted earnings per share for the years ended December 31, 2008 and 2007, respectively, because the options’ exercise price was greater than the average market price of the common stock and the options were, therefore, anti-dilutive. The warrant to purchase 4,282,020 shares at an exercise price of $2.97 was not included in the computation of diluted earnings per share because the warrant’s exercise price was greater than the average market price of common stock and was, therefore, anti-dilutive. The dilutive effect of the 609,901 shares of restricted stock was not included because of the anti-dilutive effect for the year ended December 31, 2008. Because of the anti-dilutive effect, the shares that would be issued if the Series A noncumulative redeemable convertible perpetual preferred stock were converted are not included in the computation of diluted earnings per share for the years ended December 31, 2008 and 2007.

F-42

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 24 — Other Comprehensive Income

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

	Year Ended December 31,
	2008			2007			2006
	(In thousands)
Unrealized holding losses on securities available-for-sale	$	(61,540	)	$	(12,221	)	$	(2,063	)
Reclassification adjustment for losses(gains) recognized in income		16,747			(32	)		153
Reclassification adjustment for impairment losses recognized in income		65,387			—			—
Accretion of unrealized gains on securities transferred from available-for-sale to held-to-maturity		(295	)		(7	)		(7	)
Net unrealized gains (losses)		20,299			(12,260	)		2,209
Tax effect		(7,831	)		4,616			(876	)
Net increase (decrease) in fair value of securities classified as available-for-sale, net of income taxes and reclassification adjustments		12,468			(7,644	)		1,333
Prior service cost related to benefit obligation		(776	)		—			—
Amortization of prior service cost		71			—			—
Actuarial loss related to the projected benefit obligation		(391	)		—			—
Tax effect		423			—			—
Net changes in benefit obligation		(673	)		—			—
Other comprehensive income(loss)	$	11,795		$	(7,644	)	$	1,333

F-43

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 25 — Parent Company Financial Statements

The following are condensed balance sheets and statements of operations and cash flows for the Company, without subsidiaries:

CONDENSED BALANCE SHEETS

	December 31,
	2008		2007
	(In thousands)
ASSETS
Cash and cash equivalents	$	43,469	$	2,118
Investment in subsidiaries		358,480		501,292
Loan to subsidiary		30,000		—
Other assets		15,820		10,010
Total assets	$	447,769	$	513,420
LIABILITIES AND STOCKHOLDERS’ EQUITY
Revolving note payable	$	8,600	$	2,500
Subordinated debt		15,000		—
Term note payable		55,000		70,000
Junior subordinated debentures		60,791		60,724
Other liabilities		2,544		5,032
Total liabilities		141,935		138,256
Stockholders’ equity		305,834		375,164
Total liabilities and stockholders’ equity	$	447,769	$	513,420

CONDENSED STATEMENTS OF OPERATIONS

	Year Ended December 31,
	2008			2007			2006
	(In thousands)
Operating income
Dividends from subsidiaries	$	22,311		$	4,032		$	10,477
Interest from subsidiaries		16			—			—
Fees from subsidiaries		1,103			1,103			1,000
Noninterest income		(51	)		(162	)		240
Interest expense		(7,519	)		(6,645	)		(4,741	)
Noninterest expense		(8,037	)		(3,330	)		(5,662	)
Income (loss) before income taxes and equity in undistributed income of subsidiaries		7,823			(5,002	)		1,314
Income tax benefit		7,599			3,377			3,904
Equity in undistributed income of subsidiaries		(173,695	)		20,202			12,528
Net (loss) income	$	(158,273	)	$	18,577		$	17,746

F-44

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2008			2007			2006
	(In thousands)
Cash flows from operating activities
Net (loss) income	$	(158,273	)	$	18,577		$	17,746
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities
Equity in undistributed income of subsidiaries		173,695			(20,202	)		(12,528	)
Depreciation		43			70			85
Amortization of stock-based compensation		899			22			2,501
Amortization of intangibles		67			67			34
Change in other assets		(5,794	)		2,971			(159	)
Change in other liabilities		1,039			(3,766	)		3,752
Net cash provided by (used in) operating activities		11,676			(2,261	)		11,431
Cash flows from investing activities
Cash paid, net of cash and cash equivalents in acquisition		—			(67,557	)		(65,286	)
Investment in subsidiaries		(17,000	)		(20,000	)		—
Loan advances to subsidiary		(30,000	)		—			—
Property and equipment expenditures		—			(75	)		(17	)
Net cash used in continuing investing activities		(47,000	)		(87,632	)		(65,303	)
Cash flows from financing activities
Payments of junior subordinated debentures		—			(15,000	)		—
Proceeds from revolving note payable		24,600			75,000			—
Proceeds from term note payable		—			17,500			—
Repayments on revolving note payable		(18,500	)		(15,000	)		—
Repayments on term note payable		—			(5,000	)		—
Cash common dividends paid		(11,076	)		(13,003	)		(11,439	)
Cash preferred dividends paid		(3,342	)		(204	)		—
Issuance of common stock		35			—			—
Issuance of preferred stock and warrant		84,784			41,441			—
Repurchase of common stock		—			(9,392	)		(4,770	)
Proceeds from issuance of common and treasury stock under stock option plan		174			378			1,983
Net cash provided by (used in) financing activities		76,675			(76,720	)		(14,226	)
Increase (decrease) in cash and cash equivalents		41,351			(13,173	)		(68,098	)
Cash and cash equivalents at beginning of year		2,118			15,291			83,389
Cash and cash equivalents at end of year	$	43,469		$	2,118		$	15,291

F-45

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 26 — Quarterly Results of Operations (Unaudited)

	Three Months Ended,												Year Ended,
2008	March 31			June 30			September 30			December 31			December 31
	(In thousands, except per share data)
Interest income	$	50,795		$	47,244		$	45,888		$	43,734		$	187,661
Interest expense		28,579			24,479			23,735			23,902			100,695
Net interest income		22,216			22,765			22,153			19,832			86,966
Provision for loan losses		5,400			4,415			41,950			20,000			71,765
Noninterest income (loss)		1,790			4,394			(60,512	)		3,732			(50,596	)
Noninterest expense		28,609			20,368			103,296			25,678			177,951
(Loss) income before income taxes		(10,003	)		2,376			(183,605	)		(22,114	)		(213,346	)
Benefit for income taxes		(4,587	)		(52	)		(23,891	)		(26,543	)		(55,073	)
Net (loss) income		(5,416	)		2,428			(159,714	)		4,429			(158,273	)
Preferred stock dividends		835			836			835			1,222			3,728
Net (loss) income available to common stockholders	$	(6,251	)	$	1,592		$	(160,549	)	$	3,207		$	(162,001	)
(Loss) earnings per common share(a)
Basic	$	(0.22	)	$	0.06		$	(5.76	)	$	0.12		$	(5.82	)
Diluted		(0.22	)		0.06			(5.76	)		0.12			(5.82	)

Certain infrequent items are reflected in the quarterly results of 2008. The Company recognized a non-cash, non-operating, other-than-temporary impairment charge of $47.8 million at September 30, 2008 on certain FNMA and FHLMC preferred equity securities similar to the impairment charge of $17.6 million taken in the first quarter of 2008. In September 2008, the Company sold a portion of its FNMA and FHLMC preferred equity securities recognizing a $16.7 million loss. The income tax benefits related to the first and third quarter 2008 losses on FNMA and FHLMC securities were appropriately recognized as capital losses in those periods. As a result of subsequent law changes, $16.6 million in tax benefits were recognized in the fourth quarter of 2008 for losses reported in the third quarter of 2008.

During the third and fourth quarters of 2008, the Company recorded $42.0 million and $20.0 million in loan loss provision, respectively, reflecting management’s updated assessments of impaired loans and concerns about the continued deterioration of economic conditions. The Company also recognized an impairment charge of $80.0 million on its goodwill intangible asset during the third quarter of 2008 based upon an appraisal by an independent third party. During the first quarter of 2008, the Company incurred a $7.1 million loss on the early extinguishment of debt arising from the prepayment of $130.0 million in FHLB advances and recognized a $15.2 million gain on the sale of real estate.

F-46

MIDWEST BANC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Three Months Ended,								Year Ended,
2007	March 31		June 30		September 30		December 31		December 31
	(In thousands, except per share data)
Interest income	$	44,766	$	46,492	$	47,174	$	55,437	$	193,869
Interest expense		25,706		26,523		26,827		32,181		111,237
Net interest income		19,060		19,969		20,347		23,256		82,632
Provision for loan losses		645		1,036		1,800		1,410		4,891
Noninterest income		3,720		3,896		3,700		4,161		15,477
Noninterest expense		17,081		16,644		16,245		21,425		71,395
Income before income taxes		5,054		6,185		6,002		4,582		21,823
Provision for income taxes		642		1,078		1,166		360		3,246
Net income		4,412		5,107		4,836		4,222		18,577
Preferred stock dividends		—		—		—		204		204
Net income available to common stockholders	$	4,412	$	5,107	$	4,836	$	4,018	$	18,373
Earnings per common share(a)
Basic	$	0.18	$	0.21	$	0.20	$	0.14	$	0.72
Diluted		0.18		0.21		0.20		0.14		0.72

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

F-47

Report of Independent Registered Public Accounting Firm

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

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Midwest Banc Holdings, Inc. and its subsidiaries at December 31, 2008 and December 31, 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PRICEWATERHOUSECOOPERS LLP

Chicago, Illinois

March 11, 2009

F-48

EX-10.62

Exhibit 10.62

SETTLEMENT AGREEMENT AND GENERAL RELEASE

     This Settlement Agreement and General Release (the “Settlement Agreement”) is made this 6^th day of November, 2008, by and among James J. Giancola (“Giancola”), and Midwest Banc Holdings, Inc. (“Midwest”), together with any subsidiaries, affiliates, successors, assigns, agents, and employees of Midwest (collectively, the “Released Parties”). The Settlement Agreement is based upon the consideration provided hereunder and the parties’ mutual obligations and commitments as agreed to release the Released Claims, as defined herein.

     WHEREAS, Giancola has been employed by Midwest in the position of President during the years 2004 through 2008; and

     WHEREAS, pursuant to the terms of his employment agreement with Midwest, Giancola was granted one hundred fifty thousand (150,000) shares of restricted Midwest common stock (the “Restricted Shares”) on the date of his employment, which Restricted Shares were subject to a substantial risk of forfeiture at the time of the grant; and

     WHEREAS, Giancola became vested in 30,000 Restricted Shares on January 1, 2005, January 1, 2006, January 1, 2007, and January 1, 2008, and upon such event, such Restricted Shares were no longer subject to a substantial risk of forfeiture and were therefore taxable to Giancola as wages; and

     WHEREAS, Midwest did not report the value of the Restricted Shares in which Giancola became vested during each year on the statement of taxable wage income (Form W-2) issued to Giancola for the taxable years ended December 31, 2005, December 31, 2006, and December 31, 2007; and

     WHEREAS, the parties believe that, as a result of Midwest’s failure to report the value of the vested Restricted Shares on Giancola’s Form W-2 for each of the years at issue, Giancola may have a claim against Midwest and/or the Released Parties for negligent misrepresentation or breach of an implied contract to accurately report Giancola’s taxable wage income to him each year.

     NOW, THEREFORE, in consideration of the mutual covenants contained herein, and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows:

     1. Midwest has issued to Giancola corrected Forms W-2 for the years 2005, 2006, and 2007. Each corrected Form W-2 reflects the value of the 30,000 Restricted Shares in which Giancola became vested during such year.

     2. Giancola has filed amended state and federal income tax returns for the years 2005, 2006 and 2007 that show as gross income and wages the value of the 30,000 Restricted Shares that vested for the benefit of Giancola during each such year, and has paid all additional taxes attributable to the parties’ failure to report as income the value of such Restricted Shares with respect to each year and all additional interest assessed by state and federal taxing authorities due to such failure and will pay all penalties assessed by state and federal taxing authorities due to such failures.

     3. Midwest agrees to pay to Giancola in 2008 the sum of $415,799, reduced for payroll withholding as required by law. The amount of such payment shall be reported by Midwest as wages paid to Giancola in the 2008 tax year.

     4. In exchange for the receipt of the payment identified in paragraph 3, Giancola, on his own behalf and on behalf of the persons identified in paragraph 10 hereunder to the fullest extent allowed by law, hereby releases and forever discharges each and every one of the Released Parties from any and all past, present or future claims, debts, demands, actions, causes of action, suits, costs, damages, expenses, obligations, attorneys’ fees, and other liabilities whatsoever that Giancola has, may have had, or may have in the future relating to the Restricted Shares and which arose prior to the execution of this Settlement Agreement or which will or may arise after the execution of this Settlement Agreement, including but not limited to: (i) any claim for professional fees incurred by Giancola in preparing and filing amended tax returns; and (ii) the underlying State or Federal taxes assessed on the value of the Restricted Shares (including but not limited to income, FICA, Medicare, and unemployment taxes), and the penalties, interest, and other additions to tax asserted by the Internal Revenue Service, the Illinois Department of Revenue, or any other State or Federal agency with respect to the underpayment thereof.

     5. The parties further expressly agree and covenant that this Settlement Agreement operates as a bar and may be pleaded as a defense in any subsequent action or proceedings that may be brought, instituted, or taken by Giancola against any of the Released Parties in the future with respect to the claims released and discharged in paragraph 4 hereof by Giancola or any third party.

     6. Giancola expressly covenants not to sue any of the Released Parties in the future for payment or reimbursement of any amount related to income tax obligations arising from the Restricted Shares.

     7. Giancola acknowledges that the payment of the sums hereunder do not constitute an admission on the part of Midwest or any Released Party of any amount owed or alleged wrongful conduct on their part. Midwest and the other Released Parties do not admit, and expressly deny, liability of any kind to Giancola with respect to the Restricted Shares. Midwest and the Released Parties state that they are entering into this Settlement Agreement to avoid the future cost and expense of litigation.

     8. This Settlement Agreement shall be governed and enforced in accordance with the laws of the State of Illinois. Venue shall lie exclusively in the federal and state court in the Illinois county in which Midwest is headquartered. In the event an action is instituted for breach of this Settlement Agreement, each party shall bear its own attorney’s fees and costs, including attorney’s fees and costs on appeal.

     9. This Settlement Agreement has been negotiated at arms’ length between persons knowledgeable in the matters dealt with herein. Accordingly, any rule of law, or any legal decision that would require interpretation of any ambiguities in this Settlement Agreement against the party that has drafter it, is of no application and is hereby expressly waived.

     10. All of the terms, covenants, warranties and representations contained herein shall be binding upon the parties, and their respective spouses, executors, administrators, heirs, dependents, guardians, personal representatives for estate or probate matters, assigns, officers, shareholders, directors, principals, successors, employees, agents, beneficiaries, subrogees, and predecessors in interest, to the fullest extent permitted by law.

     11. Giancola acknowledges that he, and only he, is obligated to satisfy any and all liabilities to the Internal Revenue Service, Illinois Department of Revenue, and any other State or Federal agency with respect to unpaid or underpaid tax obligations related to the Restricted Shares. Giancola further agrees to defend, indemnify, and hold-harmless the Released Parties against any and all causes of action, claims, demands, subrogation interests and/or liens, whether known or unknown, whether currently existing or arising in the future, arising out of or in connection with the Restricted Shares.

     12. This Settlement Agreement constitutes the entire agreement between the parties and supersedes all prior agreements, oral or otherwise, with respect to the subject matter hereof. Neither this Settlement Agreement nor any term hereof may be changed, waived, discharged or terminated orally, except by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought.

* * * * *

     IN WITNESS WHEREOF, the parties hereto have executed this Settlement Agreement as of the latest date below.

/s/ James J. Giancola	MIDWEST BANC HOLDINGS, INC.
JAMES J. GIANCOLA
	By: /s/ JoAnn Sannasardo Lilik
Date: 11/6/08	Printed Name: JoAnn Sannasardo Lilik EVP
	Title: Chief Financial Officer
	Date: November 6, 2008

EX-10.63

EXHIBIT 10.63

61 EAST VAN BUREN STREET

RETAIL LEASE

BY AND BETWEEN

BUCKINGHAM MASTER TENANT, LLC, an Illinois
limited liability company

(“LANDLORD”),

AND

MIDWEST BANK AND TRUST CO., an Illinois banking corporation

(“TENANT”)

TABLE OF CONTENTS

		Page
1.	DEMISE AND TERM; BUILDING		3
2.	RENT		4
3.	USE AND OPERATION		8
4.	CONSTRUCTION OF BASE BUILDING; POSSESSION; “AS-IS” CONDITION OF PREMISES		9
5.	BUILDING SERVICES		10
6.	RULES AND REGULATIONS		11
7.	CERTAIN RIGHTS RESERVED TO LANDLORD		12
8.	MAINTENANCE AND REPAIRS		12
9.	ALTERATIONS		13
10.	INTENTIONALLY OMITTED		14
11.	INSURANCE		14
12.	WAIVER AND INDEMNITY		15
13.	FIRE AND CASUALTY		16
14.	CONDEMNATION		17
15.	ASSIGNMENT AND SUBLETTING		17
16.	SURRENDER		18
17.	DEFAULTS AND REMEDIES		18
18.	HOLDING OVER		20
19.	SECURITY DEPOSIT		20
20.	SECURITY INTEREST		21
21.	ESTOPPEL CERTIFICATE		21
22.	SUBORDINATION		22
23.	QUIET ENJOYMENT		22
24.	BROKER		22
25.	NOTICES		22
26.	BASE BUILDING; TENANT IMPROVEMENTS		23
27.	MISCELLANEOUS		25

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61 EAST VAN BUREN
RETAIL LEASE

     THIS RETAIL LEASE (“Lease”) is made this                      day of ___________________, 2008, (the “Execution Date”) between BUCKINGHAM MASTER TENANT, LLC, an Illinois limited liability company (“Landlord”), and MIDWEST BANK AND TRUST CO., an Illinois banking corporation (“Tenant”), for space in the building located at the property legally described on Exhibit A attached hereto and commonly known as 61 East Van Buren Street, Chicago, Illinois (such building, together with the land upon which it is situated, being herein referred to as the “Building”). The following schedule (the “Schedule”) sets forth certain basic terms of this Lease:

1.	Premises:	The ground floor retail space located on Van Buren Street and shown on Exhibit A-1 attached hereto and designated as Space R-1 on the attached retail floor plan.
2.	Rentable Square Feet of the Premises:	4,665 Rentable Square Feet
3.	Rentable Square Feet of the Building:	134,413 Rentable Square Feet
4.	Annual Minimum Rent:	Year 1: $209,925.00
		Year 2: $214,123.50
		Year 3: $218,405.97
		Year 4: $222,774.08
		Year 5: $227,229.56
		Year 6: $231,774.15
		Year 7: $236,409.63
		Year 8: $241,137.82
		Year 9: $245,960.57
		Year 10: $250,879.78
		First Option Term:
		Year 1: $258,406.17
		Year 2: $266,158.35
		Year 3: $274,143.10
		Year 4: $282,367.39
		Year 5: $290,838.41
		Second Option Term:
		Year 1: $299,563.56
		Year 2: $308,550.46
		Year 3: $317,806.97

		Year 4: $327,341.17
		Year 5: $337,161.40
5.	Monthly Minimum Rent:	Year 1: $17,493.75
		Year 2: $17,843.63
		Year 3: $18,200.50
		Year 4: $18,564.51
		Year 5: $18,935.80
		Year 6: $19,314.51
		Year 7: $19,700.80
		Year 8: $20,094.82
		Year 9: $20,496.71
		Year 10: $21,906.65
		First Option Term:
		Year 1: $21,533.85
		Year 2: $22,179.86
		Year 3: $22,845.26
		Year 4: $23,530.62
		Year 5: $24,236.53
		Second Option Term:
		Year 1: $24,963.63
		Year 2: $25,712.54
		Year 3: $26,483.91
		Year 4: $27,278.43
		Year 5: $28,096.78
6.	Tenant’s Exterior CAM Expenses:	Year 1: $3.25 per rentable square foot
		Year 2: $3.35 per rentable square foot
		Year 3: $3.45 per rentable square foot
		Year 4: $3.55 per rentable square foot
		Year 5: $3.66 per rentable square foot
		Year 6: $3.77 per rentable square foot
		Year 7: $3.88 per rentable square foot
		Year 8: $4.00 per rentable square foot
		Year 9: $4.12 per rentable square foot
		Year 10: $4.24 per rentable square foot

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		First Option Term:
		Year 1: $4.37 per rentable square foot
		Year 2: $4.50 per rentable square foot
		Year 3: $4.64 per rentable square foot
		Year 4: $4.78 per rentable square foot
		Year 5: $4.92 per rentable square foot
		Second Option Term:
		Year 1: $5.07 per rentable square foot
		Year 2: $5.22 per rentable square foot
		Year 3: $5.38 per rentable square foot
		Year 4: $5.54 per rentable square foot
		Year 5: $5.71 per rentable square foot
7.	Tenant’s Proportionate Share of Taxes:	3.5%
8.	Name of Business:	Midwest Bank and Trust Co., an Illinois banking corporation
9.	Use of Premises:	The establishment and operation of a retail banking facility, and for all other purposes incidental to the operation of a retail banking facility, and for no other purpose.
10.	Radius:	One (1) mile.
11.	Security Deposit:	Thirty Four Thousand Nine Hundred Eight Seven and 50/100 Dollars ($34,987.50).
12.	Brokers:	Adam Secher and Allen Joffe of Baum Realty Group, LLC and John Conerty of Studley Inc.
13.	Commencement Date:	January 1, 2009
14.	Expiration Date:	December 31, 2018
15.	Option Terms:	Two (2) option terms of five (5) years each at the Annual Minimum Rent and Monthly Minimum Rent as shown in Items 4 and 5 above of this Schedule.
16.	Guarantor:	Midwest Banc Holdings Inc., a(n) ______corporation. Concurrent with Tenant’s

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		execution and delivery of this Lease, Tenant shall cause Guarantor to execute and deliver a guaranty in favor of Landlord on a form reasonably approved by Landlord.
17.	Turnover Date:	As defined in Section 26.C. below.
18.	Projected Turnover Date:	First business day following full mutual execution of the Lease.
19.	Workletter:	The Tenant Workletter Agreement attached hereto and incorporated herein as Exhibit B.

     1. DEMISE AND TERM; BUILDING.

     A. Demise and Term. Landlord leases to Tenant and Tenant leases from Landlord the premises (the “Premises”) described in Item 1 of the Schedule and shown on Exhibit A-1 attached hereto, subject to the covenants and conditions set forth in this Lease, for a term (the “Term”) commencing on (the “Commencement Date”) and expiring on the date (the “Expiration Date”) described in Item 14 of the Schedule, unless terminated earlier as otherwise provided in this Lease.

     In the event that Landlord has not tendered possession of the Premises to Tenant in the condition required by Section 26.A. on or before the Projected Turnover Date, then Landlord shall not be liable or responsible for any claims, damages or liabilities in connection therewith or by reason thereof, and the Commencement Date shall not be affected thereby.

     B. Option to Extend. Subject to the terms of this Section 1.B, Tenant shall have two (2) options to extend the Term for additional periods of five (5) years each (together, the “Option Terms” and each an “Option Term”), such Option Terms to begin upon the expiration of the Term, or the first option term (“First Option Term”), as the case may be, on the same terms and conditions set forth herein, except that (i) an Option Term, once exercised cannot be exercised again, (ii) no Rent concessions, abatements, lease buyouts, tenant allowances or limitations on tax or expense pass-throughs granted with respect to the Term hereof shall be applicable to an Option Term, (iii) Annual Minimum Rent and Monthly Minimum Rent for an Option Term shall be as set forth in Items 4 and 5 of the Schedule.

     If Tenant desires to extend the Term for an Option Term, Tenant shall deliver written notice (“Extension Notice”) to Landlord to such effect no later than nine (9) months prior to the expiration of the initial Term, or the First Option Term, as the case may be, time being of the essence. If not so exercised, Tenant’s option to extend shall thereupon automatically expire. Once Tenant delivers the Extension Notice to the Landlord, as provided above, Tenant’s election to extend the Term shall be irrevocable by Tenant.

     In order to exercise its option to extend, on the date that Tenant exercises its option as well as on the date that the Option Term is to commence, no event of default shall exist and no event shall exist which, by the giving of notice or the passage of time, or both, would mature into a default.

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     C. Except to the extent provided herein, Landlord shall have no obligation to construct any other buildings or improvements on the Land and shall have the right to modify, alter and otherwise change the Building (including the design and/or construction plans therefor), from time to time, in its sole discretion; provided, however, any of Landlord’s modifications to the access to the Premises shall not have a material, adverse and permanent effect on the conduct of Tenant’s business in the normal course. In the event of any changes to the initial design of the Base Building from that contemplated as of the Execution Date, such that the Rentable Square Feet of the Premises and/or the Rentable Square Feet of the Building changes from that set forth herein, then, in such case, Landlord’s architect shall certify the new Rentable Square Feet calculations to Landlord and Tenant and the parties shall enter into an amendment (or amendment and restatement) of this Lease making the appropriate changes corresponding to such modified calculations (including, without limitation, changes to the “Minimum Rent”, and the “Landlord’s Contribution”, as such terms are defined in this Lease and/or the Workletter, and any other amounts expressly set forth herein as being determined based on a stated rate per rentable square foot). There shall be no change to the Landlord’s Work (as defined in Section 26.A) after the Execution Date.

     2. RENT.

     A. Definitions. For purposes of this Lease, the following terms shall have the following meanings:

     (i) “Exterior Common Areas” shall mean the areas of the Building (and exterior portions of the Building) which are designated by Landlord for use in common by the retail and other tenants of the Building, their respective employees, agents, customers and invitees, and includes, by way of illustration and not limitation, entrances and exits, private and public sidewalks, driveways, landscaped areas and other areas as may be designated by Landlord as part of the Exterior Common Areas. Landlord reserves the right to modify, alter and otherwise change the Exterior Common Areas from time to time in its sole discretion, subject to any limitations expressly set forth in this Lease, including the limitation in Section 1.C above. By execution of this Lease, Tenant hereby acknowledges that the residential occupants of the Building and their invitees shall be permitted to have access to the Exterior Common Areas, as and to the extent permitted by the Landlord from time to time.

     (ii) “Tenant’s Exterior CAM Expenses” shall mean all expenses, costs and disbursements (other than Taxes) paid or incurred by Landlord in connection with the ownership, management, maintenance, operation, replacement and repair of the Common Areas of the Building. Tenant’s Exterior CAM Expenses shall not include: (a) costs of tenant alterations; (b) costs of capital improvements (except for costs of any capital improvements made or installed for the purpose of reducing Expenses or made or installed pursuant to governmental requirement or insurance requirement, which costs shall be amortized by Landlord in accordance with sound accounting and management principles); (c) interest and principal payments on mortgages (except interest on the cost of any capital improvements for which amortization may be included in the definition of Tenant’s Exterior CAM Expenses) or any rental payments on any ground leases (except for rental payments which

5

constitute reimbursement for Taxes and Tenant’s Exterior CAM Expenses); (d) advertising expenses and leasing commissions; (e) any cost or expenditure for which Landlord is reimbursed, whether by insurance proceeds or otherwise, except through Adjustment Rent (hereinafter defined); (f) legal expenses of negotiating leases; and (g) salaries and fringe benefits of employees above the grade of building manager. Tenant’s Exterior CAM Expenses shall be determined on a cash or accrual basis, as Landlord may elect.

     (iii) “Rent” shall mean Minimum Rent, Adjustment Rent and any other sums or charges due by Tenant hereunder.

     (iv) “Taxes” shall mean all taxes, assessments, special assessments and fees levied upon the Building, the property of Landlord located therein or the rents collected therefrom, by any governmental entity based upon the ownership, leasing, renting or operation of the Building, including all costs and expenses of protesting any such taxes, assessments or fees and shall also include Landlord’s reasonable legal or other professional fees incurred in connection with any successful appeal by Landlord for a real estate tax reduction for the Building. Taxes shall not include any net income, capital stock, succession, transfer, franchise, gift, estate or inheritance taxes; provided, however, if at any time during the Term, a tax or excise on income is levied or assessed by any governmental entity, in lieu of or as a substitute for, in whole or in part, real estate taxes or other ad valorem taxes, such tax shall constitute and be included in Taxes. For the purpose of determining Taxes for any given year, the amount to be included for such year (a) from special assessments payable in installments shall be the amount of the installments (and any interest) due and payable during such year, and (b) from all other Taxes shall be the amount due and payable in such year.

     (v) “Tenant’s Proportionate Share of Taxes” shall mean 3.5%, determined by dividing the Rentable Square Feet in the Premises (4,665 square feet) by the Rentable Square Feet of the Building (134,413 square feet). If at any time during the Term Landlord elects to sell only the residential portion of the Building, and a separate tax parcel is thereafter established for the retail portion of the Building, then Tenant’s Proportionate Share of Taxes shall be determined by dividing the Rentable Square Feet in the Premises by the Rentable Square Feet in the retail portion of the Building (which shall include a fair allocation of the Common Areas which serve or benefit the retail portion of the Building to such an extent as Landlord, in its reasonable discretion, deems to be equitable and fair in view of the relative level of benefits).

     B. Components of Rent. Tenant agrees to pay the following amounts to Landlord at the office of the Building or at such other place as Landlord designates:

     (i) Annual minimum rent (“Minimum Rent”) in the amounts set forth in Item 5 of the Schedule to be paid in monthly installments in the amount set forth in Item 6 of the Schedule in advance on or before the first day of each month of the Term, except that Tenant shall pay the first month’s Minimum Rent upon the Commencement Date.

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     (ii) Adjustment rent (“Adjustment Rent”) in an amount equal to Tenant’s Proportionate Share of the Taxes for each calendar or tax year. Prior to each calendar year or as soon thereafter as is reasonably possible, Landlord shall estimate the amount of Adjustment Rent due for such year and notify Tenant of such estimate, and Tenant shall pay Landlord one-twelfth of such estimate on the first day of each month during such year. Until such time as Landlord furnishes an estimate of Adjustment Rent for a calendar year, Tenant shall continue to pay to Landlord a monthly estimated payment on account of Adjustment Rent on the first day of each month during such year equal to the latest monthly estimated payment due for the preceding calendar year. The estimate of Adjustment Rent for any calendar year may be revised by Landlord whenever it obtains information relevant to making such estimate more accurate. On or before the first day of the next calendar month following Landlord’s service of a notice of estimated Adjustment Rent, and on or before the first month thereafter, Tenant shall pay to Landlord one-twelfth of the estimated Adjustment Rent shown in such notice. Within thirty (30) days following Landlord’s service of a notice of estimated Adjustment Rent, Tenant shall also pay to Landlord a lump sum equal to the estimated Adjustment Rent shown in such notice less (1) any previous payment on account of Adjustment Rent made during such calendar year and (2) the estimated monthly payments on account of Adjustment Rent due for the remainder of such calendar year. After the end of each calendar year, Landlord shall deliver to Tenant a report setting forth the actual Taxes for such calendar year and a statement of the amount of Adjustment Rent that Tenant has paid and is payable for such year. Within thirty days after receipt of such report, Tenant shall pay to Landlord the amount of Adjustment Rent due for such calendar year minus any payments of Adjustment Rent made by Tenant for such year. If Tenant’s estimated payments of Adjustment Rent exceed the amount due Landlord for such calendar year, Landlord shall apply such excess as a credit against Tenant’s other obligations under this Lease or promptly refund such excess to Tenant if the Term has already expired, provided Tenant is not then in default hereunder, in either case without interest to Tenant.

     (iii) Tenant’s Exterior CAM Expenses in the amount set forth in Item 6 of the Schedule to be paid in monthly installments on or before the first day of each month of the Term (and the Option Term(s), if applicable). Tenant’s obligation to pay Tenant’s Exterior CAM Expenses shall not deviate from the amounts set forth in Item 6 of the Schedule regardless of the actual costs thereof incurred by Landlord from year to year.

     C. Payment of Rent. The following provisions shall govern the payment of Rent: (i) if this Lease commences or ends on a day other than the first day or last day of a calendar year, respectively, the Rent for the year in which this Lease so begins or ends, shall be prorated and the monthly installments shall be adjusted accordingly; (ii) all Rent shall be paid to Landlord without offset or deduction, and the covenant to pay Rent shall be independent of every other covenant in this Lease; (iii) if during all or any portion of any year the Building is not fully rented and occupied, Landlord may elect to make an appropriate adjustment of Taxes for such year to determine the Taxes that would have been paid or incurred by Landlord had the Building been fully rented and occupied for the entire year and the amount so determined shall be deemed to have been the Taxes for such year; (iv) any sum due from Tenant to Landlord which is not paid when due shall bear interest from the date due until the date paid at the annual rate of two (2) percentage points above the rate then most recently announced by JPMorgan Chase Bank,

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NA as its corporate base lending rate, from time to time in effect, but in no event higher than the maximum rate permitted by law (the “Default Rate”) and, in addition Tenant shall pay Landlord a late charge for any Rent payment which is paid more than five days after its due date equal to five percent of such payment; (v) if changes are made to this Lease or the Building changing the number of rentable square feet contained in the Premises or in the Building, Landlord shall make an appropriate adjustment to Tenant’s Proportionate Share; (vi) Tenant shall have the right to inspect Landlord’s accounting records relative to Tenant’s Exterior CAM Expenses and Taxes during normal business hours at any time within thirty days following the furnishing to Tenant of the annual statement of Adjustment Rent as it relates to the Taxes covered in such statement, and unless Tenant shall take written exception to any item in any such statement within such thirty (30) day period, such statement shall be considered as final and accepted by Tenant; (vii) in the event of the termination of this Lease prior to the determination of any Adjustment Rent, Tenant’s agreement to pay any such sums and Landlord’s obligation to refund any such sums (provided Tenant is not in default hereunder) shall survive the termination of this Lease; (viii) no adjustment to Taxes by virtue of the operation of the rent adjustment provisions in this Lease shall result in the payment by Tenant in any year of less than the Minimum Rent shown on the Schedule; (ix) Landlord may at any time change the fiscal year of the Building; (x) each amount owed to Landlord under this Lease for which the date of payment is not expressly fixed shall be due on the same date as the Rent listed on the statement showing such amount is due; (xi) if Landlord fails to give Tenant an estimate of Adjustment Rent prior to the beginning of any calendar year, Tenant shall continue to pay Adjustment Rent at the rate for the previous calendar year until Landlord delivers such estimate.

     3. USE AND OPERATION.

     A. Limitation On Use. Tenant agrees that it shall occupy and use the Premises only under the name set forth in Item 8 of the Schedule and only for the retail business set forth in Item 9 of the Schedule and will not use any other name or conduct any other business on the Premises. Tenant agrees that it will conduct such business in the same manner as is typically conducted by similar banks in the downtown Chicago area.

     B. Tenant’s Operating Covenants. Tenant agrees to open the Premises as a fully fixtured retail banking facility, fully staffed and ready to operate continuously in accordance with this Lease, no later than March 31, 2009 (the “Required Opening Date”), and to continuously use and occupy the entire Premises for the business set forth above and under the name permitted hereunder during the entire Term. In furtherance thereof, Tenant agrees to keep the Premises fully fixtured and staffed with sufficient professional personnel to assure successful operation of the business. Tenant shall keep the Premises open for business at least during Retail Hours (as hereinafter defined) except when prevented from doing so by strikes, fires, casualties and other causes beyond Tenant’s reasonable control and except that Tenant may, following reasonable notice to Landlord, discontinue or suspend operation of the business for not more than two (2) weeks on any occasion in order to renovate or remodel the Premises, but may not do so more than once during any five (5) year period during the Term. In addition, Tenant shall keep its store front lighted during such other hours as Landlord may prescribe pursuant to a signage and lighting plan submitted by Tenant and approved in writing by Landlord. Tenant shall provide, within the Premises, adequate employee areas and other special areas necessary for the proper conduct of Tenant’s business, but shall use for such purposes and for office or other non-banking

8

purposes only such space as is reasonably required for the conduct by Tenant of the permitted use in the Premises. As used in this Lease, the term “Retail Hours” means daily from 8:00 a.m. to 5:00 p.m. Monday through Friday, holidays excepted.

     C. Specific Nature of Tenant’s Business. Tenant agrees to operate a full-service retail banking facility in the Premises which at all times shall meet the highest standards of cleanliness, maintenance and decor, so that the retail banking facility will be commensurate with the quality of other first-class retail banking facilities in the City of Chicago. Tenant understands that Tenant’s agreement to the foregoing is a material inducement to Landlord to enter into this Lease.

     All displays of merchandise and promotions in the Premises shall be in keeping, as reasonably determined by Landlord, with the character and quality of the retail banking facility contemplated by this Lease and the character and quality of the Building. Tenant shall provide, within the Premises, adequate customer waiting areas and shall not use the Building lobby as a waiting area for customers without Landlord’s prior written approval. Notwithstanding the foregoing, Tenant shall neither be required nor be permitted to make any changes or alterations to the exterior of the Building.

     D. Premises Entrance; Building Lobby. Tenant shall maintain an entrance to the Premises at Van Buren Street and at the rear of the Premises. The entrance on Van Buren Street shall be the primary entrance to the Premises for Tenant’s invitees and customers and the entrance at the rear of the Premises shall be the primary entrance for Tenant’s employees, contractors and agents. All deliveries to the Premises shall be coordinated with the Building manager and made only from the rear entrance to the Premises. Tenant shall maintain and heat a vestibule entrance on Van Buren Street.

     E. Signs. Tenant shall not install any signs or lettering or place any other advertising materials on the exterior surface of the Building or Premises or elsewhere outside the Premises or inside the Premises without the prior written consent of Landlord, which may be granted or withheld in Landlord’s sole discretion. All lettering, signs and other advertising materials in the Premises which are visible from outside of the Premises or Building or from the Building lobby shall be subject to Landlord’s prior written approval (to be granted or withheld in Landlord’s reasonable discretion) of their size, design and number and, in any event, consistent with the signage requirements set forth on Exhibit C to this Lease. All lettering, signs and other advertising materials in the Premises, whether or not visible from the outside of the Premises, shall be consistent with first-class retail operations and, in any event, consistent with the signage requirements set forth on Exhibit C to this Lease. Tenant accepts and understands that the Building is a registered landmark of the City of Chicago and is on the National Register of Historic Places. Accordingly, Tenant agrees that its right to install signage consistent with the design of its other branch banks is subject to the review, approval, and permitting of Landmarks Illinois and the City of Chicago and any other applicable state or national agencies with jurisdiction over the Building’s landmark status. After initial installation of any signage, Tenant may not without Landlord’s consent change its signage to conform to changes in its company sign program. Landlord will be reasonable in its review and approval of such changes in signage so long as such signage is consistent in size, design and quality with Tenant’s initial signage and

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such signage remains in accordance with all City, State or Federal requirements and applicable codes applying to historic landmark structures.

     F. Compliance with Laws. Tenant shall comply with all federal, state and municipal laws, ordinances, rules and regulations (including, without limitation, the Chicago Clean Indoor Air Ordinance of 2005) and all covenants, conditions and restrictions of record which relate to the condition, use or occupancy of the Premises. Without limiting the foregoing, Tenant shall not cause, nor permit, any hazardous or toxic substances to be brought upon, produced, stored, used, discharged or disposed of in, on or about the Premises except (i) with the prior written consent of Landlord, or (ii) as to small amounts used in the ordinary course of Tenant’s business (e.g., printing supplies), and in either case only in compliance with all applicable environmental laws. In addition, Tenant shall not use the Premises for any unlawful, disreputable, immoral or unethical purpose, nor shall Tenant do anything which would injure the reputation of the Building.

     4. CONSTRUCTION OF BASE BUILDING; POSSESSION; “AS-IS” CONDITION OF PREMISES.

     A. Construction of Base Building. Landlord will perform, or cause to be performed, the Landlord’s Work (as defined in Section 26 hereof). Landlord shall perform such work in accordance with the terms of said Section 26. Upon the Turnover Date, at Landlord’s request, Landlord and Tenant shall enter into a written agreement containing Tenant’s acknowledgment that the “Substantial Completion” requirements set forth in said Section 26 have been met.

     B. Condition of Premises; As-Is. Tenant’s taking possession of the Premises shall be conclusive evidence that the Premises were in good order and satisfactory condition when Tenant took possession. Except for Landlord’s obligation to perform the Landlord’s Work as set forth in accordance with the terms of Section 26 hereof, Tenant shall accept the Premises and the Building “as is”. Tenant hereby acknowledges that Landlord has made no agreement to alter, remodel, decorate, clean or improve the Premises or the Building (or to provide Tenant with any credit or allowance for the same), and no representation regarding the condition of the Premises or the Building have been made by or on behalf of Landlord or relied upon by Tenant, except as expressly stated herein or in the Workletter, and except for Landlord’s obligation to perform the Landlord’s Work as set forth in, and in accordance with the terms of, Section 26 hereof. Landlord acknowledges and agrees that as of the Turnover Date, to the best of Landlord’s knowledge, the exterior of the Premises and of the Building and the Building systems are in good working order, condition and repair and in compliance with applicable laws. Further, Landlord will indemnify, hold harmless and reimburse Tenant from and against any and all fines and reasonable direct remedial costs and expenses (including reasonable legal expenses and consultants’ fees) that Tenant may incur due to a clean up, abatement, removal, or other remedial response required of Tenant by an appropriate governmental authority resulting from or caused by any asbestos being on or about the Premises on the Turnover Date.

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     5. BUILDING SERVICES.

     A. HVAC. Tenant shall install at its own cost and expense such heating, ventilating, air conditioning and exhaust facilities in the Premises as shall be required for the conduct of its business in the Premises. If Tenant fails to install adequate facilities for such purposes and such failure adversely affects the operation of the Base Building heating, ventilating and air conditioning “HVAC”) system, Landlord may install supplementary facilities in the Premises or, at Landlord’s option, elsewhere in the Building, and Tenant shall pay the cost of installation, operation and maintenance thereof. In addition, if Tenant fails to install adequate heating, ventilating, air conditioning and exhaust facilities for the conduct of Tenant’s business in the Premises and such failure adversely affects the operation of the Base Building heating, ventilating and air conditioning system Landlord may make such modifications to the Base Building heating, ventilating and air conditioning system (as distinguished from supplementary facilities installed by Landlord or Tenant pursuant to the preceding provisions of this Section) as are required for the conduct of Tenant’s business in the Premises, and Tenant shall pay the actual cost thereof. If Tenant does install HVAC facilities for the purposes described above, and, as a result thereof, needs to connect to Landlord’s tempered water system, Tenant shall be required to pay the cost and associated costs to shut down and restart the Building system(s) to allow Tenant to hook up Tenant’s HVAC equipment and, in addition, shall be required to pay Landlord a monthly usage fee for the tempered water used by Tenant for the operation of Tenant’s HVAC equipment to be connected to Landlord’s tempered water loop. The monthly usage fee for Tenant’s use of such tempered water shall be equitably calculated on a square footage basis or by such other reasonable and consistent method that reflects Landlord’s costs therefor. All such fees shall be payable by Tenant to Landlord as Additional Rent in accordance with this Lease. In no event shall Tenant be entitled to use more than its proportionate share of the Building’s excess tempered water capacity. The size and design of the HVAC facilities, the manner in which the HVAC facilities will be vented and access outside air, if applicable, or the manner in which Tenant connects to Landlord’s tempered water system, including, without limitation, the routing of any water lines, shall be subject to Landlord’s prior reasonable written approval. Tenant shall be responsible, at its cost, for maintaining and repairing the HVAC facilities in the Premises to the reasonable satisfaction of Landlord. Landlord agrees to maintain the Base Building heating, venting, and air conditioning system in good working order.

     B. Water. In addition to and separate from the tempered water for Tenant’s use in heating and cooling the Premises in accordance with Section 5.A above, Landlord shall furnish domestic cold water to the Premises from the regular Building outlets. Water lines shall be stubbed to the Premises at Landlord’s expense. Landlord shall separately charge (and separately meter, if possible) Tenant for domestic cold water and sewer services used in the Premises based on metered usage.

     C. Electricity. Landlord has caused the Premises to be separately metered for electrical use. Electricity shall be distributed to the Premises by the electric utility company serving the Building; and Landlord shall permit Landlord’s conduits, which shall be stubbed to the Premises, to the extent suitable and safely capable, to be used for such distribution. Tenant at its cost shall make all necessary arrangements with the electric utility company for metering and paying for electric current furnished to the Premises (including, without limitation, all arrangements for, at Tenant’s expense, electrical wiring, distribution panels and all of Tenant’s

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installed heating and air conditioning equipment). From and after the Turnover Date, all electricity and water used during the making of any alterations or repairs in the Premises or the operation of any special heating or air conditioning systems (referred to as the “heat pump system” by Landlord) serving the Premises shall be paid for by Tenant.

     D. Telephones. Tenant shall arrange for telephone service directly with one or more of the public telephone companies servicing the Building and shall be solely responsible for paying for such telephone service. If Landlord has or at any time acquires ownership of the telephone cables in the Building, Landlord shall permit Tenant to connect to such cables on such terms and conditions as Landlord may reasonably prescribe. In no event does Landlord make any representation or warranty with respect to telephone service in the Building, and Landlord shall have no liability with respect thereto. Subject to the provisions of Sections 9, 11 and 12 of this Lease, Landlord agrees to provide Tenant and Tenant’s contractors reasonable, monitored access to the Building telephone and communications closets or service areas for the purposes of establishing Tenant’s communications services.

     E. Additional Services. Landlord shall not be obligated to furnish any services other than those stated above. If Tenant requests services in addition to those stated above and Landlord elects to furnish such additional services, Tenant shall pay Landlord’s then prevailing charges for such additional services. If Tenant shall fail to make any such payment, Landlord may, without notice to Tenant and in addition to all other remedies available to Landlord, discontinue such additional services. No discontinuance of any such additional service shall result in any liability of Landlord to Tenant or be considered as an eviction or a disturbance of Tenant’s use of the Premises. Tenant may request to participate in Landlord’s satellite television system for an additional fee for such services. Tenant may also use another television signal provider, but only upon prior written approval from Landlord.

     F. Failure or Delay in Furnishing Services. Landlord’s failure to furnish, or any interruption, diminishment or termination of services due to the application of laws, the failure of any equipment, the performance of maintenance, repairs, improvements or alterations, utility interruptions or the occurrence of an event of force majeure (defined in Section 27.J) (collectively a “Service Failure”) shall not render Landlord liable to Tenant, constitute a constructive eviction of Tenant, give rise to an abatement of Rent, nor relieve Tenant from the obligation to fulfill any covenant or agreement. However, if the Premises, or a material portion of the Premises, are made untenantable for a period in excess of 5 consecutive Business Days as a result of a Service Failure that is reasonably within the control of Landlord to correct, then Tenant, as its sole remedy, shall be entitled to receive an abatement of Rent payable hereunder during the period beginning on the 6^th consecutive Business Day of the Service Failure and ending on the day the service has been restored. If the entire Premises have not been rendered untenantable by the Service Failure, the amount of abatement shall be equitably prorated.

     6. RULES AND REGULATIONS. Tenant shall observe and comply, and shall cause its subtenants, assignees, invitees, customers, employees, contractors and agents to observe and comply, with the rules and regulations listed on Exhibit D attached hereto and with such reasonable modifications and additions thereto as Landlord may make from time to time. Landlord shall not be liable for failure of any person to obey such rules and regulations. Landlord shall not be obligated to enforce such rules and regulations against any person, and the

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failure of Landlord to enforce any such rules and regulations shall not constitute a waiver thereof or relieve Tenant from compliance therewith.

     7. CERTAIN RIGHTS RESERVED TO LANDLORD. Landlord reserves the following rights, each of which Landlord may exercise without notice to Tenant and without liability to Tenant, and the exercise of any such rights shall not be deemed to constitute an eviction or disturbance of Tenant’s use or possession of the Premises and shall not give rise to any claim for set-off or abatement of rent or any other claim: (a) to change the name or street address of the Building; (b) to install, affix and maintain any and all signs on the exterior or interior of the Building; (c) to make repairs, decorations, alterations, additions, or improvements, whether structural or otherwise, in and about the Building, and for such purposes to enter upon the Premises, temporarily close doors, corridors and other areas in the Building and interrupt or temporarily suspend services or use of Exterior Common Areas and other common areas of the Building, and Tenant agrees to pay Landlord for overtime and similar expenses incurred if such work is done other than during ordinary business hours, at Tenant’s request; (d) [intentionally omitted]; (e) to grant to any person or to reserve unto itself the exclusive right to conduct any business or render any service in the Building, as long as such right does not preclude Tenant from using the Premises for the purpose stated in Item 9 of the Schedule; (f) to show or inspect the Premises at reasonable times and, if vacated or abandoned, to prepare the Premises for reoccupancy; (g) to install, use and maintain in and through the Premises pipes, conduits, wires and ducts serving the Building, provided that such installation, use and maintenance does not unreasonably interfere with Tenant’s use of the Premises; (h) to adopt and record easements, reciprocal easement agreements and/or declarations of covenants, conditions and restrictions (whether related to the conversion of all or part of the Building to condominium ownership or otherwise) (collectively, the “CC&R’s”), and this Lease shall be at all times subject and subordinate in all respects to such CC&R’s and any and all liens and other rights arising therefrom; and (i) to take any other action which Landlord deems reasonable in connection with the operation, maintenance, management or preservation of the Building.

