1051379--3/31/2010--MIDWEST_BANC_HOLDINGS

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Due to the Bank s significantly undercapitalized status, the Federal Reserve Bank has issued a Prompt Corrective Action Directive ( PCA ) pursuant to which the Bank must either become adequately capitalized or be sold within 45 days of the PCA. Any failure to comply with the terms of the PCA will have a material adverse effect on the business of the Company. The Company does not have the ability to pay amounts that will become immediately due and payable upon the expiration of the Forbearance Agreement with the Company s primary lender on March 31, 2010. If the Company fails to raise additional capital in a timely manner, the Company may be forced to seek bankruptcy protection and/or the Bank could be placed under FDIC receivership. As a result of the above-described events and circumstances, the Company has determined that there is substantial doubt as to the Company s ability to continue as a going concern. The Company has incurred cumulative losses since January 1, 2008 and expect to incur losses in the future. The Company s results of operations, financial condition and business may be materially, adversely affected if it fails to successfully implement the Capital Plan. Changes in economic conditions, in particular a continued economic slowdown in Chicago, Illinois, has hurt and could continue to hurt the Company s business materially. A large percentage of the Company s loans are collateralized by real estate, including construction loans, and adverse changes in the real estate market may result in continued or increased losses and continue adversely affect the Company s profitability. Nonperforming assets take significant time to resolve and adversely affect the Company s results of operations and financial condition. 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. 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 and the Bank may not be able to access sufficient and cost-effective sources of liquidity necessary to fund operations and meet payment obligations under their existing funding commitments, including the repayment of brokered deposits. The Company s cost of funds for banking operations may increase as a result of general economic conditions, interest rates and competitive pressures. The Company is in breach of certain financial covenants under its Loan Agreements and its lender has the right to take certain courses of action that would, if exercised, have a material adverse effect on the Company s operations and ability to continue as a going concern. There is a risk that the counterparty to certain of the Bank s existing repurchase agreements may have the right to terminate the repurchase agreements, which could materially and adversely affect the Company s financial position and earnings in the period of termination. The Company s common stock could be delisted from Nasdaq. Markets have experienced, and may continue to experience, periods of high volatility accompanied by reduced liquidity. Concern of the Company s customers over deposit insurance may cause a decrease in deposits. The Bank s deposit insurance premium could be substantially higher in the future, which could have a material adverse effect on the Company s future earnings. Defaults by another financial institution could adversely affect financial markets generally. The widespread effect of falling housing prices on financial markets has adversely affected and could continue to adversely affect the Company s profitability, liquidity, and financial condition. The value of securities in the Company s investment securities portfolio may be negatively affected by continued disruptions in securities markets. 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 further reduce its deferred tax assets by a valuation allowance, its financial condition and results of operations would be negatively affected. 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. 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 must seek additional capital in the future, but capital may not be available when it is needed. The Company s effective tax rates may be adversely affected by changes in federal and state tax laws. An interruption in or breach in security of the Company s information systems may result in a loss of customer business. The Company continually encounters technological change. The Company is subject to various reporting requirements that increase compliance costs, and failure to comply timely could adversely affect its reputation and the value of its securities. The Company s ability to attract and retain management and key personnel may affect future growth and earnings and may be adversely affected by compensation and employment restrictions to which it may be subject. The Company s business may be adversely affected by the highly regulated environment in which it operates. 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. The limitations on incentive compensation contained in the ARRA may adversely affect the Company s ability to retain its highest performing employees. The Company is subject to claims and litigation pertaining to fiduciary responsibility. Future sales of the Company s common stock or other securities will dilute the ownership interests of its existing stockholders and could depress the market price of the Company s common stock. Shares of the Company s preferred stock may be issued in the future which could materially adversely affect the rights of the holders of the Company s common stock. Offerings of debt, which could be senior to the Company s common stock upon liquidation, or preferred equity securities, which may be senior to its common stock for purposes of dividend distributions or upon liquidation, may adversely affect the market price of the Company s common stock. The outstanding shares of the Company s Series G preferred stock may be converted by the U.S. Treasury at any time or will be converted if certain conditions are met, which will dilute the Company s existing stockholders in the case of conversion. In addition, the Company s ability to pay dividends on those shares is restricted. The Company is exposed to risk of environmental liabilities with respect to properties to which it takes title.

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1051379--3/31/2010--MIDWEST_BANC_HOLDINGS_INC