     8. MAINTENANCE AND REPAIRS.

     A. Tenant’s Maintenance. Tenant, at its expense, shall keep and maintain in first-class order, condition and repair, at all times during the Term, the Premises and every part thereof. Without limiting the foregoing, Tenant shall: (i) keep the storefronts, entry doors and the interior of the Premises in first-class condition and repair, and decorated in a first-class manner; (ii) keep in first-class condition and repair (and replace as necessary) all equipment, facilities and fixtures (including banking and teller equipment, hardware, electrical, plumbing and heating, ventilating and air conditioning facilities) located in or exclusively serving the Premises; (iii) repair (or replace as necessary) all damaged or broken plate glass in perimeter windows or within the Premises; (iv) cause an inspection, cleaning and repairing of Tenant’s fire prevention systems and equipment to be performed by a reputable contractor not less than annually, and more often as may be required by any local governmental codes, regulations or officials, insurance requirements or applicable industry standards, and provide Landlord upon request from time to time during the Term with documentary evidence of the performance of such inspections; (v) perform all cleaning and janitorial work in the Premises to keep the Premises clean, healthy, and in an attractive appearance, including, without limitation, cleaning on a weekly basis (or more frequently, if necessary), the interior and exterior surfaces of the

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exterior windows and storefronts of the Premises (and, if applicable, the interior and exterior surfaces of the glass comprising Tenant’s storefront located in the lobby of the Building); and (vi) remove all garbage, trash, rubbish and other refuse from the Premises on a daily basis, which removal shall be accomplished by Tenant in such manner and at such times as may be approved in advance by the Building manager) to the Building’s retail trash area. Tenant shall contract separately with, and use, the same garbage disposal vendor that Landlord utilizes with respect to waste from the balance of the Building.

     B. In addition, without limiting the foregoing, Tenant shall cause extermination services to be provided to the Premises by a reputable exterminator on a monthly basis throughout the Term, or more often as Landlord may in Landlord’s reasonable discretion require, at Tenant’s expense.

     Without limiting any of the foregoing, Tenant shall obtain and maintain a service and maintenance contract covering the heating, ventilating and air conditioning system serving the Premises with a reputable contractor approved by Landlord and a scope of services satisfactory to Landlord, and shall pay all charges under such contract when due.

     Within fifteen (15) days after Landlord’s request therefor at any time during the Term, Tenant shall furnish Landlord copies of all HVAC, maintenance and extermination contracts in effect with respect to the Premises. Tenant shall also, within fifteen (15) days of Landlord’s request therefor, provide evidence to Landlord of payment for services performed under such contracts.

     All services to the Premises shall be provided by a contractor or contractors reasonably satisfactory to Landlord, having good labor relations and capable of working in harmony with contractors retained by Landlord and by other tenants of the Building to provide services to or perform work in the Building.

     C. Landlord’s Maintenance. Subject to Section 8A above, Landlord shall perform any maintenance or make any repairs to the Building as Landlord shall deem necessary for the safety, operation or preservation of the Building, or as Landlord may be required or requested to do by the City of Chicago or by order or decree of any court or by any other proper authority, and shall maintain the structural components and the Exterior Common Areas and facilities of the Building as reasonably necessary and expected for first-class residential buildings (containing retail components therein) in downtown Chicago, to the extent that failure to do so would materially adversely affect Tenant’s use and occupancy of the Premises. Tenant shall reimburse Landlord for the cost of any such repairs to the Building necessitated by the acts or omissions of Tenant, its subtenants, assignees, invitees, customers, employees, contractors and agents.

     9. ALTERATIONS.

     A. Requirements. Tenant shall not make any replacement, alteration, improvement or addition to or removal from the Premises (collectively an “alteration”) without the prior written consent of Landlord, which consent will not be unreasonably withheld. In the event Tenant proposes to make any alteration, Tenant shall, prior to commencing such alteration,

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submit to Landlord for prior written approval: (i) detailed plans and specifications; (ii) sworn statements, including the names, addresses and copies of contracts for all contractors; (iii) all necessary permits evidencing compliance with all applicable governmental rules, regulations and requirements; (iv) certificates of insurance in form and amounts required by Landlord, naming Landlord and any other parties designated by Landlord as additional insureds; and (v) all other documents and information as Landlord may reasonably request in connection with such alteration. Tenant agrees to pay Landlord’s standard charges for review of all such items and supervision of the alteration. Neither approval of the plans and specifications nor supervision of the alteration by Landlord shall constitute a representation or warranty by Landlord as to the accuracy, adequacy, sufficiency or propriety of such plans and specifications or the quality of workmanship or the compliance of such alteration with applicable law. Tenant shall pay the entire cost of the alteration and, if requested by Landlord, shall deposit with Landlord, prior to the commencement of the alteration, security for the payment and completion of the alteration in form and amount required by Landlord. Each alteration shall be performed in a good and workmanlike manner, in accordance with the plans and specifications approved by Landlord, and shall meet or exceed the standards for construction and quality of materials established by Landlord for the Building. In addition, each alteration shall be performed in compliance with all applicable governmental and insurance company laws, regulations and requirements. Each alteration shall be performed by union contractors if required by Landlord and in harmony with Landlord’s employees, contractors and other tenants. Each alteration, whether temporary or permanent in character, made by Landlord or Tenant in or upon the Premises (excepting only Tenant’s furniture, equipment and trade fixtures) shall become Landlord’s property and shall remain upon the Premises at the expiration or termination of this Lease without compensation to Tenant, provided, however that Landlord shall have the right to require Tenant to remove any such alteration (other than Tenant’s Work described in Exhibit B) at Tenant’s sole cost and expense in accordance with the provisions of Section 16 of this Lease.

     B. Liens. Upon completion of any alteration, Tenant shall promptly furnish Landlord with sworn owner’s and contractors’ statements and full and final waivers of lien covering all labor and materials included in such alteration. Tenant shall not permit any mechanic’s lien to be filed against the Building, or any part thereof, arising out of any alteration performed, or alleged to have been performed, by or on behalf of Tenant. If any such lien is filed, Tenant shall within ten (10) business days after receipt of notice of the filing thereof (or within such additional period of time as is reasonably necessary if Tenant proceeds with diligence), have such lien released of record or deliver to Landlord a bond in form, amount, and issued by a surety satisfactory to Landlord, indemnifying Landlord against all costs and liabilities resulting from such lien and the foreclosure or attempted foreclosure thereof. If Tenant fails to have such lien so released or to deliver such bond to Landlord, Landlord, without investigating the validity of such lien, may pay or discharge the same; and Tenant shall reimburse Landlord upon demand for the amount so paid by Landlord, including Landlord’s expenses and attorneys’ fees.

     10. INTENTIONALLY OMITTED.

     11. INSURANCE.

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     A. Tenant’s Insurance. Tenant, at its expense, shall maintain at all times during the Term the following insurance policies: (a) fire insurance, including extended coverage, vandalism, malicious mischief, sprinkler leakage and water damage coverage and demolition and debris removal, insuring the full replacement cost of all improvements, alterations or additions to the Premises, and all other property owned or used by Tenant and located in the Premises; (b) commercial general liability insurance, contractual liability insurance and property damage insurance with respect to the Building and the Premises, with limits to be set by Landlord from time to time but in any event not less than $2,000,000.00 combined single limit for personal injury, sickness or death or for damage to or destruction of property for any one occurrence; (c) plate glass insurance in an amount equal to the replacement cost of all plate glass located in or on the Premises; (d) worker’s compensation insurance in an amount not less than maximum statutory limits of recovery and employer’s liability insurance in an amount not less than the statutory requirement; and (e) insurance against such other risks and in such other amounts as Landlord or its insurer may from time to time require, so long as such types or amounts of insurance are customarily required by owners of buildings comparable to the Building in downtown Chicago. The form of all such policies and deductibles thereunder shall be subject to the prior approval of Landlord and its insurance providers. All such policies shall be issued by insurers acceptable to Landlord and licensed to do business in the State of Illinois and shall contain a waiver of any rights of subrogation thereunder. In addition, except for worker’s compensation insurance, the policies shall name Landlord and any other parties designated by Landlord as additional insureds, shall require at least thirty days’ prior written notice to Landlord of termination or modification and shall be primary and not contributory. Tenant shall, at least thirty (30) days prior to taking possession of the Premises, and within thirty (30) days prior to the expiration of each such policy, deliver to Landlord certificates evidencing the foregoing insurance or renewal thereof, as the case may be.

     B. Landlord’s Insurance. Landlord shall maintain at all times during the Term such property and liability insurance as is from time to time customarily carried by prudent landlords of comparative residential apartment buildings (containing ancillary retail establishments therein) in downtown Chicago.

     12. WAIVER AND INDEMNITY.

     A. Tenant’s Waiver. Tenant releases Landlord and its partners, managers, members, agents, contractors and employees from, and waives all claims for, damage or injury to person or property and loss of business sustained by Tenant and resulting from the Building or the Premises or any part thereof or any equipment therein becoming in disrepair, or resulting from any accident in or about the Building, except to the extent any of the foregoing is caused by the negligence or willful misconduct of Landlord, its agents, employees or contractors. This paragraph shall apply particularly, but not exclusively, to flooding, the loss of utilities or utility services to the Building, damage caused by Building equipment and apparatus, water, snow, frost, steam, excessive heat or cold, broken glass, sewage, gas, odors, excessive noise or vibration or the bursting or leaking of pipes, plumbing fixtures or sprinkler devices.

     B. Mutual Waiver. Notwithstanding any other provisions of this Lease to the contrary, Landlord and Tenant each waives all claims and rights of recovery against the other and its respective partners, members, managers, agents, contractors and employees for any loss

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or damage to any property, which loss or damage is insured against, or required to be insured against, pursuant to Section 11 above, whether or not such loss or damage is due to the fault or negligence of any person, and regardless of the amount of insurance proceeds collected or collectible under any insurance policies in effect.

     C. Tenant’s Indemnity. Tenant agrees to indemnify, defend and hold harmless Landlord and its partners, members, managers, agents, contractors and employees, from and against any and all claims, demands, actions, liabilities, damages (other than consequential damages), costs and expenses (including attorneys’ fees), for injuries to any persons and damage to or theft or misappropriation or loss of property occurring in or about the Building and arising from the use and occupancy of the Premises or from any activity, work, or thing done, permitted or suffered by Tenant in or about the Premises (including, without limitation, any alteration by Tenant) or from any breach or default on the part of Tenant in the performance of any covenant or agreement on the part of Tenant to be performed under this Lease or due to any other act or omission of Tenant, its subtenants, assignees, invitees, employees, contractors and agents, except to the extent any of the foregoing is caused by the negligence or willful misconduct of Landlord, its agents, employees or contractors. Without limiting the foregoing, Tenant shall indemnify, defend and hold Landlord and each of aforementioned indemnified parties harmless from any claims, liabilities, damages, costs and expenses arising out of the use or storage of hazardous or toxic materials in the Building by Tenant. If any such proceeding is filed against Landlord or any such indemnified party, Tenant agrees to defend Landlord or such party in such proceeding at Tenant’s sole cost by legal counsel reasonably satisfactory to Landlord, if requested by Landlord.

     13. FIRE AND CASUALTY.

     A. If all or a substantial part of the Premises or the Building is rendered untenantable by reason of fire or other casualty, Landlord may, at its option, either restore the “core and shell” of the Building (including any elements thereof within the Premises), or terminate this Lease effective as of the date of such fire or other casualty. Landlord agrees to give Tenant written notice within sixty (60) days after the occurrence of any such fire or other casualty designating whether Landlord elects to so restore or terminate this Lease. If Landlord elects to terminate this Lease, Rent shall be paid through and apportioned as of the date of such fire or other casualty. If Landlord elects to restore, Landlord’s obligation to restore the Premises shall be limited to restoring those improvements in the Premises constituting portions of the core and shell of the Building (as the term “core and shell” is defined in Section 13.B. of this Lease below) and, without limiting the foregoing, shall exclude any furniture, equipment, fixtures, additions, alterations or improvements in or to the Premises which were made by Tenant. If Landlord elects to restore, Rent shall abate for that part of the Premises which is untenantable on a per diem basis from the date of such fire or other casualty until Landlord has substantially completed its repair and restoration work in the Premises, provided that Tenant does not occupy such part of the Premises during said period.

     B. The term “core and shell” shall mean and refer to the Base Building, including all components thereof consisting of the structural components of the Building (i.e., whether located within the Premises or elsewhere), the roof, the electrical, plumbing, mechanical, heating, ventilating and air conditioning systems (other than those utility systems that may be the

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responsibility of Tenant as set forth in Sections 5 or 8.A. above), all Common Areas, and specifically excludes the Tenant’s Work or any work related to tenant improvements constructed by or for Tenant or other tenants or installed within the Premises (other than the above described core and shell work) or within any other tenant’s premises.

     14. CONDEMNATION. If the Premises or the Building is rendered untenantable by reason of a condemnation (or by a deed given in lieu thereof), then either party may terminate this Lease by giving written notice of termination to the other party within thirty days after such condemnation, in which event this Lease shall terminate effective as of the date of such condemnation. If this Lease so terminates, Rent shall be paid through and apportioned as of the date of such condemnation. If such condemnation does not render the Premises or the Building untenantable, this Lease shall continue in effect and Landlord shall promptly restore the portion not condemned to the extent reasonably possible to the condition existing prior to the condemnation. In such event, however, Landlord shall not be required to expend an amount in excess of the proceeds received by Landlord from the condemning authority. Landlord reserves all rights to compensation for any condemnation. Tenant hereby assigns to Landlord any right Tenant may have to such compensation, and Tenant shall make no claim against Landlord or the condemning authority for compensation for termination of Tenant’s leasehold interest under this Lease or interference with Tenant’s business.

     15. ASSIGNMENT AND SUBLETTING.

     A. Landlord’s Consent. Tenant shall not, without the prior written consent of Landlord: (i) assign, convey, mortgage or otherwise transfer this Lease or any interest hereunder, or sublease the Premises, or any part thereof, whether voluntarily or by operation of law; (ii) employ any independent manager or operator to manage or operate Tenant’s business; (iii) enter into any franchise, concession, license or similar agreement with any person or entity to operate the Premises, or any part thereof; or (iv) permit the use of the Premises by any person other than Tenant and its employees. Any such transfer, sublease or use described in the preceding sentence (a “Transfer”) occurring without the prior written consent of Landlord shall be void and of no effect. Landlord’s consent to any Transfer shall not constitute a waiver of Landlord’s right to withhold its consent to any future Transfer. Landlord’s consent to any Transfer or acceptance of rent from any party other than Tenant shall not release Tenant from any covenant or obligation under this Lease. Landlord may require as a condition to its consent to any assignment of this Lease that the assignee execute an instrument in which such assignee assumes the obligations of Tenant hereunder. For the purposes of this paragraph, the transfer (whether direct or indirect) of all or a majority of the capital stock in a corporate Tenant (including the shares of the capital stock of a corporate Tenant whose stock is publicly traded) shall not be considered a Transfer, but a merger, consolidation or reorganization of such Tenant and the transfer of all or any general partnership interest in any partnership Tenant shall be considered a Transfer. So long as Tenant remains obligated for all payments and performance of Tenant’s obligations pursuant to the Lease, Tenant shall have the right during the Term and any Option Term, without Landlord’s prior consent, to assign this Lease to an affiliate or parent entity or to an entity which controls, is controlled by, or is under common control with Tenant. Tenant may assign this Lease to a successor to Tenant by merger, consolidation or the purchase of substantially all of Tenant’s assets, without the consent of Landlord, provided that all of the following conditions are satisfied (a “Business Transfer”): (a) Tenant must not be in default;

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(b) Tenant must give Landlord written notice at least 15 Business Days before such transfer; and (c) if such transfer will result from a merger or consolidation of Tenant with another entity, then the Credit Requirement (defined below) must be satisfied. Tenant’s notice to Landlord shall include information and documentation evidencing the Business Transfer and showing that each of the above conditions has been satisfied. If requested by Landlord, Tenant’s successor shall sign and deliver to Landlord a commercially reasonable form of assumption agreement. The “Credit Requirement” shall be deemed satisfied if, as of the date immediately preceding the date of the transfer, the financial strength of the entity with which Tenant is to merge or consolidate is not less than that of Tenant.

     B. Standards for Consent. If Tenant desires the consent of Landlord to a Transfer, Tenant shall submit to Landlord, at least sixty (60) days prior to the proposed effective date of the Transfer, a written notice which includes such information as Landlord may reasonably require about the proposed Transfer and the transferee. Landlord shall not unreasonably withhold or delay its consent to any assignment or sublease. Landlord further agrees to be reasonable in evaluating a Tenant request for a change of use received in connection with and as part of a request for Landlord consent to an assignment of the Lease by Tenant. Landlord shall not be deemed to have unreasonably withheld its consent if, in the judgment of Landlord: (i) the transferee is of a character, image or reputation which is not in keeping with the standards or criteria used by Landlord in leasing the retail components of the Building; (ii) the financial condition of the transferee is such that it may not be able to perform its obligations in connection with this Lease; (iii) the purpose for which the transferee intends to use the Premises or portion thereof differs in any material way from the use set forth in Item 9 of the Schedule; (iv) the transferee is a tenant or occupant of the Building; or (v) the Transfer is for less than all of the Premises. If Landlord wrongfully withholds its consent to any Transfer, Tenant’s sole and exclusive remedy therefor shall be to seek specific performance of Landlord’s obligation to consent to such Transfer.

     C. Excess Rents. If Landlord consents to any Transfer, Tenant shall pay to Landlord fifty percent (50%) of all rent and other consideration received by Tenant in excess of the Rent paid by Tenant hereunder for the portion of the Premises so transferred. Such excess rent shall be paid as and when received by Tenant. In addition, Tenant shall pay to Landlord any attorneys’ fees and expenses incurred by Landlord in connection with any proposed Transfer, whether or not Landlord consents to such Transfer.

     16. SURRENDER. Upon termination of the Term or Tenant’s right to possession of the Premises, Tenant shall return the Premises to Landlord in good order and condition, ordinary wear and damage by fire or other casualty excepted. If Landlord requires Tenant to remove any alterations pursuant to Section 9, then such removal shall be done in a good and workmanlike manner; and upon such removal Tenant shall restore the Premises to its condition prior to the installation of such alterations. If Tenant does not remove such alterations after request to do so by Landlord, Landlord may remove the same and restore the Premises; and Tenant shall pay the cost of such removal and restoration to Landlord upon demand. Tenant shall also remove its furniture, equipment, trade fixtures and all other items of personal property from the Premises prior to termination of the Term or Tenant’s right to possession of the Premises. If Tenant does not remove such items, Tenant shall be conclusively presumed to have conveyed the same to Landlord without further payment or credit by Landlord to Tenant; or at Landlord’s sole option

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such items shall be deemed abandoned, in which event Landlord may cause such items to be removed and disposed of at Tenant’s expense without notice to Tenant and without obligation to compensate Tenant.

     17. DEFAULTS AND REMEDIES.

     A. Default. The occurrence of any of the following shall constitute a default (a “Default”) by Tenant under this Lease: (i) Tenant fails to pay any Rent when due and such failure is not cured within five (5) days after written notice from Landlord (which notice may be in the form of a landlord statutory 5-day notice); (ii) Tenant fails to perform any other provision of this Lease and such failure is not cured within thirty (30) days (or immediately if the failure involves a hazardous condition) after written notice from Landlord; provided, however, if Tenant’s failure to perform cannot reasonably be cured within 30 days, Tenant shall be allowed additional time (not to exceed 90 days) as is reasonably necessary to cure the failure so long as Tenant begins the cure within 30 days and diligently pursues the cure to completion; (iii) the leasehold interest of Tenant is levied upon or attached under process of law; (iv) Tenant or any guarantor of this Lease dies or dissolves; (v) Tenant abandons or vacates the Premises or fails to open by March 31, 2009; or (vi) any voluntary or involuntary proceedings are filed by or against Tenant or any guarantor of this Lease under any bankruptcy, insolvency or similar laws and, in the case of any involuntary proceedings, are not dismissed within sixty (60) days after filing.

     B. Right of Re-Entry. Upon the occurrence of a Default, Landlord may elect to terminate this Lease or, without terminating this Lease, terminate Tenant’s right to possession of the Premises. Upon any such termination, Tenant shall immediately surrender and vacate the Premises and deliver possession thereof to Landlord. Tenant grants to Landlord the right to enter and repossess the Premises and to expel Tenant and any others who may be occupying the Premises and to remove any and all property therefrom, without being deemed in any manner guilty of trespass and without relinquishing Landlord’s rights to Rent or any other right given to Landlord hereunder or by operation of law.

     C. Reletting. If Landlord terminates Tenant’s right to possession of the Premises without terminating this Lease, Landlord may relet the Premises or any part thereof. In such case, Landlord shall use reasonable efforts to relet the Premises on such terms as Landlord shall reasonably deem appropriate; provided, however, Landlord may first lease Landlord’s other available retail space and shall not be required to accept any tenant offered by Tenant or to observe any instructions given by Tenant about such reletting. Tenant shall reimburse Landlord for the costs and expenses of reletting the Premises including, but not limited to, all brokerage, advertising, legal, alteration, and other expenses incurred to secure a new tenant for the Premises. In addition, if the consideration collected by Landlord upon any such reletting, after payment of the expenses of reletting the Premises which have not been reimbursed by Tenant, is insufficient to pay monthly the full amount of the Rent, Tenant shall pay to Landlord the amount of each monthly deficiency as it becomes due. If such consideration is greater than the amount necessary to pay the full amount of the Rent, the full amount of such excess shall be retained by Landlord and shall in no event be payable to Tenant.

     D. Termination of Lease. If Landlord terminates this Lease, Landlord may recover from Tenant and Tenant shall pay to Landlord, on demand, as damages, an accelerated lump sum

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amount equal to the amount by which Landlord’s estimate of the aggregate amount of Rent which would have been payable hereunder from the date of such termination through the Expiration Date had this Lease not been terminated (including Minimum Rent at the rates set forth in the Schedule and a reasonable projection of Adjustment Rent) plus Landlord’s estimate of the aggregate expenses of reletting the Premises, exceeds Landlord’s estimate of the fair rental value of the Premises for the same period (after deducting from such fair rental value the time needed to relet the Premises and the amount of concessions which would normally be given to a new tenant) both discounted to present value at the rate of five percent (5%) per annum.

     E. Other Remedies. Landlord may but shall not be obligated to perform any obligation of Tenant under this Lease; and, if Landlord so elects, all costs and expenses paid by Landlord in performing such obligation, together with interest at the Default Rate shall be reimbursed by Tenant to Landlord on demand. Any and all remedies set forth in this Lease: (i) shall be in addition to any and all other remedies Landlord may have at law or in equity, (ii) shall be cumulative, and (iii) may be pursued successively or concurrently as Landlord may elect. The exercise of any remedy by Landlord shall not be deemed an election of remedies or preclude Landlord from exercising any other remedies in the future.

     F. Bankruptcy. If Tenant becomes bankrupt, the bankruptcy trustee shall not have the right to assume or assign this Lease unless the trustee complies with all requirements of the United States Bankruptcy Code; and Landlord expressly reserves all of its rights, claims, and remedies thereunder.

     G. Waiver of Trial by Jury. Landlord and Tenant waive trial by jury in the event of any action, proceeding or counterclaim brought by either Landlord or Tenant against the other in connection with this Lease.

     H. Venue. If either Landlord or Tenant desires to bring an action against the other in connection with this Lease, such action shall be brought in the federal or state courts located in or near Chicago, Illinois. Landlord and Tenant consent to the jurisdiction of such courts and waive any right to have such action transferred from such courts on the grounds of improper venue or inconvenient forum.

     18. HOLDING OVER. If Tenant retains possession of the Premises after the expiration or termination of the Term or Tenant’s right to possession of the Premises, Tenant shall pay Rent during such holding over at double the rate in effect immediately preceding such holding over computed on a monthly basis for each month or partial month that Tenant remains in possession. Tenant shall also pay, indemnify and defend Landlord from and against all claims and damages, consequential as well as direct, sustained by reason of Tenant’s holding over. In addition, at any time while Tenant remains in possession, Landlord may elect instead, by written notice to Tenant and not otherwise, to have such retention of possession constitute a renewal of this Lease for one year for the fair market rental value of the Premises as reasonably determined by Landlord but in no event less than the Rent payable immediately prior to such holding over. The provisions of this Section do not waive Landlord’s right of re-entry or right to regain possession by actions at law or in equity or any other rights hereunder, and any receipt of payment by Landlord shall not be deemed a consent by Landlord to Tenant’s remaining in

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possession or be construed as creating or renewing any lease or right of tenancy between Landlord and Tenant.

     19. SECURITY DEPOSIT. Concurrent with Tenant’s execution and delivery of this Lease to Landlord, and as an express condition of Landlord’s obligation to tender possession of the Premises to Tenant hereunder, Tenant shall deposit with Landlord an amount equal to Thirty Four Thousand Nine Hundred Eighty Seven and 50/100 Dollars ($34,987.50) as security for the full and faithful performance of every provision of this Lease to be thereafter performed by Tenant. In the event Landlord delays its delivery of possession of the Premises due to Tenant’s delay in so delivering the requisite Security Deposit, then, without limitation any other rights or remedies available to Landlord, there shall be no extension of any other dates set forth in this Lease on account thereof. If Tenant defaults with respect to any provision of this Lease, including but not limited to the provisions relating to the payment of Rent, then Landlord may, as applicable, (i) use, apply or retain all or any part of the Security Deposit for the payment of any Rent and any other sum in default, or for the payment of any other amount which Landlord may spend or become obligated to spend by reason of Tenant’s default or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant’s default. If any portion of the Security Deposit is so used or applied, Tenant shall, within five (5) days after written demand therefor, as applicable, deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount, and Tenant’s failure to do such shall be a material breach of this Lease, without any additional cure period hereunder. Landlord shall not be responsible for keeping any Security Deposit separate from its general funds, and Tenant shall not be entitled to interest on either. If Tenant shall fully and faithfully perform every provision of this Lease to be performed by it, the Security Deposit shall be returned to Tenant (or at Landlord’s option to the last permitted assignee of Tenant’s interest hereunder) within thirty (30) days after the expiration of the Term and Tenant’s vacation of the Premises. Landlord shall deliver the Security Deposit to the purchaser of Landlord’s interest in the Premises, in the event that such interest is sold, and thereupon Landlord shall be discharged from any further liability with respect to same. Tenant hereby agrees not to look to any mortgagee as mortgagee, mortgagee in possession, or successor in title to the Premises for any Security Deposit required by Tenant hereunder, unless such items have actually been received by said mortgagee as security for Tenant’s performance of this Lease. Nothing herein shall be construed to limit the amount of damages recoverable by Landlord or any other remedy to the Security Deposit.

     20. INTENTIONALLY OMITTED.

     21. ESTOPPEL CERTIFICATE. Tenant agrees that, from time to time upon not less than ten (10) days’ prior request by Landlord, Tenant shall execute and deliver to Landlord a written certificate certifying: (i) that this Lease is unmodified and in full force and effect (or if there have been modifications, a description of such modifications and that this Lease as modified is in full force and effect); (ii) the dates to which Rent has been paid and the amount of Percentage Rent currently being paid by Tenant; (iii) that Tenant is in possession of the Premises, if that is the case; (iv) that Landlord is not in default under this Lease, or, if Tenant believes Landlord is in default, the nature thereof in detail; (v) that Tenant has no off-sets or defenses to the performance of its obligations under this Lease (or if Tenant believes there are any off-sets or defenses, a full and complete explanation thereof); and (vi) such additional matters as may be requested by Landlord, it being agreed that such certificate may be relied upon

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by any prospective purchaser, mortgagee, or other person having or acquiring an interest in the Building. If Tenant fails to execute and deliver any such certificate within ten (10) days after request, Tenant shall be deemed to have irrevocably appointed Landlord and Landlord’s beneficiaries as Tenant’s attorneys-in-fact to execute and deliver such certificate in Tenant’s name.

     22. SUBORDINATION. This Lease is and shall be expressly subject and subordinate at all times to (i) any ground or underlying lease or master lease of the Building, now or hereafter existing, and all amendments, renewals and modifications to any such lease; and (ii) the lien of any mortgage or trust deed now or hereafter encumbering fee title to the Building and/or the leasehold estate under any such lease, and all amendments, renewals and modifications to any such mortgage or trust deed. If any such mortgage or trust deed is foreclosed, or if any such lease is terminated, upon request of the mortgagee, holder or lessor, as the case may be, Tenant will attorn to the purchaser at the foreclosure sale or to the lessor under such lease, as the case may be. The foregoing provisions are declared to be self-operative and no further instruments shall be required to effect such subordination and/or attornment; provided, however, that Tenant agrees upon request by any such mortgagee, holder, lessor or purchaser at foreclosure, to execute and deliver such subordination and/or attornment instruments as may be required by such person to confirm such subordination and/or attornment. If Tenant fails to execute and deliver any such instrument within ten (10) days after request, Tenant shall be deemed to have irrevocably appointed Landlord and Landlord’s beneficiaries as Tenant’s attorneys-in-fact to execute and deliver such instrument in Tenant’s name.

     23. QUIET ENJOYMENT. As long as no Default exists, Tenant shall peacefully and quietly have and enjoy the Premises for the Term, free from interference by Landlord, subject, however, to the provisions of this Lease. The loss or reduction of Tenant’s light, air or view will not be deemed a disturbance of Tenant’s occupancy of the Premises nor will it affect Tenant’s obligations under this Lease or create any liability of Landlord to Tenant.

     24. BROKER. Tenant represents to Landlord that Tenant has dealt only with the brokers set forth in Item 12 of the Schedule (collectively, the “Broker”) in connection with this Lease and that, insofar as Tenant knows, no other broker negotiated this Lease or is entitled to any commission in connection herewith. Tenant agrees to indemnify, defend and hold Landlord harmless from and against any claims for a fee or commission made by any broker, other than the Broker, claiming to have acted by or on behalf of Tenant in connection with this Lease. Landlord agrees to pay the Broker a commission in accordance with a separate agreement between Landlord and the Broker.

     25. NOTICES. All notices and demands to be given by one party to the other party under this Lease shall be given in writing, mailed or delivered to Landlord or Tenant, as the case may be, at the following addresses:

If to Landlord:	Buckingham Master Tenant, LLC
	c/o Brownstone/Van Buren
	10 S. Riverside Plaza
	Suite 1830
	Chicago, Illinois 60606

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	Attention: David Dewey
with a copy to:	Buckingham Master Tenant, LLC
	c/o Van Buren Fund Development, LLC
	10 S. Riverside Plaza
	Suite 1830
	Chicago, Illinois 60606
	Attention: Gerry V. Curciarello
with a copy to:	DLA Piper US LLP
	203 North LaSalle Street, Suite 1900
	Chicago, Illinois 60601
	Attention: Mark D. Yura
If to Tenant:	Midwest Bank and Trust Co.
	501 West North Avenue
	Melrose Park, Illinois 60160
	Attention:	Bruno Costa
		Executive Vice President
		Chief Operations and
		Technology Officer

Landlord and Tenant may change their notice addresses by delivering written notice thereof to the other party in accordance with the notice provisions contained in this Section 25. Notices shall be delivered by hand or by United States certified or registered mail, postage prepaid, return receipt requested, or by a nationally recognized overnight air courier service. Notices shall be considered to have been given (i) in the event of hand delivery, upon actual receipt; (ii) in the event of mailing, two business days after posting in the United States mail; and (iii) and in the event of overnight air courier service, one business day after deposit with such service.

     26. BASE BUILDING; TENANT IMPROVEMENTS.

     A. Landlord’s Work. Landlord, at its sole cost and expense, shall complete or has completed the work described and identified on Exhibit E attached to this Lease (“Landlord’s Work”).

     B. Substantially Complete. Landlord agrees to use reasonable efforts to Substantially Complete the Landlord’s Work, if not already complete, on or before the Turnover Date described in Section 1 hereof, subject to extension for Force Majeure (as hereinafter defined).

     (i) “Force Majeure” means any of the following: (A) war, enemy action, civil commotion, riots, acts of terrorism or national emergency Presidential order; (B) national defense pre-emption of necessary materials; (C) governmental or municipal

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laws, moratoria, restrictions, delays, failure to act or issue approvals, permits or licenses which are generally applicable to comparable projects in the downtown Chicago, Illinois area or which are not issued within customary time periods; (D) utility company requirements, actions or failure to act or issue approvals, permits or licenses which are generally applicable to comparable projects in downtown Chicago, Illinois or which are not issued within customary time periods; (E) strikes or other labor work stoppages; (F) acts of God; (G) other delays beyond Landlord’s reasonable control; or (H) Tenant Delay.

     (ii) “Tenant Delay” means (1) delay caused by any default by Tenant or its agents in Tenant’s obligations under this Lease, (2) delays caused by Tenant’s access to the Premises (including access by Tenant’s agents, contractors, architects, space planners, brokers, or consultants) prior to the Commencement Date, or (3) any other delay of any kind or nature caused by Tenant (including its agents, contractors, architects, space planners, brokers or consultants).

     (iii) “Substantial Completion” or “Substantially Complete” or “Substantially Completed” shall mean that the Landlord’s Work has been completed except for such minor, insubstantial details of construction, decoration or mechanical adjustments as would not materially interfere with the use of the Building as a residential apartment building, with ancillary retail space thereat. If Substantial Completion is delayed in whole or in part by any Tenant Delay, then Substantial Completion shall be deemed to have occurred as of such date as the Base Building Work would have been so completed but for such Tenant Delay. Substantial Completion shall be conclusively evidenced by a certificate of Landlord’s architect.

     C. Tenant’s Improvements. Landlord shall use good faith efforts to deliver possession of the Premises to Tenant on or before the Projected Turnover Date described in the Schedule with Landlord’s Work within the Premises being completed to the extent required in order for Tenant to commence and proceed with the Tenant’s Work (hereinafter defined) in an orderly progression, without material interference or delay on account of the non-completion of various components of Landlord’s Work within the Premises, all subject to extension for Force Majeure. The date Landlord actually tenders possession of the Premises to Tenant in such condition as described in the preceding sentence is herein referred to as the “Turnover Date”. Failure of the Turnover Date to occur on or before the Projected Turnover Date shall be subject to the terms of Section 1 above.

     Subject to the provisions of Section 26.D. below, Tenant shall, at its sole cost and expense, perform the “Tenant’s Work” (as defined in the Workletter), subject to and in accordance with the provisions of this Lease, including, without limitation, the provisions of the Workletter attached hereto.

     D. Early Occupancy. Any occupancy by Tenant of all or any portion of the Premises prior to the Commencement Date shall be upon all of the terms and conditions set forth in this Lease (including, without limitation, the Workletter attached hereto), except that Tenant shall not be obligated to pay any Minimum Rent, Adjustment Rent or Tenant’s Exterior CAM Expenses for any period prior to the Commencement Date hereof; further, except as may be expressly stated in the Workletter and notwithstanding anything herein to the contrary, Landlord

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shall not be obligated to perform any Building services prior to the last to occur of (a) Tenant’s completion of the Tenant’s Work and Tenant’s request for Landlord to begin furnishing such services, and (b) the Commencement Date hereunder.

     27. MISCELLANEOUS.

     A. Successors and Assigns. Subject to Section 15 of this Lease, each provision of this Lease shall extend to, bind and inure to the benefit of Landlord and Tenant and their respective legal representatives, successors and assigns; and all references herein to Landlord and Tenant shall be deemed to include all such parties.

     B. Entire Agreement. This Lease, and the riders and exhibits, if any, attached hereto which are hereby made a part of this Lease, represent the complete agreement between Landlord and Tenant; and Landlord has made no representations or warranties except as expressly set forth in this Lease. No modification or amendment of or waiver under this Lease shall be binding upon Landlord or Tenant unless in writing signed by Landlord and Tenant.

     C. Time of Essence. Time is of the essence of this Lease and each and all of its provisions.

     D. Execution and Delivery. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of space or an option for lease, and it is not effective until execution and delivery by both Landlord and Tenant. Execution and delivery of this Lease by Tenant to Landlord shall constitute an irrevocable offer by Tenant to lease the Premises on the terms and conditions set forth herein, which offer may not be revoked for thirty (30) days after such delivery. Tenant represents and warrants to Landlord, and agrees, that this Lease is binding upon Tenant and each individual executing this Lease on behalf of Tenant is authorized to do so on behalf of Tenant. Landlord represents and warrants to Tenant, and agrees, that this Lease is binding upon Landlord and each individual executing this Lease on behalf of Landlord is authorized to do so on behalf of Landlord.

     E. Severability. The invalidity or unenforceability of any provision of this Lease shall not affect or impair any other provisions.

     F. Governing Law. This Lease shall be governed by and construed in accordance with the laws of the State of Illinois.

     G. Attorneys’ Fees. If Landlord retains an attorney or institutes legal proceedings due to Tenant’s failure to pay Rent when due, then Tenant shall be required to pay Additional Rent in an amount equal to the reasonable attorneys’ fees and costs actually incurred by Landlord in connection therewith. Notwithstanding the foregoing, in any action or proceeding between Landlord and Tenant, including any appellate or alternative dispute resolution proceeding, the prevailing party shall be entitled to recover from the non-prevailing party all of its costs and expenses in connection therewith, including, but not limited to, reasonable attorneys’ fees actually incurred.

     H. Delay in Possession. In no event shall Landlord be liable to Tenant if Landlord is unable to deliver possession of the Premises to Tenant on the Projected Turnover Date. If

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Landlord is unable to deliver possession of the Premises to Tenant by the Projected Turnover Date, the Commencement Date may be deferred as described in Section 1.A. hereof.

     I. Joint and Several Liability. If Tenant is comprised of more than one party, each such party shall be jointly and severally liable for Tenant’s obligations under this Lease.

     J. Force Majeure. Landlord shall not be in default hereunder and Tenant shall not be excused from performing any of its obligations hereunder if Landlord is prevented from performing any of its obligations hereunder due to any accident, breakage, strike, shortage of materials, acts of God or other causes beyond Landlord’s reasonable control.

     K. Intentionally Omitted.

     L. Captions. The headings and titles in this Lease are for convenience only and shall have no effect upon the construction or interpretation of this Lease.

     M. No Waiver. No receipt of money by Landlord from Tenant after termination of this Lease or after the service of any notice or after the commencing of any suit or after final judgment for possession of the Premises shall renew, reinstate, continue or extend the Term or affect any such notice or suit. No waiver of any default of Tenant shall be implied from any omission by Landlord to take any action on account of such default if such default persists or be repeated, and no express waiver shall affect any default other than the default specified in the express waiver and then only for the time and to the extent therein stated.

     N. Landlord. The term “Landlord” as used in this Lease means only the owner of Landlord’s interest in the Premises from time to time. In the event of any assignment, conveyance or sale, once or successively, of Landlord’s interest in the Premises and assignment of this Lease by Landlord, said Landlord making such assignment, conveyance or sale shall be and hereby is entirely freed and relieved of all covenants and obligations of Landlord hereunder accruing after such assignment, conveyance or sale, and Tenant agrees to look solely to such assignee, grantee or purchaser with respect thereto. The holder of a mortgage on the Building shall not be deemed such an assignee, grantee or purchaser under this Section 27.N unless and until the foreclosure of the mortgage or the conveyance or transfer of Landlord’s interest under this Lease in lieu of foreclosure, and then subject to the provisions of Section 22 hereof. This Lease shall not be affected by any such assignment, conveyance or sale, and Tenant agrees to attorn to the assignee, grantee or purchaser.

     O. No Recording. Tenant shall not record this Lease or a memorandum of this Lease in any official records.

     P. Relation of Parties. It is the intention of this Lease to create the relation between the parties hereto of landlord and tenant and no other relation whatsoever, and nothing contained in this Lease (including, without limitation, the method of determining Rent) shall be construed to make the parties hereto partners or joint venturers or to render either party hereto liable for any of the debts or obligations of the other party.

     Q. Limitation of Liability. Any liability of Landlord under this Lease shall be limited solely to its interest in the Building, and in no event shall any personal liability be

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asserted against Landlord in connection with this Lease nor shall any recourse be had to any other property or assets of Landlord.

THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.

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     IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day and year first above written.

TENANT: MIDWEST BANK AND TRUST CO., an Illinois banking corporation
By:
	Bruno Costa
	Title:	Executive Vice President Chief Operations and Technology Officer
LANDLORD: BUCKINGHAM MASTER TENANT, LLC, an Illinois limited liability company
By:	Van Buren/Wabash, LLC, its managing member
By:	Van Buren Fund Development, LLC, its managing member
By:
	Name:	Gerry V. Curciarello
	Its:       Co-Manager

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EXHIBIT A

LEGAL DESCRIPTION

LOTS 4, 5, 6 AND 7, THAT PART OF LOTS 3, 8 AND 9, AND THAT PART OF A STRIP OF LAND LYING NORTH OF LOT 8 AND SOUTH OF LOTS 3, 4, 5, 6, AND 7, AFORESAID, IN ASSESSOR’S DIVISION OF LOTS 1, 2, 3, 4, 5, AND 8 IN BLOCK 9 IN FRACTIONAL SECTION 15, TOWNSHIP 39 NORTH, RANGE 14, EAST OF THE THIRD PRINCIPAL MERIDIAN, MORE PARTICULARLY DESCRIBED AS FOLLOWS:

BEGINNING AT THE NORTHEAST CORNER OF SAID LOT 7 IN ASSESSOR’S DIVISION OF LOTS 1, 2, 3, 4, 5, AND 8 IN BLOCK 9, SAID POINT BEING ALSO IN THE SOUTH LINE OF EAST VAN BUREN STREET;

THENCE WEST ALONG SAW SOUTH LINE OF EAST VAN BUREN STREET, A DISTANCE OF 92.27 FEET, TO A POINT IN A LINE 0.70 FEET WEST OF AND PARALLEL WITH THE EAST LINE OF LOT 3 IN SAID ASSESSOR’S DIVISION OF LOTS 1, 2, 3, 4, 5, AND 8 IN BLOCK 9;

THENCE SOUTH ALONG SAID PARALLEL LINE AND THE SOUTHERLY EXTENSION THEREOF, A DISTANCE OF 140.93 FEET, TO A POINT IN THE SOUTH LINE OF THE NORTH 6.8 FEET OF SAID LOT 9;

THENCE EAST ALONG SAID SOUTH LINE OF THE NORTH 6.8 FEET OF LOT 9, A DISTANCE OF 92.28 FEET, TO A POINT IN THE WEST LINE OF AN 18-FOOT WIDE ALLEY EAST OF SOUTH WABASH AVENUE;

THENCE NORTH ALONG SAID WEST LINE OF AN 18-FOOT WIDE ALLEY EAST OF SOUTH WABASH AVENUE, A DISTANCE OF 140.87 FEET, TO THE POINT OF BEGINNING, IN COOK COUNTY, ILLINOIS.

Common Address: 59 and 61 E. Van Buren Street, Chicago, Illinois

A-1

EXHIBIT A-1

RETAIL SPACE FLOOR PLAN

A-1

EXHIBIT B

TENANT WORKLETTER

     THIS TENANT WORKLETTER is hereby incorporated as part of that certain 61-B East Van Buren Street Retail Lease (“Lease”) made and entered into by and between BUCKINGHAM MASTER TENANT, LLC, an Illinois limited liability company (“Landlord”), and MIDWEST BANK AND TRUST CO., an Illinois banking corporation (“Tenant”).

WITNESSETH:

     WHEREAS, Landlord and Tenant are hereby entering into the above-described Lease to which this Workletter is being attached, which Lease demises certain Premises (as defined in the Lease; all capitalized terms used but not otherwise defined herein shall have the meaning as set forth in the Lease) in the building known or to be known as 61-B East Van Buren Street, Chicago, Illinois (the “Building”); and

     WHEREAS, certain tenant improvement work is to be completed on the Premises;

     NOW, THEREFORE, for and in consideration of the agreement to lease the Premises and pay rent and the mutual covenants contained herein, the parties agree as follows:

     1. TENANT’S WORK. Tenant, at its sole cost and expense, shall perform, or cause to be performed, the work (the “Tenant’s Work”) in the Premises provided for in the Approved Plans (as defined in Paragraph 2 hereof). Subject to Tenant’s satisfaction of the conditions specified in this Workletter, Tenant shall be entitled to Landlord’s Contribution (as defined in Paragraph 8(b) below).

     2. PRE-CONSTRUCTION ACTIVITIES.

     (a) On or before the date Tenant commences its construction, Tenant shall submit the following information and items to Landlord for Landlord’s review and approval:

     (i) A detailed critical path construction schedule containing the major components of the Tenant’s Work and the time required for each, including the scheduled commencement date of construction of the Tenant’s Work, milestone dates and the estimated date of completion of construction.

     (ii) An itemized statement of estimated construction cost, including fees for permits and architectural and engineering fees.

     (iii) Evidence satisfactory to Landlord in all aspects of Tenant’s ability to pay the cost of the Tenant’s Work as and when payments become due.

     (iv) The names and addresses of Tenant’s architect (“Tenant’s Architect”) and of the contractors (and said contractors’ subcontractors) and materialmen to be engaged by Tenant for the Tenant’s Work (individually a “Tenant Contractor” and collectively

B-1

“Tenant’s Contractors”). All Tenant’s Contractors must be licensed and approved to perform work in the City of Chicago. Landlord has the right to approve or disapprove Tenant’s Architect and Tenant’s Contractors, which approval shall not be unreasonably withheld or delayed, and to designate and/or approve the engineer to be engaged to prepare engineering plans and specifications (if applicable) for the Tenant’s Work.

     (v) Certified copies of insurance policies or certificates of insurance as hereinafter described. Tenant shall not permit Tenant’s Contractors to commence work until the required insurance has been obtained and certified copies of policies or certificates have been delivered to Landlord.

     (vi) Payment and performance bonds for all of Tenant’s Contractors naming Landlord (or an agent, designee or representative appointed by Landlord’s written notice to Tenant given prior to Tenant’s procurement of paid bonds) as a dual obligee.

     (vii) The Plans (as hereinafter defined) for the Tenant’s Work, which Plans shall be subject to Landlord’s approval in accordance with Paragraph 2(b) below.

Tenant will update such information and items by notice to Landlord of any changes.

     (b) As used herein the term “Approved Plans” shall mean the Plans (as hereinafter defined), as and when approved in writing by Landlord. As used herein, the term “Plans” shall mean the full and detailed architectural and engineering plans and specifications covering the Tenant’s Work (including, without limitation, architectural, mechanical and electrical working drawings for the Tenant’s Work). The Plans shall be subject to Landlord’s approval and the approval of all local governmental authorities requiring approval of the Tenant’s Work and/or the Approved Plans. Landlord shall give its approval or disapproval (giving general reasons in case of disapproval) of the Plans within fifteen (15) business days after their delivery to Landlord. Landlord agrees not to unreasonably withhold its approval of said Plans; provided, however, that Landlord shall not be deemed to have acted unreasonably if it withholds its approval of the Plans because, in Landlord’s reasonable opinion: the Tenant’s Work as shown in the Plans is likely to adversely affect Building systems, the structure of the Building or the safety of the Building and/or its occupants; the Tenant’s Work as shown on the Plans might impair Landlord’s ability to furnish services to Tenant or other tenants; the Tenant’s Work would increase the cost of operating the Building; the Tenant’s Work would violate any governmental laws, rules or ordinances (or interpretations thereof); the Tenant’s Work contains or uses hazardous or toxic materials or substances; the Tenant’s Work would adversely affect the appearance of the Building; the Tenant’s Work might adversely affect another tenant’s premises; or the Tenant’s Work is prohibited by any mortgage or trust deed encumbering the Building. The foregoing reasons, however, shall not be exclusive of the reasons for which Landlord may withhold consent, whether or not such other reasons are similar or dissimilar to the foregoing. If Landlord notifies Tenant that changes are required to the final Plans submitted by Tenant, Tenant shall, within three (3) business days thereafter, submit to Landlord, for its approval, the Plans amended in accordance with the changes so required. The Plans shall also be revised, and the Tenant’s Work shall be changed, all at Tenant’s cost and expense, to incorporate any work required in the Premises by any local governmental field inspector. Landlord’s approval of the Plans shall in no way be deemed to be (i) an acceptance or approval of any element therein contained which is in violation of any applicable laws, ordinances, regulations or other governmental requirements, or

B-2

(ii) an assurance that work done pursuant to the Approved Plans will comply with all applicable laws (or with the interpretations thereof) or satisfy Tenant’s objectives and needs or Tenant’s intended use of the Premises.

     (c) No Tenant’s Work shall be undertaken or commenced by Tenant in the Premises until (i) Tenant has delivered, and Landlord has approved, all items set forth in Paragraph 2(a) above, (ii) all necessary building permits have been applied for and obtained by Tenant with copies delivered to Landlord within three (3) business days of issuance by a governmental authority with jurisdiction over the work described in such permit, and (iii) proper provision satisfactory to Landlord has been made by Tenant for payment in full of the cost of the Tenant’s Work.

     3. DELAYS. In the event Tenant fails to deliver or deliver in sufficient and accurate detail the information required under Paragraph 2 above on or before the respective dates specified in said Paragraph 2, or in the event Tenant, for any reason, fails to complete the Tenant’s Work on or before the Commencement Date, Tenant shall be responsible for Rent and all other obligations set forth in the Lease from the Commencement Date regardless of the degree of completion of the Tenant’s Work on such date, and no such delay in completion of the Tenant’s Work shall relieve Tenant of any of its obligations under the Lease.

     4. CHARGES AND FEES. Tenant shall pay Landlord a supervisory fee (the “Supervisory Fee”) in an amount equal to $3,500.00 to defray Landlord’s administrative and overhead expenses incurred to review the Plans and coordinate with Tenant’s on-site project manager the staging and progress of the Tenant’s Work. The Supervisory Fee shall not include any professional fees for engineering services conducted by third party professionals or service firms required as a result of the impact of Tenant’s Work on the Building and Building systems, which fees Tenant shall reimburse to Landlord.

     5. CHANGE ORDERS. All changes to the Approved Plans requested by Tenant must be approved by Landlord in advance of the implementation of such changes as part of the Tenant’s Work. All delays caused by Tenant-initiated change orders, including, without limitation, any stoppage of work during the change order review process, are solely the responsibility of Tenant and shall cause no delay in the commencement of the Lease or the Rent and other obligations therein set forth. All increases in the cost of the Tenant’s Work resulting from such change orders shall be borne by Tenant.

     6. STANDARDS OF DESIGN AND CONSTRUCTION AND CONDITIONS OF TENANT’S PERFORMANCE. All work done in or upon the Premises by Tenant shall be done according to the standards set forth in this Paragraph 6, except as the same may be modified in the Approved Plans approved by or on behalf of Landlord and Tenant.

     (a) Tenant’s Approved Plans and all design and construction of the Tenant’s Work shall comply with all applicable statutes, ordinances, regulations, laws, codes and industry standards, including, but not limited to, requirements of Landlord’s fire insurance underwriters.

     (b) Tenant shall, at its own cost and expense, obtain all required building permits and occupancy permits. Tenant’s failure to obtain such permits shall not cause a delay in the

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commencement of the Term or the obligation to pay Rent or any other obligations set forth in the Lease.

     (c) Tenant’s Contractors shall be licensed contractors, possessing good labor relations, capable of performing quality workmanship and working in harmony with Landlord’s contractors and subcontractors and with other contractors and subcontractors in the Building. All Tenant’s Work shall be coordinated with any other construction or other work in the Building in order not to adversely affect construction work being performed by or for Landlord or its tenants.

     (d) Landlord shall have the right, but not the obligation, to perform, on behalf of and for the account of Tenant, subject to reimbursement by Tenant, any work which pertains to patching of the Work and other work in the Building, or which otherwise affects Building structure or systems.

     (e) Tenant shall use only new, first-class materials in the Tenant’s Work, except where explicitly shown in the Approved Plans. All Tenant’s Work shall be done in a good and workmanlike manner. Tenant shall obtain contractors’ warranties of at least one (1) year duration from the completion of the Tenant’s Work against defects in workmanship and materials on all work performed and equipment installed in the Premises as part of the Tenant’s Work.

     (f) Tenant and Tenant’s Contractors shall make all efforts, and take all steps appropriate to assure that all construction activities undertaken comport with the reasonable expectations of all tenants and other occupants of a fully-occupied (or substantially fully occupied) first-class residential apartment building (containing retail components therein) and do not unreasonably interfere with the operation of the Building or with other tenants and occupants of the Building. In any event, Tenant and Tenant’s Contractors shall comply with all reasonable construction rules and regulations existing from time to time at the Building. Tenant and Tenant’s Contractors shall take all precautionary steps to minimize dust, noise and construction traffic, and to protect their facilities and the facilities of others affected by the Tenant’s Work and to properly police and secure same. Construction equipment and materials are to be kept within the Premises and delivery and loading of equipment and materials shall be done at such locations and at such time as Landlord shall direct so as not to burden the construction or operation of the Building. If and as required by Landlord, the Premises shall be sealed off from the balance of the floor containing the Premises so as to minimize the dispersal of dirt, debris and noise.

     (g) Landlord shall have the right to order Tenant or any of Tenant’s Contractors who violate the requirements imposed on Tenant or Tenant’s Contractors in performing work to cease work and remove its equipment and employees from the Building. No such action by Landlord in connection with any other Contractors shall delay the Commencement Date or the obligation to pay Rent or any other obligations therein set forth in the Lease.

     (h) Utility costs or charges for any service (including, without limitation, HVAC, hoisting or freight elevator and the like) to the Premises shall be the responsibility of Tenant from the date Tenant is obligated to commence or commences the Tenant’s Work and shall be paid for by Tenant at Landlord’s standard rates then in effect. Landlord has applied for, paid for, and installed all utility meters required. Tenant shall pay for all support services provided by Landlord’s contractors at Tenant’s request or at Landlord’s discretion resulting from breaches or defaults by Tenant under this Workletter. All use of freight elevators is subject to scheduling by

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Landlord and the rules and regulations of the Building. Tenant shall arrange and pay for removal of construction debris and shall not place debris in the Building’s waste containers. If required by Landlord, Tenant shall sort and separate its waste and debris for recycling and/or environmental law compliance purposes.

     (i) Tenant shall permit access to the Premises, and the Tenant’s Work shall be subject to inspection, by Landlord and Landlord’s architects, engineers, contractors and other representatives, at all times during the period in which the Tenant’s Work is being constructed and installed and following completion of the Tenant’s Work.

     (j) Tenant shall proceed with the Tenant’s Work expeditiously, continuously and efficiently, and shall use its best efforts to complete the same on or before the Commencement Date. Tenant shall notify Landlord upon completion of the Tenant’s Work and shall furnish Landlord and Landlord’s title insurance company with such further documentation as may be necessary under Paragraphs 8 and 9 below.

     (k) Tenant shall have no authority to deviate from the Approved Plans in performance of the Tenant’s Work, except as authorized by Landlord and its designated representative in writing. Tenant shall furnish to Landlord “as-built” drawings of the Tenant’s Work within thirty (30) days after completion of the Tenant’s Work.

     (l) Upon twenty-four (24) hours prior notice (or less in the event of emergency), Landlord shall have the right to run utility lines, pipes, conduits, duct work and component parts of all mechanical and electrical systems where necessary or desirable through the Premises, using contractors licensed in the City of Chicago, and in reasonable coordination with Tenant so as to minimize the effect of and on Tenant’s security system, and shall also have the right to access, repair, alter, replace or remove the same, and to require Tenant to install and maintain proper access panels thereto.

     (m) Tenant shall impose on and enforce all applicable terms of this Workletter against Tenant’s Architect and Tenant’s Contractors.

     7. INSURANCE AND INDEMNIFICATION.

     (a) In addition to any insurance which may be required under the Lease, Tenant shall secure, pay for and maintain or cause Tenant’s Contractors to secure, pay for and maintain during the continuance of construction and fixturing work within the Building or Premises, insurance in the following minimum coverages and the following minimum limits of liability:

     (i) Worker’s Compensation and Employer’s Liability Insurance with limits of not less than $1,000,000.00, or such higher amounts as may be required from time to time by any Employee Benefit Acts or other statutes applicable where the Tenant’s Work is to be performed, and in any event sufficient to protect Tenant’s Contractors from liability under the aforementioned acts.

     (ii) Comprehensive General Liability Insurance (including Contractors’ Protective Liability) in an amount not less than $2,000,000.00 per occurrence, whether involving bodily injury liability (or death resulting therefrom) or property damage liability or a combination thereof with a minimum aggregate limit of $2,000,000.00, and

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with umbrella coverage with limits not less than $5,000,000.00. Such insurance shall provide for explosion and collapse, completed operations coverage and broad form blanket contractual liability coverage and shall insure Tenant’s Contractors against any and all claims for bodily injury, including death resulting therefrom, and damage to the property of others and arising from its operations under the contracts whether such operations are performed by Tenant’s Contractors or by anyone directly or indirectly employed by any of them.

     (iii) Comprehensive Automobile Liability Insurance, including the ownership, maintenance and operation of any automotive equipment, owned, hired, or non-owned in an amount not less than $2,000,000.00 for each person in one accident, and $2,000,000.00 for injuries sustained by two or more persons in any one accident and property damage liability in an amount not less than $2,000,000.00 for each accident. Such insurance shall insure Tenant’s Contractors against any and all claims for bodily injury, including death resulting therefrom, and damage to the property of others arising from its operations under the contracts, whether such operations are performed by Tenant’s Contractors, or by anyone directly or indirectly employed by any of them.

     (iv) “All-risk” builder’s risk insurance upon the entire Tenant’s Work to the full insurable value thereof. This insurance shall include the interests of Landlord and Tenant (and their respective contractors and subcontractors of any tier to the extent of any insurable interest therein) in the Tenant’s Work and shall insure against the perils of fire and extended coverage and shall include “all-risk” builder’s risk insurance for physical loss or damage including, without duplication of coverage, theft, vandalism and malicious mischief. If portions of the Tenant’s Work are stored off the site of the Building or in transit to said site are not covered under said “all-risk” builder’s risk insurance, then Tenant shall effect and maintain similar property insurance on such portions of the Tenant’s Work. Any loss insured under said “all-risk” builder’s risk insurance is to be adjusted with Landlord and Tenant and made payable to Landlord, as trustee for the insureds, as their interests may appear.

All policies (except the worker’s compensation policy) shall be endorsed to include as additional insured parties the parties listed on, or required by, the Lease to be named as additional insureds, Landlord’s contractors, Landlord’s architects, and their respective beneficiaries, partners, directors, officers, employees and agents, and such additional persons as Landlord may designate. The waiver of subrogation provisions contained in the Lease shall apply to all insurance policies (except the worker’s compensation policy) to be obtained by Tenant pursuant to this paragraph. The insurance policy endorsements shall also provide that all additional insured parties shall be given thirty (30) days’ prior written notice of any reduction, cancellation or non-renewal of coverage (except that ten (10) days’ notice shall be sufficient in the case of cancellation for non-payment of premium) and shall provide that the insurance coverage afforded to the additional insured parties thereunder shall be primary to any insurance carried independently by said additional-insured parties. Additionally, where applicable, each policy shall contain a cross-liability and severability of interest clause.

     (b) Without limitation of the indemnification provisions contained in the Lease, to the fullest extent permitted by law Tenant agrees to indemnify, protect, defend and hold harmless Landlord, the parties listed, or required by, the Lease to be named as additional insureds,

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Landlord’s contractors, Landlord’s architects, and their respective beneficiaries, partners, directors, officers, employees and agents, from and against all claims, liabilities, losses, damages and expenses of whatever nature arising out of or in connection with the Tenant’s Work or the entry of Tenant or Tenant’s Contractors into the Building and the Premises, including, without limitation, mechanics’ liens, the cost of any repairs to the Premises or Building necessitated by activities of Tenant or Tenant’s Contractors, bodily injury to persons or damage to the property of Tenant, its employees, agents, invitees, licensees or others. It is understood and agreed that the foregoing indemnity shall be in addition to the insurance requirements set forth above and shall not be in discharge of or in substitution for same or any other indemnity or insurance provision of the Lease.

     8. LANDLORD’S CONTRIBUTION; EXCESS AMOUNTS.

     (a) Upon completion of Tenant’s Work, Tenant shall furnish Landlord with full and final waivers of lien and contractors’ affidavits and sworn statements, in such form as may be required by Landlord, Landlord’s title insurance company and any holder of a mortgage on the Building, from all parties performing labor or supplying materials or services in connection with Tenant’s Work showing that all of said parties have been compensated in full and waiving all liens in connection with Tenant’s Work, the Premises and Building. Tenant shall submit to Landlord a detailed breakdown of Tenant’s total construction costs, together with such evidence of payment as is reasonably satisfactory to Landlord.

     (b) Upon completion of Tenant’s Work and Tenant’s satisfaction of all requirements set forth in this Workletter, Landlord shall make a dollar contribution in the amount of $186,600.00 (“Landlord’s Contribution”) (which is approximately $40.00 per rentable square foot of rentable area of the Premises) to pay or reimburse Tenant to the extent thereof for the cost of the Work. If the cost of Tenant’s Work exceeds Landlord’s Contribution, Tenant shall have sole responsibility for the payment of such excess cost. If the cost of Tenant’s Work is less than Landlord’s Contribution, Tenant shall not be entitled to any payment or credit for such excess amount. As used herein, “cost of Tenant’s Work” shall include without limitation, (a) the cost of all labor and materials, (b) contractors’ overhead and profit, (c) Landlord’s Supervisory Fee, (d) all architectural, engineering and space planning fees paid or incurred by Landlord or Tenant in connection with Tenant’s Work and the preparation of the Plans and (e) all other costs and expenses to be paid by Tenant pursuant to this Workletter. Notwithstanding anything herein to the contrary, Landlord may deduct from Landlord’s Contribution the Supervisory Fee before disbursing any other portion of Landlord’s Contribution, if not previously paid by Tenant.

     (c) There shall be no extension of the Commencement Date if Tenant’s Work has not been substantially completed on such date for any reason, including without limitation:

(i) the failure of Tenant to timely furnish the Plans, or revised Plans, under Paragraph 1;

(ii) changes in Tenant’s Work or the Plans requested by Tenant;

(iii) Tenant’s requirements for special work or materials, finishes, or installations other than Landlord’s standard building materials;

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(iv) the performance of any other work in the Premises by any person, firm or corporation employed by or on behalf of Tenant, or any failure to complete or delay in completion of such work; or

(vi) any other act or omission or delay of Tenant, its agents, contractors, Tenant’s Architect, or persons employed by any of such persons delaying substantial completion of Tenant’s Work.

     9. MISCELLANEOUS.

     (a) If the Plans for the Tenant’s Work require the construction and installation of more fire hose cabinets; or fire sprinkler system or fire communication system modifications or telephone/electrical closets than the number regularly provided by Landlord in the core of the Building in which the Premises are located, Tenant agrees to pay all costs and expenses arising from the construction and installation of such additional fire hose cabinets, fire safety system modifications or telephone/electrical closets.

     (b) Time is of the essence of this Workletter.

     (c) If Tenant fails to make any payment relating to the Tenant’s Work as required hereunder, Landlord, at its option, may complete the Tenant’s Work pursuant to the Approved Plans and continue to hold Tenant liable for the costs thereof and all other costs due to Landlord. Tenant’s failure to pay any amounts owed by Tenant hereunder when due or Tenant’s failure to perform its obligations hereunder shall also constitute a default under the Lease and Landlord shall have all the rights and remedies granted to Landlord under the Lease for nonpayment of any amounts owed thereunder or failure by Tenant to perform its obligations thereunder.

     (d) Notices under this Workletter shall be given in the same manner as under the Lease.

     (e) The liability of Landlord hereunder or under any amendment hereto or any instrument or document executed in connection herewith (including, without limitation, the Lease) shall be limited to and enforceable solely against Landlord’s interest in the Building.

     (f) The headings set forth herein are for convenience only.

     (g) This Workletter sets forth the entire agreement of Tenant and Landlord regarding the Tenant’s Work. This Workletter may only be amended if in writing, duly executed by both Landlord and Tenant.

     (h) All amounts due from Tenant hereunder shall be deemed to be Rent due under the Lease.

     10. ON-SITE PROJECT MANAGER.

     As a condition of Tenant’s right to commence and perform the Work, Tenant shall engage the services of an on-site project manager approved in advance by and reasonably acceptable to Landlord, who will be charged with the task of performing daily supervision of the Work. Such

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on-site manager shall be familiar with all rules and regulations and procedures of the Building and all personnel of the Building engaged directly or indirectly in the management, operation and construction of the Building. Such on-site project manager shall be accountable and responsible to Tenant and to Landlord and, where necessary, shall serve as a liaison between Landlord and Tenant with respect to the Tenant’s Work. The entire cost and expense of the on-site project manager shall be borne and paid for by Tenant (subject to Tenant’s right to use all or any part of Landlord’s Contribution to reimburse Tenant for the same).

     11. DESIGNATED REPRESENTATIVES; COOPERATION.

     (a) Landlord and Tenant shall each appoint one qualified and readily available representative with the authority to give and receive notices, other materials and information relating to the Tenant’s Work, and approvals under this Workletter. Initially, Landlord’s representative shall be Edmund Sadleir, whose address is c/o L & H Real Estate Group, 10 S. Riverside Plaza, Suite 1830, Chicago, Illinois 60606 and whose telephone number is 312-780-1939, and Tenant’s representatives shall be Rich Dale of Studley, Inc. whose telephone number is (312) 595-2938 or Rick Chaussey of Midwest Bank whose phone number is (708) 498-2026.

     (b) Tenant and Landlord agree to make their respective architects and engineers available to the other to answer questions and provide clarifications and additional information as is reasonable for the timely progress and completion of the Tenant’s Work.

[END OF WORKLETTER PROVISIONS]

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EXHIBIT C

SIGNS AND DISPLAY WINDOWS

     Tenant accepts and understands that the Building is a registered landmark of the City of Chicago and is on the National Register of Historic Places. Accordingly, Tenant agrees that its right to install signage consistent with the design of its other branch banks is subject to the review, approval, and permitting of Landmarks Illinois and the City of Chicago and any other applicable state or national agencies with jurisdiction over the Building’s landmark status. After initial installation of any signage, Tenant may not without Landlord’s consent change its signage to conform to changes in its company sign program. Landlord will be reasonable in its review and approval of such changes in signage so long as such signage is consistent in size, design and quality with Tenant’s initial signage and such signage remains in accordance with all City, State or Federal requirements and applicable codes applying to historic landmark structures.

     The sign criteria requirements set forth below shall apply to all signs attached by Tenant to the interior or exterior of the Premises, subject in all instances to Landlord’s consent as required by Section 3.F. of the Lease.

     (a) All signs shall be professionally prepared consistent with a first-class retail, commercial and residential properties located in the downtown Chicago, Illinois metropolitan area, and in no event shall paper signs be permitted.

     (b) There shall be no flashing, moving or audible signs.

     (c) There shall be no signs employing exposed raceways, exposed lamps, exposed neon tubs, exposed ballast boxes, exposed wiring, exposed starters, or exposed transformers.

     (d) No lewd, obscene, pornographic or sexually suggestive text or graphics shall be permitted on any sign.

     (e) The advertising or information content on the signs shall be limited to the retail name, established logos, or the primary products or services sold, and, other than directional, information or legally required signage, there shall be no other visual displays, advertisements or promotions, such as laser displays and strobes.

     (f) No billboards or similar type of signage.

     (g) No handwritten signs shall be placed on the interior or exterior surfaces of glass panes or doors. No more than twenty percent (20%) of the interior or exterior surfaces of glass panes or doors shall be used for signs.

     (h) If Landlord approves or requires illuminated signs, Tenant shall keep the same and display windows illuminated each day of the Term during the hours designated by Landlord from time to time; in connection therewith, Tenant shall install a mechanical time clock.

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     (i) All display windows and signs shall be kept clean and in good condition and repair.

     (j) After the initial installation of Tenant’s storefront sign as approved in writing by Landlord in accordance with these provisions and the Lease, Landlord reserves the right to require from time to time that Tenant change or replace such sign in order to comply with any new sign criteria developed by Landlord’, at Landlord’s expense.

     (k) Blinds, shades, drapes or other such items shall not be placed in or about the windows in the Premises except to the extent, if any, that the character, shape, design, color, material and make thereof is first approved by Landlord in writing.

     (l) Tenant acknowledges that all signage which is visible from the exterior of the Premises may require the approval of third parties, including, but not limited to, Landmarks Illinois, the City of Chicago, its Landmarks Division and other state or federal landmark review committees having jurisdiction over the Building which approvals shall be the sole responsibility of Tenant.

     The term “sign” as used herein shall mean any sign, placard, picture, name, direction, lettering, insignia or trademark, advertising material, advertising display, awning or other such item.

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EXHIBIT D

RULES AND REGULATIONS

     1. Tenant shall not make any room-to-room canvas to solicit business from other residents, occupants and/or tenants in the Building and shall not exhibit, sell or offer to sell, use, rent or exchange any item or services in or from the Premises unless ordinarily included within Tenant’s use of the Premises as specified in the Lease.

     2. Tenant shall not make any use of the Premises which may be dangerous to person or property or which shall increase the cost of insurance or require additional insurance coverage.

     3. Tenant shall not paint, display, inscribe or affix any sign, picture, advertisement, notice, lettering or direction or install any lights on any part of the outside or inside of the Building, other than the Premises, and then not on any part of the inside of the Premises which can be seen from outside the Premises, except as approved by Landlord in writing.

     4. Tenant shall not use the name of the Building in advertising or other publicity, except as the address of its business, and shall not use pictures of the Building in advertising or publicity, except as required in the Lease or as approved by Landlord.

     5. Tenant shall not obstruct or place objects on or in sidewalks, entrances, passages, courts, corridors, vestibules, halls, elevators and stairways in and about the Building. Tenant shall not place objects against glass partitions or doors or windows or adjacent to any open common space which would be unsightly from the Building corridors or from the exterior of the Building.

     6. Bicycles shall not be permitted in the Building other than in locations designated by Landlord.

     7. Tenant shall not allow any animals, other than seeing eye dogs, in the Premises or the Building.

     8. Tenant shall not use, play or operate or permit to be used, played or operated any sound-making or sound-reproducing or sound-amplification device in the Premises, except in such manner and under such conditions such that no sound shall be heard outside of the Premises.

     9. Tenant shall not disturb other tenants or occupants of the Building make excessive noises, cause disturbances, create excessive vibrations, odors or noxious fumes or use or operate any electrical or electronic devices or other devices that emit excessive sound waves or are dangerous to other tenants or occupants of the Building or that would interfere with the operation of any device or equipment or radio or television broadcasting or reception from or within the Building or elsewhere, and shall not place or install any projections, antennae, aerials or similar devices outside of the Building or the Premises.

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     10. Tenant shall not waste electricity or water and shall cooperate fully with Landlord to assure the most effective operation of the Building’s heating and air conditioning and shall refrain from attempting to adjust any controls for the Building’s heating and air conditioning system except for the controls and thermostats within the Premises. Tenant shall keep all doors to the Premises closed.

     11. When the Lease is terminated, Tenant shall deliver all keys to Landlord and will provide to Landlord the means of opening any safes, cabinets or vaults left in the Premises.

     12. Except as otherwise provided in the Lease, Tenant shall not install any signal, communication, alarm or other utility or service system or equipment without the prior written consent of Landlord.

     13. Tenant shall not use any draperies or other window coverings instead of or in addition to the Building standard window coverings designated and approved by Landlord for exclusive use throughout the Building.

     14. Landlord may require that all persons who enter or leave the Building (other than through exterior doors directly accessing the Premises from the outside) identify themselves to watchmen, by registration or otherwise. Landlord, however, shall have no responsibility or liability for any theft, robbery or other crime in the Building. Tenant shall assume full responsibility for protecting the Premises, including keeping all doors to the Premises locked after the close of business.

     15. Tenant shall not overload floors; and Tenant shall obtain Landlord’s prior written approval as to size, maximum weight, routing and location of business machines, safes, and heavy objects. Tenant shall not install or operate machinery or any mechanical devices of a nature not directly related to Tenant’s ordinary use of the Premises.

     16. In no event shall Tenant bring into the Building inflammables such as gasoline, kerosene, naphtha and benzene, or explosives or firearms or any other articles of an intrinsically dangerous nature. Any and all chemicals brought into the Premises shall be stored in proper containers or fire-rated containers, as required by all laws and regulations or product guidelines.

     17. Furniture, equipment and other large articles may be brought into the Building or the Premises only at the time and in the manner designated by Landlord. Tenant shall furnish Landlord with a list of furniture, equipment and other large articles which are to be removed from the Building, and Landlord may require permits before allowing anything to be moved in or out of the Building. Movements of Tenant’s property into or out of the Building and within the Building are entirely at the risk and responsibility of Tenant.

     18. Tenant shall notify Landlord, in advance, of any entity hired by Tenant to perform janitorial work, interior window washing, cleaning, decorating or similar services in the Premises.

     19. Tenant shall not use the Premises for lodging or for any illegal purposes.

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     20. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency.

     21. Tenant shall cooperate and participate in all reasonable security programs affecting the Building.

     22. Tenant shall not loiter, eat, drink, sit or lie in the lobby or other public areas in the Building. Tenant shall not go onto the roof of the Building or any other non-public areas of the Building (except the Premises), and Landlord reserves all rights to control the public and non-public areas of the Building. In no event shall Tenant have access to any electrical, telephone, plumbing or other mechanical closets without Landlord’s prior written consent.

     23. Tenant shall not use the freight or passenger elevators, loading docks or receiving areas of the Building except in accordance with regulations for their use established by Landlord.

     24. Tenant shall not dispose of any foreign substances in the toilets, urinals, sinks or other washroom facilities, nor shall Tenant permit such items to be used other than for their intended purposes; and Tenant shall be liable for all damage as a result of a violation of this rule.

     25. In no event shall Tenant allow its employees to use the public areas of the Building or the Exterior Common Areas surrounding the Building (including, without limitation, the Premises) as smoking areas.

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EXHIBIT E

LANDLORD’S WORK

Space shall be delivered as follows:

• Central building heat pump system stubbed to Premises.

• Existing front entrance door, windows and storefront as well as existing rear entrance door in place.

• Exterior walls “as-is”

• No ceiling or lighting

• Existing concrete floor to remain

• One (1) existing new 400 amp electrical service and panel as located within the rear of the Premises and an installed individual electrical meter for recording the electricity use solely for the Premises. Tenant agrees that Tenant shall at Tenant’s sole cost and expense arrange to transfer the electrical meter and account into Tenant’s name following the Turnover Date and before Tenant’s construction within the Premises commences.

• A 2” water pipe will be provided to the rear of the Premises for connection by Tenant at Tenant’s sole cost and expense. A checkmeter for use by Landlord and Tenant to equitable apportion water usage by Tenant has been installed. Tenant acknowledges and agrees that Tenant shall pay to Landlord as Rent Tenant’s fair share of water and sewer charges based upon its check metered usage of same.

• Multiple locations for Tenant’s connection of its own HVAC equipment to the Building’s heat pump system for the heating and cooling of the Premises.

• No gas lines or access to natural gas will be required by Tenant. [Tenant to confirm.]

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EX-10.64

EXHIBIT 10.64

OFFICE LEASE

500 WEST MONROE

BROADWAY 500 WEST MONROE FEE LLC,

a Delaware limited liability company

as Landlord,

and

MIDWEST BANK & TRUST, Co.

an Illinois corporation,

as Tenant.

OFFICE LEASE

     This Office Lease (the “Lease”), dated as of the date set forth in Section 1 of the Summary of Basic Lease Information (the “Summary”), below, is made by and between Broadway 500 West Monroe Fee LLC, a Delaware limited liability company (“Landlord”), and Midwest Bank & Trust, Co., an Illinois corporation (“Tenant”).

SUMMARY OF BASIC LEASE INFORMATION

	TERMS OF LEASE	DESCRIPTION
1.	Date:	November ___, 2008
2.	Building:	That certain office building having an address of 500 West Monroe Street, Chicago, Illinois, and as further set forth in Section 1.1.2 of this Lease.
3.	Premises:	Approximately sixteen thousand five hundred thirteen (16,513) rentable square feet of space consisting of (i) approximately fourteen thousand one hundred fifty (14,150) rentable square feet of space located on the thirty first (31st) floor of the Building, as further set forth in Exhibit A to this Lease (the “Office Premises”), and (ii) approximately two thousand three hundred sixty three (2,363) rentable square feet of space located on the east side of the lobby of the Building, as further set forth in Exhibit A to this Lease) (the “Retail Premises”, and together with the Office Premises, referred to as the “Premises”).
4.	Project:	The Building is part of an office project currently known as “500 West Monroe.”
5.	Lease Term:	One Hundred Twenty (120) months commencing on the “Office Premises Commencement Date” (defined below).
6.	Commencement Date:	For the Office Premises, the earlier to occur of (i) the date of Substantial Completion of the Tenant Improvements (as defined in the Work Letter), and (ii) May 1, 2009 (“Office Premises Commencement Date”).
		For the Retail Premises, the earlier to occur of (i) the date of Substantial Completion of the Tenant Improvements (as defined in the Work Letter), and (ii) May 1, 2009 (“Retail Premises Commencement Date”).
7.	Expiration Date:	The tenth (10th) anniversary of the Office Premises Commencement Date.
8.	Options to Extend:	One (1) five (5)-year option pursuant to Exhibit E.
9.	Base Rent:

Office Premises
			Approximate Annual
Lease Year	Annual Base Rent	Monthly Base Rent	Rate per RSF
1	$325,449.96	$27,120.83	$23.00
2	$335,213.40	$27,934.45	$23.69
3	$345,269.76	$28,772.48	$24.40
4	$355,627.80	$29,635.65	$25.13
5	$366,296.64	$30,524.72	$25.88
6	$377,285.52	$31,440.46	$26.66
7	$388,604.04	$32,383.67	$27.46
8	$400,262.16	$33,355.18	$28.28
9	$412,270.08	$34,355.84	$29.13
10	$424,638.24	$35,386.52	$30.00

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Retail Premises
			Approximate Annual
Lease Year	Annual Base Rent	Monthly Base Rent	Rate per RSF
1	$59,075.04	$4,922.92	$25.00
2	$60,847.32	$5,070.61	$25.75
3	$62,672.76	$5,222.73	$26.52
4	$64,552.92	$5,379.41	$27.32
5	$66,489.48	$5,540.79	$28.14
6	$68,484.12	$5,707.01	$28.98
7	$70,538.64	$5,878.22	$29.85
8	$72,654.84	$6,054.57	$30.75
9	$74,834.52	$6,236.21	$31.67
10	$77,079.60	$6,423.30	$32.62

ATM Premises *
Lease Year	Annual Base Rent	Monthly Base Rent
1	$7,200.00	$600.00
2	$7,488.00	$624.00
3	$7,787.52	$648.96
4	$8,099.04	$674.92
5	$8,423.04	$701.92
6	$8,760.00	$730.00
7	$9,110.40	$759.20
8	$9,474.84	$789.57
9	$9,853.80	$821.15
10	$10,248.00	$854.00

* Subject to Section 29.36 of the Lease.

10.	Rent Payment Address:	Electronic Funds Transfer:
		Bank Name: KeyBank, N.A.
		ABA Number: 021-300-077
		Account Name: Broadway 500 West Monroe Fee LLC Lockbox
		Account f/b/o Morgan Stanley Mortgage Capital Holdings
		LLC, as Lender together with its successors or assigns
		Account Number: 327820074398
		If paying rent by check:
		Broadway 500 West Monroe Fee LLC
		PO Box 712915
		Cincinnati, OH 45271-2915
11.	Intentionally Omitted.
12.	Tenant’s Share:	1.5021% (for Office Premises)
		0.2472% (for Retail Premises)
13.	Permitted Use:	For Office Premises, general office use, so long as such use is consistent with all applicable Laws and with the character of a first class office building (the “Office Premises Permitted Use”).
		For Retail Premises, branch banking use, so long as such use is consistent with all applicable Laws and with the character of a first class office building (the “Retail Premises Permitted Use”, together with the Office Premises Permitted Use, the “Permitted Use”).
14.	Security Deposit:	Two Hundred Seventy Five Thousand Dollars ($275,000.00), subject to Article 21.

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15.	Parking Passes:	Three (3) reserved passes and seven (7) unreserved passes.
16.	Address of Tenant:	Midwest Bank and Trust Company
		501 West North Ave.
		Melrose Park, IL 60160
		Attention: Bruno Costa, Executive Vice President
		(Prior to Commencement Date)
		Midwest Bank and Trust Company
		500 West Monroe, 31st Floor
		Chicago, IL 60661
		Attention: Bruno Costa, Executive Vice President
		(After Commencement Date)
17.	Landlord’s Address:	Broadway 500 West Monroe Fee LLC,
		c/o Broadway Partners
		375 Park Avenue, 29th Floor
		New York, New York 10152
		Attention: National Leasing Counsel
		And
		c/o Broadway Partners
		375 Park Avenue, 29th Floor
		New York, New York 10152
		Attention: Asset Manager
		And
		Friedman & Solomon LLP
		9665 Wilshire Boulevard, Suite 810
		Beverly Hills, California 90212
		Attention: Robert E. Solomon, Esq.
18.	Brokers	Landlord’s Broker: Jones Lang LaSalle
		Tenant’s Broker: Studley, Inc.
19.	Improvement Allowance:	Nine Hundred Twenty Four Thousand Seven Hundred Twenty
		Eight Dollars ($56 per rentable square foot)

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ARTICLE 1
PREMISES, BUILDING, PROJECT, AND COMMON AREAS

     1.1 The Premises. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the premises (the “Premises”) which are set forth in Section 3 of the Summary of Basic Lease Information above (the “Summary”). The outline of the Premises is set forth in Exhibit A attached hereto. Landlord and Tenant hereby acknowledge and agree that the rentable square footage of the Premises shall be deemed to be as set forth in Section 3 of the Summary and that the same shall not be subject to re-measurement or modification. The parties hereto agree that the lease of the Premises is upon and subject to the terms, covenants and conditions herein set forth, and Tenant covenants as a material part of the consideration for this Lease to keep and perform each and all of such terms, covenants and conditions by it to be kept and performed and that this Lease is made upon the condition of such performance. The parties hereto hereby acknowledge that the purpose of Exhibit A is to show the approximate location of the Premises in the “Building,” as that term is defined in Section 1.2, below, only, and such Exhibit is not meant to constitute an agreement, representation or warranty as to the construction of the Premises, the precise area thereof or the specific location of the “Common Areas,” as that term is defined in Section 1.3, below, or the elements thereof or of the accessways to the Premises or the “Project,” as that term is defined in Section 1.2, below. Except as specifically set forth in this Lease and in the Work Letter attached hereto as Exhibit C, if applicable (the “Work Letter”), Landlord shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Premises or occupancy thereof by Tenant. Tenant also acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty regarding the condition of the Premises, the Building or the Project or with respect to the suitability of any of the foregoing for the conduct of Tenant’s business and Tenant shall accept the Premises in its “as is” condition of the Commencement Date, except as specifically set forth in this Lease and the Work Letter, if applicable. The taking of possession of the Premises by Tenant shall conclusively establish that the Premises and the Building were at such time in good and sanitary order, condition and repair.

     1.2 The Building and The Project. The Premises are a part of the building set forth in Section 2 of the Summary (the “Building”). The term “Project,” as used in this Lease, shall mean (i) the Building and the Common Areas, (ii) the land (which is improved with landscaping, parking facilities and other improvements) upon which the Building and the Common Areas are located, and (iii) at Landlord’s discretion, any additional real property, areas, land, buildings or other improvements added thereto outside of the Project. Landlord shall have the right from time to time in Landlord’s sole discretion, to convert office space in the Project to retail and/or residential space, or to convert retail and/or residential space in the Project to office space.

     1.3 Common Areas. Tenant shall have the non-exclusive right to use in common with other tenants in the Project, and subject to the Rules and Regulations set forth in Exhibit D, those portions of the Project which are provided, from time to time, for use in common by Landlord, Tenant and any other tenants of the Project (such areas, together with such other portions of the Project designated by Landlord, are collectively referred to herein as the “Common Areas”). The manner in which the Common Areas are maintained and operated shall be at the reasonable discretion of Landlord and the use thereof shall be subject to such rules, regulations and restrictions as Landlord may make from time to time, provided that at all times Landlord shall maintain and operate the Common Areas in a manner substantially consistent with other “Class A” office buildings in the Chicago, Illinois central business district. Landlord reserves the right to close temporarily, make alterations or additions to, or change the location of elements of the Project and the Common Areas and may temporarily close the Building or the Project in the event of casualty, governmental requirements, the threat of an emergency such as terrorism, natural disasters or acts of God, or if Landlord reasonably deems it necessary in order to prevent damage or injury to person or property.

ARTICLE 2
LEASE TERM

     2.1 Lease Term. The terms and provisions of this Lease shall be effective as of the date of this Lease. The term of this Lease (the “Lease Term”) shall be as set forth in Section 5 of the Summary, shall commence on the date set forth in Section 6 of the Summary (the “Commencement Date”), and shall expire on the date set forth in Section 7 of the Summary (the “Expiration Date”) unless this Lease is sooner terminated as hereinafter provided. For purposes of this Lease, the term “Lease Year” shall mean each consecutive twelve (12) month period during the Lease Term, provided that the last Lease Year shall end on the Expiration Date. If Tenant, with Landlord’s prior written approval, takes possession of the Premises prior to the Commencement Date for the sole purpose of performing any improvements therein or installing furniture, fixtures, equipment or other personal property of Tenant, such possession shall be subject to all of the terms and conditions of the Lease, except that Tenant shall not be required to pay Base Rent only with respect to the period of time prior to the Commencement Date during which Tenant performs such work.

     2.2 Delivery of Premises and Use Prior To Commencement Date. Landlord shall deliver the Premises to Tenant promptly following mutual execution and delivery of the Lease for the purpose of Tenant performing the Tenant Improvements (as defined in the Work Letter). Such possession prior to the Commencement Date shall be subject to all of the terms and conditions of this Lease, other than Tenant’s obligations to pay Base Rent (as defined in Article 3) and Additional Rent (as defined in Article 4).

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     2.3 Option to Extend. Tenant shall have one (1) option to extend the Lease Term with respect to all of the Premises in accordance with the terms and provisions of Exhibit E.

ARTICLE 3
BASE RENT

     3.1. Base Rent. Tenant shall pay, without prior notice, demand, setoff or deduction, to Landlord or Landlord’s agent at the address set forth in Section 10 of the Summary, or, at Landlord’s option, at such other place as Landlord may from time to time designate in writing, by a check for currency which, at the time of payment, is legal tender for private or public debts in the United States of America, base rent (“Base Rent”) as set forth in Section 9 of the Summary, payable in equal monthly installments as set forth in Section 9 of the Summary in advance on or before the first (1^st) day of each and every calendar month during the Lease Term, without any abatement, setoff or deduction whatsoever. In accordance with Section 29.25, this Article 3 shall be construed as though the covenants herein between Landlord and Tenant are independent and Tenant shall not be entitled to any setoff of the Rent or other amounts owing to Landlord under this Article 3. The Base Rent for the first full month of the Lease Term which occurs after the expiration of any free rent period shall be paid at the time of Tenant’s execution of this Lease. If any Rent payment date (including the Commencement Date) falls on a day of the month other than the first day of such month or if any payment of Rent is for a period which is shorter than one month, the Rent for any fractional month shall be calculated on a daily basis for the period from the date such payment is due to the end of such calendar month or to the end of the Lease Term at a rate per day which is equal to 1/30^th of the applicable monthly Rent. All other payments or adjustments required to be made under the terms of this Lease that require proration on a time basis shall be prorated on the same basis.

     3.2 Waived Rent. Notwithstanding anything herein which may be construed to the contrary, provided there is no Default by Tenant existing under the Lease during the “Office Premises Waiver Period” (as defined below), (i) the monthly installment of Base Rent for the Office Premises specified in Section 9 of the Summary and (ii) “Tenant’s Share” of “Operating Expenses” and “Tax Expenses” specified in Article 4, below, with respect to the Office Premises, are hereby waived by Landlord (“Office Premises Waived Rent”) for months five (5) through twelve (12) following the Office Premises Commencement Date (“Office Premises Waiver Period”). Additionally, notwithstanding anything herein which may be construed to the contrary, provided there is no Default by Tenant existing under the Lease during the “Retail Premises Waiver Period” (as defined below), (i) the monthly installment of Base Rent for the Retail Premises specified in Section 9 of the Summary and (ii) “Tenant’s Share” of “Operating Expenses” and “Tax Expenses” specified in Article 4, below, with respect to the Retail Premises, are hereby waived by Landlord (“Retail Premises Waived Rent”) for months five (5) through twelve (12) following the Retail Premises Commencement Date (“Retail Premises Waiver Period”, together with the Office Premises Waiver Period, the “Waiver Period”). This waiver shall not affect Tenant’s obligation to pay any other charges payable by Tenant under the Lease during the applicable Waiver Period. Commencing on the day following the last day of the applicable Waiver Period, Base Rent as specified in Section 9 of the Summary and Tenant’s Share of Operating Expenses and Tax Expenses as specified in Article 4 below shall be due and payable for the remainder of the Lease Term.

     3.3. Conversion Right. Notwithstanding anything to the contrary contained in this Lease, Tenant shall have the right to convert (the “Conversion Right”) all or a portion of the Waived Rent to the “Allowance Amount” (as defined in the Work Letter) In order to exercise the Conversion Right, Tenant must give Landlord written notice (the “Conversion Notice”) no later than the submission of the “Final Costs” as set forth in the Work Letter, which notice shall specify how much of the Waived Rent (the “Conversion Amount”) Tenant is electing to convert to the Allowance Amount, or Tenant shall be deemed to have irrevocably waived the Conversion Right. Provided that Tenant timely delivers the Conversion Notice, the Improvement Allowance shall be increased by an amount equal to the Conversion Amount. If the Conversion Amount is less than the Waived Rent, the Waiver Period shall be recalculated to take into account the reduction in the amount of the Waived Rent. Promptly following Tenant’s delivery of the Conversion Notice, Landlord and Tenant shall execute an amendment to this Lease. Without waiving any of Landlord’s other rights and remedies, Tenant hall have no right to exercise the Conversion Right during the continuance of an Event of Default by Tenant.

ARTICLE 4
ADDITIONAL RENT

     In addition to paying the Base Rent specified in Article 3 of this Lease, Tenant shall pay “Tenant’s Share” (as defined in Exhibit B) of (a) the annual “Operating Expenses” (as defined in Exhibit B), and (b) the annual “Tax Expenses” (as defined in Exhibit B). Such payments by Tenant, together with any and all other amounts payable by Tenant to Landlord pursuant to the terms of this Lease (other than Base Rent), are hereinafter collectively referred to as the “Additional Rent”, and the Base Rent and the Additional Rent are herein collectively referred to as “Rent.” All amounts due under this Article 4 as Additional Rent shall be payable for the same periods and in the same manner as the Base Rent or as otherwise specifically set forth in this Lease. The obligations of Tenant to pay the Additional Rent provided for in this Article 4 shall survive the expiration of the Lease Term.

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ARTICLE 5
USE OF PREMISES

     5.1 Permitted Use. Tenant shall use the Office Premises solely for the Office Premises Permitted Use and the Retail Premises for the Retail Premises Permitted Use set forth in Section 13 of the Summary and Tenant shall not use or permit the Premises or the Project to be used for any other purpose or purposes whatsoever without the prior written consent of Landlord, which may be withheld in Landlord’s sole discretion. Tenant shall, at its own cost and expense, obtain and maintain any and all licenses, permits, and approvals necessary or appropriate for its use, occupation and operation of the Premises for the Permitted Use. Tenant’s inability to obtain or maintain any such license, permit or approval necessary or appropriate for its use, occupation or operation of the Premises shall not relieve it of its obligations under this Lease, including the obligation to pay Base Rent and Additional Rent. Tenant further covenants and agrees that Tenant shall not use, or suffer or permit any person or persons to use, the Premises or any part thereof for any use or purpose contrary to provisions of the Rules and Regulations set forth in Exhibit D, attached hereto (as the same may be modified or rescinded from time to time), or in violation of laws of the United States of America, the state in which the Project is located, the ordinances, rules, regulations or requirements of the local municipal or county governing body or other lawful authorities having jurisdiction over the Project, or all recorded covenants, conditions, and restrictions now or hereafter affecting the Project including, without limitation, any certificate of occupancy, any such laws, ordinances, regulations or requirements relating to hazardous materials or substances, as those terms are defined by applicable laws now or hereafter in effect (collectively, the “Law(s)”). A violation of the Rules and Regulations by Tenant shall be deemed a default under this Article 5 Tenant shall not do or permit anything to be done in or about the Project which will in any way damage the reputation of the Project or obstruct or interfere with the rights of other tenants or occupants of the Project, or injure or annoy them or use or allow the Project to be used for any improper, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises.

     5.2 Retail Premises Quality Standards. Landlord and Tenant acknowledge that Landlord’s primary concern with respect to the Retail Premises is with the quality and reputation of the retail operations located in the Project and, therefore, the character and quality of Tenant’s operation of the Retail Premises are of paramount concern to Landlord and have strongly influenced Landlord’s selection of Tenant. Accordingly, Tenant agrees, as a material part of this Lease, that Tenant shall, throughout the Lease Term, maintain its quality and reputation, and the quality of its banking service, consistent with an upscale, first-class, mixed-use office/retail building in the Chicago, Illinois area. At all times during the Lease Term, Tenant shall utilize and operate its business and the Retail Premises (or cause such utilization and operation) prudently and in a manner consistent with sound business practices. Tenant agrees that on the Retail Premises Commencement Date Tenant shall be fully staffed and open for the Retail Premises Permitted Use.

     5.3 Maintenance of Retail Premises. Because of the location of the Retail Premises in the Project and the critical importance of maintaining the Retail Premises in a first-class condition so as not to detract from the appearance and condition of the Project, Landlord shall have the right during the Lease Term to approve the concept, plans and specifications, and all improvements, including furniture and fixtures, for the Retail Premises. Once approved, Tenant agrees not to allow the improvements in the Retail Premises to deteriorate beyond the standard approved by Landlord and to keep the same in a first-class condition, reasonable wear and tear excepted. Tenant agrees to keep the interior and exterior of the Retail Premises in a neat, clean, safe and sanitary condition. Tenant shall keep the signs of the Retail Premises well lighted until 8:00 p.m. each night or such shorter period as may be prescribed by any applicable policies or regulations adopted by any utility or governmental agency, and shall maintain adequate night lights thereafter.

     5.4 Tenant’s Trade Name in the Retail Premises. Tenant acknowledges that the name of Tenant’s business establishment in the Retail Premises is of utmost concern and importance to Landlord. Landlord shall therefore have the right to approve, in Landlord’s reasonable discretion, the name of Tenant’s business establishment to be located in the Retail Premises.

     5.5 Retail Premises Operating Hours. Tenant shall keep the Retail Premises open for business on each day of the week (except Saturday and Sunday) from 9:00 a.m. to 5:00 p.m. (“Minimum Hours”), except for the date of observation of New Year’s Day, Presidents’ Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day and other locally or nationally recognized holidays (collectively, the “Holidays”). In the event Landlord from time to time establishes standard retail hours for the Project, Tenant shall remain open during such standard hours; provided that if such standard hours are in excess of the Minimum Hours and Tenant demonstrates that the hours in excess of the Minimum Hours are not economically justified, Landlord shall not unreasonably withhold its consent to a waiver of such excess hours.

     5.6 Continued Operation of Retail Premises. Tenant covenants and agrees that it will open for business in the Retail Premises on the Retail Premises Commencement Date, and thereafter operate and conduct within the Retail Premises, continuously and uninterruptedly during the Lease Term in accordance with this Section 5, the business which it is required to operate and conduct under the provisions hereof, and that it will at all times keep and maintain the Retail Premises and have sufficient personnel to service and supply the usual and ordinary demands and requirements of its customers. In the event Tenant fails to continuously operate its business in the Retail Premises as required by this Section 5, then in addition to all other remedies available to Landlord (including without limitation, injunction and/or damages), Landlord may, but is not obligated to, elect to terminate this Lease upon written notice of Landlord’s intent to Tenant, whereupon this Lease shall terminate, and Tenant shall vacate the Premises upon the date specified in Landlord’s notice to Tenant.

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     5.7 Hazardous Substances. Neither Tenant, any of the officers, partners, contractors, subcontractors, consultants, licensees, agents, concessionaires, subtenants, servants, employees, customers, guests, invitees or visitors of Tenant (collectively, the “Tenant’s Agents”) nor any other person shall store, place, generate, manufacture, refine, handle, or locate on, in, under or around the Premises, the Building or Project any “Hazardous Substance” (as defined below), except for storage, handling and use of reasonable quantities and types of cleaning fluids and office supplies in the Premises in the ordinary course and the prudent conduct of Tenant’s business in the Premises. As used in this Lease, the term “Hazardous Substance” shall mean and include any chemical, material, element, compound, solution, mixture, sub-stance or other matter of any kind whatsoever which is now or later designated, classified, listed or regulated under any Law, statute, ordinance, rule, regulation, order or ruling of any agency of the State, the United States Government or any local governmental authority, including, without limitation, asbestos, petroleum, petroleum hydrocarbons and petroleum based products, urea formaldehyde foam insulation, polychlorinated biphenyls (“PCBs”) and freon and other chlorofluorocarbons.

ARTICLE 6
SERVICES AND UTILITIES

     6.1 Standard Tenant Services. Landlord shall provide the following services on all days (unless otherwise stated below) during the Lease Term.

          (a) Subject to limitations imposed by all governmental rules, regulations, orders and guidelines applicable thereto, Landlord shall provide heating, ventilation and air conditioning (“HVAC”) for use in the Premises from 8:00 A.M. to 6:00 P.M. Monday through Friday, and on Saturdays from 8:00 A.M. to 1:00 P.M. (collectively, the “Building Hours”), except for the date of observation of New Year’s Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day and, at Landlord’s discretion, other locally or nationally recognized holidays days recognized by unions as holidays (collectively, the “Holidays”). If Tenant desires HVAC service outside the hours set forth above (“Overtime Periods”), Tenant shall deliver notice to the Building office requesting such services at least 24 hours prior to the time Tenant requests such services to be provided. If Landlord furnishes HVAC service during Overtime Periods, Tenant shall pay to Landlord the then established Building rates for such service during Overtime Periods in the Building upon demand thereof.

          (b) Landlord shall redistribute or furnish electricity to or for the use of Tenant in the Premises for the operation of Tenant’s ordinary and customary lighting and office equipment in the Premises reasonably necessary for typical general office use and in compliance with applicable codes. Tenant shall bear the cost of replacement of lamps, starters and ballasts for non-Building standard lighting fixtures within the Premises.

          (c) Landlord shall install and maintain a meter or meters, at Landlord’s expense, to measure Tenant’s consumption of electricity. Tenant shall pay the public utility company directly for its consumption of electricity.

          (d) Landlord shall provide potable water from the regular Building outlets for drinking, lavatory and toilet purposes in the Building Common Areas.

          (e) Landlord shall provide janitorial services to the Premises five (5) days per week in a manner consistent with other comparable buildings in the vicinity of the Building, except the date of observation of the Holidays, in and about the Premises and window washing services in a manner consistent with other comparable buildings in the vicinity of the Building. Tenant shall pay to Landlord, as additional rent, the reasonable costs incurred by Landlord in removing from the Building any of Tenant’s refuse and rubbish to the extent exceeding the amount of refuse and rubbish usually generated by a tenant that uses the Premises for ordinary office purposes. Tenant, at Tenant’s expense, shall exterminate the portions of the Premises that Tenant uses for the storage, preparation, service or consumption of food against infestation by insects and vermin regularly and, in addition, whenever there is evidence of infestation. Tenant shall engage persons to perform such exterminating that are approved by Landlord, which approval Landlord shall not unreasonably withhold, condition or delay. Tenant shall cause such persons to perform such exterminating in a manner that is reasonably satisfactory to Landlord. Tenant shall comply with any refuse disposal program (including, without limitation, any waste recycling program) that Landlord imposes reasonably after having given Tenant reasonable advance notice of the effectiveness thereof or that is required by applicable Laws.

          (f) Landlord shall provide nonexclusive, non-attended automatic passenger elevator service during the Building Hours only (excluding Holidays and subject to Force Majeure), but shall have one elevator available at all other times for nonexclusive non-attended automatic passenger elevator service, and if the Building include an escalator, Landlord also shall provide nonexclusive, non-attended automatic passenger escalator service during Building Hours only.

          (g) Landlord shall provide nonexclusive freight elevator service and access to the loading dock subject to scheduling by Landlord, which use shall be at Landlord’s cost during Building Hours. Tenant shall pay to Landlord, as additional rent, an amount calculated at the hourly rates that Landlord charges from time to time for freight elevator service during Overtime Periods, within ten (10) days after Landlord’s giving to Tenant an invoice therefore.

          (h) Except when and where Tenant’s right of access is specifically excluded as the result of (i) an emergency, (ii) a requirement by any applicable Law, (iii) a specific provision set forth in this Lease, (iv) Force Majeure, or (v) an event of casualty or condemnation, Tenant shall have the right of ingress and egress to the Premises twenty-four (24) hours per day, seven (7) days per week, every day of the year.

     6.2 Overstandard Tenant Use. If Tenant uses water, electricity, heat or air conditioning in excess of that supplied by Landlord pursuant to Section 6.1 of this Lease, Tenant shall pay to Landlord, upon billing, the

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cost of such excess consumption, the cost of the installation, operation, and maintenance of equipment which is installed in order to supply such excess consumption, and the cost of the increased wear and tear on existing equipment caused by such excess consumption; and Landlord may install devices to separately meter any increased use and in such event Tenant shall pay the increased cost directly to Landlord, on demand, at the rates charged by the public utility company furnishing the same, including the cost of such additional metering devices. Tenant’s use of electricity shall never exceed the capacity of the feeders to the Project or the risers or wiring installation.

     6.3 Interruption of Use. Notwithstanding anything to the contrary contained herein, to the extent permitted by applicable Law, Tenant agrees that Landlord shall not be liable for damages, by abatement of Rent or otherwise, for failure to furnish or delay in furnishing any service (including telephone, telecommunication, water and sewer, HVAC, and electrical services), or for any diminution in the quality or quantity thereof, when such failure or delay or diminution is occasioned, in whole or in part, by breakage, repairs, replacements, or improvements, by any strike, lockout or other labor trouble, by inability to secure electricity, gas, water, or other fuel at the Building or Project after reasonable effort to do so, by any riot or other dangerous condition, emergency, accident or casualty whatsoever, by act, omission or default of Landlord or other parties, or by any other cause; and such failures or delays or diminution shall never be deemed to constitute an eviction (constructive or otherwise) or disturbance of Tenant’s use and possession of the Premises or relieve Tenant from paying Rent or performing any of its obligations under this Lease. Tenant hereby waives any existing or future Law, permitting the termination of this Lease due to an interruption, failure or inability to provide any services. Furthermore, Landlord shall not be liable under any circumstances for a loss of, or injury to, property or for injury to, or interference with, Tenant’s business, including, without limitation, loss of profits, however occurring, through or in connection with or incidental to a failure to furnish any of the services or utilities as set forth in this Article 6. Landlord may comply with voluntary controls or guidelines promulgated by any governmental entity relating to the use or conservation of energy, water, gas, light or electricity or the reduction of automobile or other emissions without creating any liability of Landlord to Tenant under this Lease.

     6.4 Abatement Right. Notwithstanding anything to the contrary contained in this Article 6, if: (i) Landlord ceases to furnish any service in the Building for a period in excess of ten (10) consecutive Business Days after Tenant notifies Landlord of such cessation (the “Interruption Notice”); (ii) such cessation does not arise as a result of an act or omission of Tenant; (iii) such cessation is not caused by a fire or other casualty (in which case Article 11 shall control); (iv) the restoration of such service is reasonably within the control of Landlord, unless rental loss insurance is available (in which event the amount of abatement shall in no event exceed the amount of rental loss insurance); and (v) as a result of such cessation, the Premises or a material portion thereof, is rendered untenantable and Tenant in fact ceases to use the Premises, or material portion thereof, then to the extent permitted by applicable Law, Tenant, as its sole remedy, shall be entitled to receive an abatement of Rent payable hereunder during the period beginning on the eleventh (11th) consecutive Business Day of such cessation and ending on the day when the service in question has been restored. In the event the entire Premises has not been rendered untenantable by the cessation in service, the amount of abatement that Tenant is entitled to receive shall be prorated based upon the percentage of the Premises so rendered untenantable and not used by Tenant. For purposes of this section, repair or restoration of any utility services to the Building shall not be considered to be reasonably within the control of Landlord if the interruption of such utility services results from the failure of any equipment or facilities maintained by the utility provider.

ARTICLE 7
REPAIRS

     7.1 Tenant’s Obligations. Except as otherwise provided in this Lease, Landlord shall have no maintenance obligation concerning the Premises and no obligation to make any repairs or replacements, in, on, or to the Premises. Tenant shall, at Tenant’s own expense, pursuant to and in accordance with the terms of this Lease, including without limitation Article 8 hereof, keep the Premises, including all improvements, fixtures and furnishings therein, and the floor or floors of the Building on which the Premises are located, in good order, repair and condition at all times during the Lease Term (including, electrical and mechanical systems not considered part of the “Building Systems” (as defined below) that have been installed for the exclusive use and benefit of Tenant such as additional HVAC equipment, hot water heaters, electronic, data, phone, and other telecommunications cabling and related equipment, and security or telephone systems for the Premises). Tenant shall not commit or allow to be committed any waste on any portion of the Premises. In addition, Tenant shall, at Tenant’s own expense, but under the supervision and subject to the prior written approval of Landlord, and within any reasonable period of time specified by Landlord, pursuant to the terms of this Lease, including without limitation Article 8 hereof, promptly and adequately repair all damage to the Premises and replace or repair all damaged, broken, or worn fixtures and appurtenances, except for damage caused by ordinary wear and tear; provided however, that, at Landlord’s option, or if Tenant fails to make such repairs within the time and in the manner required by this Lease, Landlord may, but need not, make such repairs and replacements, and Tenant shall pay Landlord upon demand the cost thereof, including a percentage of the cost thereof sufficient to reimburse Landlord for all overhead, general conditions, fees and other costs or expenses arising from Landlord’s involvement with such repairs and replacements forthwith upon being billed for same. Landlord may, but shall not be required to, enter the Premises at all reasonable times to make such repairs, alterations, improvements or additions to the Premises or to the Project or to any equipment located in the Project as Landlord shall desire or deem necessary or as Landlord may be required to do by governmental or quasi-governmental authority or court order or decree. Notwithstanding the foregoing, except in the event of (a) an emergency or (b) routine services provided by Landlord under the Lease (i.e. janitorial services), Landlord shall provide Tenant with reasonable advanced notice prior to entering the Premises such that a representative from Tenant may be present during such access.

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     7.2 Landlord’s Obligations. Subject to Section 7.1 above and to Article 11 and Article 13 hereof, Landlord shall maintain and make all necessary repairs to and replacements of (a) the “Building Systems” that service the Premises, (b) the structural portions of the Building, (c) the roof of the Building, and (d) within a reasonable period following receipt of notice of the need for repair and replacement from Tenant, the exterior walls and windows of the Premises. The term “Building Systems” shall mean the service systems of the Building, including, without limitation, the mechanical, gas, steam, electrical, sanitary, HVAC, elevator, plumbing, and life-safety systems of the Building up to the point of connection of localized distribution to the Premises (it being understood that the Building Systems shall not include any systems that Tenant installs in the Premises). Nothing contained in this Section 7.2 shall require Landlord to maintain or repair the systems within the Premises that distribute within the Premises electricity, HVAC or water. Except as provided in Article 11, there shall be no abatement of Rent, nor shall there be any liability of the “Landlord Parties” (as defined below), by reason of any injury to, or damage suffered by Tenant, including without limitation, any inconvenience to, or interference with, Tenant’s business or operations arising from the making of, or failure to make, any maintenance or repairs, alterations or improvements in or to any portion of the Building and/or the Project. Tenant hereby waives the benefit of any Laws granting it the right to make repairs at Landlord’s expense, to place a lien upon the property of Landlord and/or upon Rent due Landlord, or the right to terminate this Lease or withhold Rent on account of any Landlord default (including without limitation, the failure of Landlord to make repairs). No provision of this Lease shall be construed as obligating Landlord to perform any repairs, alterations or improvements to the Premises or the Project except as otherwise expressly agreed to be performed by Landlord pursuant to the provisions of this Lease.

ARTICLE 8
ADDITIONS AND ALTERATIONS

     8.1 Landlord’s Consent to Alterations. Tenant may not make any improvements, alterations, additions or changes in or to the Premises or any mechanical, plumbing or HVAC facilities or systems pertaining to the Premises (collectively, the “Alterations”) without first procuring the prior written consent of Landlord to such Alterations. Landlord’s consent to Alternations shall be requested by Tenant not less than thirty (30) days prior to the commencement thereof, and which consent shall not be unreasonably withheld by Landlord, provided it shall be deemed reasonable for Landlord to withhold its consent to any Alteration which affects the structural portions or the Building Systems or is visible from the exterior of the Building or Common Areas or requires access to areas outside the Premises. Notwithstanding the foregoing, Tenant shall not be required to obtain Landlord’s consent for repainting, recarpeting, installing systems, furniture or other alterations, tenant improvements, alterations or physical additions to the Premises which are cosmetic in nature totaling less than Twenty Five Thousand Dollars ($25,000) in any single instance or series of related alterations performed within a six-month period (provided that Tenant shall not perform any improvements, alterations or additions to the Premises in stages as a means to subvert this provision), in each case provided that (a) Tenant delivers to Landlord written notice thereof, a list of contractors and subcontractors to perform the work (and certificates of insurance for each such party) and any plans and specifications therefor prior to commencing any such Alterations (for informational purposes only so long as no consent is required by Landlord as required by this Lease), (b) the installation thereof does not require the issuance of any certificate of occupancy, building permit or other governmental approval, or involve any core drilling or the configuration or location of any exterior walls of the Building, and (c) such Alterations will not affect the structural portions or the systems or equipment of the Building, or be visible from the exterior of the Building or Common Areas or require access to the areas outside the Premises. The construction of the initial improvements to the Premises shall be governed by the terms of the Work Letter and not the terms of this Article 8.

     8.2 Manner of Construction. Landlord may impose, as a condition of its consent to any and all Alterations or repairs of the Premises or about the Premises, such requirements as Landlord in its sole discretion may deem desirable., including, but not limited to, the requirement that (a) Tenant utilize for such purposes only contractors, subcontractors, materials, mechanics and materialmen selected by Tenant from a list provided and approved by Landlord, (b) upon Landlord’s request, Tenant shall, at Tenant’s expense, remove “Specialty Alterations” (as defined below) upon the expiration or any early termination of the Lease Term, (c) Tenant secure, prior to commencing any Alterations, at Tenant’s sole expense, form of security satisfactory to Landlord in an amount sufficient to ensure the lien-free completion of such Alterations and naming Landlord as a co-obligee, and (d) all Alterations conform in terms of quality and style to the Building’s standards established by Landlord from time to time. Notwithstanding subsection (c) above, at the time Tenant seeks Landlord’s consent to a proposed “Specialty Alteration” (as defined below), Tenant shall provide Landlord with Notice identifying the proposed Specialty Alterations and requesting that Landlord notify (the “Removal Notice”) Tenant as part of Landlord’s consent which Specialty Alterations Landlord will require Tenant to remove upon the expiration or early termination of this Lease. Tenant shall only be obligated to remove from the Premises at the expiration or early termination of this Lease such Specialty Alterations so identified by Landlord in the Removal Notice. If such Alterations will involve the use of or disturb Hazardous Substances existing in the Premises, Tenant shall comply with Landlord’s rules and regulations concerning such Hazardous Substances. Tenant shall construct such Alterations and perform such repairs in a good and workmanlike manner, in conformance with any and all applicable Laws and pursuant to a valid building permit or other governmental approval issued by the city or county, as applicable, in which the Project is located, all in conformance with Landlord’s construction rules and regulations as established from time to time. In the event Tenant performs any Alterations in the Premises which require or give rise to governmentally required changes to the “Base Building,” as that term is defined below, then Landlord shall, at Tenant’s expense, make such changes to the Base Building. The “Base Building” shall include the structural portions of the Building, and the public restrooms, Building Systems and the systems and equipment located in the internal core of the Building on the floor or floors on which the Premises are located. In performing the work of any such Alterations, Tenant shall have the work performed in such manner so as not to obstruct access to the Project or any portion thereof, by any other tenant of the Project, and so as not to obstruct the business of

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Landlord or other tenants in the Project. Tenant shall not use (and upon notice from Landlord shall cease using) contractors, services, workmen, labor, materials or equipment that, in Landlord’s reasonable judgment, would disturb labor harmony with the workforce or trades engaged in performing other work, labor or services in or about the Building or the Common Areas. All portions of the work involving excessive noise or inconvenience to other users of the Project shall be done after Building Hours. In addition to Tenant’s obligations under Article 9 of this Lease, upon completion of any Alterations, Tenant agrees to deliver to the Project management office a reproducible copy of the “as built” drawings of the Alterations in CADD format as well as all permits, approvals and other documents issued by any governmental agency in connection with the Alterations. “Specialty Alterations” shall mean Alterations which are not standard office installations such as kitchens, executive bathrooms, raised computer floors, computer room installations, supplemental HVAC equipment, safe deposit boxes, vaults, libraries or file rooms requiring reinforcement of floors, internal staircases, slab penetrations, conveyors, dumbwaiters, and other Alterations of a similar character.

     8.3 Payment for Improvements. If payment is made directly to contractors, Tenant shall comply with Landlord’s requirements for final lien releases and waivers in connection with Tenant’s payment for work to contractors. Whether or not Tenant orders any work directly from Landlord, Tenant shall pay to Landlord an amount equal to three percent (3%) of the cost of such work to compensate Landlord for all overhead, general conditions, fees and other costs and expenses arising from Landlord’s involvement with such work. Tenant shall pay promptly to Landlord, upon demand, all out-of-pocket costs actually incurred by Landlord in connection with Tenant’s Alterations, including costs incurred in connection with (a) Landlord’s review of the Alterations (including review of requests for approval thereof) and (b) the provision of Building personnel during the performance of any Alteration, to operate elevators or otherwise to facilitate Tenant’s Alterations

     8.4 Construction Insurance. In addition to the requirements of Article 10 of this Lease, in the event that Tenant makes any Alterations, prior to the commencement of such Alterations, Tenant shall provide Landlord (a) with evidence that Tenant carries “Builder’s All Risk” insurance in an amount approved by Landlord covering the construction of such Alterations, (b) certificates of, (1) worker’s compensation insurance in amounts not less than the statutory limits (covering all persons to be employed by Tenant, and Tenant’s contractors and subcontractors, in connection with such Alterations), and (2) commercial general liability insurance (including property damage and bodily injury coverage), in each case in customary form, and in amounts that are not less than Five Million Dollars ($5,000,000) with respect to general contractors and One Million Dollars ($1,000,000) with respect to subcontractors, naming the Landlord Parties as additional insureds, and (c) such other insurance as Landlord may require, it being understood and agreed that all of such Alterations shall be insured by Tenant pursuant to Article 10 of this Lease immediately upon completion thereof.

     8.5 Supplemental HVAC Installations. Tenant shall not have the right to install a supplementary HVAC system from the Premises without Landlord’s consent, which consent shall not be unreasonably withheld or delayed. In no event shall any vents or louvers associated with any supplementary HVAC system be installed on the exterior of the Building.

     8.6 Federal Visual Artists’ Rights Act of 1990. Tenant agrees that Tenant will not install, affix, add or paint in or on, nor permit, any work of visual art (as defined in the Federal Visual Artists’ Rights Act of 1990 or any successor law of similar import) or other Alterations to be installed in or on, or affixed, added to, or painted on, the interior or exterior of the Premises, or any part thereof, which work of visual art or other Alterations would, under the provisions of the Federal Visual Artists’ Rights Act of 1990, or any successor law of similar import, require the consent of the author or artist of such work or Alterations before the same could be removed, modified, destroyed or demolished.

ARTICLE 9
COVENANT AGAINST LIENS

     Upon completion of any Alteration, Tenant shall promptly furnish Landlord with sworn owner’s and contractor’s statements and full and final waivers of lien covering all labor and materials included in such Alteration. Tenant shall not permit any mechanic’s lien to be filed against the Building or Project, or any part thereof, arising out of any Alteration performed, or alleged to have been performed, by or on behalf of Tenant. If any such lien is filed, Tenant shall within ten (10) Business Days after receipt of notice of the filing thereof (or within such additional period of time as is reasonably necessary if Tenant proceeds with diligence), have such lien released of record or deliver to Landlord a bond in form, amount, and issued by a surety satisfactory to Landlord, indemnifying Landlord against all costs and liabilities resulting from such lien and the foreclosure or attempted foreclosure thereof. If Tenant fails to have such lien so released or to deliver such bond to Landlord, Landlord, without investigating the validity of such lien, may pay or discharge the same; and Tenant shall reimburse Landlord upon demand for the amount so paid by Landlord, including Landlord’s expenses and attorneys’ fees.

ARTICLE 10
INDEMNIFICATION AND INSURANCE

     10.1 Indemnification and Waiver. Tenant hereby assumes all risk of damage to property or injury to persons in, upon or about the Premises from any cause whatsoever and agrees that Landlord, its property manager, managing agents, investors, officers, partners, subpartners, members, managers, lenders (including, without limitation, any trustee, mortgagee or holder of any trust indenture, deed of trust or mortgage which now or hereafter encumbers the Building and/or Project), ground lessors and their respective officers, agents, servants, employees, and independent contractors (collectively, “Landlord Parties”) shall not (unless and to the extent resultant from

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Landlord and/or Landlord Parties’ gross negligence or willful misconduct) be liable for, and are hereby released from any responsibility for, any damage either to person or property or resulting from the loss of use thereof, which damage is sustained by Tenant or by other persons claiming through Tenant. To the extent permitted under applicable Law, Tenant shall indemnify, defend, protect, and hold harmless the Landlord Parties from any and all losses, costs, damages, actions, causes of actions, proceedings, liens, fines, penalties, expenses and liabilities (including without limitation court costs and reasonable attorneys’ fees incurred in connection with the proceeding whether at trial or on appeal) (collectively, “Claims”) incurred in connection with or arising from any cause in, on or about the Premises, any violation of any of Laws, including, without limitation, any environmental Laws, any acts, omissions or negligence of Tenant or of any person (other than Landlord or Landlord Parties’ negligence or willful misconduct) claiming by, through or under Tenant, or of the contractors, agents, servants, employees, invitees, guests or licensees of Tenant or any such person, in, on or about the Project or any breach of the terms of this Lease, either prior to, during, or after the expiration of the Lease Term, provided that the terms of the foregoing indemnity shall not apply to the gross negligence or willful misconduct of Landlord. Should Landlord be named as a defendant in any suit brought against Tenant in connection with or arising out of Tenant’s occupancy of the Premises, Tenant shall pay to Landlord its costs and expenses incurred in such suit, including without limitation, its actual professional fees such as appraisers’, accountants’ and attorneys’ fees. Further, Tenant’s agreement to indemnify Landlord pursuant to this Section 10.1 is not intended and shall not relieve any insurance carrier of its obligations under policies required to be carried by Tenant pursuant to the provisions of this Lease, to the extent such policies cover the matters subject to Tenant’s indemnification obligations, nor shall they supersede any inconsistent agreement of the parties set forth in any other provision of this Lease. The provisions of this Section 10.1 shall survive the expiration or sooner termination of this Lease.

     10.2 Tenant’s Compliance With Landlord’s Fire and Casualty Insurance. Tenant shall, at Tenant’s expense, comply with all insurance company requirements pertaining to the use of the Premises. If Tenant’s conduct or use of the Premises causes any increase in the premium for such insurance policies then Tenant shall reimburse Landlord for any such increase as Additional Rent. Tenant, at Tenant’s expense, shall comply with all rules, orders, regulations or requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) and with any similar body.

     10.3 Tenant’s Insurance. Tenant shall maintain the following coverages in the following amounts:

          (a) Commercial General Liability Insurance payable on an “occurrence” rather than a “claims made” basis covering the insured against claims of bodily injury, personal injury and property damage (including loss of use thereof) arising out of Tenant’s operations, and contractual liabilities (covering the performance by Tenant of its indemnity agreements) containing coverage at least as broad as that provided under the then most current Insurance Services Office (ISO) commercial general liability insurance form which provides the broadest coverage, including a Broad Form endorsement covering the insuring provisions of this Lease and the performance by Tenant of the indemnity agreements set forth in Section 10.1 of this Lease, for limits of liability not less than:

Bodily Injury and
Property Damage
Liability $5,000,000 each occurrence
$5,000,000 annual aggregate Personal Injury
Liability $5,000,000 each occurrence $5,000,000 annual aggregate
0% Insured’s participation

          (b) Physical Damage Insurance covering (i) all office furniture, business and trade fixtures, office equipment, free-standing cabinet work, movable partitions, merchandise and all other items of Tenant’s property on the Premises installed by, for, or at the expense of Tenant, (ii) the leasehold improvements in and to the Premises (including, without limitation, all Alterations), and any other improvements which exist in the Premises as of the Commencement Date (excluding the Base Building) (the “Original Improvements”), and (iii) all other improvements, alterations and additions to the Premises. Such insurance shall be written on an “all risks” of physical loss or damage basis, for the full replacement cost value (subject to reasonable deductible amounts) new without deduction for depreciation of the covered items and in amounts that meet any co-insurance clauses of the policies of insurance and shall include coverage for damage or other loss caused by fire or other peril including, but not limited to, vandalism and malicious mischief, terrorism, earthquake sprinkler leakage, theft, water damage of any type, including sprinkler leakage, bursting or stoppage of pipes, and explosion, and providing business interruption coverage sufficient to pay Base Rent and Tenant’s Share of Direct Expenses for a period of one year, and having a deductible amount, if any, not in excess of $25,000.

          (c) Employer’s Liability or other similar insurance pursuant to all applicable state and local statutes and regulations with limits of no less than $1,000,000.00.

          (d) Worker’s Compensation as required by the Laws of the State where the Building is located with the following minimum limits of liability: Coverage A — statutory benefits; Coverage B — $1,000,000 per accident and disease.

          (e) Comprehensive Automobile Liability insuring bodily injury and property damage arising from all owned, non-owned and hired vehicles, if any, with minimum limits of liability of $1,000,000 per accident.

          (f) Tenant shall carry and maintain during the entire Lease Term, at Tenant’s sole cost and expense, increased amounts of the insurance required to be carried by Tenant pursuant to this Article 10 and such other reasonable types of insurance coverage and in such reasonable amounts covering the Premises and Tenant’s operations therein, as may be reasonably requested by Landlord.

     10.4 Form of Policies. The minimum limits of policies of insurance required of Tenant under this Lease shall in no event limit the liability of Tenant under this Lease. Such insurance shall (i) name Landlord Parties, and any other party the Landlord so specifies, as an additional insured; (ii) specifically cover the liability

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assumed by Tenant under this Lease, including, but not limited to, Tenant’s obligations under Section 10.1 of this Lease; (iii) be issued by an insurance company having a rating of not less than A-X in Best’s Insurance Guide or which is otherwise acceptable to Landlord and licensed to do business in the State where the Building is located; (iv) be primary insurance as to all claims thereunder and provide that any insurance carried by Landlord is excess and is non-contributing with any insurance requirement of Tenant; (v) be in form and content reasonably acceptable to Landlord; and (vi) provide that said insurance shall not be canceled or coverage changed unless thirty (30) days’ prior written notice shall have been given to Landlord and any mortgagee of Landlord. Tenant shall deliver said policy or policies or certificates thereof to Landlord on or before the Commencement Date and at least thirty (30) days before the expiration dates thereof. In the event Tenant shall fail to procure such insurance, or to deliver such policies or certificate, Landlord may, at its option, procure such policies for the account of Tenant, and the cost thereof shall be paid to Landlord within five (5) days after delivery to Tenant of bills therefor. Tenant shall have the right to provide the casualty insurance required by this Article 10 pursuant to blanket policies, but only if such blanket policies expressly provides, on a per occurrence basis, that a loss that relates to any other location does not impair or reduce the level of protection available for the Premises below the amount required by this Lease. Tenant may not self-insure against any risks required to be covered by insurance provided by Tenant hereunder without Landlord’s prior written consent. Tenant has the right to satisfy Tenant’s obligation to carry liability insurance with an umbrella insurance policy if such umbrella insurance policy contains an aggregate per location endorsement that provides the required level of protection for the Premises.

     10.5 Subrogation. Landlord and Tenant intend that their respective property loss risks shall be borne by reasonable insurance carriers to the extent above provided, and Landlord and Tenant hereby agree to look solely to, and seek recovery only from, their respective insurance carriers in the event of a property loss to the extent that such coverage is agreed to be provided hereunder. The parties each hereby waive all rights and claims against each other for such losses, and waive all rights of subrogation of their respective insurers, for damage to its properties and loss of business (specifically including loss of rent by Landlord and business interruption by Tenant) as a result of the acts or omissions of the other party or the other party’s employees, agents, or contractors (specifically including the negligence of either party or its employees, agents, or contractors and the intentional misconduct of the employees, agents, or contractors of either party), to the extent any such claims are covered by the workers’ compensation, employer’s liability, property, rental income, business income, or extra expense insurance required to be maintained by Landlord and Tenant pursuant to this Lease, or other property insurance that either party may carry at the time of an occurrence, provided such waiver of subrogation shall not affect the right to the insured to recover thereunder. The parties agree that their respective insurance policies are now, or shall be, endorsed such that the waiver of subrogation shall not affect the right of the insured to recover thereunder, so long as no material additional premium is charged therefor.

     10.6 Additional Insurance Obligations. Tenant shall carry and maintain during the entire Lease Term, at Tenant’s sole cost and expense, increased amounts of the insurance required to be carried by Tenant pursuant to this Article 10 and such other reasonable types of insurance coverage and in such reasonable amounts covering the Premises and Tenant’s operations therein, as may be reasonably requested by Landlord.

ARTICLE 11
DAMAGE AND DESTRUCTION

     11.1 Repair of Damage to Premises by Landlord. Tenant shall promptly notify Landlord of any damage to the Premises resulting from fire or any other casualty (“Casualty”). If the (a) Premises, (b) any Common Areas serving or providing access to the Premises, or (c) Building Systems servicing the Premises shall be damaged by Casualty, and Landlord or Tenant does not elect to terminate this Lease in accordance with the terms below, Landlord shall promptly and diligently, subject to reasonable delays for insurance adjustment or other matters beyond Landlord’s reasonable control, and subject to all other terms of this Article 11 and all applicable Laws, restore the damaged portions of the Base Building, such Common Areas and/or such Building Systems. Such restoration shall be to substantially the same condition of the Base Building and the Common Areas prior to the Casualty, except for modifications required by zoning and building codes and other Laws or by the holder of a mortgage on the Building or Project or any other modifications to the Common Areas deemed desirable by Landlord, provided that access to the Premises and any common restrooms serving the Premises shall not be materially impaired. Upon the occurrence of any Casualty to the Premises, upon notice (the “Landlord Repair Notice”) to Tenant from Landlord, Tenant shall assign to Landlord (or to any party designated by Landlord) all insurance proceeds payable to Tenant under Tenant’s insurance required under Section 10.3 of this Lease, and Landlord shall also repair any injury or damage to the Tenant Improvements and the Original Improvements installed in the Premises and shall return such Tenant Improvements and Original Improvements to their original condition; provided that if the cost of such repair by Landlord exceeds the amount of insurance proceeds received by Landlord from Tenant’s insurance carrier, as assigned by Tenant, the cost of such repairs shall be paid by Tenant to Landlord prior to Landlord’s commencement of repair of the damage. In the event that Landlord does not deliver the Landlord Repair Notice within thirty (30) days following the date the casualty becomes known to Landlord, Tenant shall, at its sole cost and expense, repair any injury or damage to the Tenant Improvements and the Original Improvements installed in the Premises and shall return such Tenant Improvements and Original Improvements to their original condition. In such case, Tenant may use its insurance proceeds for such purpose. Whether or not Landlord delivers a Landlord Repair Notice, prior to the commencement of construction, Tenant shall submit to Landlord, for Landlord’s review and approval, all plans, specifications and working drawings relating thereto, and Landlord shall select the contractors to perform such improvement work. Landlord shall not be liable for any inconvenience to Tenant or its visitors, or injury to Tenant’s business resulting in any way from such damage or the repair thereof; provided however, that if such Casualty shall have damaged the Premises or Common Areas necessary to Tenant’s occupancy, Landlord shall allow Tenant a proportionate abatement of Rent

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during the time and to the extent the Premises are unfit for occupancy for the purposes permitted under this Lease, and not occupied by Tenant as a result thereof; provided, further, however, that if the damage or destruction is due to the act or omission of Tenant or any of its agents, employees, contractors, invitees or guests, Tenant shall be responsible for any reasonable, applicable insurance deductible (which shall be payable to Landlord upon demand) and there shall be no rent abatement.

     11.2 Landlord’s Option to Repair. Notwithstanding the terms of Section 11.1 of this Lease, Landlord may elect not to rebuild and/or restore the Premises, Building and/or Project, and instead terminate this Lease, by notifying Tenant in writing of such termination within sixty (60) days after the date of discovery of the damage, such notice to include a termination date giving Tenant sixty (60) days to vacate the Premises, but Landlord may so elect only if the Building or Project shall be damaged by Casualty or cause, whether or not the Premises are affected, and one or more of the following conditions is present: (i) in Landlord’s reasonable judgment, repairs cannot reasonably be completed within one hundred eighty (180) days after the date of discovery of the damage (when such repairs are made without the payment of overtime or other premiums); (ii) the holder of any mortgage on the Building or Project or ground lessor with respect to the Building or Project shall require that the insurance proceeds or any portion thereof be used to retire the mortgage debt, or shall terminate the ground lease, as the case may be; (iii) the damage is not fully covered by Landlord’s insurance policies; (iv) Landlord decides to rebuild the Building or Common Areas so that they will be substantially different structurally or architecturally; (v) the damage occurs during the last twenty four (24) months of the Lease Term; or (vi) the Project is substantially damaged so that, in Landlord’s reasonable judgment, substantial reconstruction of the Project will be required.

     11.3 Tenant’s Termination Right. If a portion of the Premises, Building Systems servicing the Premises or Common Areas providing access to the Premises is damaged by Casualty such that Tenant is prevented from conducting its business in the Premises in a manner reasonably comparable to that conducted immediately before such Casualty and Landlord estimates that the damage caused thereby cannot be repaired within twelve (12) months after the date of discovery of such damage (the “Repair Period”), then Tenant may terminate this Lease by delivering written notice to Landlord of its election to terminate within thirty (30) days after Landlord delivers to Tenant a good faith estimate (the “Damage Notice”) of the time needed to repair the damage caused by such Casualty. If neither party elects to terminate this Lease following a Casualty pursuant to the terms of this Article 11, and if Landlord does not complete the restoration of the Premises within the greater of (a) twelve (12) months following the Casualty or (b) sixty (60) days after the time period estimated by Landlord to repair the damage caused by such Casualty as specified in the Damage Notice, as the same may be extended by delays caused by Tenant, its agents or employees, Tenant may terminate this Lease by delivering written notice (“Damage Termination Notice”) to Landlord within ten (10) days following the expiration of such 12-month or 60-day period, as applicable (as the same may be extended as set forth above) and prior to the date upon which Landlord substantially completes such restoration. Such termination shall be effective as of the date specified in Tenant’s Damage Termination Notice (but not earlier than thirty (30) days nor later than ninety (90) days after the date of such notice) as if such date were the date fixed for the expiration of the Lease Term. If Tenant fails to timely give such Damage Termination Notice, Tenant shall be deemed to have waived its right to terminate this Lease, time being of the essence with respect thereto.

     11.4 Waiver of Statutory Provisions. The provisions of this Lease, including this Article 11, constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Premises, the Building or the Project, and any statute or regulation of the State where the Building is located with respect to any rights or obligations concerning damage or destruction in the absence of an express agreement between the parties, and any other statute or regulation, now or hereafter in effect, shall have no application to this Lease or any damage or destruction to all or any part of the Premises, the Building or the Project. The rights given Tenant under this Article 11 are in lieu of and override any rights that Tenant may have by statute or under other applicable Laws.

ARTICLE 12
NONWAIVER

     No provision of this Lease shall be deemed waived by either party hereto unless expressly waived in a writing signed thereby. The waiver by either party hereto of any breach of any term, covenant or condition herein contained shall not be deemed to be a waiver of any subsequent breach of same or any other term, covenant or condition herein contained. The subsequent acceptance of Rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, regardless of Landlord’s knowledge of such preceding breach at the time of acceptance of such Rent. No acceptance of a lesser amount than the Rent herein stipulated shall be deemed a waiver of Landlord’s right to receive the full amount due, nor shall any endorsement or statement on any check or payment or any letter accompanying such check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the full amount due. No receipt of monies by Landlord from Tenant after an event of default shall in any way alter the length of the Lease Term or of Tenant’s right of possession hereunder, or after the giving of any notice shall reinstate, continue or extend the Lease Term or affect any notice given Tenant prior to the receipt of such monies, it being agreed that after the service of notice or the commencement of a suit, or after final judgment for possession of the Premises, Landlord may receive and collect any Rent due, and the payment of said Rent shall not waive or affect said notice, suit or judgment.

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ARTICLE 13
CONDEMNATION

     If the whole or any part of the Project shall be taken by power of eminent domain or condemned by any competent authority for any public or quasi-public use or purpose, or if any adjacent property or street shall be so taken or condemned, or reconfigured or vacated by such authority in such manner as to require the use, reconstruction or remodeling of any part of the Premises, Building or Project, or if Landlord shall grant a deed or other instrument in lieu of such taking by eminent domain or condemnation, Landlord shall have the option to terminate this Lease effective as of the date possession is required to be surrendered to the authority. If more than twenty-five percent (25%) of the rentable square feet of the Premises is taken, or if access to the Premises is impaired to the extent that it substantially affects operation of Tenant’s business in the Premises, in each case for a period in excess of two hundred seventy (270) days, Tenant shall have the option to terminate this Lease effective as of the date possession is required to be surrendered to the authority. Tenant shall not because of such taking assert any claim against Landlord or the authority for any compensation because of such taking and Landlord shall be entitled to the entire award or payment in connection therewith, except that Tenant shall have the right to file any separate claim available to Tenant for any taking of Tenant’s personal property and fixtures belonging to Tenant and removable by Tenant upon expiration of the Lease Term pursuant to the terms of this Lease, and for moving expenses, so long as such claims do not diminish the award available to Landlord, its ground lessor with respect to the Building or Project or its mortgagee, and such claim is payable separately to Tenant. All Rent shall be apportioned as of the date of such termination. If any part of the Premises shall be taken, and this Lease shall not be so terminated, the Rent shall be proportionately abated. No rental abatement shall be granted Tenant for a loss of parking spaces or for the loss of any other portion of the Common Areas, Tenant recognizing that Tenant’s right to use parking spaces and the Common Areas in common with Landlord’s other tenants does not vest in Tenant any leasehold or other ownership interest in any of the parking spaces or Common Areas. Notwithstanding anything to the contrary contained in this Article 13, in the event of a temporary taking of all or any portion of the Premises for a period of two hundred seventy (270) days or less, then this Lease shall not terminate but the Base Rent and the Additional Rent shall be abated for the period of such taking in proportion to the ratio that the amount of rentable square feet of the Premises taken bears to the total rentable square feet of the Premises. Landlord shall be entitled to receive the entire award made in connection with any such temporary taking.

ARTICLE 14
ASSIGNMENT AND SUBLETTING

     14.1 Transfers. Tenant shall not (whether directly or indirectly or voluntarily or involuntarily or by operation of Law or otherwise), without the prior written consent of Landlord, assign, mortgage, pledge, hypothecate, encumber, or permit any lien to attach to, or otherwise transfer, this Lease or any interest hereunder, permit any assignment, or other transfer of this Lease or any interest hereunder by operation of Law, sublet the Premises or any part thereof, amend or modify any sublease that is consummated in accordance with the terms of this Article 14, permit a subtenant under a sublease that is consummated in accordance with the terms of this Article 14 to further sublease the Premises or any part thereof or to assign the subtenant’s interest under any such sublease in whole or in part by express assignment or by operation of Law or by other means, permit the Premises, or any portion thereof to be use for desk space, mailing privileges or otherwise, or enter into any license or concession agreements or otherwise permit the occupancy or use of the Premises or any part thereof by any persons other than Tenant and its employees and contractors (all of the foregoing are hereinafter sometimes referred to collectively as “Transfers” and any person to whom any Transfer is made or sought to be made is hereinafter sometimes referred to as a “Transferee”). If Tenant desires Landlord’s consent to any Transfer, Tenant shall notify Landlord in writing, which notice (the “Transfer Notice”) shall include (i) the proposed effective date of the Transfer, which shall not be less than thirty (30) days nor more than one hundred eighty (180) days after the date of delivery of the Transfer Notice, (ii) a description of the portion of the Premises to be transferred (the “Subject Space”), (iii) all of the terms of the proposed Transfer and the consideration therefor, including calculation of the “Transfer Premium”, as that term is defined in Section 14.3 below, in connection with such Transfer, the name and address of the proposed Transferee, and an executed copy of all documentation effectuating the proposed Transfer, and (iv) current financial statements of the proposed Transferee certified by an officer, partner or owner thereof, business credit and personal references and history of the proposed Transferee and any other information required by Landlord. Any Transfer made without Landlord’s prior written consent shall, at Landlord’s option, be null, void and of no effect, and shall, at Landlord’s option, constitute a default by Tenant under this Lease. Whether or not Landlord consents to any proposed Transfer, Tenant shall not be released from any liability or obligations under this Lease and Tenant shall pay Landlord’s review and processing fees, as well as any reasonable professional fees (including, without limitation, attorneys’, accountants’, architects’, engineers’ and consultants’ fees) incurred by Landlord (collectively, the “Transfer Review Fees”), within thirty (30) days after written request by Landlord. Concurrently with delivering a Transfer Notice to Landlord, Tenant shall deliver to Landlord an amount equal to $1,000.00, which amount constitutes an advance against the Transfer Review Fees. Tenant shall not structure any proposed Transfer in such a way as to subvert Landlord’s consent rights, recapture rights and/or rights to receive the “Transfer Premium” (as defined below).

     14.2 Landlord’s Consent. Landlord shall not unreasonably withhold its consent to any proposed sublease or assignment constituting a Transfer of the Subject Space to the Transferee on the terms specified in the Transfer Notice. Tenant shall indemnify, defend and hold harmless Landlord from any and all Claims involving any third party or parties who claim they were damaged by Landlord’s wrongful withholding or conditioning of Landlord’s consent.

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     14.3 Transfer Premium. If Landlord consents to a Transfer, as a condition thereto which the parties hereby agree is reasonable, Tenant shall pay to Landlord fifty percent (50%) of any “Transfer Premium,” as that term is defined in this Section 14.3, as and when received by Tenant from such Transferee. “Transfer Premium” shall mean all Rent, Additional Rent or other consideration payable by such Transferee in connection with the Transfer in excess of the Rent and Additional Rent payable by Tenant under this Lease during the term of the Transfer on a per rentable square foot basis if less than all of the Premises is transferred, after deducting the reasonable expenses incurred by Tenant for (i) any free base rent reasonably provided to the Transferee, (ii) any brokerage commissions, legal fees and architectural fees in connection with the Transfer, and (iii) in the case of any sublease, any actual costs incurred by Tenant in separately demising the subleased space. “Transfer Premium” shall also include, but not be limited to, key money, bonus money or other cash consideration paid by Transferee to Tenant in connection with such Transfer, and any payment in excess of fair market value for services rendered by Tenant to Transferee or for assets, fixtures, inventory, equipment, or furniture transferred by Tenant to Transferee in connection with such Transfer. In the calculations of the Rent (as it relates to the Transfer Premium calculated under this Section 14.3), and the rent charged by Tenant to the Transferee (the “Transferee’s Rent”) the Rent paid during each annual period for the Subject Space and the Transferee’s Rent shall be computed after adjusting such rent to the actual effective rent, taking into consideration any and all leasehold concessions granted in connection therewith, including, but not limited to, any rent credit and tenant improvement allowance. For purposes of calculating any such effective rent all such concessions shall be amortized on a straight-line basis over the relevant term.

     14.4 Landlord’s Option as to Recapture Space. Notwithstanding anything to the contrary contained in this Article 14, Landlord shall have the option, by giving written notice to Tenant (the “Recapture Notice”) within thirty (30) days after receipt of any Transfer Notice, to recapture the Subject Space; provided, however, Tenant shall have the right to withdraw its Transfer Notice and terminate any proposed Transfer within five (5) days following receipt of the Recapture Notice, in which event the Recapture Notice shall be void and of no further force or effect. Such recapture notice shall cancel and terminate this Lease with respect to the Subject Space as of the later of (i) the date stated in the Transfer Notice as the effective date of the proposed Transfer, and (ii) ninety (90) days following the giving of the recapture notice, until the last day of the term of the Transfer as set forth in the Transfer Notice (or at Landlord’s option, shall cause the Transfer to be made to Landlord or its agent, in which case the parties shall execute the Transfer documentation promptly thereafter). In the event of a recapture by Landlord, if this Lease shall be canceled with respect to less than the entire Premises, the Rent reserved herein shall be prorated on the basis of the number of rentable square feet retained by Tenant in proportion to the number of rentable square feet contained in the Premises, and this Lease as so amended shall continue thereafter in full force and effect, and upon request of either party, the parties shall execute written confirmation of the same. Landlord may, at Tenant’s expense, make such alterations as may be required or deemed necessary by Landlord to physically separate the recaptured portion of the Premises from the balance of the Premises and to comply with any legal requirements or insurance requirements relating to such separation.

     14.5 Effect of Transfer. No Transfer relating to this Lease or agreement entered into with respect thereto, whether with or without Landlord’s consent, shall relieve Tenant or any guarantor of the Lease from any liability or obligation under this Lease, including, without limitation, in connection with the Subject Space. Landlord or its authorized representatives shall have the right at all reasonable times to audit the books, records and papers of Tenant relating to any Transfer, and shall have the right to make copies thereof. If the Transfer Premium respecting any Transfer shall be found understated, Tenant shall, within ten (10) days after demand, pay the deficiency, and if understated by more than two percent (2%), Tenant shall pay Landlord’s costs of such audit.

     14.6 Additional Transfers. For purposes of this Lease, the term “Transfer” shall also include (a) any change, transfer, sale, pledge or hypothecation in twenty-five percent (25%) or more of the equity or ownership interests in or assets of Tenant, (b) the dissolution, merger, consolidation or reorganization of Tenant, or (c) the transfer of “Control” (as defined below), however accomplished, whether in a single transaction or in a series of unrelated or related transactions. The term “Control” shall mean the possession of power to direct or cause the direction of the day-to-day operations and/or the management and policy of Tenant, whether through the ownership of voting securities, by statute or by contract.

     14.7 Permitted Transfers. Notwithstanding Section 14.1, Tenant may Transfer all or part of its interest in this Lease or all or part of the Premises (a “Permitted Transfer”) to the following types of entities (a “Permitted Transferee”) without the written consent of Landlord: (a) any parent, subsidiary or affiliate corporation which controls, is controlled by or is under common control with Tenant (collectively, an “Affiliate”); (b) any corporation, limited partnership, limited liability partnership, limited liability company or other business entity in which or with which Tenant, an Affiliate of Tenant, or their respective corporate successors or assigns, is merged or consolidated, in accordance with applicable statutory provisions governing merger and consolidation of business entities, so long as (i) Tenant’s obligations hereunder are assumed in writing by the Permitted Transferee in form satisfactory to Landlord; and (ii) the Permitted Transferee satisfies the “Net Worth Threshold” (defined below) as of the effective date of the Permitted Transfer; or (c) any corporation, limited partnership, limited liability partnership, limited liability company or other business entity which acquires all or substantially all of Tenant’ assets and/or ownership interests, if the Permitted Transferee satisfies the Net Worth Threshold as of the effective date of the Permitted Transfer. Tenant shall promptly notify Landlord of any such Permitted Transfer. Tenant shall remain liable for the performance of all of the obligations of Tenant hereunder, or if Tenant no longer exists because of a merger, consolidation, or acquisition, the surviving or acquiring entity shall expressly assume in writing, the obligations of Tenant hereunder. Additionally, the Permitted Transferee shall comply with all of the terms and conditions of this Lease. No later than ten (10) days prior to the effective date of any Permitted Transfer, Tenant agrees to furnish Landlord with (1) copies of the instrument effecting any of the foregoing Transfers, (2)

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documentation establishing Tenant’s satisfaction of the requirements set forth above applicable to any such Transfer, and (3) evidence of insurance as required under this Lease with respect to the Permitted Transferee. The occurrence of a Permitted Transfer shall not waive Landlord’s rights as to any subsequent Transfers. As used herein, the term “Net Worth Threshold” shall mean the proposed Permitted Transferee has a tangible net worth equal to or greater than Tenant as of the Date of the Lease (determined in accordance with generally accepted accounting principles consistently applied and excluding from the determination of total assets all assets which would be classified as intangible assets under generally accepted accounting principles, including, without limitation, goodwill, licenses, trademarks, trade names, copyrights and franchises), and as evidenced by financial statements audited by a certified public accounting firm reasonably acceptable to Landlord.

     14.8 Occurrence of Default. Any Transfer hereunder shall be subordinate and subject to the provisions of this Lease, and if this Lease shall be terminated during the term of any Transfer, Landlord shall have the right to: (i) treat such Transfer as cancelled and repossess the Subject Space by any lawful means, or (ii) require that such Transferee attorn to and recognize Landlord as its landlord under any such Transfer. If Tenant shall be in default under this Lease, Landlord is hereby irrevocably authorized, as Tenant’s agent and attorney-in-fact, to direct any Transferee to make all payments under or in connection with the Transfer directly to Landlord (which Landlord shall apply towards Tenant’s obligations under this Lease) until such default is cured. Such Transferee shall rely on any representation by Landlord that Tenant is in default hereunder, without any need for confirmation thereof by Tenant. Upon any assignment, the assignee shall assume in writing all obligations and covenants of Tenant thereafter to be performed or observed under this Lease. No collection or acceptance of rent by Landlord from any Transferee or the posting or listing of any name other than that of Tenant (whether on the door or exterior wall of the Premises, lobby directory, elevator or elsewhere) shall be deemed a waiver of any provision of this Article 14 or the approval of any Transferee or a release of Tenant from any obligation under this Lease, whether theretofore or thereafter accruing. In no event shall Landlord’s enforcement of any provision of this Lease against any Transferee be deemed a waiver of Landlord’s right to enforce any term of this Lease against Tenant or any other person. If Tenant’s obligations hereunder have been guaranteed, Landlord’s consent to any Transfer shall not be effective unless the guarantor also consents in writing to such Transfer.

     14.9 Transfer Taxes. Tenant shall pay any transfer taxes (and other similar charges and fees) that any governmental authority imposes in connection with any Transfer (including, without limitation, any such transfer taxes, charges or fees that a governmental authority imposes in connection with Landlord’s exercising Landlord’s rights to recapture the Subject Space in accordance with Section 14.4 above.

ARTICLE 15
SURRENDER OF PREMISES; OWNERSHIP AND REMOVAL OF TRADE FIXTURES

     15.1 Surrender of Premises. No act or thing done by Landlord or any agent or employee of Landlord during the Lease Term shall be deemed to constitute an acceptance by Landlord of a surrender of the Premises unless such intent is specifically acknowledged in writing by Landlord. The delivery of keys to the Premises to Landlord or any agent or employee of Landlord shall not constitute a surrender of the Premises or effect a termination of this Lease, whether or not the keys are thereafter retained by Landlord, and notwithstanding such delivery Tenant shall be entitled to the return of such keys at any reasonable time upon request until this Lease shall have been properly terminated. The voluntary or other surrender of this Lease by Tenant, whether accepted by Landlord or not, or a mutual termination hereof, shall not work a merger, and at the option of Landlord shall operate as an assignment to Landlord of all subleases or subtenancies affecting the Premises or terminate any or all such sublessees or subtenancies.

     15.2 Removal of Tenant Property by Tenant. Upon the expiration of the Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject to the provisions of this Article 15, quit and surrender possession of the Premises to Landlord in as good order and condition as when Tenant took possession and as thereafter improved by Landlord and/or Tenant, reasonable wear and tear and repairs excepted. Subject to Section 8.2 above, upon such expiration or termination, Tenant shall, without expense to Landlord, remove or cause to be removed from the Premises all debris and rubbish, and such items of furniture, equipment, business and trade fixtures, free-standing cabinet work, movable partitions and other articles of personal property owned by Tenant or installed or placed by Tenant at its expense in the Premises, and such similar articles of any other persons claiming under Tenant, as Landlord may, in its sole discretion, require to be removed. Further, on or prior to the Expiration Date, Tenant shall, unless otherwise directed by Landlord, at Tenant’s expense, close up any slab penetrations in the Premises. Tenant shall repair at its own expense all damage to the Premises and Building resulting from such removal. Any of Tenant’s Property not so removed shall be deemed abandoned and Landlord may remove and dispose of same, and repair and restore any damage caused thereby, at Tenant’s cost and without accountability to Tenant.

ARTICLE 16
HOLDING OVER

     If Tenant holds over after the expiration of the Lease Term or earlier termination thereof, with or without the express or implied consent of Landlord, such tenancy shall be a tenancy at sufferance, and shall not constitute a renewal hereof or an extension for any further term, and in such case Rent shall be payable for the initial one (1) month of such holdover tenancy at a monthly rate equal to one hundred fifty percent (150%) of the Rent applicable during the last rental period of the Lease Term under this Lease, and if Tenant continues to hold over with or without the express or implied consent of Landlord, Rent for the second month of such holdover tenancy shall be payable at a monthly rate equal to one hundred seventy five percent (175%) of the Rent applicable during the last

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rental period of the Lease Term under this Lease, and thereafter if Tenant continues to hold over with or without the express or implied consent of Landlord, Rent shall be payable at a monthly rate equal to two hundred percent (200%) of the Rent applicable during the last rental period of the Lease Term under this Lease. Such tenancy at sufferance shall be subject to every other applicable term, covenant and agreement contained herein. For purposes of this Article 16, a holding over shall include (a) Tenant’s remaining in the Premises after the expiration or earlier termination of the Lease Term, and (b) Tenant’s failure to remove any Alterations or personal property located within the Premises as required pursuant to the terms of Sections 8.5 and 15.2, above. Nothing contained in this Article 16 shall be construed as consent by Landlord to any holding over by Tenant, and Landlord expressly reserves the right to require Tenant to surrender possession of the Premises to Landlord as provided in this Lease upon the expiration or other termination of this Lease. The provisions of this Article 16 shall not be deemed to limit or constitute a waiver of any other rights or remedies of Landlord provided herein or at Law. If Tenant fails to surrender the Premises upon the termination or expiration of this Lease, in addition to any other liabilities to Landlord accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord harmless from all loss, costs (including reasonable attorneys’ fees) and liability resulting from such failure, including, without limiting the generality of the foregoing, any claims made by any succeeding tenant founded upon such failure to surrender and any consequential damages, including lost profits to Landlord resulting therefrom.

ARTICLE 17
ESTOPPEL CERTIFICATES

     Within ten (10) days following a request in writing by Landlord, Tenant shall execute, acknowledge and deliver to Landlord an estoppel certificate in the form as may be required by Landlord, Lender or any prospective mortgagee or purchaser of the Project. Any such certificate may be relied upon by any prospective mortgagee or purchaser of all or any portion of the Project. Tenant shall execute and deliver whatever other instruments may be reasonably required for such purposes, including reaffirmation of any guaranty. At any time during the Lease Term in connection with any financing, re-financing or sale of the Project, Landlord may require Tenant and any guarantor of this Lease to provide Landlord with a current financial statement and financial statements of the two (2) years prior to the current financial statement year. Such statements shall be prepared in accordance with generally accepted accounting principles and, if such is the normal practice of Tenant, shall be audited by an independent certified public accountant, otherwise, such statements shall be certified by the chief financial officer of Tenant. Failure of Tenant to timely execute, acknowledge and deliver such estoppel certificate or other instruments shall constitute an acceptance of the Premises and an acknowledgment by Tenant that statements included in the estoppel certificate are true and correct, without exception.

ARTICLE 18
SUBORDINATION

     18.1 Subordination. This Lease, and all of the rights of Tenant hereunder, shall be subject and subordinate to all present and future ground or underlying leases of the Building or Project and to the lien of any mortgage, trust deed or other encumbrances now or hereafter in force against the Building or Project or any part thereof, if any, and to all renewals, extensions, modifications, consolidations and replacements thereof, and to all advances made or hereafter to be made upon the security of such mortgages or trust deeds, unless the holders of such mortgages, trust deeds or other encumbrances, or the lessors under such ground lease or underlying leases (collectively, “Landlord Mortgagee”), require in writing that this Lease be superior thereto. Tenant’s subordination to any future Landlord Mortgagee shall be subject to and conditioned upon Tenant’s receipt of a subordination, non-disturbance and attornment agreement on such Landlord Mortgagee’s customary form, and Tenant shall be responsible for all out-of-pocket expenses, including Landlord Mortgagee’s costs, with respect to such subordination, non-disturbance and attornment agreement. Alternatively, Landlord’s Mortgagee may require Tenant’s interest under this Lease to be superior to such mortgage or deed of trust. Tenant covenants and agrees in the event any proceedings are brought for the foreclosure of any such mortgage or deed in lieu thereof (or if any ground lease is terminated), to attorn, without any deductions or set-offs whatsoever, to the lienholder or purchaser or any successors thereto upon any such foreclosure sale or deed in lieu thereof (or to the ground lessor), if so requested to do so by such purchaser or lienholder or ground lessor, and to recognize such purchaser or lienholder or ground lessor as the lessor under this Lease, provided such lienholder or purchaser or ground lessor shall agree to accept this Lease and not disturb Tenant’s occupancy, so long as Tenant timely pays the rent and observes and performs the terms, covenants and conditions of this Lease to be observed and performed by Tenant. Landlord’s interest herein may be assigned as security at any time to any lienholder. Tenant shall, within ten (10) days of request by Landlord and/or Landlord’s Mortgagee, execute such further instruments or assurances as Landlord and/or Landlord’s Mortgagee may reasonably deem necessary to evidence or confirm the subordination or superiority of this Lease to any such mortgages, trust deeds, ground leases or underlying leases. Tenant waives the provisions of any current or future statute, rule or law which may give or purport to give Tenant any right or election to terminate or otherwise adversely affect this Lease and the obligations of the Tenant hereunder in the event of any foreclosure proceeding or sale.

     18.2 Notice to Landlord’s Mortgagee. Tenant shall not seek to enforce any remedy it may have for any default on the part of Landlord without first giving Landlord’s Mortgagee written notice by certified mail, return receipt requested, specifying the default in reasonable detail, and affording such Landlord’s Mortgagee (i) a reasonable opportunity to perform Landlord’s obligations hereunder (but not less than thirty (30) days), if such default can be cured without such Landlord’s Mortgagee taking possession of the mortgaged or leased estate, or (ii) to obtain possession of the mortgaged or leased estate and then to cure such default of Landlord, if such default cannot be cured without such Landlord’s Mortgagee or taking possession of the mortgaged or leased estate.

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     18.3 Landlord’s Mortgagee’s Protection Provisions. If Landlord’s Mortgagee shall succeed to the interest of Landlord under this Lease, Landlord’s Mortgagee shall not be: (a) liable for any act or omission of any prior lessor (including Landlord), except to the extent that (i) such act or omission continues after the date that the Landlord’s Mortgagee succeeds to Landlord’s interest in the Building, and (ii) such act or omission of such prior landlord is of a nature that the Landlord’s Mortgagee can cure by performing a service or making a repair; (b) bound by any Rent or Additional Rent or advance rent which Tenant might have paid for more than the current month to any prior lessor (including Landlord), and all such rent shall remain due and owing, notwithstanding such advance payment; (c) bound by any security or advance rental deposit made by Tenant which is not delivered or paid over to Landlord’s Mortgagee and with respect to which Tenant shall look solely to Landlord for refund or reimbursement; (d) bound by any termination, amendment or modification of this Lease made without Landlord’s Mortgagee’s consent and written approval, except for those terminations, amendments and modifications permitted to be made by Landlord without Landlord’s Mortgagee’s consent pursuant to the terms of the loan documents between Landlord and Landlord’s Mortgagee; (e) subject to the defenses which Tenant might have against any prior lessor (including Landlord); (f) subject to the offsets which Tenant might have against any prior lessor (including Landlord) except for those offset rights which (i) are expressly provided in this Lease, (ii) relate to periods of time following the acquisition of the Building by Landlord’s Mortgagee, and (iii) Tenant has provided written notice to Landlord’s Mortgagee and provided Landlord’s Mortgagee a reasonable opportunity to cure the event giving rise to such offset event; and (g) bound by any obligation to make any payment to or on behalf of Tenant to the extent that such obligation accrues prior to the date that the Landlord’s Mortgagee succeeds to Landlord’s interest in the Building. Landlord’s Mortgagee shall have no liability or responsibility under or pursuant to the terms of this Lease or otherwise after it ceases to own an interest in the Project. Nothing in this Lease shall be construed to require Landlord’s Mortgagee to apply the proceeds of any loan, and Tenant’s agreements set forth herein shall not be impaired on account of any modification of the documents evidencing and securing any loan.

     18.4 Non-Disturbance Agreement. Landlord shall use reasonable efforts to obtain for Tenant, at no cost to Landlord, a subordination, non-disturbance and attornment agreement from all existing Landlord’s Mortgagee, in the standard form customarily employed by such Landlord’s Mortgagee, provided that Landlord shall have no liability to Tenant, and the effectiveness of this Lease and the subordination of this Lease to any mortgage, deed of trust or other encumbrance shall not be affected, in the event that it is unable to obtain any such agreements. Tenant shall reimburse Landlord, within ten (10) days after demand therefor, for Landlord’s out-of-pocket costs, including fees charged by Landlord’s Mortgagee and its counsel and other reasonable attorney’s fees and disbursements, incurred in connection with such efforts.

ARTICLE 19
DEFAULTS; REMEDIES

     19.1 Defaults. The occurrence of any of the following shall constitute a default (“Default”) of this Lease by Tenant:

     (a) Any failure by Tenant to pay any Rent or any other charge required to be paid under this Lease, or any part thereof, within five (5) days after notice that the same is due; or

     (b) Except where a specific time period is otherwise set forth for Tenant’s performance in this Lease, in which event the failure to perform by Tenant within such time period shall be a default by Tenant under this Section 19.1(b), any failure by Tenant to observe or perform any other provision, covenant or condition of this Lease to be observed or performed by Tenant where such failure continues for ten (10) days after written notice thereof from Landlord to Tenant; provided that if the nature of such default is such that the same cannot reasonably be cured within a ten (10) day period, Tenant shall not be deemed to be in default if it diligently commences such cure within such period and thereafter diligently proceeds to rectify and cure such default, but in no event exceeding a period of time in excess of ninety (90) days after written notice thereof from Landlord to Tenant; or

     (c) To the extent permitted by Law, a general assignment by Tenant or any guarantor of this Lease for the benefit of creditors, or the taking of any corporate action in furtherance of bankruptcy or dissolution whether or not there exists any proceeding under an insolvency or bankruptcy Law, or the filing by or against Tenant or any guarantor of any proceeding under an insolvency or bankruptcy Law, unless in the case of a proceeding filed against Tenant or any guarantor the same is dismissed within sixty (60) days, or the appointment of a trustee or receiver to take possession of all or substantially all of the assets of Tenant or any guarantor, unless possession is restored to Tenant or such guarantor within thirty (30) days, or any execution or other judicially authorized seizure of all or substantially all of Tenant’s assets located upon the Premises or of Tenant’s interest in this Lease, unless such seizure is discharged within thirty (30) days; or

     (d) Abandonment of all or a substantial portion of the Premises by Tenant; or

     (e) The failure by Tenant to observe or perform according to the provisions of Articles 5, 14, 17 or 18 of this Lease where such failure continues for more than two (2) Business Days (“Business Days” being defined as calendar days other than Saturdays, Sundays and Holidays) after notice from Landlord; or

     (f) Any information furnished to Landlord by or in connection with the entry of this Lease on behalf of Tenant or any guarantor of this Lease in connection with the entry of this Lease is determined to have been materially false, misleading or incomplete when made.

     The notice periods provided herein are in lieu of, and not in addition to, any notice periods provided by Law. To the extent permitted by Law, Tenant hereby waives service or notice of any demand for payment of rent or possession or default prescribed by statute or ordinance.

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     19.2 Remedies Upon Default. Upon or at any time after the occurrence of any Default by Tenant, Landlord shall have, in addition to any other remedies available to Landlord at Law or in equity (all of which remedies shall be distinct, separate and cumulative), the option to pursue any one or more of the following remedies with or without written notice or demand to Tenant except as required hereunder, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever:

     (a) Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to do so, to the extent permitted by applicable Law Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, without being liable for prosecution or any claim or damages therefor; and Landlord may recover from Tenant the following:

          (i) The worth at the time of award of any unpaid Rent which has been earned at the time of such termination; plus

          (ii) The worth at the time of award of the amount by which the unpaid Rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

          (iii) The worth at the time of award of the amount by which the unpaid Rent for the balance of the Lease Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

          (iv) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, specifically including but not limited to, brokerage commissions and advertising expenses incurred, expenses of remodeling the Premises or any portion thereof for a new tenant, whether for the same or a different use, and any special concessions made to obtain a new tenant; and

          (v) At Landlord’s election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable Law.

     The term “rent” as used in this Section 19.2 shall be deemed to be and to mean all sums of every nature required to be paid by Tenant pursuant to the terms of this Lease, whether to Landlord or to others. As used in Paragraphs 19.2(a)(i) and (ii), above, the “worth at the time of award” shall be computed by allowing interest at the rate set forth in Article 25 of this Lease, but in no case greater than the maximum amount of such interest permitted by Law. As used in Paragraph 19.2(a)(iii) above, the “worth at the time of award” shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank nearest the Project at the time of award plus one percent (1%).

     (b) If Landlord does not elect to terminate this Lease on account of any Default by Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies under this Lease, including the right to recover all Rent as it becomes due.

     (c) Landlord shall at all times have the rights and remedies (which shall be cumulative with each other and cumulative and in addition to those rights and remedies available under Sections 19.2(a) and 19.2(b), above, or any Law or other provision of this Lease), without prior demand or notice except as required by applicable Law, to seek any declaratory, injunctive or other equitable relief, and specifically enforce this Lease, or restrain or enjoin a violation or breach of any provision hereof.

     19.3 Subleases of Tenant. Whether or not Landlord elects to terminate this Lease on account of any Default by Tenant, as set forth in this Article 19, Landlord shall have the right to terminate any and all subleases, licenses, concessions or other consensual arrangements for possession entered into by Tenant and affecting the Premises or may, in Landlord’s sole discretion, succeed to Tenant’s interest in such subleases, licenses, concessions or arrangements. In the event of Landlord’s election to succeed to Tenant’s interest in any such subleases, licenses, concessions or arrangements, Tenant shall, as of the date of notice by Landlord of such election, have no further right to or interest in the rent or other consideration receivable thereunder.

     19.4 Efforts to Relet. No re-entry or repossession, repairs, maintenance, changes, alterations and additions, reletting, appointment of a receiver to protect Landlord’s interests hereunder, or any other action or omission by Landlord shall be construed as an election by Landlord to terminate this Lease or Tenant’s right to possession, or to accept a surrender of the Premises, nor shall same operate to release Tenant in whole or in part from any of Tenant’s obligations hereunder, unless express written notice of such intention is sent by Landlord to Tenant. Tenant hereby irrevocably waives any right otherwise available under any Law to redeem or reinstate this Lease.

     19.5 Recapture of Tenant Inducements. The performance by Landlord of any agreement, concession or grant for “free rent,” waived rent, Rent abatement, a “credit fund” to be applied against Rent otherwise payable hereunder or any grant or payment by Landlord to or for the benefit of Tenant of any cash or other bonus, allowance or other payment or inducement or any assumption of obligations by Landlord to or for the benefit of Tenant given or granted to or for the benefit of Tenant as consideration for execution and delivery of this Lease by Tenant (all such agreements, concessions, grants, payments and assumptions are collectively referred to herein as “Tenant Inducements”) shall be continuously conditional upon Tenant’s full and complete performance of its obligations under this Lease, as this Lease may be amended or extended. Effective immediately upon the

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occurrence of an event of default by Tenant (i) any provision of this Lease providing for performance of a Tenant Inducement shall be automatically deemed terminated and of no further force or effect and (ii) any Tenant Inducement previously granted, issued, paid or given to or for the benefit of Tenant shall be immediately due and payable by Tenant to Landlord as Rent hereunder.

ARTICLE 20
COVENANT OF QUIET ENJOYMENT

     Landlord covenants that Tenant, on paying the Rent, charges for services and other payments herein reserved and on keeping, observing and performing all the other terms, covenants, conditions, provisions and agreements herein contained on the part of Tenant to be kept, observed and performed, shall, during the Lease Term, peaceably and quietly have, hold and enjoy the Premises subject to the terms, covenants, conditions, provisions and agreements hereof without interference by any persons lawfully claiming by or through Landlord. The foregoing covenant is in lieu of any other covenant express or implied.

ARTICLE 21
SECURITY DEPOSIT

     Concurrent with Tenant’s execution of this Lease, Tenant shall deposit with Landlord a security deposit (the “Security Deposit”) in the amount set forth in Section 14 of the Summary, as security for the faithful performance by Tenant of all of its obligations under this Lease. Tenant grants Landlord a security interest in the Security Deposit. The Security Deposit shall not be considered an advance payment of rent and is not intended to serve as liquidated damages nor to be a measure of Landlord’s damages for any default by Tenant. The Security Deposit may be commingled with other funds of Landlord. If Tenant defaults with respect to any provisions of this Lease, including, but not limited to, the provisions relating to the payment of Rent, the removal of property and the repair of resultant damage, Landlord may, without notice to Tenant, but shall not be required to apply all or any part of the Security Deposit for the payment of any Rent, any damages or any other sum in default and Tenant shall, upon demand therefor, restore the Security Deposit to its original amount. Any unapplied portion of the Security Deposit shall be returned to Tenant, or, at Landlord’s option, to the last assignee of Tenant’s interest hereunder, within sixty (60) days following the expiration of the Lease Term. Tenant shall not be entitled to any interest on the Security Deposit. In the event of a sale, lease, or encumbrance of the Building or any part of the Building, Landlord shall have the right to transfer the Security Deposit to the purchaser, landlord, tenant, or Landlord’s Mortgagee and if the Security Deposit is transferred, Landlord shall thereafter be relieved from any liability concerning the Security Deposit. Additionally, Landlord’s use or application of all or any portion of the Security Deposit shall not preclude or impair any other rights or remedies provided for under this Lease or under applicable Law and shall not be construed as a payment of liquidated damages.

     If (a) Tenant has not previously defaulted in its obligation to pay Rent to Landlord within the time periods set forth in this Lease and (b) no Default exists on either the date Tenant delivers the “Reduction Notice” (as defined below) to Landlord or the date the Landlord is required to deliver to Tenant the amount by which the Security Deposit is to be reduced pursuant to the terms of this Section 21, then, provided that Tenant complies with the provisions of this Section 21, on the third (3^rd) anniversary of the Commencement Date, the Security Deposit shall be reduced to Two Hundred Twenty Five Thousand Dollars ($225,000.00). The Security Deposit shall be reduced as follows: Landlord shall, within ten (10) Business Days following notice by Tenant to Landlord that Tenant is entitled to reduce the Security Deposit pursuant to this Section 21, deliver to Tenant the amount by which the Security Deposit is reduced.

     Subject to Landlord’s right to draw down the Security Deposit in accordance with this Article 21, Landlord shall hold the Security Deposit in an account at Midwest Bank, provided that the entire amount of the Security Amount is insured by the Federal Deposit Insurance Corporation (“FDIC”) and the amount is in an interest bearing account. If at any time the entire Security Deposit is not insured by the FDIC, or if Midwest Bank & Trust Co. is no longer the Tenant under this Lease, Landlord has the right to withdraw the Security Deposit and hold such amount in an account designated by Landlord in its sole discretion.

ARTICLE 22
SUBSTITUTION OF OTHER PREMISES

     Landlord shall have the right, in its sole discretion, upon not less than thirty (30) days prior written notice to Tenant, to move the Office Premises to other space in the Project on or above the twenty-seventh (27^th) floor of the Building and reasonably comparable in size, layout, finish and glass line (on the east, south and west side of the Building) to the Office Premises (the “Substitute Premises”), and all terms hereof shall apply to the new space with equal force. In such event, Landlord shall give Tenant prior notice and shall provide Tenant, at Landlord’s sole cost and expense, with tenant improvements reasonably comparable in quality to those in the Office Premises. In addition, Landlord shall be obligated to pay to Tenant an allowance (the “Relocation Allowance”) equal to the reasonable out-of-pocket moving expenses actually incurred by Tenant to move from the Office Premises to the Substitute Premises (including the physical move from the Office Premises to the Substitute Premises and costs for stationery, business cards, invoices, brochures and the like if the address, facsimile or telephone numbers of Tenant or any of its licensees are changed in any manner due to the relocation); provided that, Tenant shall submit to Landlord a detailed description of the type and estimated amount of such moving expenses prior to the move and Landlord shall have consented to such expenses, which consent shall not be unreasonably withheld. Simultaneously with such relocation to the Substitute Premises, the parties shall immediately execute an amendment to this Lease stating the relocation of the Office Premises.

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ARTICLE 23
SIGNS

     Subject to Landlord’s prior written approval, in its sole discretion, and provided all signs are in keeping with the quality, design and style of the Building and Project, Tenant, if the Office Premises comprise an entire floor of the Building, at its sole cost and expense, may install identification signage anywhere in the Office Premises including in the elevator lobby of the Office Premises, provided that such signs must not be visible from the exterior of the Building. If other tenants occupy space on the floor on which the Office Premises is located, Tenant’s identifying signage shall be provided by Landlord, at Tenant’s cost, and such signage shall be comparable to that used by Landlord for other similar floors in the Building and shall comply with Landlord’s Building standard signage program. Additionally, subject to Landlord’s prior written approval and provided all signs are keeping with the quality, design and style of the Building and Project, Tenant may install identification signage in the lobby of the Building in a location acceptable to Landlord, at its sole cost and expense. Any signs, notices, logos, pictures, names or advertisements which are installed and that have not been separately approved by Landlord may be removed without notice by Landlord at the sole expense of Tenant. Tenant may not install any signs on the exterior or roof of the Project or the Common Areas (other than as set forth below). Any signs, window coverings, or blinds (even if the same are located behind the Landlord-approved window coverings for the Building), or other items visible from the exterior of the Premises or Building, shall be subject to the prior written approval of Landlord, in its sole discretion.

     Landlord shall use commercially reasonable efforts to assist Tenant, at Tenant’s sole cost and expense, in obtaining from the City of Chicago the right to install Tenant’s identification signage on the exterior of the Retail Premises above the Retail Premises store front windows facing the exterior of the Building (“Building Signage”). If the city grants such right, the Building Signage shall (1) consist of graphics, materials, color, design, lettering, lighting, size, illumination, and specifications consistent with the quality and nature of the Building, (2) be subject to the prior written approval of Landlord, which approval shall not be unreasonably withheld, conditioned or delayed, and (3) be subject to the receipt of all required governmental permits and approvals and shall be subject to all applicable Laws. The costs of the actual signs comprising the Building Signage and the installation, design, construction, and any and all other costs associated with the Building Signage, including, without limitation, the cost of removing and disposing (or covering, as the case may be) of any existing signage in the locations to be occupied by the Building Signage, utility charges and hook-up fees, permits, and maintenance and repairs, shall be the sole responsibility of Tenant; provided that Landlord shall reasonably cooperate with Tenant to allow Tenant to install, operate, maintain and repair the Building Signage. Should the Building Signage (including any lighting demands) require repairs and/or maintenance, Landlord shall have the right to provide notice thereof to Tenant and Tenant (except as set forth above) shall cause such repairs and/or maintenance to commence to be performed within ten (10) days (or such shorted period of time designated by Landlord if the condition of the Building Signage poses any threat to the safety or well being of the Building or any persons or other property as determined by Landlord) after receipt of such notice from Landlord, at Tenant’s sole cost and expense; provided, however, if such repairs and/or maintenance are reasonably expected to require longer than ten (10) days to perform, Tenant shall commence such repairs and/or maintenance within such ten (10) day period and shall thereafter diligently prosecute such repairs and maintenance to completion at Tenant’s sole cost and expense. Should Tenant fail to perform such repairs and/or maintenance within the periods described in the immediately preceding sentence, Landlord shall have the right to cause such work to be performed and to charge Tenant as Additional Rent for the cost of such work from the date of Landlord’s payment of such actual costs to the date of Tenant’s reimbursement to Landlord. On or before the expiration or earlier termination of this Lease, Tenant shall, at Tenant’s sole cost and expense, remove the Building Signage from the Building, and shall cause the areas in which such Building Signage was located to be restored to the condition existing immediately prior to the placement of such Building Signage. If Tenant fails to timely remove such Building Signage or to restore the areas in which such Building Signage was located, as provided in the immediately preceding sentence, then Landlord may perform such work, and all costs reasonably incurred by Landlord in so performing, plus interest at the “Default Rate” (defined below) from the date of Landlord’s payment of such costs to the date of Tenant’s reimbursement to Landlord, shall be reimbursed by Tenant to Landlord within ten (10) days after Tenant’s receipt of an invoice therefor. The terms of this Section 23 shall survive the expiration or earlier termination of this Lease. All of the rights contained in this Section 23 shall be personal to the original Tenant named in this Lease.

ARTICLE 24
COMPLIANCE WITH LAW

     Tenant shall not do anything or suffer anything to be done in or about the Premises or the Project which will in any way conflict with any Law now in force or which may hereafter be enacted or promulgated. At its sole cost and expense, Tenant shall promptly comply with all Laws. Should any standard or regulation now or hereafter be imposed on Landlord or Tenant by a state, federal or local governmental body charged with establishment, regulations and enforcement of occupational, health or safety standards for employers, employees landlords or tenants, then Tenant agrees, at its sole cost and expense, to comply promptly with such standards or regulations. Tenant shall be responsible, at its sole cost and expense, to make all alterations to the Premises as required to comply with the governmental rules, regulations, requirements or standards described in this Article 24. Any such repairs or alterations shall be made at Tenant’s expense by Tenant (1) in compliance with Article 8 if such repairs or alterations are nonstructural and do not affect any Building System, or (2) by Landlord if such repairs or alterations are structural or affect any Building System. If Tenant obtains knowledge of any failure to comply with any legal requirements applicable to the Premises, Tenant shall give Landlord prompt notice thereof. The judgment of any court of competent jurisdiction or the admission of Tenant in any judicial action, regardless of whether Landlord is a party thereto, that Tenant has violated any of said governmental measures, shall be conclusive of that

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fact as between Landlord and Tenant. Notwithstanding anything in this Article 24 to the contrary, Tenant shall not be responsible for any structural changes to the “Base Building” (as defined in the Work Letter) unless such changes are triggered by Tenant’s non-standard office improvements to the Premises and/or unique use or manner of use of the Office Premises (i.e., for other than general office use) or Retail Premises (i.e., for other than general branch banking use).

ARTICLE 25
LATE CHARGES

     If any installment of Rent or any other sum due from Tenant shall not be received by Landlord or Landlord’s designee within five (5) Business Days after Notice from Landlord that said amount is due, then Tenant shall pay to Landlord a late charge equal to five percent (5%) of the overdue amount plus any attorneys’ fees incurred by Landlord by reason of Tenant’s failure to pay Rent and/or other charges when due hereunder (provided, however, Landlord shall not be obligated to provide Tenant Notice of any past due installment of Rent or other sum due from Tenant more than one (1) time during any twelve (12) month period). The late charge shall be deemed Additional Rent and the right to require it shall be in addition to all of Landlord’s other rights and remedies hereunder or at Law and shall not be construed as liquidated damages or as limiting Landlord’s remedies in any manner. In addition to the late charge described above, any Rent or other amounts owing hereunder which are not paid within ten (10) Business Days after the date they are due shall bear interest from the date when due until paid at a rate per annum (the “Default Rate”) equal to the lesser of (i) twelve percent (12%) per annum, and (ii) the highest rate permitted by applicable Law.

ARTICLE 26
LANDLORD’S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT

     26.1 Landlord’s Cure. All covenants and agreements to be kept or performed by Tenant under this Lease shall be performed by Tenant at Tenant’s sole cost and expense and without any reduction of Rent, except to the extent, if any, otherwise expressly provided herein. If Tenant shall fail to perform any obligation under this Lease, and such failure shall continue in excess of the time allowed under Section 19.1(b), above, unless a specific time period is otherwise stated in this Lease, Landlord may, but shall not be obligated to, make any such payment or perform any such act on Tenant’s part without waiving its rights based upon any default of Tenant and without releasing Tenant from any obligations hereunder. Notwithstanding the foregoing, Landlord may, but shall not be obligated to, make any such payment or perform any such act on Tenant’s part without waiving its rights based upon any default of Tenant and without releasing Tenant from any obligations hereunder, immediately, and without notice, in the case of emergency or if the default (i) materially interferes with the use by any other tenant of the Building, (ii) materially interferes with the efficient operation of the Building, (iii) results in a violation of any legal requirement, or (iv) results or will result in a cancellation of any insurance policy maintained by Landlord.

     26.2 Tenant’s Reimbursement. Except as may be specifically provided to the contrary in this Lease, Tenant shall pay to Landlord, upon delivery by Landlord to Tenant of statements therefor: (i) sums equal to expenditures reasonably made and obligations incurred by Landlord in connection with the remedying by Landlord of Tenant’s defaults pursuant to the provisions of Section 26.1; (ii) sums equal to all losses, costs, liabilities, damages and expenses referred to in Article 10 of this Lease; and (iii) sums equal to all expenditures made and obligations incurred by Landlord in collecting or attempting to collect the Rent or in enforcing or attempting to enforce any rights of Landlord under this Lease or pursuant to Law, including, without limitation, all legal fees and other amounts so expended. Tenant’s obligations under this Section 26.2 shall survive the expiration or sooner termination of the Lease Term.

ARTICLE 27
ENTRY BY LANDLORD

     Landlord reserves the right at all reasonable times and upon reasonable notice (which notice may be telephonic) to Tenant (except in the case of an emergency, in which event no notice shall be required) to enter the Premises to (i) inspect them; (ii) show the Premises to prospective purchasers, mortgagees, brokers, investors or tenants, or to current or prospective mortgagees, ground or underlying lessors or insurers; (iii) post notices of nonresponsibility; or (iv) alter, improve or repair the Premises or the Building, or for structural alterations, repairs or improvements to the Building or the Building Systems. Landlord shall have the right to install, use and maintain ducts, cabling, pipes and conduits in and through the Premises, provided that (a) such ducts, cabling, pipes and conduits are concealed within or above partitioning columns, walls or ceilings, except that if such ducts, cabling, pipes or conduits are installed in areas that are utility areas (such as storage areas, mailrooms or mud rooms), then such ducts, cabling, pipes or conduits may also be installed on partitioning walls, columns or ceilings, (b) such ducts, cabling, pipes and conduits do not reduce the usable area of the Premises by more than a de minimis amount, and (c) Landlord installs such ducts, cabling, pipes and conduits in a manner that minimizes, to the extent reasonably practicable, any adverse effect on an Alteration theretofore performed in the Premises. Notwithstanding anything to the contrary contained in this Article 27, Landlord may enter the Premises at any time to (A) perform services required of Landlord, including janitorial service; (B) to the extent permitted by applicable Law, take possession due to any breach of this Lease in the manner provided herein; or (C) perform any covenants of Tenant which Tenant fails to perform. Landlord may make any such entries without the abatement of Rent and may take such reasonable steps as required to accomplish the stated purposes. Tenant hereby waives any claims for damages or for any injuries or inconvenience to or interference with Tenant’s business, lost profits, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby. For each of the above purposes, Landlord

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shall at all times have a key with which to unlock all the doors in the Premises, excluding Tenant’s vaults, safes and special security areas designated in advance by Tenant to Landlord. In an emergency, Landlord shall have the right to use any means that Landlord may deem proper to open the doors in and to the Premises. Any entry into the Premises by Landlord in the manner hereinbefore described shall not be deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an actual or constructive eviction of Tenant from any portion of the Premises. Landlord shall use commercially reasonable efforts to minimize interference with Tenant’s business operations in connection with any entry by Landlord pursuant to this Article 27.

ARTICLE 28
TENANT PARKING

     Tenant shall rent from Landlord, commencing on the Commencement Date, the amount of parking passes set forth in Section 15 of the Summary, on a monthly basis throughout the Lease Term, which parking passes shall pertain to the Project parking facility. Tenant shall pay to Landlord for automobile parking passes on a monthly basis an amount equal to ninety-five percent (95%) of the prevailing rate charged from time to time at the location of such parking passes. In addition, Tenant shall be responsible for the full amount of any taxes imposed by any governmental authority in connection with the renting of such parking passes by Tenant or the use of the parking facility by Tenant. Tenant’s continued right to use the parking passes is conditioned upon Tenant abiding by all rules and regulations which are prescribed from time to time for the orderly operation and use of the parking facility where the parking passes are located, including any sticker or other identification system established by Landlord, Tenant’s cooperation in seeing that Tenant’s employees and visitors also comply with such rules and regulations and Tenant not being in default under this Lease. Tenant’s use of the Project parking facility shall be at Tenant’s sole risk and Tenant acknowledges and agrees that Landlord shall have no liability whatsoever for damage to the vehicles of Tenant, its employees and/or visitors, or for other personal injury or property damage or theft relating to or connected with the parking rights granted herein or any of Tenant’s, its employees’ and/or visitors’ use of the parking facilities. Landlord specifically reserves the right to change the size, configuration, design, layout and all other aspects of the Project parking facility at any time and Tenant acknowledges and agrees that Landlord may, without incurring any liability to Tenant and without any abatement of Rent under this Lease, from time to time, close-off or restrict access to the Project parking facility for purposes of permitting or facilitating any such construction, alteration or improvements. Landlord may delegate its responsibilities hereunder to a parking operator in which case such parking operator shall have all the rights of control attributed hereby to the Landlord. The parking passes rented by Tenant pursuant to this Article 28 are provided to Tenant solely for use by Tenant’s own personnel and such passes may not be transferred, assigned, subleased or otherwise alienated by Tenant without Landlord’s prior approval. Tenant may validate visitor parking by such method or methods as the Landlord may establish, at the validation rate from time to time generally applicable to visitor parking, at Tenant’s sole cost. Landlord shall have no obligation to monitor the use of such parking facility, nor shall Landlord be responsible for any loss or damage to any vehicle or other property or for any injury to any person. Tenant’s parking passes shall be used only for parking of automobiles no larger than full size passenger automobiles, sport utility vehicles or pick-up trucks. Tenant shall comply with all rules and regulations which may be adopted by Landlord from time to time with respect to parking and/or the parking facilities servicing the Project. Tenant shall not have the exclusive right to use any specific parking space. If Landlord grants to any other tenant the exclusive right to use any particular parking space(s), Tenant shall not use such spaces. All trucks (other than pick-up trucks) and delivery vehicles shall be (i) parked at the loading dock of the Building, (ii) loaded and unloaded in a manner which does not interfere with the businesses of other occupants of the Project, and (iii) permitted to remain on the Project only so long as is reasonably necessary to complete loading and unloading. In the event Landlord elects in its sole and absolute discretion or is required by any Law to limit or control parking, whether by validation of parking tickets or any other method of assessment, Tenant agrees to participate in such validation or assessment program under such reasonable rules and regulations as are from time to time established by Landlord.

ARTICLE 29
MISCELLANEOUS PROVISIONS

     29.1 Terms; Captions. The words “Landlord” and “Tenant” as used herein shall include the plural as well as the singular. The necessary grammatical changes required to make the provisions hereof apply either to corporations or partnerships or individuals, men or women, as the case may require, shall in all cases be assumed as though in each case fully expressed. The captions of Articles and Sections are for convenience only and shall not be deemed to limit, construe, affect or alter the meaning of such Articles and Sections.

     29.2 Binding Effect. Subject to all other provisions of this Lease, each of the covenants, conditions and provisions of this Lease shall extend to and shall, as the case may require, bind or inure to the benefit not only of Landlord and of Tenant, but also of their respective heirs, personal representatives, successors or assigns, provided this clause shall not permit any assignment by Tenant contrary to the provisions of Article 14 of this Lease.

     29.3 No Air Rights. No rights to any view or to light or air over any property, whether belonging to Landlord or any other person, are granted to Tenant by this Lease. If at any time any windows of the Premises are temporarily darkened or the light or view therefrom is obstructed by reason of any repairs, improvements, maintenance or cleaning in or about the Project, the same shall be without liability to Landlord and without any reduction or diminution of Tenant’s obligations under this Lease.

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     29.4 Modification of Lease. Should any current or prospective mortgagee or ground lessor for the Building or Project require a modification of this Lease, which modification will not cause an increased cost or expense to Tenant or in any other way materially and adversely change the rights and obligations of Tenant hereunder, then and in such event, Tenant agrees that this Lease may be so modified and agrees to execute whatever documents are reasonably required therefor and to deliver the same to Landlord within ten (10) days following a request therefor.

     29.5 Transfer of Landlord’s Interest. Tenant acknowledges that Landlord has the right to transfer all or any portion of its interest in the Project or Building and in this Lease. Tenant agrees that in the event of any such transfer, Landlord shall automatically be released from all liability under this Lease, and Tenant agrees to look solely to such transferee for the performance of Landlord’s obligations hereunder accruing after the date of transfer. Such transferee shall be deemed to have fully assumed and be liable for all obligations of this Lease to be performed by Landlord, including the return of any Security Deposit, and Tenant shall attorn to such transferee. Tenant further acknowledges that Landlord may assign its interest in this Lease to Landlord’s Mortgagee as additional security. Tenant agrees that such an assignment shall not release Landlord from its obligations hereunder and that Tenant shall continue to look to Landlord for the performance of its obligations hereunder unless and until such Landlord’s Mortgagee succeeds to Landlord’s interest under this Lease.

     29.6 Prohibition Against Recording. Neither this Lease, nor any memorandum, affidavit or other writing with respect thereto, shall be recorded by Tenant or by anyone acting through, under or on behalf of Tenant.

     29.7 Landlord’s Title. Landlord’s title is and always shall be paramount to the title of Tenant. Nothing herein contained shall empower Tenant to do any act which can, shall or may encumber the title of Landlord.

     29.8 Relationship of Parties. Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any third party to create the relationship of principal and agent, partnership, joint venturer or any association between Landlord and Tenant.

     29.9 Application of Payments. Landlord shall have the right to apply payments received from Tenant pursuant to this Lease, regardless of Tenant’s designation of such payments, to satisfy any obligations of Tenant hereunder, in such order and amounts as Landlord, in its sole discretion, may elect.

     29.10 Time of Essence. Whether or not so specified in any particular provision of this Lease, time is of the essence with respect to the performance by Tenant of every provision of this Lease in which time of performance by Tenant is a factor.

     29.11 Partial Invalidity. If any term, provision or condition contained in this Lease shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term, provision or condition to persons or circumstances other than those with respect to which it is invalid or unenforceable, shall not be affected thereby, and each and every other term, provision and condition of this Lease shall be valid and enforceable to the fullest extent possible permitted by Law.

     29.12 No Warranty. In executing and delivering this Lease, Tenant has not relied on any representations, including, but not limited to, any representation as to the amount of any item comprising Additional Rent or the amount of the Additional Rent in the aggregate or that Landlord is furnishing the same services to other tenants, at all, on the same level or on the same basis, or any warranty or any statement of Landlord or any employee, broker or agent of Landlord, which is not set forth herein or in one or more of the exhibits attached hereto.

     29.13 Landlord Exculpation. The liability of Landlord or the Landlord Parties to Tenant for any default by Landlord under this Lease or arising in connection herewith or with Landlord’s operation, management, leasing, repair, renovation, alteration or any other matter relating to the Project or the Premises shall be limited solely and exclusively to an amount which is equal to the lesser of (a) the interest of Landlord in the Building or (b) the equity interest Landlord would have in the Building if the Building were encumbered by third-party debt in an amount equal to eighty percent (80%) of the value of the Building (as such value is determined by Landlord), provided that in no event shall such liability extend to any sales or insurance proceeds received by Landlord or the Landlord Parties in connection with the Project, Building or Premises. Neither Landlord, nor any of the Landlord Parties shall have any personal liability therefor, and Tenant hereby expressly waives and releases such personal liability on behalf of itself and all persons claiming by, through or under Tenant. The limitations of liability contained in this Section 29.13 shall inure to the benefit of Landlord’s and the Landlord Parties’ present and future partners, beneficiaries, officers, directors, trustees, shareholders, agents and employees, and their respective partners, heirs, successors and assigns. Under no circumstances shall any present or future partner of Landlord (if Landlord is a partnership), or trustee or beneficiary (if Landlord or any partner of Landlord is a trust), have any liability for the performance of Landlord’s obligations under this Lease. Notwithstanding any contrary provision herein, neither Landlord nor the Landlord Parties shall be liable under any circumstances for injury or damage to, or interference with, Tenant’s business, including but not limited to, loss of profits, loss of rents or other revenues, loss of business opportunity, loss of goodwill or loss of use, in each case, however occurring.

     29.14 Entire Agreement. It is understood and acknowledged that there are no oral agreements between the parties hereto affecting this Lease and this Lease constitutes the parties’ entire agreement with respect to the leasing of the Premises and supersedes and cancels any and all previous negotiations, arrangements,

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brochures, agreements and understandings, if any, between the parties hereto or displayed by Landlord to Tenant with respect to the subject matter thereof, and none thereof shall be used to interpret or construe this Lease. None of the terms, covenants, conditions or provisions of this Lease can be modified, deleted or added to except in writing signed by the parties hereto.

     29.15 Right to Lease. Landlord reserves the absolute right to effect such other tenancies in the Project as Landlord in the exercise of its sole business judgment shall determine to best promote the interests of the Building or Project. Tenant does not rely on the fact, nor does Landlord represent, that any specific tenant or type or number of tenants shall, during the Lease Term, occupy any space in the Building or Project.

     29.16 Force Majeure. Any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God and adverse weather, inability to obtain services, labor, or materials or reasonable substitutes therefor, governmental actions, civil commotions, terrorism, fire or other casualty, and other causes beyond the reasonable control of the party obligated to perform, except with respect to the obligations imposed with regard to Rent and other charges to be paid by Tenant pursuant to this Lease and except as to Tenant’s obligations under Articles 5 and 24 of this Lease (collectively, a “Force Majeure”), notwithstanding anything to the contrary contained in this Lease, shall excuse the performance of such party for a period equal to any such prevention, delay or stoppage and, therefore, if this Lease specifies a time period for performance of an obligation of either party, that time period shall be extended by the period of any delay in such party’s performance caused by a Force Majeure.

     29.17 Waiver of Redemption by Tenant. Tenant hereby waives, for Tenant and for all those claiming under Tenant, any and all rights now or hereafter existing to redeem by order or judgment of any court or by any legal process or writ, Tenant’s right of occupancy of the Premises after any termination of this Lease.

     29.18 Notices. All notices, demands, statements, designations, approvals or other communications (collectively, “Notices”) given or required to be given by either party to the other hereunder or by Law shall be in writing, shall be (A) sent by United States certified or registered mail, postage prepaid, return receipt requested (“Mail”), (B) transmitted by telecopy, if such telecopy is promptly followed by a Notice sent by Mail, by nationally recognized overnight courier or delivered personally, (C) delivered by a nationally recognized overnight courier, or (D) delivered personally. Any Notice shall be sent, transmitted, or delivered, as the case may be, to Tenant at the appropriate address set forth in Section 16 of the Summary, or to such other place as Tenant may from time to time designate in a Notice to Landlord, or to Landlord at the addresses set forth below, or to such other places as Landlord may from time to time designate in a Notice to Tenant. Any Notice will be deemed given (i) three (3) days after the date it is posted if sent by Mail, (ii) the date the telecopy is transmitted, (iii) the date the overnight courier delivery is made or attempted to be made, or (iv) the date personal delivery is made or attempted to be made. If Tenant is notified of the identity and address of Landlord’s Mortgagee (by assignment of rents or otherwise), Tenant shall give to such Landlord’s mortgagee written notice of any default by Landlord. As of the date of this Lease, any Notices to Landlord must be sent, transmitted, or delivered, as the case may be, to the addresses listed in Section 17 of the Summary.

     29.19 Joint and Several. If there is more than one Tenant, the obligations imposed upon Tenant under this Lease shall be joint and several.

     29.20 Authority. Tenant hereby represents and warrants to Landlord that (i) Tenant is duly organized and validly existing in good standing under the Laws of Illinois, and possesses all licenses and authorizations necessary to carry on its business, (ii) Tenant has full power and authority to carry on its business, enter into this Lease and consummate the transaction contemplated by this Lease, (iii) the individual executing and delivering this Lease on Tenant’s behalf has been duly authorized to do so, (iv) this Lease has been duly executed and delivered by Tenant, (v) this Lease constitutes a valid, legal, binding and enforceable obligation of Tenant (subject to bankruptcy, insolvency or creditor rights laws generally, and principles of equity generally), (vi) the execution, delivery and performance of this Lease by Tenant will not cause or constitute a default under, or conflict with, the organizational documents of Tenant or any agreement to which Tenant is a party, (vii) the execution, delivery and performance of this Lease by Tenant will not violate any applicable Law, and (viii) all consents, approvals, authorizations, orders or filings of or with any court or governmental agency or body, if any, required on the part of Tenant for the execution, delivery and performance of this Lease have been obtained or made.

     29.21 Attorneys’ Fees. In the event that either Landlord or Tenant should bring suit for the possession of the Premises, for the recovery of any sum due under this Lease, or because of the breach of any provision of this Lease or for any other relief against the other, then all costs and expenses, including reasonable attorneys’ fees, incurred by the prevailing party therein shall be paid by the other party, which obligation on the part of the other party shall be deemed to have accrued on the date of the commencement of such action and shall be enforceable whether or not the action is prosecuted to judgment.

     29.22 Governing Law; WAIVER OF TRIAL BY JURY. This Lease shall be construed and enforced in accordance with the Laws of the State of Illinois. IN ANY ACTION OR PROCEEDING ARISING HEREFROM, LANDLORD AND TENANT HEREBY CONSENT TO (I) THE JURISDICTION OF ANY COMPETENT COURT WITHIN ILLINOIS, (II) SERVICE OF PROCESS BY ANY MEANS AUTHORIZED BY THE LAW OF THE STATE WHERE THE BUILDING IS LOCATED, AND (III) IN THE INTEREST OF SAVING TIME AND EXPENSE, TRIAL WITHOUT A JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR THEIR SUCCESSORS IN RESPECT OF ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT’S USE OR OCCUPANCY OF THE

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PREMISES, AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY. IN THE EVENT LANDLORD COMMENCES ANY SUMMARY PROCEEDINGS OR ACTION FOR NONPAYMENT OF BASE RENT OR ADDITIONAL RENT, TENANT SHALL NOT INTERPOSE ANY COUNTERCLAIM OF ANY NATURE OR DESCRIPTION (UNLESS SUCH COUNTERCLAIM SHALL BE MANDATORY) IN ANY SUCH PROCEEDING OR ACTION, BUT SHALL BE RELEGATED TO AN INDEPENDENT ACTION AT LAW.

     29.23 Submission of Lease. Submission of this instrument for examination or signature by Tenant does not constitute an offer to lease the Premises to Tenant or reservation of, option for or option to lease, and it is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant.

     29.24 Brokers. Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, excepting only the real estate brokers or agents specified in Section 18 of the Summary (the “Brokers”), and that they know of no other real estate broker or agent who is entitled to a commission in connection with this Lease. Tenant agrees to indemnify and defend Landlord against and hold Landlord harmless from any and all Claims with respect to any leasing commission or equivalent compensation alleged to be owing on account of any dealings with any real estate broker or agent, other than the Brokers, occurring by, through, or under Tenant. Tenant’s Broker shall be compensated pursuant to a separate agreement between Landlord’s Broker and Tenant’s Broker.

     29.25 Independent Covenants. This Lease shall be construed as though the covenants herein (including, without limitation, Tenant’s obligation to pay Rent) between Landlord and Tenant are independent and not dependent and Tenant hereby expressly waives the benefit of any statute to the contrary and agrees that if Landlord fails to perform its obligations set forth herein, Tenant shall not be entitled to make any repairs or perform any acts hereunder at Landlord’s expense or to any setoff of the Rent or other amounts owing hereunder against Landlord.

     29.26 Project or Building Name and Signage. Landlord shall have the right at any time to change the name of the Project or Building and to install, affix and maintain any and all signs on the exterior and on the interior of the Project or Building as Landlord may, in Landlord’s sole discretion, desire. Tenant shall not use the name of the Project or Building or use pictures or illustrations of the Project or Building in advertising or other publicity or for any purpose other than as the address of the business to be conducted by Tenant in the Premises, without the prior written consent of Landlord, which consent may be granted or withheld in Landlord’s sole discretion.

     29.27 Counterparts. This Lease may be executed in counterparts with the same effect as if both parties hereto had executed the same document. Both counterparts shall be construed together and shall constitute a single lease.

     29.28 Confidentiality. Tenant acknowledges that the content of this Lease and any related documents are confidential information. Tenant shall keep such confidential information strictly confidential and shall not disclose such confidential information to any person or entity other than Tenant’s financial, legal, and space planning consultants.

     29.29 Transportation Management. Tenant shall fully comply with all present or future programs intended to manage parking, transportation or traffic in and around the Building, and in connection therewith, Tenant shall take responsible action for the transportation planning and management of all employees located at the Premises by working directly with Landlord, any governmental transportation management organization or any other transportation-related committees or entities.

     29.30 No Violation. Tenant hereby warrants and represents that neither its execution of nor performance under this Lease shall cause Tenant to be in violation of any agreement, instrument, contract, Law, rule or regulation by which Tenant is bound, and Tenant shall protect, defend, indemnify and hold Landlord harmless against any Claims arising from Tenant’s breach of this warranty and representation.

     29.31 Communications and Computer Lines. Tenant may install, maintain, replace, remove or use any communications or computer wires and cables (collectively, the “Lines”) at the Project in or serving the Premises, provided that (i) Tenant shall obtain Landlord’s prior written consent, use an experienced and licensed contractor approved in writing by Landlord, and comply with all of the other provisions of Articles 7 and 8 of this Lease, (ii) an acceptable number of spare Lines and space for additional Lines shall be maintained for existing and future occupants of the Project, as determined in Landlord’s reasonable opinion, (iii) the Lines therefor (including riser cables) shall be appropriately insulated to prevent excessive electromagnetic fields or radiation, and shall be surrounded by a protective conduit reasonably acceptable to Landlord, (iv) any new or existing Lines servicing the Premises shall comply with all applicable governmental Laws, (v) Tenant shall pay all costs in connection therewith. Landlord reserves the right to require that Tenant remove any Lines located in or serving the Premises which are installed in violation of these provisions, or which are at any time in violation of any Laws or represent a dangerous or potentially dangerous condition, and Landlord further reserves the right upon the expiration or earlier termination of the Lease Term to require that Tenant remove any Lines installed by or on behalf of Tenant and repair any damage in connection with such removal, all at Tenant’s cost. Additionally, Tenant must use Montgomery Technologies (or another provider approved by Landlord) in the Building risers.

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     29.32 Construction of Project and Other Improvements. It is specifically understood and agreed that Landlord has made no representation or warranty to Tenant and has no obligation and has made no promises to alter, remodel, improve, renovate, repair or decorate the Premises, Building or any part thereof and that no representations respecting the condition of the Premises or the Building have been made by Landlord to Tenant except as specifically set forth herein or in the Work Letter, if applicable. Tenant acknowledges that Landlord may renovate, improve, alter, or modify (collectively, the “Renovations”) portions of the Project, the Building and/or the Premises including without limitation the parking structure, if any, Common Areas, systems and equipment, roof, and structural portions of the same following Tenant’s occupancy of the Premises, and that such Renovations may result in excess levels of noise, dust, obstruction of access, etc. which are in excess of that present in a fully constructed project Tenant hereby agrees that such Renovations and Landlord’s actions in connection with such Renovations shall in no way constitute a constructive eviction of Tenant nor entitle Tenant to any abatement of Rent. Tenant hereby waives any and all rent offsets or claims of constructive eviction which may arise in connection with such construction. Landlord shall have no responsibility or for any reason be liable to Tenant for any direct or indirect injury to or interference with Tenant’s business arising from the Renovations, nor shall Tenant be entitled to any compensation or damages from Landlord for loss of the use of the whole or any part of the Premises or of Tenant’s personal property or improvements resulting from the Renovations or Landlord’s actions in connection with such Renovations, or for any inconvenience or annoyance occasioned by such Renovations or Landlord’s actions.

     29.33 Prohibited Persons and Transactions. Tenant represents and warrants that neither Tenant nor any of its affiliates, nor any of their respective partners, members, shareholders or other equity owners, and none of their respective employees, officers, directors, representatives or agents is, nor will they become, a person or entity with whom U.S. persons or entities are restricted from doing business under regulations of the Office of Foreign Asset Control (“OFAC”) of the Department of the Treasury (including those named on OFAC’s Specially Designated and Blocked Persons List) or under any statute, executive order (including the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism), or other governmental action and is not and will not Transfer this Lease to, contract with or otherwise engage in any dealings or transactions or be otherwise associated with such persons or entities.

     29.34 Limitation on Remedies. Notwithstanding anything to the contrary in this Lease, if (i) this Lease obligates Landlord to not unreasonably withhold, condition or delay Landlord’s consent or approval for a particular matter, (ii) Landlord withholds, delays or conditions its consent or approval for such matter, and (iii) Tenant believes that Landlord did so unreasonably, then Tenant’s sole remedies shall be a declaratory judgment and an injunction for the relief sought without any monetary damages, and Tenant hereby waives all other remedies, including, without limitation, any right at law or equity to terminate this Lease.

     29.35 Reasonable Efforts. For purposes of this Lease, “reasonable efforts” by Landlord shall not include an obligation to employ contractors or labor at overtime or other premium pay rates or to incur any other overtime costs or additional expenses whatsoever.

     29.36 ATM Rights. Provided that (i) this Lease shall not have been terminated, (ii) Tenant shall not be in Default under this Lease, and (iii) Tenant shall occupy the entire Retail Premises, Tenant shall have the exclusive right (“Tenant’s Exclusive”) to lease from Landlord, beginning on the Retail Premises Commencement Date, certain premises for the operation of an ATM in the west side of the lobby of the Building in a location determined by Landlord in its sole discretion (the “ATM Premises”). Tenant’s Exclusive shall, beginning on the first day after the second (2^nd) anniversary of the Retail Premises Commencement Date, not apply to, and Tenant shall have no right to enforce the provisions of this Section 29.36 with respect to any tenant’s lease entered into after the Date of this Lease for (a) no less than two (2) full floors, or (b) no less than 50,000 rentable square feet in the Building. Tenant’s Lease of the ATM Premises shall be subject to all of the terms and provisions of this Lease, except as otherwise set forth in this Section 29.36. Tenant shall accept the ATM Premises in its “as-is” condition.

     The Base Rent for the ATM Premises shall be Six Hundred Dollars ($600.00) per month, with four percent (4%) annual increases on each anniversary of the date Tenant exercises the Tenant’s Exclusive thereafter. The Base Rent for the ATM Premises shall be paid in accordance with Section 3.1 of this Lease.

     In the event that it is determined that this Section 29.36 is found by a court of competent jurisdiction to violate any state or federal law or regulation or that same is unenforceable, at the present time or any time in the future, this covenant shall be void as of the date of such determination and of no further force and effect, and with respect to same, Tenant hereby covenants and agrees with Landlord that it shall indemnify and hold Landlord harmless with respect to any penalties, fines, judgments, damages or recoveries had or imposed by any party against Landlord arising out of this Section 29.36. Tenant agrees that this Lease shall not be adversely affected and there shall be no abatement of Base Rent for the Offices Premises or Retail Premises or Additional Rent charge payable hereunder as a result of the unenforceability of this covenant, it being understood and agreed that Landlord makes no representation or warranty as to its validity or enforceability.

     Except as expressly set forth in this Section 29.36, if (i) Tenant ceases to operate the ATM Premises, (ii) Tenant is in Default under this Lease, or (iii) Tenant is not occupying the Retail Premises, then Landlord shall have the right to stop recognizing Tenant’s Exclusive and Tenant’s Exclusive shall be null and void for the remainder of the term of this Lease.

     Notwithstanding any language contained in this Lease to the contrary, in the event that Landlord enters into a lease for premises within the Building with a tenant in violation of Tenant’s Exclusive and Landlord fails to cure

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such Landlord violation within ten (10) days following the date on which Landlord receives written Notice from Tenant specifying such Landlord violation, then Tenant shall have such rights and remedies against Landlord as may be available hereunder, at law or in equity, other than the right to seek lost profits or consequential damages. It is understood and agreed that in the event of violation of Tenant’s Exclusive pursuant to this paragraph and Landlord’s failure to timely cure, Tenant would be subject to irreparable harm and shall be authorized and entitled to obtain from any court of competent jurisdiction temporary, preliminary and permanent injunctive relief as well as other equitable relief without posting a bond, cash or other security, which rights and remedies shall be cumulative and in addition to other damages or other relief sought. If the aforementioned injunctive relief is granted to Tenant by the court, Tenant shall be entitled to recover from Landlord any costs, expenses and attorneys fees incurred in pursuing said injunctive relief.

     The costs of the actual ATM and related equipment in the ATM Premises and the installation, design, construction and any and all other costs associated with the ATM Premises, including, without limitation, utility charges and hook-up fees, permits, and maintenance and repairs, shall be the sole responsibility of Tenant. On or before the expiration or earlier termination of this Lease, Tenant shall, at Tenant’s sole cost and expense, remove the ATM and related equipment from the ATM Premises, and shall cause the area to be restored to the condition existing as of the Date of this Lease. The terms of this Section 29.36 shall survive the expiration or earlier termination of this Lease. All of the rights contained in this Section 29 shall be personal to the original Tenant named in this Lease.

     29.37 Sound. It is specifically understood and agreed that Landlord has made no representation or warranty to Tenant respecting the sound levels in the Premises. Tenant acknowledges that Landlord may construct, install or permit a gymnasium or work-out facility in the Building (the “Gym”) and that such Gym may result in excess levels of noise in the Premises. Tenant hereby agrees that such Gym and Landlord’s actions in connection with such Gym shall in no way constitute a constructive eviction of Tenant nor entitle Tenant to any abatement of Rent. Tenant hereby waives any and all rent offsets or claims of constructive eviction which may arise in connection with such Gym. Landlord shall have no responsibility or for any reason be liable to Tenant for any direct or indirect injury to or interference with Tenant’s business arising from the Gym, nor shall Tenant be entitled to any compensation or damages from Landlord for loss of the use of the whole or any part of the Premises or of Tenant’s personal property or improvements resulting from the Gym or Landlord’s actions in connection with the Gym, or for any inconvenience or annoyance occasioned by the Gym or Landlord’s actions. Notwithstanding the foregoing, if, within eighteen (18) months after the installation of the Gym, or within eighteen (18) months of a reconfiguration of existing equipment or installation of new equipment in the Gym, Tenant provides Notice to Landlord that the Gym is causing unreasonable levels of noise or vibration that materially and adversely affect Tenant’s use of the Premises, then Landlord shall use commercially reasonable efforts to minimize such unreasonable levels of noise and/or vibration; provided, however, Landlord’s commercially reasonable efforts do not require Landlord to spend more than Twenty Five Thousand Dollars ($25,000.00) in the aggregate. In order to control adverse sound from free weights being dropped on the floor of the Gym, Landlord agrees not to provide or make available free weights in the Gym over the Lease Term.

ARTICLE 30
STATE LAW PROVISIONS

     30.1 Remedies. In connection with Landlord exercising its remedy set forth in Section 19.2.2 of this Lease, Landlord shall use reasonable efforts to relet the Premises for the account of Tenant for such rent, for such time (which may extend beyond the Lease Term) and such other terms as Landlord shall determine and shall not be required to accept any tenant offered by tenant or observe any of Tenant’s instructions.

     30.2 Conflicts. To the extent of any conflicts or inconsistencies between the terms and provisions of this Article 30 and the terms and provisions of the remainder of this Lease, the terms and provisions of this Article 30 shall control.

ARTICLE 31
RIGHT OF FIRST OFFER

     (a) As used herein:

     “Available” means, as to any space, that such space is vacant and free of any present or future possessory right now or hereafter existing in favor of any third party; provided, that any space that is vacant on the date of this Lease shall not be deemed Available unless and until such space is first leased to another tenant and then again becomes Available. Anything to the contrary contained herein notwithstanding, Tenant’s right of first offer pursuant to this Section 31 is subordinate to (x) any right of offer, right of first refusal, renewal right, expansion right or similar right or option in favor of any third party existing as of the date of this Lease and (y) Landlord’s right to renew or extend the term of any lease to another tenant, whether or not pursuant to an option or right set forth in such lease.

     “Offer Period” means the Lease Term.

     “Offer Space” means any Available space on the thirty first (31^st) floor of the Building.

     (b) Provided (i) this Lease shall not have been terminated, (ii) Tenant shall not be in default under this Lease, and (iii) Tenant shall occupy the entire Premises, if at any time during the Offer Period the Offer Space either becomes, or Landlord reasonably anticipates that within the next twelve (12) months

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(but not later than the last day of the Offer Period) the Offer Space will become, Available, Landlord shall give to Tenant notice (an “Offer Notice”) thereof, specifying (A) Landlord’s determination of the Fair Offer Rent for such Offer Space, (B) the date or estimated date that the Offer Space has or shall become Available and (C) such other matters as Landlord may deem appropriate for such Offer Notice. “Fair Offer Rent” shall be equal to an amount equal to the rate being charged to new tenants for comparable space in the Project or, if comparable transactions do not exist in the Project, then an amount that landlords of the comparable buildings (as determined by Landlord) have agreed to accept, and sophisticated nonaffiliated tenants of comparable buildings have agreed to pay, in current arms-length, nonrenewal, nonequity (i.e., not being offered equity in the building), transactions for comparable space (in terms of condition, floor location, view and floor height) of a comparable size, for a nonrenewal term equal to the term set forth in the Offer Notice and commencing as of the first day of the Offer Space Inclusion Date, which annual rent per square foot shall take into account and make adjustment for the existence, timing and amount of any increases in rent following term commencement in the comparison transactions, and shall at all times take into consideration and make adjustment for all other material differences in all terms, conditions or factors applicable to the transaction in question hereunder or applicable to one or more of the comparison transactions used to determine the Fair Offer Rent which a sophisticated tenant or sophisticated landlord would believe would have a material impact on a “fair market rental” determination; provided, however, that (i) the rent for all comparison transactions shall be grossed up or adjusted to reflect the net payment of operating expenses and taxes, (ii) the presence, amount or absence of brokerage commissions in either the subject transaction or the comparison transactions shall be considered, (iii) any rent abatement or other free rent of any type provided in comparison transactions for the period of the performance of any tenant improvement work (i.e., any “construction period”) shall be disregarded, and (iv) any tenant improvements or allowance provided for in comparable transactions shall be taken into account, and the value, if any, to Tenant of any existing improvements in the Premises shall be taken into account in the calculation of the Fair Offer Rent. If in determining the Fair Offer Rent for a subject transaction hereunder, it is determined that free rent or cash allowances (collectively, “Concessions”) should be granted, Landlord may, at Landlord’s sole option, elect all or any portion of the following: (A) to grant some or all of the Concessions to Tenant as free rent or as an improvement allowance, or (B) to adjust the monthly installments of the applicable Fair Offer Rent to be an effective rental rate which takes into consideration and deducts from monthly rent the amortized amount of the total dollar value of such Concessions, amortized on a straight line basis over the remainder of the Lease Term (in which case the Concessions so amortized shall not be granted to Tenant).

     (c) Provided that on the date that Tenant exercises the Offer Space Option and on the Offer Space Inclusion Date (i) this Lease shall not have been terminated, (ii) Tenant shall not be in default under this Lease, and (iii) Tenant shall occupy the entire Premises, Tenant shall have the option (the “Offer Space Option”), exercisable by notice (an “Acceptance Notice”) given to Landlord on or before the date that is five (5) Business Days after the giving of the Offer Notice (time being of the essence) to include the Offer Space in the Premises. Tenant shall notify Landlord in the Acceptance Notice whether Tenant accepts or disputes Landlord’s determination of the Fair Offer Rent, and if Tenant disputes Landlord’s determination of the Fair Offer Rent, the Acceptance Notice shall set forth Tenant’s determination thereof. If Tenant fails timely to object to Landlord’s determination in the Acceptance Notice and to set forth Tenant’s determination, then Tenant shall be deemed to have accepted Landlord’s determination.

     (d) If Tenant timely delivers the Acceptance Notice, then, on the date on which Landlord delivers vacant possession of the Offer Space to Tenant (the “Offer Space Inclusion Date”), the Offer Space shall become part of the Premises, upon all of the terms and conditions set forth in this Lease, except (i) Base Rent shall be increased by the Fair Offer Rent, (ii) Tenant’s Share shall be increased by the appropriate percentage amount, (iii) Landlord shall not be required to perform any other work, to pay any tenant improvement allowance or any other amount, or to render any services to make the Building or the Offer Space ready for Tenant’s use or occupancy or to provide any abatement of Base Rent or Additional Rent, and Tenant shall accept the Offer Space in its “as is” condition on the Offer Space Inclusion Date and (iv) as may be otherwise set forth in the Offer Notice.

     (e) If in the Acceptance Notice Tenant disputes Landlord’s determination of Fair Offer Rent, and Landlord and Tenant fail to agree as to the amount thereof within twenty (20) days after the giving of the Acceptance Notice, then within thirty (30) days after Landlord’s receipt of the Acceptance Notice, Tenant shall submit to Landlord Tenant’s determination of the Fair Offer Rent and Landlord shall submit to Tenant Landlord’s determination of the Fair Offer Rent and such determinations, shall be submitted to arbitration (as Tenant’s and Landlord’s “submitted FOR,” respectively) in accordance with the following:

          Landlord and Tenant shall each appoint one arbitrator who shall by profession be a real estate broker who shall have been active over the five (5) year period ending on the date of such appointment in the leasing of first class high-rise office buildings in the Downtown Chicago, Illinois area, and who shall not have been employed or engaged by the appointing party during the immediately preceding two (2) year period. The determination of the arbitrators shall be limited solely to the issue as to whether Landlord’s or Tenant’s submitted FOR is the closest to the actual FOR, as determined by the arbitrators, taking into account the requirements of this Section 31. Each such arbitrator shall be appointed within forty five (45) days after Landlord’s receipt of the Acceptance Notice.

     The two arbitrators so appointed shall within ten (10) days of the date of the appointment of the last appointed arbitrator agree upon and appoint a third arbitrator who shall be a real estate broker who shall have been active over the five (5) year period ending

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on the date of such appointment in the leasing of first class high-rise office buildings in the Downtown Chicago, Illinois area and who shall not have been employed or engaged by Landlord or Tenant during the immediately preceding two (2) year period.

     The three arbitrators shall within thirty (30) days of the appointment of the third arbitrator reach a decision as to whether the parties shall use Landlord’s or Tenant’s submitted FOR and shall notify Landlord and Tenant thereof.

     The decision of the majority of the three arbitrators shall be binding upon Landlord and Tenant, shall be in writing and shall be non-appealable, and counterpart copies thereof shall be delivered to Landlord and Tenant. A judgment or order based upon such award may be entered in any court of competent jurisdiction. In rendering their decision and award, the arbitrators shall have no power to vary, modify or amend any provision of this Lease.

     If either Landlord or Tenant fails to appoint an arbitrator within forty five (45) days after Landlord’s receipt of the Acceptance Notice, the arbitrator appointed by the other shall solely render a decision as to the FOR, notify Landlord and Tenant thereof, and such arbitrator’s decision shall be binding upon Landlord and Tenant.

     If the two arbitrators fail to agree upon and appoint a third arbitrator, or both parties fail to appoint an arbitrator, then the appointment of the third arbitrator or any arbitrator shall be dismissed and the matter to be decided shall be promptly submitted to arbitration under the provisions of the American Arbitration Association, but subject to the instructions set forth in this Section 31.

     The cost of arbitration shall be paid by Landlord and Tenant equally.

     If the dispute shall not have been resolved on or before the Offer Space Inclusion Date, then pending such resolution, Tenant shall pay as annual fixed rent for the Offer Space the Fair Offer Rent as determined by Landlord. Within twenty (20) days after the final determination of Fair Offer Rent, an adjustment, if any, required to correct the amounts previously paid on account thereof shall be made by the appropriate party.

     (f) If Landlord is unable to deliver possession of the Offer Space to Tenant for any reason on or before the date on which Landlord anticipates that the Offer Space shall be Available as set forth in the Offer Notice, the Offer Space Inclusion Date shall be the date on which Landlord is able to so deliver possession and Landlord shall have no liability to Tenant therefor and this Lease shall not in any way be impaired.

     (g) If Tenant fails timely to give an Acceptance Notice, then (i) Landlord may enter into one or more leases of the Offer Space with third parties on such terms and conditions as Landlord shall determine, the Offer Space Option shall be null and void and of no further force and effect and Landlord shall have no further obligation to offer the Offer Space to Tenant, and (ii) Tenant shall, upon demand by Landlord, execute an instrument confirming Tenant’s waiver of, and extinguishing, the Offer Space Option, but the failure by Tenant to execute any such instrument shall not affect the provisions of clause (i) above.

     (h) Promptly after the occurrence of the Offer Space Inclusion Date, Landlord and Tenant shall confirm the occurrence thereof and the inclusion of the Offer Space in the Premises by executing an instrument reasonably satisfactory to Landlord and Tenant; provided, that failure by Landlord or Tenant to execute such instrument shall not affect the inclusion of the Offer Space in the Premises in accordance with this Section 31.

     (i) Anything in this Lease to the contrary notwithstanding this Section 31 shall be null and void and of no force or effect if (i) Original Tenant is no longer the Tenant under this Lease, (ii) Tenant at any time fails to occupy at least 100% rentable square feet in the Premises or (iii) Tenant shall at any time be in default under this Lease beyond any applicable period of grace.

[Signatures on Next Page]

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IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed the day and date first above written.

“LANDLORD” BROADWAY 500 WEST MONROE FEE LLC, a Delaware limited liability company
By:
	Name:
	Its:
“TENANT” MIDWEST BANK & TRUST, CO., an Illinois corporation
By:
	Name:
	Its:
By:
	Name:
	Its:

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EXHIBIT A

OUTLINE OF OFFICE AND RETAIL PREMISES

A-1

A-2

EXHIBIT B

ADDITIONAL RENT DEFINED

1. Definitions of Key Terms Relating to Additional Rent. As used in this Exhibit B, the following terms shall have the meanings hereinafter set forth:

     1.1 “Direct Expenses” shall mean “Operating Expenses” and “Tax Expenses.”

     1.2 “Expense Year” shall mean each calendar year in which any portion of the Lease Term falls, through and including the calendar year in which the Lease Term expires, provided that Landlord, upon notice to Tenant, may change the Expense Year from time to time to any other twelve (12) month consecutive period, and, in the event of any such change, Tenant’s Share of Direct Expenses shall be equitably adjusted for any Expense Year involved in any such change.

     1.3 “Operating Expenses” shall mean all expenses, costs and amounts of every kind and nature which Landlord pays or accrues during any Expense Year because of or in connection with the ownership, management, maintenance, security, repair, replacement, restoration or operation of the Project, or any portion thereof (including allocations to the Project from Costs Pools, as provided below). Without limiting the generality of the foregoing, Operating Expenses shall specifically include any and all of the following: (i) the cost of supplying all utilities, the cost of operating, repairing, maintaining, and renovating the utility, telephone, mechanical, sanitary, storm drainage, and elevator systems, and the cost of maintenance and service contracts in connection therewith; (ii) the cost of licenses, certificates, permits and inspections and the cost of contesting any governmental enactments which may affect Operating Expenses, and the costs incurred in connection with a transportation system management program or similar program; (iii) the cost of all insurance carried by Landlord in connection with the Project and any deductible amounts; (iv) the cost of landscaping, relamping, and all supplies, tools, equipment and materials used in the operation, repair and maintenance of the Project, or any portion thereof; (v) costs incurred in connection with the parking areas servicing the Project; (vi) fees and other costs, including management fees, consulting fees, legal fees and accounting fees, in connection with the management, operation, maintenance and repair of the Project; (vii) payments under any equipment rental agreements and the fair rental value of any management office space; (viii) wages, salaries and other compensation and benefits, including taxes levied thereon, of all persons engaged in the operation, maintenance and security of the Project; (ix) payments, fees or charges under any easement, license, operating agreement, declaration, restrictive covenant, or any instrument pertaining to the sharing of costs by the Building or Project, or any portion thereof; (x) operation, repair, maintenance and replacement of all systems and equipment and components thereof of the Building; (xi) the cost of janitorial, alarm, security and other services, replacement of wall and floor coverings, ceiling tiles and fixtures in common areas, maintenance and replacement of curbs and walkways, repair to roofs and re-roofing; (xii) amortization (including interest on the unamortized cost) of the cost of acquiring or the rental expense of personal property used in the maintenance, operation and repair of the Project, or any portion thereof; (xiii) amortization in accordance with generally accepted accounting principles of the costs of capital expenditures and reasonable financing charges for (A) items that are primarily for the purpose of (1) reducing or avoiding increases in Operating Expenses in Landlord’s good faith estimate, or (2) promoting the health, safety or wellbeing of the Building and/or its occupants, and/or their contractors, agents, invitees and guests, (B) replacing, modifying and/or adding improvements or equipment mandated by any Governmental Requirement enacted or which take effect after the date of this Lease and any repairs, disposals or removals necessitated thereby (including, but not limited to, the cost of complying with Access Laws, or (C) any other cost or expense necessary to carry out Landlord’s maintenance, repair, replacement and other obligations under this Lease; provided, however, that any capital expenditure shall be amortized with interest over its useful life as Landlord shall reasonably determine; (xiv) snow removal cost; and (xv) costs, fees, charges or assessments imposed by, or resulting from any mandate imposed on Landlord by, any federal, state or local government for fire and police protection, trash removal, community services, or other services which do not constitute “Tax Expenses” as that term is defined in Section 1.4, below. The following costs and expenses shall be excluded from Operating Expenses: (a) expenses relating to leasing space in the Building (including tenant improvements, leasing and brokerage commissions and advertising expenses); (b) legal fees and disbursements incurred for collection of tenant accounts or negotiation of leases, or relating to disputes between Landlord and other tenants and occupants of the Building; (c) capital items not specifically permitted by this Section 1.3; (d) Tax Expenses; (e) costs of restoring any portion of the Project following a casualty, but only to the extent of any amounts actually received by Landlord on account of proceeds of insurance; (f) except to the extent specifically provided in this Section 1.3, depreciation or payments of principal and interest on any mortgages upon the Building; (g) payments of ground rent pursuant to any ground lease covering the Building; (h) the costs of any service or facility provided to any other tenant or occupant in the Building which either (I) Landlord is not obligated to supply or furnish to Tenant or (II) is supplied or furnished to Tenant pursuant to the terms of this Lease with separate or additional charge; (i) the cost of any work performed for any other tenant or occupant in the Building which either (I) is not performed for Tenant or (II) is performed for Tenant pursuant to the terms of this Lease with separate or additional charge (but Landlord shall have the right to “gross-up” as if the floor was vacant); (j) payments made by Landlord to a company or other entity affiliated with Landlord for goods and services to the extent that such payments exceed the amounts that would have been paid to independent third parties for goods and services of like kind in connection with the operation, repair, cleaning, maintenance, management and security of the Building; (k) the cost of capital improvements (except as provided in section (xiii) above); (l) painting or decorating other than in the common areas of the Building; (m) the cost of improving or renovating space for tenants (including Tenant) or space vacated by any tenant (including Tenant); (n) any cash or other consideration paid by Landlord on account of, with respect to or in lieu of the tenant work or alterations described in clause (m) above; (o) ground rent; (p) repairs necessitated by the gross negligence or willful misconduct of Landlord; (q) costs of enforcement of leases; (r) compensation paid to officers or executives of Landlord above the level of building

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manager; (s) legal fees or other professional or consulting fees or space planning fees; (t) overtime HVAC costs or electricity costs if charged separately to other tenants in the Building; (u) amounts payable by Landlord by way of indemnity or for damages or which constitute a fine, interest, or penalty, including interest or penalties for any late payments of operating costs; (v) the cost of correcting defects in the initial construction of the Building; (w) costs incurred in connection with the original construction of the Building or in connection with any major addition in the Building, such as adding or deleting floors or Common Areas; (x) costs for which any tenant directly contracts with local providers, costs for which the Landlord is reimbursed by any tenant or occupant of the Building (other than reimbursement for Operating Expenses) or by insurance by its carrier or any tenant’s carrier or by anyone else and expenses in connection with services or other benefit which are not offered to the Tenant; (y) any bad debt loss, rent loss, or reserves for bad debts or rent loss; (z) Landlord’s general corporate overhead and general and administrative expenses and other costs associated with the operation of the business of the entity which constitutes the Landlord, as the same are distinguished from the costs of operation of the Building, including partnership or corporate accounting and legal matters, costs of defending any lawsuits with any mortgagee (except as the action’s of the tenant may be in issue), costs of selling, syndicating, financing, mortgaging or hypothecating any of the Landlord’s interest in the Building, and costs incurred in connection with any disputes, including but not limited to any disputes between landlord and its employees, between Landlord and Building Management, or between Landlord and other tenants; (aa) the wages and benefits of any employee who does not devote substantially all of his or her employed time to the Building unless such wages and benefits are prorated to reflect time spent on operating and managing the Building vis-à-vis time spent on matters unrelated to operating and managing the Building; (bb) costs, including permit, license and inspection costs, incurred with respect to the installation of tenant improvements made for new tenants in the Building or incurred in renovating or otherwise improving, decorating, painting, or redecorating vacant space for tenants or other occupants of the Building (excluding, however, such costs relating to any Common Areas of the Building or parking facilities); (cc) rentals and other related expenses incurred in leasing air conditioning systems, elevators or other equipment, the cost of which, if purchased, would be excluded from Operating Costs as a capital cost, except equipment not affixed to the Building which is used in providing janitorial or similar services and, further excepting from this exclusion such equipment rented or leased to remedy or ameliorate an emergency condition in the Building; (dd) costs for purchasing, installation or replacing artwork; (ee) all assessments and premiums which are not specifically charged to Tenant because of what Tenant has done, which can be paid by Landlord in installments, shall be paid by Landlord in the maximum number of installments permitted by law (except to the extent inconsistent with the general practice of the Comparable Buildings) and shall be included as Operating Expenses in the year in which the assessment or premium installment is actually paid; (ff) costs arising from the gross negligence or willful misconduct of Landlord; (gg) costs arising from Landlord’s charitable or political contributions; (hh) interest, fines, late fees, collection costs, legal fees or penalties assessed as a result of Landlord’s failure to make payments in a timely manner or to comply with applicable Laws, including regarding the payment of taxes, or to comply with the terms of any lease, mortgage, deed of trust, ground lease, private restriction or other agreement; and (ii) any cost expressly excluded from Operating Expenses elsewhere in this Lease.

     If during any or all of a portion of any Expense Year, Landlord is not furnishing any particular work or service (the cost of which, if performed by Landlord, would be included in Operating Expenses) to a tenant who has undertaken to perform such work or service in lieu of the performance thereof by Landlord, Operating Expenses shall be deemed to be increased by an amount equal to the additional Operating Expenses which would reasonably have been incurred during such period by Landlord if it had furnished such work or service to such tenant. If the Project is not fully occupied during all or a portion of any Expense Year, Landlord may elect to make an appropriate adjustment to the components of Operating Expenses which vary according to the occupancy of the Building for such year to determine the amount of Operating Expenses that would have been incurred had the Project been ninety five percent (95%) occupied (and if an expense is adjusted, Landlord shall highlight the amount in the annual “Statement,” as defined below); and the amount so determined shall be deemed to have been the amount of Operating Expenses for such year. Notwithstanding the foregoing, in no event shall Landlord gross up Tax Expenses or insurance costs pursuant to this paragraph.

     1.4 Taxes. “Tax Expenses” shall mean all federal, state, county, or local governmental or municipal taxes, fees, charges or other impositions of every kind and nature, whether general, special, ordinary or extraordinary, (including, without limitation, real estate taxes, general and special assessments, transit taxes, occupancy tax, leasehold taxes or taxes based upon the receipt of rent, including gross receipts or sales taxes applicable to the receipt of rent, unless required to be paid by Tenant, ad valorem taxes, personal property taxes imposed upon the fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances, furniture and other personal property used in connection with the Project, or any portion thereof), which shall be paid or accrued during any Expense Year (without regard to any different fiscal year used by such governmental or municipal authority) because of or in connection with the ownership, leasing and operation of the Project, or any portion thereof, including any allocation from Cost Pools.

     Tax Expenses shall include, without limitation: (i) any tax on the rent, right to rent or other income from the Project, or any portion thereof, or as against the business of leasing the Project, or any portion thereof; (ii) any assessment, tax, fee, levy or charge in addition to, or in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included within the definition of real property tax for any services as fire protection, street, sidewalk and road maintenance, refuse removal and for other governmental services formerly provided without charge to property owners or occupants all whether charged or assessed by the United States of America, the state in which the Project is located, any county, city, district, municipality or other governmental subdivision, court or agency or quasi-governmental agency and any board, agency or authority associated with any such governmental entity, including the fire department having jurisdiction over the Project; (iii) any increase in assessment, tax, fee, levy or charge resulting from any sale, refinancing or other change in ownership of the Building, the Project or any portion thereof; (iv) any assessment, tax, fee, levy, or charge allocable to or measured by the area of the Premises or the Rent payable hereunder, including, without limitation, any business or gross

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income tax or excise tax with respect to the receipt of such rent, or upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof; and (v) any assessment, tax, fee, levy or charge, upon this transaction or any document to which Tenant is a party, creating or transferring an interest or an estate in the Premises.

     Any costs and expenses (including, without limitation, reasonable attorneys’ fees) incurred in attempting to protest, reduce or minimize Tax Expenses shall be included in Tax Expenses in the Expense Year such expenses are paid. If any Taxes paid by Landlord and previously included in Tax Expenses are refunded, Landlord shall promptly pay Tenant an amount equal to the amount of such refund (less the reasonable expenses incurred by Landlord in obtaining such refund) multiplied by Tenant’s Share. If Tax Expenses for any period during the Lease Term or any extension thereof are increased after payment thereof for any reason, including, without limitation, error or reassessment by applicable governmental or municipal authorities, Tenant shall pay Landlord upon demand Tenant’s Share of any such increased Tax Expenses included by Landlord as Tax Expenses pursuant to the terms of this Lease. Notwithstanding anything to the contrary contained in this Section 1.4 (except as set forth in Section 1.4(i), above), there shall be excluded from Tax Expenses (i) all excess profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate taxes, federal and state income taxes, and other taxes to the extent applicable to Landlord’s general or net income (as opposed to rents, receipts or income attributable to operations at the Project), and (ii) any items included as Operating Expenses.

     1.5 “Tenant’s Share” shall mean the percentage set forth in Section 12 of the Summary of the Lease. Tenant’s Share shall be calculated by dividing the number of square feet of rentable area in the Premises by the number of square feet of rentable area in the Building, and expressing such quotient in the form of a percentage.

2. Allocation of Direct Expenses. Landlord shall have the right, from time to time, to equitably allocate some or all of the Direct Expenses for the Project among different portions or occupants of the Project (the “Cost Pools”), in Landlord’s discretion. Such Cost Pools may include, but shall not be limited to, the office space tenants of a building of the Project or of the Project, the residential space of a building of the Project or of the Project, and the retail space tenants of a building of the Project or of the Project. The Direct Expenses within each such Cost Pool shall be allocated and charged to the tenants and/or owners within such Cost Pool in a reasonable manner (if not provided for pursuant to separate agreement).

3. Calculation and Payment of Additional Rent. For each Expense Year ending or commencing within the Lease Term Tenant shall pay to Landlord, in the manner set forth in Section 4, below, as Additional Rent, an amount equal to: (a)Tenant’s Share of Operating Expenses for such Expense Year (the “Operating Expense Amount”), and (b) Tenant’s Share of Tax Expenses for such Expense Year (the "Tax Expense Amount,” together with Operating Expense Amount, the “Expense Amount”).

4. Statement of Actual Direct Expenses and Payment by Tenant. Landlord shall endeavor to deliver to Tenant following the end of each Expense Year, a statement (the “Statement”) which shall state the Operating Expenses or Taxes or both for such preceding Expense Year and which shall indicate the amount of the Operating Expense Amount and the Tax Expense Amount, as applicable. Upon receipt of the Statement for each Expense Year commencing or ending during the Lease Term Tenant shall pay, with its next installment of Base Rent due, the full amount of the Expense Amount for such Expense Year, less the amounts, if any, paid during such Expense Year as “Estimated Expense Amount,” as that term is defined in Section 5, below. The failure of Landlord to timely furnish the Statement for any Expense Year shall not prejudice Landlord or Tenant from enforcing its rights under this Exhibit B. Even though the Lease Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant’s Share of Direct Expenses for the Expense Year in which this Lease terminates, Tenant shall promptly pay to Landlord such amount. The provisions of this Section 4 shall survive the expiration or earlier termination of the Lease Term. Tenant waives and releases any and all objections or claims relating to Direct Expenses for any calendar year unless, within sixty (60) days after Landlord provides Tenant with the annual Statement for the calendar year, Tenant provides Landlord written notice that it disputes the Statement (which notice shall specify in detail the reasons for such dispute as to a particular item or items). If Tenant disputes the Statement then, pending resolution of the dispute, Tenant shall pay the rent in question to Landlord in the amount provided in the disputed Statement.

5. Statement of Estimated Direct Expenses. In addition, Landlord shall endeavor to deliver Tenant a statement (the “Estimate Statement”) which shall set forth Landlord’s reasonable estimate (the “Estimate”) of what the total amount of Direct Expenses for the then-current Expense Year shall be and the estimated Expense Amount (the “Estimated Expense Amount”). The failure of Landlord to timely furnish the Estimate Statement for any Expense Year shall not preclude Landlord from enforcing its rights to collect any Estimated Expense Amount under this Exhibit B, nor shall Landlord be prohibited from revising any Estimate Statement or Estimated Expense Amount theretofore delivered to the extent necessary. Following Landlord’s service of an Estimate Statement, Tenant shall pay monthly in advance to Landlord, together with Base Rent installments, one-twelfth (1/12^th) of the Estimate Expense Amount shown in the Estimate Statement. If Landlord sends an Expense Statement, Tenant shall pay, with its next installment of Base Rent due, a fraction of the Estimated Expense Amount for the then-current Expense Year shown in such Expense Statement (reduced by any amounts Estimated Expense Amount previously paid for such Expense Year). Such fraction shall have as its numerator the number of months which have elapsed in such current Expense Year, including the month of such payment, and twelve (12) as its denominator. Until an Estimate Statement is furnished for any Expense Year (which Landlord shall have the right to deliver to Tenant at any time), Tenant shall pay monthly, with the monthly Base Rent installments, an amount equal to one-twelfth (1/12) of the total Estimated Expense Amount set forth in the previous Estimate Statement delivered by Landlord to Tenant.

6. Taxes and Other Charges for Which Tenant Is Directly Responsible. Tenant shall be liable for and shall pay ten (10) days before delinquency, taxes levied against Tenant’s furniture, fixtures, equipment and any

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other personal property located in or about the Premises. If any such taxes on Tenant’s furniture, fixtures, equipment and any other personal property are levied against Landlord or Landlord’s property or if the assessed value of Landlord’s property is increased by the inclusion therein of a value placed upon such equipment, furniture, fixtures or any other personal property and if Landlord pays the taxes based upon such increased assessment, which Landlord shall have the right to do regardless of the validity thereof but only under proper protest if requested by Tenant, Tenant shall upon demand repay to Landlord the taxes so levied against Landlord or the proportion of such taxes resulting from such increase in the assessment, as the case may be.

     If the tenant improvements in the Premises, whether installed and/or paid for by Landlord or Tenant and whether or not affixed to the real property so as to become a part thereof, are assessed for real property tax purposes at a valuation higher than the valuation at which tenant improvements conforming to Landlord’s “building standard” in other space in the Building are assessed, then the Tax Expenses levied against Landlord or the property by reason of such excess assessed valuation shall be deemed to be taxes levied against personal property of Tenant and shall be governed by the provisions of Section 5, above.

     Notwithstanding any contrary provision herein, Tenant shall pay prior to delinquency any (i) rent tax or sales tax, service tax, transfer tax or value added tax, or any other applicable tax on the rent or services herein or otherwise respecting this Lease, (ii) taxes assessed upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion of the Project, including the Project parking facility; or (iii) taxes assessed upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises.

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EXHIBIT C

WORK LETTER

          THIS WORK LETTER AGREEMENT (this “Work Letter”) is attached as Exhibit “C” to that certain Office Lease (the “Lease”) by and between Broadway 500 West Monroe Fee LLC, a Delaware limited liability company (“Landlord”) and Midwest Bank & Trust, Co., an Illinois corporation (“Tenant”). All capitalized terms used herein not otherwise defined herein shall have the meanings attributed to such terms in the Lease.

SECTION 1
PREPARATION OF THE CONSTRUCTION DRAWINGS

     1.1 Selection of Tenant’s Architect and the Engineers. Tenant shall engage (a) a qualified interior architect reasonably approved in advance by Landlord, which approval shall not be unreasonably withheld, within three (3) Business Days of Landlord’s receipt of reasonably, detailed information relating to such architect (“Tenant’s Architect”) to prepare the Construction Drawings (defined below) and (b) engineering consultants reasonably approved in advance by Landlord (the “Engineers”), which approval shall not be unreasonably withheld, to prepare all engineering plans and drawings for the structural, mechanical, electrical, plumbing, HVAC, life safety, and sprinkler work relating to the Tenant Improvements (defined below).

     1.2 Final Space Plan. Tenant and Tenant’s Architect shall prepare and deliver to Landlord for Landlord’s approval four (4) copies signed by the Tenant of the final space plan for all Tenant Improvements (defined below) in the Premises (“Final Space Plan”), which Final Space Plan shall reflect a layout and description of all offices, rooms and other partitions, their intended use, and the equipment to be contained therein. Landlord may request clarification or more specific drawings for special use items not included in the Final Space Plan. Landlord shall, within a reasonable period after Landlord receives such Final Space Plan, (i) approve the Final Space Plan, (ii) approve the Final Space Plan subject to specified conditions to be complied with in connection with the Final Working Drawings (defined below), or (iii) disapprove the Final Space Plan. If Landlord disapproves the Final Space Plan, within three (3) Business Days of receipt of such disapproval, Tenant shall make all changes thereto required to satisfy Landlord’s required revisions and shall resubmit to Landlord for approval such revised Final Space Plan, with the foregoing procedure to be repeated until the Final Space Plan is ultimately approved by Landlord.

     1.3 Final Working Drawings. Based upon the Final Space Plan approved by Landlord (and any conditions of approval thereof imposed by Landlord), after Landlord’s approval of the Final Space Plan, Tenant shall cause the Tenant’s Architect and the Engineers to complete and deliver to Landlord for Landlord’s approval four (4) copies of complete fully coordinated architectural and (to the extent required) structural, mechanical, electrical and plumbing working drawings and specifications for the Tenant Improvements in a form which is sufficiently complete to allow all subcontractors to bid on the work shown therein and to obtain all applicable Permits (defined below) (collectively, the “Final Working Drawings”). Landlord shall, within ten (10) Business Days after Landlord receives the Final Working Drawings, either (i) approve the Final Working Drawings, (ii) approve the Final Working Drawings subject to specified conditions to be satisfied by Tenant prior to submission of the same by Tenant for the Permits, or (iii) disapprove and return the same to Tenant with the changes required to be made to the Final Working Drawings in order to correct any problem on which Landlord’s disapproval shall be based and shall return the Final Working Drawings to Tenant. If Landlord disapproves the Final Working Drawings, within five (5) Business Days of receipt of such disapproval, Tenant shall make all changes thereto required to satisfy Landlord’s required revisions and shall resubmit to Landlord such Final Working Drawings, with the foregoing procedure to be repeated until the Final Working Drawings are ultimately approved by Landlord (as so approved, the “Approved Working Drawings”). The Approved Working Drawings and all parts or components thereof are sometimes referred to herein as the “Construction Drawings.”

     1.4 Changes in the Construction Drawings. No changes, modifications or alterations in the Construction Drawings or in the Tenant Improvements contemplated thereby (a “Change”) may be made by Tenant without the prior written consent of Landlord, provided, however, that Landlord may withhold its consent in its sole discretion to any change which in Landlord’s judgment would directly or indirectly delay Substantial Completion (defined below) of the Premises.

     1.5 Tenant Improvements. The term “Tenant Improvements” means all improvements, fixtures and equipment to be permanently affixed to the Premises pursuant to this Work Letter. Any approval or consent of Landlord hereunder with respect to any portion or component of the Construction Drawings or the Tenant Improvements shall be granted or withheld on the basis of such standards as Landlord shall establish in good faith from time to time.

     1.6 Changes to Base Building. If the Approved Working Drawings or any amendment thereof or supplement thereto shall require changes to the Base Building (or Building Systems), then Landlord shall make such changes to the Base Building (or Building Systems) and the cost thereof will be paid by Tenant or charged against the Allowance Amount.

     1.7 MEP Drawings. To the extent that Tenant builds the Tenant Improvements on a design-build basis, the following provisions will apply:

          (a) Preparation and Delivery. Prior to commencing any mechanical, electrical or plumbing portion of the Tenant Improvements, Tenant shall provide to Landlord for its approval final mechanical, electrical and plumbing drawings, prepared by a licensed mechanical, electrical and plumbing contractor, of all mechanical, electrical and plumbing improvements that Tenant proposes to install in the Premises; such mechanical, electrical and plumbing drawings shall include drawings for any modifications to the mechanical, electrical, life safety and plumbing and any other systems of the Building, and detailed plans and specifications for the construction of the improvements called for under this Exhibit in accordance with all applicable Laws.

          (b) Approval Process. Landlord shall notify Tenant whether it approves of the submitted mechanical, electrical and plumbing drawings within ten (10) Business Days after Tenant’s submission thereof, which approval shall not be unreasonably withheld, conditioned or delayed. If Landlord disapproves of such mechanical, electrical and plumbing drawings, then Landlord shall notify Tenant thereof specifying in reasonable detail the reasons for such disapproval, in which case Tenant shall, within ten (10) Business Days after such notice, revise such mechanical, electrical and plumbing drawings in accordance with Landlord’s objections and submit the mechanical, electrical and plumbing drawings to Landlord for its review and approval. Landlord shall notify Tenant in writing whether it approves of the resubmitted mechanical, electrical and plumbing drawings within five Business Days after its receipt thereof. This process shall be repeated until the mechanical, electrical and plumbing drawings have been finally approved by Landlord and Tenant.

SECTION 2
COST OF THE TENANT IMPROVEMENTS

     2.1 Allocation of Costs; Allowance Amount. Landlord shall bear all Tenant Improvement Costs (defined below) to the extent the total Tenant Improvement Costs do not exceed an amount (the “Allowance Amount”) equal to Nine Hundred Twenty Four Thousand Seven Hundred Twenty Eight Dollars ($56 per rentable square foot). Tenant shall bear all Tenant Improvement Costs (defined below) (and all other costs or expenses incurred by Tenant in connection with the design and construction of the Tenant Improvements) in excess of the Allowance Amount (“Excess Tenant Improvement Costs”) in accordance with the provisions of this Work Letter. Notwithstanding any provision of this Work Letter to the contrary, Landlord shall have no obligation hereunder to make any payments or disbursements, or incur any obligation to make any payment or disbursement in connection with the design and construction of the Tenant Improvements, in a total amount which exceeds the Allowance Amount.

     In addition to the Allowance Amount, Landlord shall make available to Tenant a one-time space planning allowance (the “Space Planning Allowance”) in an amount not to exceed Two Thousand Six Hundred Forty Three and 42/100 Dollars ($2,643.42) for the cost of preparing the Final Space Plan. The Space Planning Allowance shall be disbursed to Tenant within ten (10) Business Days after Tenant delivers the Final Space Plan to Landlord for Landlord’s review and approval (whether or not Landlord approves such Final Space Plan). Landlord shall have no obligation or liability in connection with the preparation of the Final Space Plan in excess of the Space Plan Allowance.

     2.2 Payment of Excess Tenant Improvement Costs by Tenant.

          (a) Tenant shall pay, simultaneously with each payment made by Landlord pursuant to Section 4.2 hereof, a percentage of each amount to be paid to the Contractor or otherwise disbursed under this Tenant Work Letter, which percentage shall be equal to the amount of the “Over-Allowance Amount,” as such term is defined below, divided by the amount of the Final Costs (as defined below). For purposes hereof, the “Over-Allowance Amount” shall be equal to the difference between the amount of the Final Costs and the amount of the Allowance Amount (less any portion thereof already disbursed by Landlord, or in the process of being disbursed by Landlord, on or before the commencement of construction of the Tenant Improvements). In the event that, after the Final Costs have been delivered by Tenant to Landlord, the costs relating to the design and construction of the Tenant Improvements shall change, any additional costs necessary to such design and construction in excess of the Final Costs, shall be paid by Tenant on a prorata basis with Landlord consistent with the manner in which the initial Over-Allowance Amount is paid.

          (b) Tenant shall not be entitled to any credit against or abatement of Rent in the event the Allowance Amount exceeds total Tenant Improvement Costs. In any event, at all times Tenant shall pay and satisfy in full on a timely basis all obligations for payment incurred by Tenant in connection with the design and construction of the Tenant Improvements.

      2.3 Selection of the Contractor; Construction Contract and Cost Budget.

     Tenant shall select a general contractor reasonably approved in advance by Landlord (“Contractor”) for construction of the Tenant Improvements. Prior to Tenant’s execution of the construction contract and general conditions with the Contractor (the “Contract”), Tenant shall submit the Contract to Landlord for its approval, which approval shall not be unreasonably withheld or delayed. Prior to the commencement of the construction of the Tenant Improvements, and after Tenant has accepted all bids for the Tenant Improvements, Tenant shall provide Landlord with a detailed breakdown, by trade, of the Tenant Improvement Costs to be incurred or which have been incurred in connection with the design and construction of the Tenant Improvements to be performed by or at the direction of Tenant or the Contractor, which costs form a basis for the amount of the Contract (the “Final Costs”).

SECTION 3
CONSTRUCTION

     3.1 Permits. Upon approval by Landlord of the Approved Working Drawings, Tenant shall cause Tenant’s Architect and the Engineers to submit the same to the appropriate governmental entities and otherwise apply for all applicable building and other permits and approvals (collectively, “Permits”) necessary or required for the Contractor to commence, perform and fully complete the construction of the Tenant Improvements (and to permit Tenant to legally occupy the Premises) and Tenant shall cause all of the Permits to be fully issued promptly following Landlord’s approval of the Approved Working Drawings. Neither Landlord nor any Landlord Parties shall have any obligation or liability to Tenant if any Permit (including, without limitation, any building permit, certificate of occupancy, or equivalent) is not timely issued to Tenant; provided, however, at Tenant’s request, Landlord shall cooperate (at no cost to Tenant) with all reasonable Tenant requests to execute Permit applications and similar ministerial acts.

     3.2 Tenant’s Retention of the Contractor. Tenant shall retain the Contractor selected pursuant to Section 2.3 to construct the Tenant Improvements in accordance with the Approved Working Drawings. Tenant’s Architect, Engineers and all subcontractors, laborers, materialmen, and suppliers utilized by Tenant or Contractor in connection with the design and construction of the Tenant Improvements, including but not limited to those performing HVAC or electrical work (such subcontractors, laborers, materialmen, and suppliers, and the Contractor are sometimes collectively referred to herein as “Tenant Agents”) must be approved in writing by Landlord, which approval shall, subject to Sections 1.1, 2.3 and this Section 3.2, not be unreasonably withheld or delayed. If Landlord does not approve any of Tenant’s proposed subcontractors, laborers, materialmen or suppliers, Tenant shall submit other proposed subcontractors, laborers, materialmen or suppliers for Landlord’s written approval. Notwithstanding, the foregoing, Landlord reserves the right to designate the subcontractor or subcontractors to perform particular trades (or components of) the Tenant Improvements such as fire/life safety and structural. Tenant hereby waives all claims against Landlord, and Landlord shall have no responsibility or liability to Tenant, on account of any nonperformance or any misconduct of any Contractor (or any subcontractor thereof) for any reason.

     3.3 General Conditions for Tenant’s Agreements and Construction of the Tenant Improvements.

          (a) Tenant’s and Tenant’s Agents’ construction of the Tenant Improvements shall comply with each of the following: (i) the Tenant Improvements shall be constructed in strict accordance with the Approved Working Drawings; (ii) Tenant’s Agents shall submit schedules of all work relating to the Tenants Improvements to Landlord and Contractor and Contractor shall, within five (5) Business Days of receipt thereof, inform Tenant’s Agents of any changes which are necessary thereto, and Tenant’s Agents shall adhere to such corrected schedule; and (iii) Tenant, Contractor and each of Tenant’s Agents shall abide by all construction rules and regulations issued from time to time by Landlord with respect to the use of freight, loading dock and service elevators, storage of materials, coordination of work with the contractors of other tenants, and any other matter relevant to this Work Letter or the construction of the Tenant Improvements hereunder.

          (b) Tenant’s indemnity of Landlord as set forth in Article 10 of the Lease shall also apply with respect to any and all loss, cost, damage, expense and liability (including without limitation court costs and reasonable attorneys’ fees) related in any way to any act or omission of Tenant or Tenant’s Agents, or anyone directly or indirectly employed by any of them, or in connection with Tenant’s non-payment of any amount arising out of the design or construction of the Tenant Improvements and/or Tenant’s disapproval of all or any portion of any request for payment submitted by any Tenant’s Agent to Tenant. Such indemnity by Tenant, as set forth in Article 10 of the Lease, shall also apply with respect to any and all loss, cost, damage, expense and liability (including without limitation court costs and reasonable attorneys’ fees) related in any way to Landlord’s performance of any ministerial acts reasonably necessary (i) to permit Tenant to commence and/or complete the Tenant Improvements, and (ii) to enable Tenant to obtain any Permit or the certificate of occupancy for the Premises.

          (c) Each of Tenant’s Agents shall guarantee to Tenant and for the benefit of Landlord that the portion of the Tenant Improvements for which it is responsible shall be free from any defects in workmanship and materials for a period of not less than one (1) year from the date of completion of the Tenant Improvements. Each of Tenant’s Agents shall be responsible for the replacement or repair, without additional charge, of all work done or furnished in accordance with its contract that shall be discovered as defective within such one (1) year period. The correction of such work shall include, without additional charge, all additional expenses and damages incurred in connection with such removal or replacement of all or any part of the Tenant Improvements, and/or the Building and/or common areas that may be damaged or disturbed thereby. All such warranties or guarantees as to materials or workmanship of or with respect to the Tenant Improvements shall be contained in the Contract and each relevant subcontract and shall be written such that such guarantees or warranties shall inure to the benefit of both Landlord and Tenant, as their respective interests may appear, and can be directly enforced by either. Tenant covenants to deliver to Landlord within thirty (30) days of Landlord’s request any assignment or other assurances which may be necessary to effect such right of direct enforcement.

     3.4 Record Set of Drawings. Within ninety (90) days after the Substantial Completion, Tenant shall cause Tenant’s Architect to prepare and deliver to Landlord two (2) complete copies of a “record set” of

reproducible as-built drawings and two (2) complete sets of CAD files of the as-built documents (current version of AutoCad) for the Tenant Improvements.

     3.5 Landlord’s Work.

          (a) Landlord has constructed or will provide or perform prior to Substantial Completion of the Tenant Improvements at its sole cost and expense and without deduction from the Allowance Amount, the following work (“Landlord’s Work”): Landlord shall construct a multi-tenant corridor on the thirty-first (31^st) floor of the Building using Building standard materials and finishes.

          (b) Subject to the performance of Landlord’s Work, Tenant hereby accepts the Base Building in its present “as is” condition and with no representations or warranties as to their condition or suitability for Tenant’s purposes, provided, however, that, prior to delivery of the Premises to Tenant by Landlord, Landlord shall, at its sole cost and expense, repair any missing or damaged window coverings on the interior of the exterior windows located in the Office Premises.

          (c) Notwithstanding anything else to the contrary contained in this Work Letter, in connection with Tenant’s construction of the demising wall separating the Office Premises from the other areas on the floor on which the Office Premises is located (“Demising Wall”), Landlord agrees to pay to Tenant fifty percent (50%) of the reasonable cost of Tenant’s installation of such Demising Wall, not including costs incurred for drywall and Tenant finishes on the interior side of the Demising Wall facing the Office Premises, insulation and electrical work.

     3.6 Americans With Disabilities Act. In the event that any of the Tenant Improvements trigger any upgrades within the Common areas located on the floor of the Building on which the Office Premises are located, then, notwithstanding anything to the contrary contained in this Work Letter, Landlord shall, at its sole cost and expense, perform such upgrades.

SECTION 4
DISBURSEMENT OF TENANT IMPROVEMENT ALLOWANCES.

     4.1 Tenant Improvement Costs. “Tenant Improvement Costs” means only the following: (i) the fees of the Architect and the Engineers, (ii) all fees and costs incurred by, and the cost of documents and materials supplied by, Landlord and Landlord’s consultants in connection with the preparation and review of the Construction Drawings (which fees and costs shall be paid by Tenant to Landlord within ten (10) days of Tenant’s receipt of a written invoice therefore); (iii) the cost of any changes in or to the Base Building (or Building Systems) when such changes are required by the Construction Drawings; (iv) the cost of any changes to the Construction Drawings or the Tenant Improvements required by any now and hereafter existing statutes, laws, ordinances, codes, regulations, rules, rulings, orders, decrees, directives, policies and requirements (collectively, “Codes”); (v) all costs of (or relating to) construction of the Tenant Improvements, including, without limitation, testing and inspection costs, trash removal costs, parking fees, after-hours utilities usage, and contractors’ fees and general conditions; (vi) plan check, permit fees, license fees, Title 24 fees and use taxes; (vii) the cost of installing Building Standard window coverings in the Premises; (viii) Tenant’s costs for furniture, equipment, and trade fixtures for the Premises, and reasonable legal expenses related to the Tenant Improvements in the Premises, which payment(s) shall not exceed an aggregate amount equal to Sixty Seven Thousand Nine Hundred Ninety Six and 50/100 Dollars ($67,996.50); and (ix) the supervision fee (“Supervision Fee”) which shall be payable by Tenant to Landlord in an amount equal to one and one half percent (1.5%) of the total “hard” construction costs of the Tenant Improvements.

     4.2 Disbursements. Landlord shall have the right to disburse the Allowance Amount (and any Deposits deposited with Landlord by Tenant hereunder) for Tenant Improvement Costs in such order as Landlord shall determine. In the event that (i) Tenant requests in writing (a “Disbursement Request”) that Landlord disburse all or any portion of the Allowance Amount and the Deposits for Tenant Improvement Costs and (ii) in Landlord’s judgment, the Allowance Amount and the Deposits then held by Landlord are sufficient to cover the sum of (A) the Tenant Improvement Costs directly payable by Landlord, if any, in connection with this Work Letter and (B) the amounts desired to be so disbursed by Tenant, Landlord shall make such disbursements to Tenant pursuant to this Section 4.2. Landlord shall not be required to make more than one such disbursement to Tenant per calendar month and then only if on or before the twenty-fifty (25th) day of the preceding calendar month, Tenant delivers to Landlord (i) a request for payment substantially in the form of AIA Standard Form document G702, (ii) invoices from all of Tenant’s Agents covered by Tenant’s Disbursement Request, (iii) executed mechanic’s lien releases from all of such Tenant’s Agents that are entitled to lien rights, which shall comply with the appropriate provisions of applicable Law, as determined in good faith by Landlord; and (iv) all other information reasonably requested by Landlord. Tenant’s Disbursement Request shall be deemed Tenant’s acceptance and approval of the work furnished and/or the materials supplied as set forth in Tenant’s payment request. Provided that such Disbursement Request (and the work covered hereby) is in Landlord’s judgment in compliance with the provisions of this Work Letter and that Landlord does not dispute any work previously performed based on non-compliance of such work with the Approved Working Drawings, substandard work or for any other reason, on or before the last day of the calendar month following Landlord’s receipt of such Disbursement Request, Landlord shall deliver a check to Contractor in an amount equal to the lesser of: (A) ninety percent (90%) of the amount so requested by Tenant and (B) the balance of any remaining available portion of the Allowance Amount and Deposits held by Landlord. Landlord’s payment of such amounts shall not be deemed Landlord’s approval or acceptance of the work furnished or materials supplied as set forth in Tenant’s Disbursement Request. In addition to the conditions

set forth in this Section 4.2 applicable to all disbursements set forth in any Disbursement Request, any disbursement of any retention previously withheld by Landlord and requested by Tenant, following completion of the Tenant Improvements, the following conditions to payment shall also be applicable: (i) Tenant shall deliver to Landlord properly executed final mechanic’s lien releases from all such Tenant’s Agents in compliance with applicable Law, (ii) Landlord shall determine that no substandard work (with respect to the Tenant Improvements) exists which adversely affects the mechanical, electrical, plumbing, heating, ventilating and air conditioning, life-safety or other systems of the Building, the curtain wall of the Building, the structure or exterior appearance of the Building, or any other tenant’s use of such other tenant’s leased premises in the Building, (iii) Landlord shall have determined that all other Tenant Improvement Costs shall have been paid in full, (iv) Landlord’s Architect and/or Landlord shall have determined that Substantial Completion of the Tenant Improvements has occurred and (v) Tenant’s Architect shall have delivered to Landlord a certificate, in form reasonably satisfactory to Landlord, certifying that construction of the Tenant Improvements in the Premises have been substantially completed. Notwithstanding anything to the contrary contained in this Work Letter, in no event shall Landlord be obligated to fund any disbursement request in accordance with this Section 4.2 below submitted to Landlord after June 30, 2009.

     4.3 Building Standards. Landlord has established (or may establish in the future) building standards for items, materials and/or components to be used in the construction of the Tenant Improvements in the Premises (“Building Standards”). The quality of all Tenant Improvements shall be equal to or of greater quality than the quality specifications of the Building Standards, provided, however that Landlord may, at Landlord’s option, require the Tenant Improvements to comply with specific Building Standards. Landlord reserves the right to promulgate, establish, modify, delete from, and make other changes to the Building Standards from time to time.

SECTION 5
SUBSTANTIAL COMPLETION

     5.1 Substantial Completion. For purposes of the Lease, “Substantial Completion” of the Tenant Improvements for the Premises shall occur upon the “substantial completion of construction” of the Tenant Improvements in the Premises pursuant to the Approved Working Drawings, as evidenced by a “signoff” on the building permit card (or an equivalent approval) by an inspector of the proper jurisdiction and as otherwise determined by Landlord’s Architect, with the exception of any punch list items and any tenant fixtures, work-stations, built-in furniture, or equipment to be installed by Tenant or under the supervision of the Contractor.

SECTION 6
GENERAL PROVISIONS

     6.1 Inspection by Landlord. Landlord shall have the right to inspect the Tenant Improvements at all times, provided however, that Landlord’s failure to inspect the Tenant Improvements shall in no event constitute a waiver of any Landlord’s rights hereunder nor shall Landlord’s inspection of the Tenant Improvements constitute Landlord’s approval of the same. Should Landlord disapprove any portion of the Tenant Improvements, Landlord shall notify Tenant in writing of such disapproval and shall specify the items disapproved. Any defects or deviation in, and/or disapproval by Landlord of, the Tenant Improvements shall be rectified by Tenant at no expense to Landlord, provided however, that in the event Landlord determines that a defect or deviation exists or disapproves of any matter in connection with any portion of the Tenant Improvements and such defect, deviation or matter might affect the mechanical, electrical, plumbing, heating, ventilating and air-conditioning or life-safety systems of the Building, the structure or exterior appearance of the Building or any other tenant’s use of such other tenant’s leased premises, Landlord may take such action as Landlord deems necessary, at Tenant’s expense and without incurring any liability on Landlord’s part, to correct any such defect, deviation and/or matter, including, without limitation, causing the cessation of performance of the construction of the Tenant Improvements until such time as the defect, deviation and/or matter is corrected to Landlord’s satisfaction.

     6.2 Meetings. Commencing upon the execution of this Work Letter, Tenant shall hold weekly meetings at a reasonable time, with the Architect and the Contractor regarding the progress of the preparation of Construction Drawings and the construction of the Tenant Improvements, which meetings shall be held at a location designated by Landlord, and Landlord and/or its agents shall receive prior notice of, and shall have the right to attend, all such meetings, and, upon Landlord’s request, certain of Tenant’s Agents shall attend such meetings. In addition, minutes shall be taken at all such meetings, a copy of which minutes shall be promptly delivered to Landlord. One such meeting each month shall include the review of Contractor’s current Disbursement Request.

     6.3 Tenant’s Representative. Tenant has designated Rich Dale (Project Manager, Studley, Inc.) as its sole representative with respect to the matters set forth in this Work Letter, who, until further notice to Landlord, shall have full authority and responsibility to act on behalf of the Tenant as required in this Work Letter.

     6.4 Landlord’s Representative. Landlord has designated Jeff Rauen as its sole representative with respect to the matters set forth in this Work Letter who, until further notice to Tenant, shall have full authority and responsibility to act on behalf of the Landlord as required in this Work Letter.

     6.5 Construction Drawings. Following Tenant’s request, Landlord shall make available to Tenant and Tenant’s Architect, reasonable access to any base building plans relating to the Premises in Landlord’s possession; provided, however, Landlord hereby disclaims any express or implied representation or warranty as to

the accuracy of the same. Tenant, Tenant’s Architect and the Engineers shall verify, in the field, the dimensions and conditions as shown on the relevant portions of the base building plans, if any, and Tenant and Tenant’s Architect and Engineers shall be solely responsible for the same, and Landlord shall have no responsibility in connection therewith. Landlord’s review of the Construction Drawings as set forth in this Work Letter shall be solely for the purpose of protecting Landlord’s interests hereunder and shall not imply Landlord’s review of the same, or obligate Landlord to review the same, for quality, design, Code compliance or other like matters, for the benefit of Tenant, Tenant’s Architect, the Contractor or any other party, and Landlord shall have no liability whatsoever in connection therewith and shall not be responsible for any omissions or errors contained in the Construction Drawings. Tenant’s waiver and indemnity set forth in Article 10 of the Lease shall specifically apply to the Construction Drawings. All references contained herein to “Landlord’s Architect” shall refer to such architect as shall be designated by Landlord from time to time as “Landlord’s Architect.”

     6.6 Notice of Completion; Copy of Record Set of Plans. Within ten (10) days after completion of construction of the Tenant Improvements, Tenant shall cause a Notice of Completion to be recorded in the office of the Recorder of the County in which the Building is located in accordance with applicable Law, and shall furnish a copy thereof to Landlord upon such recordation. If Tenant fails to do so, Landlord may execute and file the same on behalf of Tenant as Tenant’s agent for such purpose, at Tenant’s sole cost and expense. At the conclusion of construction, (i) Tenant shall cause Tenant’s Architect and the Contractor (A) to update the Approved Working Drawings as necessary to reflect all changes made to the Approved Working Drawings during the course of construction, (B) to certify to the best of their knowledge that the “record-set” of mylar as-built drawings are true and correct, which certification shall survive the expiration or termination of the Lease, and (C) to deliver to Landlord two (2) sets of copies of such record set of drawings within ninety (90) days following completion of construction of Tenant Improvements for the Premises, and (ii) Tenant shall deliver to Landlord the executed original permit card, plus a copy of all warranties, guaranties, and operating manuals and information relating to the improvements, equipment, and systems installed by Tenant or Contractor in the Premises.

     6.7 Tenant’s Agents and Construction Matters. All Tenant’s Agents, shall conduct their activities in and around the Premises, Building and the Project in a harmonious relationship with all other subcontractors, laborers, materialmen and suppliers at the Premises, Building and Project. Subject to the provisions of this Work Letter, Tenant shall (a) timely pay in full all charges of each Tenant’s Agent, (b) shall, within five (5) Business Days of Tenant’s receipt of Landlord’s written request therefor, eliminate of record and satisfy in full all mechanics liens, stop notices or similar liens or encumbrances on the Building or the Project asserted or filed by any Tenant’s Agent, (c) prior to any entry into the Building by Tenant or any Tenant’s Agent, evidence, in form satisfactory to Landlord, compliance in full with the insurance requirements set forth in Exhibit “C-1” attached hereto as to Tenant and each such Tenant’s Agent, and (d) indemnify, defend, protect and hold Landlord harmless from any loss, cost, damage, expense and liability (including without limitation court costs and reasonable attorneys’ fees) asserted against or incurred by Landlord in connection with any act or omission of Tenant or any Tenant’s Agent in or about the Project, the Building or the Premises or otherwise related to the Premises. Tenant shall comply in full (and shall cause each of its Tenant’s Agents to comply in full) with the construction rules and regulations as Landlord shall adopt from time to time. Landlord may impose, as a condition of its consent to any and all Tenant Improvements, such requirements as Landlord in its sole discretion may deem desirable, including, but not limited to, the requirement that Tenant utilize for such purposes only contractors, subcontractors, materials, mechanics and materialmen selected by Tenant from a list provided and approved by Landlord and the requirement that upon Landlord’s request, Tenant shall, at Tenant’s expense, remove such Tenant Improvements upon the expiration or any early termination of the Lease Term. Notwithstanding the foregoing, at the time Tenant seeks Landlord’s consent to a proposed Specialty Alteration, Tenant shall identify in writing the proposed Specialty Alteration and Landlord shall provide Tenant a Removal Notice as part of Landlord’s consent identifying which Specialty Alterations Landlord will require Tenant to remove upon the expiration or early termination of this Lease. Tenant shall only be obligated to remove from the Premises at the expiration or early termination of this Lease (i) such Specialty Alterations so identified by Landlord in the Removal Notice(s), and (ii) all telecommunications and data wiring installed by or on behalf of Tenant.

     6.8 Time of the Essence in This Work Letter. Unless otherwise indicated, all references herein to a “number of days” shall mean and refer to calendar days. In all instances where Tenant is required to approve or deliver an item, if no written notice of approval is given or the item is not delivered within the stated time period, at Landlord’s sole option, at the end of such period the item shall automatically be deemed approved or delivered by Tenant and the next succeeding time period shall commence. Except where specific time periods are specified herein, all references to a “reasonable period” contained in this Work Letter shall mean a reasonable amount of time to respond to the request or submission in question, taking into consideration all of the circumstances reasonably related to the amount of time required, assuming reasonable diligence; provided, however, in no case shall such period ever be less than five (5) Business Days.

     6.9 Tenant’s Lease Default. Notwithstanding any provision to the contrary contained in this Lease, if a default by Tenant occurs under the Lease, or a default by Tenant under this Work Letter, has occurred at any time on or before the Substantial Completion of the Premises, then (i) in addition to all other rights and remedies granted to Landlord pursuant to the Lease, Landlord shall have the right to withhold payment of all or any portion of the Allowance Amount and/or Landlord may cause Contractor to cease the construction of the Tenant Improvements (in which case, Tenant shall be responsible for any delay in or increase in the cost of the Substantial Completion of the Tenant Improvements caused by such work stoppage), and (ii) all other obligations of Landlord under the terms of this Work Letter shall be forgiven until such time as such default is cured pursuant to the terms of the Lease.

     6.10 Labor Disputes. Tenant shall (i) construct, or cause the Contractor to construct, all Tenant Improvements, and (ii) perform all of its obligations under this Work Letter, in such a manner as to avoid any labor dispute that causes or is likely to cause stoppage or impairment of work, deliveries or any other services in the Project. If there shall be any such stoppage or impairment as the result of any such labor dispute or potential labor dispute, Tenant shall immediately undertake such action as may be necessary to eliminate such dispute or potential dispute, including, without limitation, (a) removing all disputants from the job site until such time as the labor dispute no longer exists, (b) seeking a temporary restraining order and other injunctive relief with regard to illegal union activities or a breach of contract between Tenant and Tenant’s contractor, and (c) filing appropriate unfair labor practice charges.

EXHIBIT C-1

INSURANCE REQUIREMENTS

     1 General Coverages. All of Tenant’s Agents shall carry worker’s compensation insurance covering all of their respective employees, and shall also carry public liability insurance, including property damage, all with limits, in form and with companies as are required to be carried by Tenant as set forth in Article 10 of this Lease.

     2 Special Coverages. The Tenant Improvements shall be insured by Tenant pursuant to Article 10 of the Lease immediately upon completion thereof. Tenant shall carry “Builder’s All Risk” insurance in an amount approved by Landlord covering the construction of the Tenant Improvements, and such other insurance as Landlord may require, it being understood and agreed that the Tenant Improvements shall be insured by Tenant pursuant to Article 10 of the Lease immediately upon completion thereof. Such insurance shall be in amounts and shall include such extended coverage endorsements as may be reasonably required by Landlord including, but not limited to, the requirement that all of Tenant’s Agents shall carry excess liability and Products and Completed Operation Coverage insurance, each in amounts no less than $500,000 per incident, $1,000,000 in aggregate, and in form and with companies as are required to be carried by Tenant as set forth in Article 10 of the Lease. All of Tenant’s Agents shall carry excess liability and Products and Completed Operation Coverage insurance, each in amounts not less than $500,000 per incident, $1,000,000 in aggregate, and in form and with companies as are required to be carried by Tenant as set forth in Article 10 of the Lease.

     3 General Terms. Certificates for all insurance carried pursuant to this Exhibit C-1 shall be delivered to Landlord before any entry into the Project by Tenant or any Tenant’s Agent, including, without limitation Contractor. All such policies of insurance must contain a provision that the company writing said policy will give Landlord thirty (30) days prior written notice of any cancellation or lapse of the effective date or any reduction in the amounts of such insurance. In the event that the Tenant Improvements are damaged by any cause during the course of the construction thereof, Tenant shall immediately repair the same at Tenant’s sole cost and expense. Tenant’s Agents shall maintain all of the foregoing insurance coverage in force until the Tenant Improvements are fully completed and accepted by Landlord, except for any Products and Completed Operation Coverage insurance required by Landlord, which is to be maintained for ten (10) years following completion of the work and acceptance by Landlord and Tenant. All policies carried under this Exhibit C-1 shall insure Landlord and Tenant, as their interests may appear, as well as Contractor and Tenant’s Agents. All insurance, except Workers’ Compensation, maintained by Tenant’s Agents shall preclude subrogation claims by the insurer against anyone insured thereunder. Such insurance shall provide that it is primary insurance as respects the Landlord and that any other insurance maintained by Landlord is excess and noncontributing with the insurance required hereunder. The requirements of the foregoing insurance shall not derogate from the provisions for indemnification of Landlord by Tenant contained in this Work Letter. Landlord may, in its discretion, require Tenant to obtain a lien and completion bond or some alternate form of security satisfactory to Landlord in an amount sufficient to ensure the lien-free completion of the Tenant Improvements and naming Landlord as a co-obligee.

EXHIBIT D
RULES AND REGULATIONS

     Tenant shall faithfully observe and comply with the following Rules and Regulations. Landlord shall not be responsible to Tenant for the nonperformance of any of said Rules and Regulations by or otherwise with respect to the acts or omissions of any other tenants or occupants of the Project. In the event of any conflict between the Rules and Regulations and the other provisions of this Lease, the latter shall control.

     1. Tenant shall not alter any lock or install any new or additional locks or bolts on any doors or windows of the Premises without obtaining Landlord’s prior written consent. Tenant shall bear the cost of any lock changes or repairs required by Tenant. Two keys will be furnished by Landlord for the Premises, and any additional keys required by Tenant must be obtained from Landlord at a reasonable cost to be established by Landlord. Upon the termination of this Lease, Tenant shall restore to Landlord all keys of stores, offices, and toilet rooms, either furnished to, or otherwise procured by, Tenant and in the event of the loss of keys so furnished, Tenant shall pay to Landlord the cost of replacing same or of changing the lock or locks opened by such lost key if Landlord shall deem it necessary to make such changes.

     2. All doors opening to public corridors shall be kept closed at all times except for normal ingress and egress to the Premises.

     3. Landlord reserves the right to close and keep locked all entrance and exit doors of the Building during such hours as are customary for comparable buildings in the county where the Project is located. Tenant, its employees and agents must be sure that the doors to the Building are securely closed and locked when leaving the Premises if it is after the normal hours of business for the Building. Any tenant, its employees, agents or any other persons entering or leaving the Building at any time when it is so locked, or any time when it is considered to be after normal business hours for the Building, may be required to sign the Building register. Access to the Building may be refused unless the person seeking access has proper identification or has a previously arranged pass for access to the Building. Landlord will furnish passes to persons for whom Tenant requests same in writing. Tenant shall be responsible for all persons for whom Tenant requests passes and shall be liable to Landlord for all acts of such persons. The Landlord and his agents shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. In case of invasion, mob, riot, public excitement, or other commotion, Landlord reserves the right to prevent access to the Building or the Project during the continuance thereof by any means it deems appropriate for the safety and protection of life and property.

     4. No furniture, freight or equipment of any kind shall be brought into the Building without prior notice to Landlord. All moving activity into or out of the Building shall be scheduled with Landlord and done only at such time and in such manner as Landlord designates. Landlord shall have the right to prescribe the weight, size and position of all safes and other heavy property brought into the Building and also the times and manner of moving the same in and out of the Building. Safes and other heavy objects shall, if considered necessary by Landlord, stand on supports of such thickness as is necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any such safe or property in any case. Any damage to any part of the Building, its contents, occupants or visitors by moving or maintaining any such safe or other property shall be the sole responsibility and expense of Tenant. Notwithstanding the foregoing, Landlord shall not charge Tenant any fees for use of the freight elevator during Business Hours.

     5. No furniture, packages, supplies, equipment or merchandise will be received in the Building or carried up or down in the elevators, except between such hours, in such specific elevator and by such personnel as shall be designated by Landlord. Notwithstanding the foregoing, Landlord shall not charge Tenant any fees for use of the freight elevator during Business Hours.

     6. The requirements of Tenant will be attended to only upon application at the management office for the Project or at such office location designated by Landlord. Employees of Landlord shall not perform any work or do anything outside their regular duties unless under special instructions from Landlord.

     7. No sign, advertisement, notice or handbill shall be exhibited, distributed, painted or affixed by Tenant on any part of the Premises or the Building without the prior written consent of the Landlord. Tenant shall not disturb, solicit, peddle, or canvass any occupant of the Project and shall cooperate with Landlord and its agents of Landlord to prevent same.

     8. The toilet rooms, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed, and no foreign substance of any kind whatsoever shall be thrown therein. The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose servants, employees, agents, visitors or licensees shall have caused same.

     9. Tenant shall not overload the floor of the Premises, nor mark, drive nails or screws, or drill into the partitions, woodwork or drywall or in any way deface the Premises or any part thereof without Landlord’s prior written consent.

     10. Except for vending machines intended for the sole use of Tenant’s employees and invitees, no vending machine or machines other than fractional horsepower office machines shall be installed, maintained or operated upon the Premises without the written consent of Landlord.

     11. Tenant shall not use or keep in or on the Premises, the Building, or the Project any kerosene, gasoline, explosive material, corrosive material, material capable of emitting toxic fumes, or other inflammable or combustible fluid chemical, substitute or material. Tenant shall provide material safety data sheets for any Hazardous Substance used or kept on the Premises.

     12. Tenant shall not without the prior written consent of Landlord use any method of heating or air conditioning other than that supplied by Landlord.

     13. Tenant shall not use, keep or permit to be used or kept, any foul or noxious gas or substance in or on the Premises, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Project by reason of noise, odors, or vibrations, or interfere with other tenants or those having business therein, whether by the use of any musical instrument, radio, phonograph, or in any other way. Tenant shall not throw anything out of doors, windows or skylights or down passageways.

     14. Tenant shall not bring into or keep within the Project, the Building or the Premises any animals, birds, aquariums, or, except in areas designated by Landlord, bicycles or other vehicles.

     15. No cooking shall be done or permitted on the Premises, nor shall the Premises be used for the storage of merchandise, for lodging or for any improper, objectionable or immoral purposes. Notwithstanding the foregoing, Underwriters’ laboratory-approved equipment and microwave ovens may be used in the Premises for heating food and brewing coffee, tea, hot chocolate and similar beverages for employees and visitors, provided that such use is in accordance with all applicable federal, state, county and city laws, codes, ordinances, rules and regulations.

     16. The Premises shall not be used for manufacturing or for the storage of merchandise except as such storage may be incidental to the use of the Premises provided for in Section 5.1 of the Lease. Tenant shall not occupy or permit any portion of the Premises to be occupied as an office for a messenger-type operation or dispatch office, public stenographer or typist, or for the manufacture or sale of liquor, narcotics, or tobacco in any form, or as a medical office, or as a barber or manicure shop, or as an employment bureau without the express prior written consent of Landlord. Tenant shall not engage or pay any employees on the Premises except those actually working for such tenant on the Premises nor advertise for laborers giving an address at the Premises.

     17. Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of these Rules and Regulations.

     18. Tenant, its employees and agents shall not loiter in or on the entrances, corridors, sidewalks, lobbies, courts, halls, stairways, elevators, vestibules or any Common Areas for the purpose of smoking tobacco products or for any other purpose, nor in any way obstruct such areas, and shall use them only as a means of ingress and egress for the Premises.

     19. Tenant shall not waste electricity, water or air conditioning and agrees to cooperate fully with Landlord to ensure the most effective operation of the Building’s heating and air conditioning system, and shall refrain from attempting to adjust any controls. Tenant shall participate in recycling programs undertaken by Landlord.

     20. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency.

     21. Any persons employed by Tenant to do janitorial work shall be subject to the prior written approval of Landlord, and while in the Building and outside of the Premises, shall be subject to and under the control and direction of the Building manager (but not as an agent or servant of such manager or of Landlord), and Tenant shall be responsible for all acts of such persons.

     22. No awnings or other projection shall be attached to the outside walls of the Building without the prior written consent of Landlord, and no curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, any window or door of the Premises other than Landlord standard window covering. All electrical ceiling fixtures hung in the Premises or spaces along the perimeter of the Building must be fluorescent and/or of a quality, type, design and a warm white bulb color approved in advance in writing by Landlord. Neither the interior nor exterior of any windows shall be coated or otherwise sunscreened without the prior written consent of Landlord. Tenant shall be responsible for any damage to the window film on the exterior windows of the Premises and shall promptly repair any such damage at Tenant’s sole cost and expense. Tenant shall keep its window coverings closed during any period of the day when the sun is shining directly on the windows of the Premises. Prior to leaving the Premises for the day, Tenant shall draw or lower window coverings and extinguish all lights. Tenant shall abide by Landlord’s regulations concerning the opening and closing of window coverings which are attached to the windows in the Premises, if any, which have a view of any interior portion of the Building or Building Common Areas.

     23. The sashes, sash doors, skylights, windows, and doors that reflect or admit light and air into the halls, passageways or other public places in the Building shall not be covered or obstructed by Tenant, nor shall any bottles, parcels or other articles be placed on the windowsills.

     24. Tenant must comply with requests by the Landlord concerning the informing of their employees of items of importance to the Landlord.

     25. Tenant must comply with all applicable “NO-SMOKING” and sorting of recyclable waste or similar ordinances. If Tenant is required under the ordinance to adopt a written smoking policy, a copy of said policy shall be on file in the office of the Building.

     26. Landlord shall provide security service for the benefit of the Building and/or the Project consistent with the level of service provided by Landlord as of the date of the Lease. Tenant acknowledges and agrees that Landlord has no obligation to provide security for the Premises. Tenant hereby assumes all responsibility for the protection of Tenant and its officers, partners, contractors, subcontractors, consultants, licensees, agents, concessionaires, subtenants, servants, employees, customers, guests, invitees or visitors, and the property thereof,

from acts of third parties, including keeping doors locked and other means of entry to the Premises closed, whether or not Landlord, at its option, elects to provide security protection for the Project or any portion thereof. Tenant further assumes the risk that any safety and security devices, services and programs which Landlord elects, in its sole discretion, to provide may not be effective, or may malfunction or be circumvented by an unauthorized third party, and Tenant shall, in addition to its other insurance obligations under this Lease, obtain its own insurance coverage to the extent Tenant desires protection against losses related to such occurrences. Tenant shall cooperate in any reasonable safety or security program developed by Landlord or required by law.

     27. All office equipment of any electrical or mechanical nature shall be placed by Tenant in the Premises in settings approved by Landlord, to absorb or prevent any vibration, noise and annoyance.

     28. Tenant shall not use in any space or in the public halls of the Building, any hand trucks except those equipped with rubber tires and rubber side guards.

     29. No auction, liquidation, fire sale, going-out-of-business or bankruptcy sale shall be conducted in the Premises without the prior written consent of Landlord.

     30. No tenant shall use or permit the use of any portion of the Premises for living quarters, sleeping apartments or lodging rooms.

     31. Tenant shall not purchase spring water, ice, towels, janitorial or maintenance or other similar services from any company or persons not approved by Landlord. Landlord shall approve a sufficient number of sources of such services to provide Tenant with a reasonable selection, but only in such instances and to such extent as Landlord in its judgment shall consider consistent with the security and proper operation of the Building.

     32. Tenant shall install and maintain, at Tenant’s sole cost and expense, an adequate, visibly marked and properly operational fire extinguisher next to any duplicating or photocopying machines or similar heat producing equipment, which may or may not contain combustible material, in the Premises.

     Landlord reserves the right at any time to change or rescind any one or more of these Rules and Regulations, or to make such other and further reasonable Rules and Regulations as in Landlord’s judgment may from time to time be necessary for the management, safety, care and cleanliness of the Premises, Building, the Common Areas and the Project, and for the preservation of good order therein, as well as for the convenience of other occupants and tenants therein. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenants, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of any other tenant, nor prevent Landlord from thereafter enforcing any such Rules or Regulations against any or all tenants of the Project. Landlord shall not have any obligation to enforce the Rules and Regulations or the terms of any other lease against any other tenant, and Landlord shall not be liable to Tenant for violation thereof by any other tenant. Tenant shall be deemed to have read these Rules and Regulations and to have agreed to abide by them as a condition of its occupancy of the Premises.

EXHIBIT E

EXTENSION OPTION

     1. Grant of Option. Landlord grants to the Tenant originally named on the Lease (the “Original Tenant”) one (1) option (the “Extension Option”) to extend the Lease Term as to the entire Premises for a period of sixty (60) months (the “Extension Term”), commencing on the first day following the expiration of the Lease Term (“Extension Term Commencement Date”). The option to extend shall be exercisable only by notice delivered by Tenant to Landlord as provided in Section 3. Upon the approved exercise of the option to extend (provided that Tenant is not in default at any time prior to the Extension Term) the Lease Term shall be extended for a period of sixty (60) months. In the event that Tenant fails to timely and appropriately exercise its option to extend in accordance with the terms of this Section 1, then the option to extend shall automatically terminate and shall be of no further force or effect.

     2. Option Terms. The Extension Term shall be upon the same terms and conditions as are provided for in this Lease, as then amended, except that (a) there shall be no further options to extend the Term following the Extension Term, (b) Tenant shall not be entitled to any credit against Rent or any other rent concession or rent allowance or abatement of Rent, except as specifically provided in this Section 2, (c) the annual Base Rent for the Extension Term shall be as provided in Section 4, and (d) Landlord shall not be obligated to perform any improvement work within the Premises or provide Tenant any improvement allowance. The Extension Option shall be personal to the Original Tenant and any Permitted Transferee.

     3. Exercise of Option. The Extension Option shall be exercised by the Original Tenant, if at all, only in the following manner: The Extension Option may be exercised only by Tenant giving written notice of exercise (the “Extension Notice”) to Landlord on or before the date that is not less than nine (9) months but not more than fifteen (15) months prior to the expiration of the initial Lease Term (time being of the essence).

     4. Base Rent. The annual Base Rent per annum payable for the Premises during the Extension Term (the “Extension Base Rent”) shall be equal to (a) the rentable square feet of the Premises then subject to this Lease, multiplied by (b) the yearly FMRR (defined below) of the Premises as of the first day (an “Adjustment Date”) of the Extension Term, as determined in accordance with this Section 4.

     5. Definition of FMRR. The “FMRR” of the Premises for the Extension Term shall be equal to an amount equal to the rate per rentable square foot being charged to new tenants for comparable space in the Project or, if comparable transactions do not exist in the Project, then an amount that landlords of comparable buildings have agreed to accept, and sophisticated nonaffiliated tenants of comparable buildings have agreed to pay, in current arms-length, nonrenewal, nonequity (i.e., not being offered equity in the building), transactions for comparable space (in terms of condition, floor location, view and floor height) of a comparable size, for a nonrenewal term equal to the Extension Term and commencing as of the first day of the Extension Term, which annual rent per square foot shall take into account and make adjustment for the existence, timing and amount of any increases in rent following term commencement in the comparison transactions, and shall at all times take into consideration and make adjustment for all other material differences in all terms, conditions or factors applicable to the transaction in question hereunder or applicable to one or more of the comparison transactions used to determine the FMRR which a sophisticated tenant or sophisticated landlord would believe would have a material impact on a “fair market rental” determination; provided, however, that (i) all comparable transactions should be adjusted to simulate a net rent structure, wherein the tenant is responsible for the payment of all property operating expenses and taxes in a manner consistent with this Lease, (ii) the presence, amount or absence of brokerage commissions in either the subject transaction or the comparison transactions shall be considered, (iii) any rent abatement or other free rent of any type provided in comparison transactions for the period of the performance of any tenant improvement work (i.e., any “construction period”) shall be disregarded, and (iv) any tenant improvements or allowance provided for in comparable transactions shall be taken into account, and the value, if any, to Tenant of any existing improvements in the Premises shall be taken into account in the calculation of the FMRR. If in determining the FMRR for a subject transaction hereunder, it is determined that free rent or cash allowances (collectively, “Concessions”) should be granted, Landlord may, at Landlord’s sole option, elect all or any portion of the following: (A) to grant some or all of the Concessions to Tenant as free rent or as an improvement allowance, or (B) to adjust the monthly installments of the applicable Extension Term Annual Base Rent to be an effective rental rate which takes into consideration and deducts from monthly rent the amortized amount of the total dollar value of such Concessions, amortized on a straight line basis over the applicable Extension Term (in which case the Concessions so amortized shall not be granted to Tenant).

     6. Procedure for Determining the FMRR. If Tenant has timely given the Extension Notice with respect to the Extension Option, Landlord shall within thirty (30) days thereafter deliver to Tenant a written notice of Landlord’s determination of what the FMRR would be during the applicable Extension Term (“Landlord’s Extension Rent Notice”). Within ten (10) Business Days after Tenant’s receipt of Landlord’s Extension Rent Notice, Tenant shall give Landlord a written notice (“Tenant’s Extension Response Notice”) electing either (i) to accept the FMRR set forth in Landlord’s Extension Rent Notice, in which case the FMRR shall be the FMRR set forth in Landlord’s Extension Rent Notice, or (ii) to not accept Landlord’s determination of the FMRR, in which case Landlord and Tenant shall endeavor to agree upon the FMRR on or before the date that is ten (10) days after Landlord’s receipt of Tenant’s Extension Response Notice (the “Outside Agreement Date”). If Landlord and Tenant are unable to agree upon the FMRR by the Outside Agreement Date, then the FMRR shall be determined by arbitration pursuant to below. If Tenant fails to deliver Tenant’s Extension Response Notice within the ten (10) business-day period following its receipt of Landlord’s Extension Rent Notice, Tenant shall conclusively be deemed to have accepted Landlord’s determination of the FMRR as set forth in Landlord’s Extension Rent Notice.

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     If Landlord and Tenant shall fail to agree upon the FMRR by the Outside Agreement Date, then, within ten (10) days thereafter, Tenant shall submit to Landlord Tenant’s determination of the FMRR and Landlord shall submit to Tenant Landlord’s determination of FMRR, and such determinations shall be submitted to arbitration (as Tenant’s and Landlord’s “submitted FMRR,” respectively) in accordance with the following:

          (a) Landlord and Tenant shall each appoint one arbitrator who shall by profession be a real estate broker who shall have been active over the five (5) year period ending on the date of such appointment in the leasing of commercial properties in the Downtown Chicago, Illinois area, and who shall not have been employed or engaged by the appointing party during the immediately preceding two (2) year period. The determination of the arbitrators shall be limited solely to the issue as to whether Landlord’s or Tenant’s submitted FMRR is the closest to the actual FMRR, as determined by the arbitrators, taking into account the requirements of this Section 6. Each such arbitrator shall be appointed within fifteen (15) days after the Outside Agreement Date.

          (b) The two arbitrators so appointed shall within ten (10) days of the date of the appointment of the last appointed arbitrator agree upon and appoint a third arbitrator who shall be a real estate broker who shall have been active over the five (5) year period ending on the date of such appointment in the leasing of commercial properties in the Downtown Chicago, Illinois area and who shall not have been employed or engaged by Landlord or Tenant during the immediately preceding two (2) year period.

          (c) The three arbitrators shall within thirty (30) days of the appointment of the third arbitrator reach a decision as to whether the parties shall use Landlord’s or Tenant’s submitted FMRR and shall notify Landlord and Tenant thereof.

          (d) The decision of the majority of the three arbitrators shall be binding upon Landlord and Tenant, shall be in writing and shall be non-appealable, and counterpart copies thereof shall be delivered to Landlord and Tenant. A judgment or order based upon such award may be entered in any court of competent jurisdiction. In rendering their decision and award, the arbitrators shall have no power to vary, modify or amend any provision of this Lease. If either Landlord or Tenant fails to appoint an arbitrator within fifteen (15) days after the applicable Outside Agreement Date, the arbitrator appointed by the other shall solely render a decision as to the FMRR, notify Landlord and Tenant thereof, and such arbitrator’s decision shall be binding upon Landlord and Tenant.

          (e) If the two arbitrators fail to agree upon and appoint a third arbitrator, or both parties fail to appoint an arbitrator, then the appointment of the third arbitrator or any arbitrator shall be dismissed and the matter to be decided shall be promptly submitted to arbitration under the provisions of the American Arbitration Association, but subject to the instructions set forth in this Section 6.

          (f) The cost of arbitration shall be paid by Landlord and Tenant equally.

     7. Conditions to Exercise of Extension Option. Notwithstanding any provision of this Exhibit E to the contrary, at the election of Landlord, any attempted exercise by Tenant of the Extension Option shall be invalid and ineffective if, on the date of such attempted exercise, Tenant is in default under this Lease following the expiration of all applicable notice and cure periods, and any exercise of the applicable Extension Option shall be deemed null and void and of no force and effect, at the election of Landlord, if (i) on the commencement of the applicable Extension Term, Tenant is in default under this Lease following the expiration of all applicable notice and cure periods, or (ii) there has previously been an Event of Default under this Lease more than two (2) times in any twelve (12) month period. Additionally, Tenant’s Extension Option shall terminate if (a) this Lease or Tenant’s right to possession of the Premises is terminated, (b) Tenant assigns any of its interest in this Lease or sublets seventy five percent (75%) or more of the Office Premises, other than to a Permitted Transferee, or, Tenant sublets any portion of the Retail Premises, other than to a Permitted Transferee, or (c) Tenant fails to timely exercise its Extension Option, time being of the essence with respect to Tenant’s exercise thereof.

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EX-10.65

EXHIBIT 10.65

GEORGE E. COLE ®	No. 9-REC
LEGAL FORMS	April 1996
STORE LEASE
CAUTION: Consult a lawyer before using or acting under this form. Neither the publisher nor the seller of this form makes any warranty with respect thereto, including any warranty of merchantability or fitness for a particular purpose.
		Above Space for Recorder’s use only

TERM OF LEASE
BEGINNING	ENDING
See Paragraph 4 of the Rider attached hereto & made a part hereof	Ten (10) years after Lease Commencement Date per Paragraph 4 of the Rider
MONTHLY RENT	DATE OF LEASE	LOCATION OF PREMISES
See Paragraph 20 of the Rider attached hereto	December 1, 2008	2130 West North Avenue Chicago, Illinois 1st Floor Commercial Space [approximately 5,250 square feet] comprised of a Commercial Parcel and a Parking Area Parcel, both of which are defined terms in the Operating Declaration, and both of which are depicted in the Plat of Survey attached to the recorded Condominium Declaration, which legal instruments were provided to Lessee for its review prior to the entry into this Lease.

Purpose:

Banking and Lending Institution,
or, in the context of an assignment of this Lease — retail and/or office uses

	LESSEE (aka Tenant)		LESSOR (aka Landlord)
NAME	Midwest Bank and Trust Company	NAME	2150 I Corporation
ADDRESS	501 West North Avenue	ADDRESS	1811 W. North Ave. Suite 401B
CITY	Melrose Park, Illinois 60160	CITY	Chicago, Illinois 60622
TELEPHONE:	708-865-2500	TELEPHONE:	773-486-5536

In consideration of the mutual covenants and agreements herein stated, Lessor hereby leases to Lessee and Lessee hereby leases from Lessor solely for the above purpose the premises designated above (the “Premises”), together with the appurtenances thereto. for the above Term.

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LEASE COVENANTS AND AGREEMENTS

1. RENT. Lessee shall pay Lessor or Lessor’s agent as rent for the Premises the sum stated above, monthly in advance, until
termination of this lease, at Lessor’s address stated above or such other address as Lessor may designate in writing.

2. WATER, GAS AND ELECTRIC CHARGES. Lessee will pay, in addition to the rent above specified, all water rents, gas and electric light and power bills taxed, levied or charged on the Premises, for and during the time for which this lease is granted and in case said water rents and bills for gas. Electric light and power shall not be paid when due, Lessor shall have the right to pay the same, which amounts so paid, together with any sums paid by Lessor to keep the Premises in a clean and healthy condition, as herein specified, are declared to be so much additional rent and payable with the installment of rent next due thereafter. The utilities, other than water, are to be separately metered. The Lessor represents that those meters have been or will be installed by Lessor.

3. SUBLETTING; ASSIGNMENT. The Premises shall not be sublet in whole or in part to any person other than Lessee, and
Lessee shall not assign this lease without, in each case, the consent in writing of Lessor first had and obtained which consent shall not be unreasonably withheld or delayed; nor permit to take place by any act or default of himself or any person within his control any transfer by operation of law of Lessee’s interest created hereby; nor offer for lease or sublease the Premises, nor any portion thereof, by placing notices or signs of “To Let,” or any other similar sign or notice in any place, nor by advertising the same in any newspaper or place or manner whatsoever without, in each case, the consent in writing of Lessor first had and obtained which consent shall not be unreasonably withheld. If Lessee, or anyone or more of the Lessees, if there be more than one, shall make an assignment for the benefit of creditors, or shall be adjudged a bankrupt, Lessor may terminate this lease, and in such event Lessee shall at once pay Lessor a sum of money equal to the entire amount of rent reserved by this lease for the then unexpired portion of the term hereby created, as liquidated damages. This Paragraph is clarified / revised to accommodate assignments by Lessee to affiliates and to permit transfers by Lessee due to merger.

4. LESSEE NOT TO MISUSE. Lessee will not permit any unlawful or immoral practice, with or without his knowledge or consent, to be committed or carried on in the Premises by himself or by any other person. Lessee will not allow the Premises to be used for any purpose that will increase the rate of insurance thereon, nor for any purpose other than that hereinbefore specified. Lessee will not keep or use or permit to be kept or used in or on the Premises or any place contiguous thereto any flammable fluids or explosives, without the written permission of Lessor first had and obtained. Lessee will not load floors beyond the floor load rating prescribed by applicable municipal ordinances. Lessee will not use or allow the use of the Premises for any purpose whatsoever that will injure the reputation of the Premises or of the building of which they are a part.

5. CONDITION ON POSSESSION. Lessee has examined and knows the condition of the Premises and has received the same in good order and repair, and acknowledges that no representations as to the condition and repair thereof, and no agreements or promises to decorate, alter, repair or improve the Premises, have been made by Lessor or his agent prior to or at the execution of this lease that are not herein expressed.

6. REPAIRS AND MAINTENANCE. Lessee shall keep the Premises and appurtenances thereto in a clean, sightly and healthy condition, and in good repair, all according to the statutes and ordinances in such cases made and provided, and the directions of public officers thereunto duly authorized, all at his own expense, and shall yield the same back to Lessor upon the termination of this lease, whether such termination shall occur by expiration of the term, or in any other manner whatsoever, in the same condition of cleanliness, repair and sightliness as at the date of the execution hereof, reasonable wear and tear excepted. Lessee shall make all necessary repairs and renewals upon Premises and replace broken globes, glass and fixtures with material of the same size and quality as that broken and shall insure all glass in windows and doors of the Premises at his own expense. If, however, the Premises shall not thus be kept in good repair and in a clean, sightly and healthy condition by Lessee, as aforesaid, Lessor may enter the same, himself or by his agents, servants or employees, without such entering causing or constituting a termination of this lease or an interference with the possession of the Premises by Lessee, and Lessor may replace the same in the same condition of repair, sightliness, healthiness and cleanliness as existed at the date of execution hereof, and Lessee agrees to pay Lessor, in addition to the rent hereby reserved, the expenses of Lessor in thus replacing the Premises in that condition. Lessee shall not cause or permit any waste, misuse or neglect of the water, or of the water, gas or electric fixtures. Lessee shall not be required to repair or replace structural components of the premises, any exterior components of the premises, nor be responsible for the replacement or major repair of any utility system.

7. ACCESS TO PREMISES. Lessee shall allow Lessor or any person authorized by Lessor free access to the Premises for the purpose of examining or exhibiting the same, or to make any repairs or alterations thereof which Lessor may see fit to make, and Lessee will allow Lessor to have placed upon the Premises at all times notices of “For Sale” and “For Rent”, and Lessee will

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not interfere with the same; provided, however, such activity by the Lessor shall not interfere with the business of Lessee. Notwithstanding the above to the contrary: security needs of the Lessee will not allow the Lessor to have pass keys. [However, Lessee nevertheless agrees to provide access to Lessor for purposes of showing the Premises to prospective new tenants in those circumstances in which Lessee has: (a) vacated/abandoned the Premises; and/or (b) failed to timely exercise its renewal option.

8. NON-LIABILITY OF LESSOR. Except as provided by Illinois statute, Lessor shall not be liable to Lessee for any damage or
injury to him or his property occasioned by the failure of Lessor to keep the Premises in repair, and shall not be liable for any injury done or occasioned by wind or by or from any defect of plumbing, electric wiring or of insulation thereof, gas pipes, water pipes or steam pipes, or from broken stairs, porches, railings or walks, or from the hacking up or any sewer pipe or down-spout, or from the bursting, leaking or running of any tank, tub, washstand, water closet or waste pipe, drain, or any other pipe or tank in, upon or about the Premises or the building of which they are a part nor from the escape or steam or hot water from any radiator, it being agreed that said radiators are under the control of Lessee, , , nor for any damage or injury arising from any act, omission or negligence of co-tenants or of other persons, occupants of the same building or of adjoining or contiguous buildings or of owners of adjacent or contiguous property, , all claims for any such damage or injury being hereby expressly waived by Lessee.

9. RESTRICTIONS (SIGNS, ALTERATIONS, FIXTURES). Lessee shall not attach, affix or exhibit or permit to be attached, affixed or exhibited, except by Lessor or his agent, any articles of permanent character or any sign, attached or detached, with any writing or printing thereon, to any window, floor, ceiling, door or wall in any place in or about the Premises, or upon any of the appurtenances thereto, without in each case the written consent of Lessor first had and obtained, which consent shall not be unreasonably withheld; and shall not commit or suffer any waste in or about said premises; and shall make no changes or alterations in the Premises by the erection of partitions or the papering of walls, or otherwise, without the consent in writing of Lessor, which consent shall not be unreasonably withheld; and in case Lessee shall affix additional locks or bolts on doors or window, or shall place in the Premises lighting fixtures or any fixtures of any kind, without the consent of Lessor first had and obtained, such locks, bolts and fixtures shall remain for the benefit of Lessor, and without expense of removal or maintenance to Lessor. Lessor shall have the privilege of retaining the expense if he desires. If he does not desire to retain the same, he may remove and store the same, and Lessee agrees to pay the expense of removal and storage thereof. The provisions of this paragraph shall not however apply to Lessee’s trade fixtures, equipment and movable furniture. Notwithstanding any other provisions in this Lease (including any riders, exhibits or addenda hereto), the Lessor’s consent as to proposed signage by Lessee shall be within Lessor’s sole and absolute and unfettered discretion.

10. HEAT. Intentionally Deleted.

11. FIRE AND CASUALTY. In case the Premises shall be rendered untenantable by fire, explosion or other casualty, and Lessor estimates that the repairs will take longer than 120 days, then either Lessor or Lessee shall be entitled to terminate the Lease upon written notice to the other. Lessor will notify Lessee of estimated repair time in writing within 30 days following the casualty. If the casualty occurs within the final 6 months of the Lease term(s), then Lessee shall have the right to terminate the Lease.

12. TERMINATION; HOLDING OVER. At the termination of the term of this lease, by lapse of time or otherwise, Lessee will yield up immediate possession of the Premises to Lessor, in good condition and repair, loss by fire and ordinary wear excepted, and will return the keys therefor to Lessor at the place of payment of rent. If Lessee retains possession of the Premises or any part thereof after the termination of the term by lapse of time or otherwise, then Lessor may at its option within thirty days after termination of the term serve written notice upon Lessee that such holding over constitutes either (a) renewal of this lease for one year, and from year to year thereafter, 15% rental (computed on an annual basis) specified in Section I, or (b) creation of a month to month tenancy, upon the terms of this lease except at double the monthly rental specified in Section 1, or (c) creation of a tenancy at sufferance, at a per day rental amount equal to 1.5 times more than the most recently effective lease rental amount, for the time Lessee remains in possession. If no such written notice is served then a tenancy at sufferance with rental as stated at (c) shall have been created. Lessee shall also pay to Lessor all damages sustained by Lessor resulting from retention of possession by Lessee. The provisions of this paragraph shall not constitute a waiver by Lessor of any right of re-entry as hereinafter set forth; nor shall receipt of any rent or any other act in apparent affirmance of tenancy operate as a waiver of the right to terminate this lease for a breach of any of the covenants herein.

13. LESSOR’S REMEDIES. If Lessee shall vacate or abandon the Premises or permit the same to remain vacant or unoccupied
for a period of thirty (30 calendar days, and same is coupled with the non-payment of the rent reserved hereby, or any part thereof, or a material breach of another covenant in this lease contained, then Lessee’s right to the possession of the Premises thereupon shall terminate. The acceptance of rent (WHICH IS LESS THAN THE FULL AMOUNT(S) DUE), whether in a single instance or repeatedly, after it falls due, or after knowledge of any breach hereof by Lessee, or the giving or making of any notice or demand, whether according to any statutory provision or not, or any act or series of acts except an express written waiver, shall

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not be construed as a waiver of Lessor’s rights to act (WITH notice and demand), or of any other right hereby given Lessor, or as an election not to proceed under the provisions of this lease. Nowithstanding the above to the contrary, while there is no written notice required or cure period afforded for monetary late payments, by contrast, as to non-monetary defaults, thirty (30) calendar days shall be provided to allow Lessee to cure any non-monetary default — EXCEPT however in those instances where Lessee’s non-monetary default would pose a dangerous and hazardous condition and/or involve a remediation of a more urgent nature.

14. RIGHT TO RELET. If Lessee’s right to the possession of the Premises shall be terminated in any way, the Premises, or any
part thereof, may, but need not (except as provided by Illinois statute and as provided by the common law duty to mitigate damages), be relet by Lessor, for the account and benefit of Lessee, for such rent and upon such terms and to such person or persons and for such period or periods as may seem fit to the Lessor, but Lessor shall not be required to accept or receive any tenant offered by Lessee, nor to do any act whatsoever or exercise any diligence whatsoever, in or about the procuring of any care or diligence by Lessor in the reletting thereof; and if a sufficient sum shall not be received from such reletting to satisfy the rent hereby reserved, after paying the expenses of reletting and collection, including commissions to agents, and including also expenses of redecorating. Lessee agrees to pay and satisfy all deficiency; but the acceptance of a tenant by Lessor, in place of Lessee, “hall not operate as a cancellation hereof, nor to release Lessee from the performance of any covenant, promise or agreement herein contained, and performance by any substituted tenant by the payment of rent, or otherwise, shall constitute only satisfaction pro tanto of the obligations of Lessee arising hereunder.

15. COSTS AND FEES. Each party shall be obligated for its own costs, charges and expenses, including fees of attorneys, agents and others retained by such party, incurred in enforcing any of its rights under this lease or in any litigation, negotiation or transaction.

16. CONFESSION OF JUDGMNET. Intentionally Deleted.

17. LESSOR’S LIEN. [Intentionally deleted.]

18. REMOVAL OF OTHER LIENS. In event any lien upon Lessor’s title results from any act or neglect of Lessee, and Lessee
fails to remove, or initiate actions to cause the removal of, said lien within ten days after Lessor’s notice to do so, Lessor may remove the lien by paying the full amount thereof or otherwise and without any investigation or contest of the validity thereof, and Lessee shall pay Lessor upon request the amount paid out by Lessor in such behalf, including Lessor’s costs, expenses and counsel fees.

19. REMEDIES NOT EXCLUSIVE. The obligation of Lessee to pay the rent reserved hereby during the balance of the term
hereof, or during any extension hereof, shall not be deemed to be waived, released or terminated, by the service of any five-day notice, other notice to collect, demand for possession, or notice that the tenancy hereby created will be terminated on the date therein named, the institution of any action of forcible detainer or ejectment or any judgment for possession that may be rendered in such action, or any other act or acts resulting in the termination of Lessee’s right to possession of the Premises. The Lessor may collect and receive any rent due from Lessee, and payment OF LESS THAN THE FULL AMOUNT(S) DUE or receipt thereof shall not waive or affect any such notice, demand, suit or judgment, or in any manner whatsoever waive, affect, change, modify or alter any rights or remedies which Lessor may have by virtue hereof, EXCEPT AS THE PARTIES MAY OTHERWISE EXPRESSLY AGREE TO IN WRITING.

20. NOTICES. Notices may be served on either party, at the respective addresses given at the beginning of this lease, either (a) by delivering or causing to be delivered a written copy thereof, or (b) by sending a written copy thereof by United States certified or registered mail, postage prepaid, addressed to Lessor or Lessee at said respective addresses in which event the notice shall be deemed to have been served at the time the said notice is accepted, or not accepted, as applicable. Notices that have any legal import shall also be copied in like manner to the respective attorneys for both parties, to wit: Stephen Malato, of Hinshaw & Culbertson, for Lessee; and John Lovestrand, of Palmisano & Lovestrand, for Lessor.

21. MISCELLANEOUS.

(a) Provisions typed on this lease and all riders attached to this lease and signed by Lessor and Lessee are hereby made a part of this lease.

(b) [Intentionally deleted; not applicable].

(c) All covenants, promises, representations and agreements herein contained shall be binding upon, apply and inure to the benefit of Lessor and Lessee and their respective heirs, legal, successors and assigns.

(d) The rights and remedies hereby created are cumulative and the use of one remedy shall not be taken to exclude or waive the right to the use of another.

(e) The words “Lessor” and “Lessee” wherever used in this lease shall be construed to mean Lessors or Lessees in all cases where

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there is more that one Lessor or Lessee, and to apply to individuals, male or female, or to firms or corporations, as the same may be described as Lessor or Lessee herein, and the necessary grammatical changes shall be assumed in each case as though fully expressed. If there is more than one Lessee the warrant of’ attorney in paragraph 16 is given and severally and shall authorize the entry of appearance or, and waiver of issuance of process and trial by jury by, and confession of judgment against any one or more of such Lessees, and shall authorize the performance of every other act in the name of and on behalf of anyone or more of such Lessees.

22. SEVERABILITY. If any clause, phrase, provision or portion of this lease or the application thereof to any person or circumstance shall be invalid, or unenforceable under applicable law, such evel1t shall not affect, impair or render invalid or unenforceable the remainder of this lease nor any other clause, phrase, provision or portion hereof, nor shall it affect the application
of any clause, phrase, provision or portion hereof to other persons or circumstances.

23. RIDER. The Rider attached hereto is incorporated herein by reference as though more full made a part hereof. In the event of any inconsistency between the above and foregoing terms and provisions of this form Store Lease and the Rider attached hereto, the Rider (including any Exhibit(s) attached thereto) shall supersede and control. The Store Lease and the Rider shall sometimes hereinafter be collectively referred to as the “Lease”.

WITNESS the hands of the parties hereto, as of the Date of Lease stated above.

LESSEE (aka Tenant):	LESSOR (aka Landlord):
Midwest Bank and Trust Company, an Illinois banking corporation	2150 I Corporation, an Illinois corporation
By:	By:
Bruno P. Costa	Jakub Kosiba
Its: Executive Vice President	Its: Treasurer

ASSIGNMENT BY LESSOR

to be completed & signed if and when applicable

On this                                         , 20                     , for value received, Lessor hereby transfers, assigns and sets over to                                                             , all right, title and interest in and to the above Lease and the rent thereby reserved, except rent due and payable prior to                                         , 20                    .

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RIDER

TO STORE LEASE DATED DECEMBER 1, 2008, FOR APPROXIMATELY 5,250 SQUARE FEET OF THE COMMERCIAL PARCEL & PARKING AREA PARCEL SITUATED WITHIN THE PREMISES COMMONLY KNOWN AS 2130 WEST NORTH AVENUE, CHICAGO, ILLINOIS, BY AND BETWEEN 2150 I CORPORATION, AN ILLINOIS CORPORATION, LESSOR (AKA LANDLORD), AND MIDWEST BANK AND TRUST COMPANY, AN ILLINOIS BANKING CORPORATION, AS LESSEE (AKA TENANT).

     1. If there is any conflict between the provisions in this Rider and the provisions in the Lease to which this Rider is attached, the provisions in this Rider shall supersede and control.

     2. Lessee, at its own expense, shall promptly comply with all statutes, ordinances, rules, regulations, orders and requirements of all governmental bodies during the term of this Lease.

     3. SECURITY DEPOSIT(S):

          (a) At the time of signing of this Lease by Lessee and submission of its offer to lease to Lessor, Lessee shall also tender to Lessor together with said offer the sum of Fourteen Thousand ($14,000) Dollars as and for a Security Deposit, which amount is equal to two (2) months’ Base Rent, the total of which shall be held as a Security Deposit to secure the performance by Lessee of each and every covenant of Lessee set forth under this Lease.

          (b) On lawful termination of this Lease and full payment of all amounts due Lessor from Lessee, together with the performance by Lessee of all Lessee’s covenants and agreements set forth herein unless waived by Lessor in writing, the Security Deposit shall be returned to Lessee from Lessor.

          (c) On termination of this Lease and less than full payment of all amounts due Lessor from Lessee, together with the lack of performance by Lessee of all Lessee’s covenants and agreements set forth herein, the Security Deposit shall be retained by Lessor commensurate with the damages and/or as permitted under statutory and/or common law.

          (d) In addition to the above subparagraph (a) requirement, at the time of signing of this Lease by Lessee and submission of its offer to lease to Lessor, Lessee shall also tender to Lessor together with said offer the additional sum of Ten Thousand Six Hundred Ninety-Nine ($10,699) Dollars as and for an additional Security Deposit, which amount shall be held by Lessor through the sixty-first (61^st) month of the Lease Term; at the beginning of the sixty-second (62^nd) month, and assuming that Lessee is otherwise at that time in compliance with the Lease, then the Lessor shall return to Lessee this additonal security deposit amount set forth in this subparagraph (d).

     4. LEASE COMMENCEMENT, ABATEMENT PERIOD & INITIAL PAYMENT:

          (a) Upon execution of this Lease by Lessee and tender to Lessor, Lessee shall deliver to Lessor the sum of Seven Thousand ($7,000) Dollars, and on the 1^st day of every month thereafter, the sum of $7,000 as and for the ensuing months’ Base Rent (aka the Base Monthly Rent) — subject to rent escalations are hereinafter more fully set forth — and all of which payments shall be increased by the Lessee’s proportionate share of general real estate taxes and common area maintenance.

          (b) The “Lease Commencement Date” shall be deemed to be December 1, 2008.

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          (c) The “Possession Date” shall be on or about the Lease Commencement Date, provided however that Lessee acknowledges that two of the four parking spaces included as part of this Lease will not be available until February 1, 2009.

          (d) The “Rent Commencement Date” as to the Base Rent shall be April 1, 2009. [Adjustments as to Base Rent shall occur on April 1^st of each calendar year thereafter, commencing as of April 1, 2010.] The “Rent Commencement Date” as to the triple-net pass-thru obligations of Lessee shall be twelve (12) months after the Rent Commencement Date (April 1, 2009).

          (e) Consistent with the above, the twelve (12) month rent “Abatement Period” shall apply to the Lessee’s triple-net pass-thru obligations, and not the Base Rent obligations. [By way of clarification, the instant twelve (12) month rent “Abatement Period” applicable to the Lessee’s triple-net pass-thru obligations shall commence as of April 1, 2009.]

          (f) The above “Base Rent” (aka Base Monthly Rent) was computed by calculating 5,250 square feet * $16.00 per square foot (for Year 1) and then by dividing that annual total ($84,000) by 12 = $7,000.00 per month (for Year 1). Escalations after Year 1 are more fully set forth in Paragraph 20 hereof.

     5. INSURANCE:

          Lessee agrees at his own cost and expense at all times during the term of this Lease to procure and maintain insurance policies, as follows, naming Lessor as an insured party on the leased premises, and the improvements thereon:

          (a) Lessee will purchase, during the term of this lease, business interruption, contents insurance, and comprehensive general liability insurance for bodily injury for limits up to $1,000,000.00 single limit and property damage in the minimum amount of $300,000.00 per occurrence arising out of the ownership, maintenance or use by the Lessee of the premises covered under this Lease agreement.

          (b) Lessee will purchase and maintain during the term of this Lease plate glass insurance.

          (c) Certificates of Insurance for the above mentioned policies shall be delivered to Lessor within fourteen (14) days after commencement date. Each of said policies shall be written with an insurance company reasonably satisfactory to Lessor and shall contain a provision that it may not be canceled without at least thirty (30) days written notice to Lessor. Lessee agrees to comply with any and all recommendations of any insurance company or companies concerning changes in Lessee’s manner of use of the leased premises which will avoid invalidating any policy of insurance carried on any building thereon written by such company or companies.

          (d) For any and all contractors/subcontractors who will be performing work within the leased premises at Lessee’s request a certificate of insurance naming 2150 I Corporation as additional insured needs to be provided at least two (2) business days prior to commencement of any work. The minimum coverage amounts shall be as follows:

          (i) [Intentionally deleted].

          (ii) Commercial General Liability, (including Bodily injury and Property Damage, Completed Operations, Broad Form Property Damage, Contractual Liability for the obligation of the subcontractor/contractor to indemnify contractor under this agreement and per jobsite aggregate endorsement) in the following coverage amounts:

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General Aggregate	$	2,000,000
Products/Completed Operations	$	2,000,000
Personal Injury	$	1,000,000
Each Occurrence	$	1,000,000
Fire Damage	$	50,000
Medical Expense	$	5,000

Lessee shall also provide to Lessor copies of the licenses, the purpose and nature of the work to be performed and the contact information of the principal for same (if other than a natural person) or of the person (if an individual) of any and all subcontractors/contractors to be retained, employed or engaged by Lessee to perform or render construction-related work or services in and to the leased Premises.

          (e) With respect to the maintenance of casualty insurance, to restore the Premises in the event of a casualty, Lessor represents that there exists a single insurance policy for the entire building, with respect to which Lessor — as Owner of the Commercial Parcel and Parking Area Parcel — is required to pay its percentage (25%) share, which expense, per the following Section in this Rider, is being passed through to Lessee. [Lessor to facilitate and effectuate an Amendment to the Operating Agreement subsequent to the full execution and mutual delivery of this Lease, which Amendment shall include additional insure and restoration provisons provided by Lessee’s legal counsel prior to the entry into this Lease.]

          (f) With respect to rent abatement, Lessor has disclosed to Lessee that Lessor does not maintain rent insurance. Therefore, Lessee will be required to procure / maintain its own rent insurance and/or, as it deems prudent and necessary, other related coverages (business interruption, loss of profit, etc.) Since Lessee is paying for that insurance, Lessee shall be entitled to rent abatement in any instance where the Premises are rendered untenantable — EXCEPT however in those instances where the Premises were rendered untenantable due to actions, or failure to act, of Lessee (including its agents, employees, invitees, patrons, etc.).

     6. COMMON AREA MAINTENANCE and REAL ESTATE TAXES:

Common Area Maintenance (CAM)

(a) Subject to and except as otherwise set forth in the following subparagraphs of this Paragraph 6, the common area maintenance shall be amortized over a twelve (12) month period and paid by Lessee to Lessor on a monthly basis, based on the percentage of ownership interest (25%) of the leased Premises as situated within the entire building. Notwithstanding the preceding sentence to the contrary, Lessor acknowledges and agrees that Lessee shall not be required to pay common area maintenance for twelve (12) months after the Lease Commencement Date. [Lessor estimates the Lessee’s proportionate share of the CAM is estimated to approximate $1.00 per square foot.]

(i)	By way of clarification, CAM shall include: garbage removal; water; sewer; insurance premiums for the building; snow removal; landscaping services; common area electrical; and common area janitorial.
(ii)	By way of further clarification, CAM shall not include: the cost of any capital improvements to the building or property; repairs, restoration or other work occasioned by fire, windstorm or any other casualty or made necessary due solely to the negligence of Lessor; income and franchise taxes of Lessor;

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	leasing commissions; expenses for the renovating of space for new tenants; interest or principal payments on any mortgage or other indebtedness of Lessor.
(iii)	In addition to the above, Lessee shall be responsible for the cost for janitorial services as to the Premises. Lessee will be allowed to select the vendor for its janitorial services that are Premises-specific.

General Real Estate Taxes

(b) Subject to and except as otherwise set forth in the following subparagraphs of this Paragraph 6, the annual general real estate taxes shall also be amortized over a twelve (12) month period and paid by Lessee to Lessor on a monthly basis, based on the percentage of ownership interest (25%) of the leased Premises as situated within the entire building — until such time as there is a divided PIN specific to the Commercial Parcel, at which time said divided, Commercial Parcel specific tax bill shall be passed through to Lessee in its entirety. Notwithstanding the preceding sentence to the contrary, Lessor acknowledges and agrees that Lessee shall not be required to pay general real estate taxes for twelve (12) months after the Lease Commencement Date. [Lessor estimates the Lessee’s proportionate share of the general real estate taxes is estimated to approximate $5.00 per square foot.]

(c) Lessee acknowledges and agrees that Lessee shall pay its proportionate (25.00%) share of attorneys’ and/or accountants’ fees (if any) advanced or incurred by Lessor as a result of retaining professional services to effectuate a reduction in the general real estate taxes for the building within which the leased Premises are situated. After there are separate, divided permanent index number(s) (and therefore tax bill(s)) for the Commercial Parcel and the Parking Area Parcel, Lessee shall be permitted to initiate its own real estate tax reduction efforts / protests in the event that Lessor chooses not to do so.

(d) Lessor represents that the permanent index number (PIN) for the Commercial Parcel within which the leased Premises is situated is 14-31-331-015-0000 (undivided).

(e) Lessee further acknowledges and agrees that:

     (i) the Commercial Parcel within which the leased Premise is situated was not submitted to the condominium form of ownership, but rather it co-exists with the condominium regime as a separate and divisible commercial parcel;

     (ii) copies of the recorded legal instruments — an Operating Declaration and a Condominium Declaration, with Plat of Survey attached thereto — were provided to Lessee prior to the execution hereof, and that this Lease shall be deemed to be subject to same;

     (iii) to the extent that the monthly payments made by Lessee to Lessor are insufficient to fully account for Lessee’s responsibility as to the actual tax bills, then Lessee shall then be required to replenish said deficiency within thirty (30) days after the date of notice from Lessor accounting for same and requesting said reimbursement. Conversely, to the extent that the monthly payments made by Lessee to Lessor are more than sufficient to fully account for Lessee’s responsibility as to the actual tax bill(s), then Lessor shall then account for same to Lessee and Lessee shall be entitled to a credit against the next month’s general real estate tax payment(s) due Lessor.

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     7. Lessee, at his expense, agrees to install portable fire extinguishers on the Premises as required by the insurance companies or Municipal authorities.

     8. Lessee shall provide its own garbage and refuse containers and shall be solely responsible for the removal of same so as to keep the Premises in a neat, clean and healthful condition. Lessee shall keep Premises at a temperature no lower than 65 degrees.

     9. UTILITIES:

          (a) All utilities (EXCEPT WATER) are to be separately metered, and shall be billed directly to Lessee. Lessee is responsible for its utilities consumption and shall pay for same to the applicable public utility companies. Lessee acknowledges and agrees that Lessee is in complete control of, and is solely responsible for, these expenses.

          (b) WATER is not currently sub-metered to the Premises. (In the event that Lessee elects to sub-meter water to the Premises, Lessee shall be charged with that facilitating same at Lessee’s expense.) As a result, Lessee shall be required to pay is proportionate share (25%) of the water bill — which is not separately metered — as affects the entire building within which the leased Premises is situated.

          (c) As aforesaid, the utilities, other than water, are to be separately metered. The Lessor represents that those meters have been or will be installed by Lessor.

     10. RENTAL PAYMENTS:

          (a) Rental payments shall be made payable to 2150 I Corporation and delivered to 1811 W. North Avenue, Suite 401 B, Chicago, Illinois 60622, on or before the first (1st) calendar day of each and every month throughout the Lease term, and any applicable renewals or extensions thereof.

          (b) Payments received by Lessor later than the fifth (5^th ) calendar day of the month shall be assessed a late charge of five percent (5%) of the Base Monthly Rent as additional rent the following month.

          (c) Nowithstanding the above to the contrary, while there is no written notice required or cure period afforded for monetary late payments, by contrast, as to non-monetary defaults, thirty (30) calendar days shall be provided to allow Lessee to cure any non-monetary default — EXCEPT however in those instances where Lessee’s non-monetary default would pose a dangerous and hazardous condition and/or involve a remediation of a more urgent nature.

          (d) In addition to the foregoing late payment penalties, failure by Lessee to pay by the fifteenth (15^th) calendar day of the month this late charge with the ensuing month’s rent shall constitute a default of this Lease.

          (e) Failure by Lessee to pay any applicable late charges with the ensuing month’s rent shall also constitute a default of this Lease.

     11. CONDITION OF PREMISES & MAINTENANCE OBLIGATIONS:

          (a) As to the building within which the leased Premises is situated, Lessor shall be responsible and shall pay for repairs and maintenance to the roof, foundation, supporting walls and for such other structural repairs as are necessary to keep the roof, foundation, supporting walls and other structural components of the building in good condition.

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          (b) As to the interior of the leased Premises, Lessee shall be responsible and shall pay for all other routine repairs and maintenance deemed to be non-structural, including, but not limited to, the HVAC system, electric and plumbing within the leased Premises.

          (c) Notwithstanding the preceding sentence to the contrary, Lessor represents to Lessee that as of the Possession Date all existing systems (including plumbing, gas, electric and HVAC) will be in good working order.

          (d) Lessor represents that the building itself (within which the leased Premises are situated) is already substantially ADA compliant. As to the leased Premises itself, Lessee shall be responsible to render same substantially ADA compliant.

     12. SIGNAGE: Lessee shall be permitted to install such signage as conforms to City of Chicago ordinances and/or regulations, and provided further that Lessor consents to same, which consent shall not be unreasonably withheld.

     13. All window treatments and signs shall be installed or displayed with Lessor’s consent and pre-approval, which consent and pre-approval Lessor may withhold in its sole and absolute and unfettered discretion, as aforesaid.

     14. The portion of the common areas immediately adjoining the leased Premises shall be kept clean and free from obstruction to Lessor’s satisfaction.

     15. The plumbing facilities shall not be used for any other purpose than is intended and no foreign substances (e.g., sanitary napkins) of any kind thrown therein.

     16. All locks shall be keyed to Lessor’s master key system. Should Lessee change said locks, a duplicate set must be delivered to the Lessor no later than 24 hours thereafter. All building gates (if any) and locks will be kept locked at all times. Notwithstanding the above to the contrary: security needs of the Lessee will not allow the Lessor to have pass keys. [However, Lessee nevertheless agrees to provide access to Lessor for purposes of showing the Premises to prospective new tenants in those circumstances in which Lessee has: (a) vacated/abandoned the Premises; and/or (b) failed to timely exercise its renewal option.

     17. Lessee will not play loud music or make noise that will unreasonably interfere with other tenants or occupants quiet enjoyment.

     18. Lessee shall not, without prior consent of Landlord, sell merchandise from vending machines or allow any coin operated vending or gaming machines.

     19. Lessee will be responsible for any acid marks, graffiti or glass breakage and the removal or replacement thereof, respectively.

     20. RENT:

          In addition to the triple-net payments (general real estate taxes; common area maintenance; insurance) required of Lessee under Paragraph 6 of this Rider, Lessee also covenants and agrees to pay to Lessor fixed rent during the term of this Lease, defined herein as “Base Rent” or “Base Monthly Rent” or “Monthly Rent”, without notice or demand, and without deduction or set-off of any kind, and payable monthly as follows:

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BASE MONTHLY RENT			Amount		% Increase
Lease Term:
Possession	12/12008 — 3/31/2009	[Possession period]		- 0 -		-0-
Year 1	4/1/2009-3/31/2010	[Base Rent commencement]	$	7,000.00		-0-
Year 2	4/1/2010-3/31/2011	[Triple-Net commencement]	$	7,245.00		3.5	%
Year 3	4/1/2011-3/31/2012		$	7,498.58		3.5	%
Year 4	4/1/2012-3/31/2013		$	7,761.03		3.5	%
Year 5	4/1/2013-3/31/2014		$	8,032.66		3.5	%
Year 6	4/1/2014-3/31/2015		$	8,313.80		3.5	%
Year 7	4/1/2015-3/31/2016		$	8,604.79		3.5	%
Year 8	4/1/2016-3/31/2017		$	8,905.95		3.5	%
Year 9	4/1/2017-3/31/2018		$	9,217.66		3.5	%
Year 10	4/1/2018-3/31/2019		$	9,540.28		3.5	%

[Lessee expressly acknowledges and agrees that Lessee’s obligation to pay monthly rent, including the “Base Rent”, is an independent covenant of this Lease.]

     21. OPTION (AKA RENEWAL) TERM(S):

          (a) Lessee shall have two (2) options to renew (or extend) this Lease for period of five (5) years each, on the same terms and conditions, except Base Rent.

          (b) The renewal period(s) shall commence at the expiration of the initial, fixed Lease Term, and/or, as applicable, the first option period.

          (c) Lessee must give written notice to Lessor of its intent to exercise this option not less than nine (9) months prior to the expiration of the fixed Lease Term, and/or, as applicable, the first option period. The written notice shall be in the form of certified or registered mail, return receipt requested to Lessor with a copy sent in the same manner to Lessor’s legal counsel.

          (d) The Base Monthly Rent for the renewal (option) term(s) shall be determined based on market rent, as follows:

(i)           the Base Rent shall be 100% of the prevailing market rent (“market rent”) for similar type space in comparable buildings within the general area of the Premises for the initial year, to be increased by three & ¹/2 (3.5%) percent of the preceding twelve (12) month term for each year thereafter. Lessor shall deliver to Lessee a notice which

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shall specify the annual market rent and the rent for the initial year and monthly installments thereof within thirty (30) days after Lessee’s notice of election to exercise its option to renew;

(ii)          should Lessee disagree with the market rent so determined by Lessor, Lessee may elect to either: cancel and rescind its renewal election; or demand, at any time within fifteen (15) days of Lessee’s receipt of Lessor’s notice aforesaid, that the determination of market rent shall be submitted to arbitration. Such arbitration shall be conducted in Chicago, Illinois in accordance with the following: each party shall designate in writing, within fifteen (15) days after any such notice, the name of an arbitrator who holds an M.A.I. designation or its equivalent and who is familiar with the Chicago market rentals. Within thirty (30) days after the designations, as aforesaid, the two arbitrators chosen shall each make their decision as to the market rent. Should such arbitrators disagree as to the market rent, but should the highest determination of market rent be within 10% of the lowest determination, the average of the amounts determined by the two arbitrators shall be deemed the market rent;

(iii)          in the event that the two arbitrators are in excess of 10% apart, and in the further event Lessor and Lessee cannot mutually agree as to the market rent within fifteen (15) days after the receipt of the determination by such two arbitrators, the two arbitrators shall appoint a third arbitrator of equal qualification who shall determine market rent within thirty (30) days of appointment. Whereupon the average of the amounts determined by the three arbitrators shall be deemed market rent; and

(iv)        any determination shall be binding upon Lessee and Lessor and shall be enforceable by an court exercising jurisdiction over the parties. The cost of the arbitration, excluding fees of counsel for Lessor and Lessee, shall be divided equally between the parties. In the event the arbitration is not resolved at the end of the term, Lessee shall pay as rent during the renewal term 110% of the Base Rent then being paid by Lessee hereunder. Upon determination of the market rent, the rental paid during the period of dispute shall be retroactively adjusted and appropriate payment made.

     22. BUILD-OUT (IF ANY) & CONDITION:

          (a) Landlord’s (aka Lessor’s) Work: None. Lessor shall deliver the Premises to Lessee as currently configured, in “AS IS” condition. Lessor represents that it is already in substantial compliance with base building laws.

          (b) Tenant’s (aka Lessee’s) Alterations: Lessee shall be permitted to make, at its sole cost and expense, non-structural changes/alterations within the Premises, with Lessor’s consent, which consent shall not be unreasonably withheld, but which consent Lessee acknowledges will first require Lessee to provide Lessor with a full description of any such proposed changes/alterations.

          (c) In the event that Lessee requests Lessor to perform any build-out above and beyond that which is set forth in subparagraph (a) above, same shall only be required of Lessor in the event that Lessor and Lessee separately and mutually agree as to the expense for same, as it is currently contemplated that Lessee will perform its own work, at its own cost, as aforesaid in subparagraph (b) above.

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     23. PARKING: The leased Premises shall be deemed to include the Parking Area Parcel, which consists of four (4) indoor parking spaces — provided however that Lessee acknowledges that two of the four parking spaces included as part of this Lease will not be available until February 1, 2009.

     24. FIRST OPPORTUNITY TO PURCHASE: None; not applicable.

     25. RIGHT OF FIRST REFUSAL:

          (a) During the term of this Lease and any Option Term, Lessor grants Lessee the right of first refusal to match any offer acceptable to Lessor for the purchase of all or any portion of the Commercial Parcel (within which the leased Premises is situated). Lessor shall deliver a copy of any such offer (the “Offer”) to Lessee within five (5) business days of Lessor’s receipt of the Offer. Lessee will then have ten (10) calendar days after receipt of a copy of such Offer within which to exercise Lessee’s right of first refusal by notifying Lessor of same in writing within said ten (10) calendar days’ period. If Lessee timely notifies Lessor of its election to exercise this right of first refusal, then Lessee shall be required to go to contract with Lessor, within ten (10) calendar days thereafter, based on the same exact terms and conditions as the Offer presented, save and except only to change the name of the buyer therein and the attorney for the buyer (assuming one is shown in the Offer).

          (b) If Lessee fails to timely notify Lessor of its election to exercise its right of first refusal, then this right of first refusal shall be rendered null and void. Similarly, if Lessee timely notifies Lessor of its election to exercise its right of first refusal, but then fails to timely go to contract, then this right of first refusal shall also be rendered null and void. Moreover, if Lessee timely notifies Lessor of its election to exercise its right of first refusal, and timely goes to contract, but then fails to timely close in accordance with said contract, then this right of first refusal shall also be rendered null and void.

          (c) Lessee acknowledges that, prior to the execution of this Lease and Rider, Lessor advised Lessee that Lessor has already elected to market / offer the commercial space for sale.

     26. TENANT IMPROVEMENT ALLOWANCE: None; not applicable.

     27. LESSEE’S CONTINGENCIES: None; not applicable.

     28. LESSOR’S CONTINGENCY: Lessor’s obligations under this Lease are contingent upon Lessor’s satisfaction, in its sole and absolute discretion, of ascertaining the viability of Lessee’s creditworthiness by and through a credit check of Lessee and/or any of its guarantor(s).

     29. QUIET ENJOYMENT: Provided that the Lessee is otherwise in full compliance with its obligations under the Lease and this Rider thereto, during the Lease term and, if timely exercised, the Option term, the Lessee shall be entitled to peaceably and quietly have, hold, and enjoy the use of the leased Premises, subject only to the provisions of this Lease.

     30. BROKERS/AGENTS/COMMISSIONS: Lessor shall pay a brokerage commission to Studley, Inc., based on: 2.5% of the net aggregate rent for Years 1 through 5; and 2.0% of the net aggregate rent for Years 6 through 10. The total commission payout shall equal $21,960.98, and shall be paid within thrity (30) days of Lease execution.

     31. DISCLOSURE: Lessor has disclosed to Lessee that the principal(s) of Lessor has a familial relationship with the agent(s) for the Lessor’s listing broker’s office (Prime Properties Realty).

14

     32. LESSEE ENTITY & ASSIGNMENT RIGHTS:

          (a) The Lessor acknowledges and agrees that the Lessee reserves unto itself the right, subsequent to the execution of this Lease, to form a new entity (to be comprised of the same principal(s) who comprise the current Lessor entity or, as applicable, any individual signatory hereto), and to assign its rights and obligations under this Lease to said new entity, without the consent of Lessee, PROVIDED HOWEVER that the individual guarantor(s) hereunder shall continue to guarantee the obligations of Lessee (aka Tenant), regardless of the entity designated as the Lessee (Tenant).

          (b) With respect to any other assignment, Lessee shall have the qualified right to assign its rights and obligations under this Lease to an assignee or sublease the Premises to a sublessee — PROVIDED HOWEVER that Lessor consents to same, which consent shall not be unreasonably withheld, but which consent may be reasonably conditioned (e.g., based on the intended use of the Premises and/or the financial viability of the prospective assignee/sublessee.)

     33. LESSOR ENTITY & ASSIGNMENT RIGHTS:

          (a) The Lessee acknowledges and agrees that the Lessor reserves unto itself the right, subsequent to the execution of this Lease, to form a new entity (to be comprised of the same principal(s) who comprise the current Lessor entity), and to transfer title in the Commercial Parcel to said new entity, and to assign its rights and obligations under this Lease to said new entity, without the consent of Lessee. [If and when these events transpire, Lessor shall notify Lessee in writing of same, at which point Lessee would then be directed to make its rental payments on a go-forward basis to that new entity.]

          (b) With respect to the sale of the Commercial Parcel within which the Premises is situated, Lessor shall have the right to assign its rights and obligations under this Lease to the buyer — PROVIDED HOWEVER that: any such buyer would be required to receive title subject to this Lease; and any such contract shall be subject to Lessee’s right of first refusal hereunder.

          (c) This Paragraph is clarified / revised to accommodate assignments by Lessee to affiliates and to permit transfers by Lessee due to merger.

     34. SNDA: A subordination, non-disturbance and attornment agreement, in form and substance provided by Lessee, and agreed to by Lessor’s existing lender (as to both form and substance) prior to the entry into this Lease, is, or will be, attached hereto and made a part hereof.

     35. SUBROGATION: Lessor and Lessee hereby mutually waive their respective rights of recovery against each other for any loss of, or damage to, either parties’ property to the extent that such loss or damage is insured by an insurance policy required to be in effect at the time of such loss or damage. Each party shall obtain any special endorsements, if required by its insurer whereby the insurer waives its rights of subrogation against the other party. This provision is intended to waive fully, and for the benefit of the parties hereto, any rights and/or claims which might give rise to a right of subrogation in favor of any insurance carrier. The coverage(s) obtained by Lessee pursuant to this Lease shall include, without limitation, a waiver of subrogation endorsement attached to the certificate of insurance.

     36. AMENDMENT TO OPERATING DECLARATION: Lessor acknowledges and agrees that, subsequent to the full execution and mutual delivery of this Lease, it shall facilitate and effectuate an Amendment to the Operating Agreement, which Amendment shall include additional insurance and restoration provisons provided by Lessee’s legal counsel prior to the entry into this Lease, and shall forward to Lessee’s legal counsel a recorded copy thereof after the recordation thereof.]

*************************************************

15

[end of text; signatures of the parties below]

     In Witness Whereof, the undersigned Lessee shall be deemed for all intents and purposes to have submitted its Offer to Lease on this 1^st day of December, 2008.

LESSEE:

Midwest Bank and Trust Company, an Illinois banking corporation
By:
	Bruno P. Costa
	Its: Executive Vice President

LESSOR:

2150 I Corporation
an Illinois corporation
By:
	Jakub Kosiba
	Its: Treasurer

16

EX-10.66

EXHIBIT 10.66

January 30, 2008

Ms. JoAnn Lilek
30 Pine Avenue
LaGrange Park, IL 60526

Dear JoAnn,

We are pleased to extend to you an offer to join Midwest Bank and Trust Company as Executive Vice President & Chief Financial Officer. The terms of the offer include the following:

Effective Date: You will report on a date to be mutually agreed upon no later than March 17, 2008. You will be headquartered in the Melrose Park Banking Center and report directly to me.

Base Salary: $330,000. Your annual salary will be paid bi-weekly on Thursdays and will be pro-rated over the payroll periods remaining (of total 26 periods) in 2008. Thereafter, the Board of Directors of Midwest Banc Holdings, Inc. reviews officers’ salaries on an annual basis each December.

Signing Bonus: 5,000 restricted shares of stock. You agree to return the bonus if you leave the company for any reason prior to the completion of one year of employment.

Management Incentive Plan: As an officer of the bank you are eligible to participate in the Midwest Banc Holdings, Inc. Management Incentive Plan. Annual incentives may range between 0-40% of base salary based upon actual individual and group results to budgeted performance levels. You will be eligible for full participation in the 2008 plan as approved by the Board of Directors.

Stock and Incentive Plan: You are also eligible to participate in future offerings as determined by the Midwest Banc Holdings, Inc. Board of Directors. Stock awards may range between 0-40% of base salary.

Executive Retirement Plan: You will be eligible to participate in Midwest Banc Holdings’ Supplemental Executive Retirement Program (SERP). A summary is attached.

Transitional Employment Agreement: You will be eligible to enter into a two year Transitional Employment Agreement which provides for continuing employment, or salary and benefit continuation for a period of 24 months following the date on which a change in control occurs. A copy is attached.

Ms. JoAnn Lilek
Letter dated January 30, 2008
Page -2-

Severance Policy: Midwest’s severance policy provides six months severance in the event a senior officer is asked to leave the company without cause. You will be eligible for an additional six months for a total of one year’s base salary in the event of an involuntary not for cause separation of employment.

Vacation and Holidays: Effective in 2008, you will be eligible for four (4) weeks annual vacation. Vacation leave is earned on an accrued basis per month during the year. The bank establishes holiday schedules each year consistent with local market and operating circumstances. Midwest Bank and Trust Company provides nine holidays each year.

Personal Days: Effective in 2008, you will also receive eight (8) personal days a year, which may be used during the year or banked for future consideration in accordance with Midwest’s policy. Personal leave is earned on an accrued basis per month during the year.

As part of your employment processing, additional materials will be available which provide greater detail regarding our Human Resources policies, programs, and operating procedures. This offer is contingent upon your successful completion of our new hire screening process.

This letter does not constitute an employment contract in any manner. Your employment is strictly “at will” and may be canceled at any time for any reason, at the option of either Midwest Banc Holdings, Inc. or yourself, except as otherwise provided by law. We trust you will find this offer acceptable and if so, please sign in the area provided at the bottom of this page and return one copy to me by Tuesday, February 7, 2008.

JoAnn, we look forward to your acceptance of our offer to join Midwest Banc Holdings, Inc. and Midwest Bank and Trust Company. The Bank will provide you with positive opportunities and challenges as Executive Vice President & CFO. I look forward to working with you in the future.

Sincerely,

/s/James J. Giancola  

James J. Giancola 

President & Chief Executive Officer Midwest Banc Holdings, Inc. 

Reviewed and accepted:	/s/ JoAnn Sannasardo Lilek	2/12/08
	Signature	Date

EX-10.67

Exhibit 10.67

M&I Marshall & Ilsley Bank

770 North Water Street

Milwaukee, WI 53202-3509

414 765-7700

mibank.com

March 4, 2009

Ms. JoAnn Lilek
Executive Vice President and CFO
Midwest Banc Holdings, Inc.
501 West North Avenue
Melrose Park, Illinois 60160

Re: Waiver Letter.

Dear Ms. Lilek:

     Please make reference to that certain conditional waiver letter dated September 23, 2008 (the “Prior Waiver Letter”).

     M&I Marshall & Ilsley Bank (“M&I”) and its participant hereby waive compliance by Midwest Banc Holdings, Inc. (the “Company”) with the requirement specified in the Prior Waiver Letter that the Company raise a minimum of $100,000,000.00 in new capital pursuant to an offering of common or convertible preferred stock in the Company.

     This limited waiver is contingent on the Company prepaying the principal amount of the indebtedness owed to M&I and its participant by at least (i) $5,000,000 on or before July 1, 2009, (ii) $5,000,000 on or before October 1, 2009, and (iii) $5,000,000 on or before January 4, 2010; provided, however, that if the Company raises an additional $15,000,000 in new capital pursuant to an offering of common or convertible preferred stock in the Company, then the Company shall not be obligated to make any principal payment specified above occurring after the date on which the Company actually receives such $15,000,000 in additional capital.

     If the Company fails to comply with the requirements of this waiver letter, then this waiver shall be unilaterally withdrawn and of no further force and effect. This limited waiver shall be effective only for the specific purposes set forth herein, and shall not be deemed to be a further or continuing waiver of any other section or provision of the Company’s loan documents with M&I

Very truly yours,
M&I MARSHALL & ILSLEY BANK
By:	/s/ John Kadlac
Name:	John Kadlac
Title:	Vice President and Senior Relationship Manager

EX-12.1

Exhibit 12.1

RATIOS OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS

 

     The following table sets forth the Company’s consolidated ratios of earnings to fixed charges and preferred stock dividends for the periods indicated:

	Year Ended December 31,
	2008			2007			2006		2005			2004
Income (loss) before income taxes and discontinued operations	$	(213,346	)	$	21,823		$	19,168	$	(7,914	)	$	203
Fixed charges:
Interest expense and amortization of capitalized costs of indebtedness	$	100,695		$	111,453		$	84,201	$	51,561		$	42,080
Estimated interest within rental expense		839			402			296		209			197
Preferred stock dividends		5,024			204			—		—			—
Total fixed charges	$	106,558		$	112,059		$	84,497	$	51,770		$	42,277
Preferred stock dividends		(5,024	)		(204	)		—		—			—
Total earnings	$	(111,812	)	$	133,678		$	103,665	$	43,856		$	42,480
Total fixed charges	$	106,558		$	112,059		$	84,497	$	51,770		$	42,277
Interest expense on deposits		66,025			76,692			57,518		34,067			27,652
Total fixed charges excluding deposit interest	$	40,533		$	35,367		$	26,979	$	17,703		$	14,625
Ratio of earnings to combined fixed charges and preferred stock dividends:
Including deposit interest		(1.05	)		1.19			1.22		0.83			0.99
Excluding deposit interest		(2.76	)		3.79			3.82		2.42			2.87

EX-21.1

EXHIBIT 21.1

SUBSIDIARIES OF THE REGISTRANT

	Jurisdiction of
	Incorporation
Subsidiary	or Organization
Midwest Bank and Trust Company	Illinois
MBHI Capital Trust III	Delaware
MBHI Capital Trust IV	Delaware
MBHI Capital Trust V	Delaware
Royal Capital Trust I	Delaware
Northwest Suburban Capital Trust I	Delaware
MBTC Investment Company	Nevada
Midwest Funding, L.L.C.	Delaware
Midwest Financial and Investment Services, Inc.	Illinois

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (Nos. 333-156474, 333-153591 and 333-147295) and Form S-8 (Nos. 333-150983, 333-134180 and 333-132491) of Midwest Banc Holdings, Inc. of our report dated March 11, 2009 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

PRICEWATERHOUSECOOPERS LLP

Chicago, Illinois
March 11, 2009

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, J.J. Fritz, President and Chief Executive Officer, certify that:

1) I have reviewed this annual report on Form 10-K of Midwest Banc Holdings, Inc.;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/  J.J. Fritz

J.J. Fritz

President and Chief Executive Officer

Date: March 11, 2009

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, JoAnn Sannasardo Lilek, Executive Vice President and Chief Financial Officer, certify that:

1) I have reviewed this annual report on Form 10-K of Midwest Banc Holdings, Inc.;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely effect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/  JoAnn Sannasardo Lilek

JoAnn Sannasardo Lilek

Executive Vice President and Chief Financial Officer

Date: March 11, 2009

EX-32.1

EXHIBIT 32.1

CERTIFICATION

In connection with the Annual Report of Midwest Banc Holdings, Inc. (the “Company”) on Form 10-K

for the period ended December 31, 2008 as filed with the Securities and Exchange Commission on

March 11, 2009 (the “Report”), the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350,

as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/  J. J. Fritz

Name:     J. J. Fritz

Title:  President and

Chief Executive Officer

Date: March 11, 2009

/s/  JoAnn Sannasardo Lilek

Name:     JoAnn Sannasardo Lilek

Title:  Executive Vice President and

Chief Financial Officer

Date: March 11, 2009