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CORRESP
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corresp

May 20, 2005

Mr. Paul Cline

Senior Accountant

United States Securities and Exchange Commission

Washington, D.C. 20549

    Re:

    Midwest Banc Holdings, Inc.

Form 10-K filed March 11, 2005

File No. 001-13735

Dear Mr. Cline:

     Reference is made to your letter of April 19, 2005 commenting on the Annual Report on Form
10-K filed by Midwest Banc Holdings, Inc. (“Midwest”). I have set forth below each of your
comments followed by Midwest’s response.

Form 10-K for the Year Ended December 31, 2004:

Item 9A. Controls and Procedures – page 55

    Comment 1:

    We note your statement that the chief executive
officer and chief financial officer have
concluded that your disclosure controls and
procedures are effective “except for financial
reporting controls established to monitor the
measurement of floating rate perpetual preferred
equity securities, classified as
available-for-sale, for purposes of determining
if any such securities are other than temporarily
impaired.” Given the exception noted, it remains
unclear whether your chief executive officer and
chief financial officer have concluded that your
disclosure controls and procedures are effective.
Please revise your disclosure to state, in clear
and unqualified language, the conclusions reached
by your chief executive officer and your chief
financial officer on the effectiveness of your
disclosure controls and procedures. For example,
if true, you can state that your disclosure
controls and procedures are effective including
consideration of the identified matter, so long
as you provide appropriate disclosure explaining
how the disclosure controls and procedures were
determined to be effective in light of the
identified matter. Or, if true, you can state
that given the identified matters, your
disclosure controls and procedures are not
effective. You should not, however, state the
conclusion in your current disclosure, which
appears to state that your disclosure controls
and procedures are effective except to the extent
they are not effective.

Mr. Paul Cline

May 20, 2005

Page 2

    Response:

    Midwest has revised its Item 9A Evaluation of
Disclosure Controls and Procedures to state in
clear and unqualified language, the conclusion
reached by the chief executive officer and chief
financial officer on the effectiveness of our
disclosure controls and procedures which are not
effective. Please see Exhibit “A” to this letter
which shows the relevant portion of the above
referenced item.

Financial Statements

Note 3 – Securities – page F-14

    Comment 2:

    We note that you attribute unrealized losses on
securities within the 12 months or more category
to obligations of U.S. government agencies and
mortgage-backed securities and that they are
primarily related to securities issued by FNMA
and FHLMC. If you have presented securities
issued by a government sponsored entity in the
obligations of U.S. government agencies line
item, please revise to separately disclose such
securities as they are not backed by the U.S.
government. Also, revise to specifically
identify the nature the obligations of U.S.
government agencies with unrealized losses and
describe in more detail why the impairments are
not other than temporary.

    Response:

    Midwest has revised “Note 3 – Securities – page
F-14” to disclose those securities that are
obligations of U.S. government agencies and
mortgage-backed-securities. Furthermore, this
note has been revised to identify the nature of
U.S. government-sponsored entities with
unrealized losses and we describe why the
impairments are not other than temporary. Please
see Exhibit “B” to this letter which shows the
relevant portion of the above referenced note.

    Please note that Midwest’s investments in securities with unrealized losses for
a period of twelve months or more have been temporarily impaired, on a weighted
average basis, for 17 months. Such unrealized losses are due to unfavorable
movements in interest rates. Midwest has the ability and intent of holding
these securities until interest rates improve and these securities recover in
fair value. This is demonstrated based on the following:

    –
    Midwest has adequate cash on hand to
finance its operations for the foreseeable future.

    –
    In particular, our 2005 budgets do not
project the sale of securities in the foreseeable future to meet
either operating or capital cash requirements.

Mr. Paul Cline

May 20, 2005

Page 3

    Midwest’s impairment analysis also considers the credit risk of each issuer.
Some securities are direct obligations of the U.S. government. All other debt
and equity securities are investment grade securities rated A or better by
Moody’s, S&P and/Fitch. Each issuer is considered strong and their respective
abilities to continue as going concerns are solid.

Note 19 – Off-Balance-Sheet Risk and Concentrations of Credit Risk – page F-28

    Comment 3:

    We note that as of December 31, 2004 you had $146.3 million of commitments to extend
credit, $27.4 million of which were fixed rate loan commitments. Supplementally tell
us how you considered whether any of these commitments to extend credit were derivative
instruments based on the guidance in SFAS 133, as amended by SFAS 149.

    Response:

    Midwest reviewed SFAS 133, as amended by SFAS 149, and Derivatives Implementation Group
Issue C-13, “Scope Exceptions: When a Loan Commitment Is Included in the Scope of
Statement 133” to ascertain whether its commitments to extend credit should be
accounted for as derivative financial instruments.

    Paragraph 7: e: i. of SFAS 149 adds paragraph 10(i) to SFAS 133. Paragraph
10(i) reads, “Issuers of commitments to originate mortgage loans that will be
held for investment purposes, as discussed in paragraphs 21 and 25 of Statement
65, are not subject to this Statement. In addition, issuers of loan commitments
to originate other types of loans (that is, other than mortgage loans) are not
subject to the requirements of this Statement.”

    Furthermore, paragraph A33 SFAS 149 states in part: “Paragraph 10(i) of
Statement 133 therefore provides a scope exception for holders (the potential
borrowers) of all commitments to originate loans, issuers of commitments to
originate other than mortgage loans, and issuers of commitments to originate
mortgage loans that will be held for investment. However, with respect to
issuers of commitments to originate loans that will be held for resale under
Statement 65, the Board concluded that those commitments should be accounted for
by issuers as derivatives under Statement 133.”

    Midwest confirms that none of the $146.3 million in commitments to extend credit
relate to mortgage loans that are held for resale, as defined in SFAS 65,
paragraphs 21 and 23. Accordingly, all of the Company’s commitments to extend
credit are excluded from the scope of SFAS 133 (as amended by SFAS 149) and,
hence, are not considered to be derivative financial instruments for accounting
purposes.

Mr. Paul Cline

May 20, 2005

Page 4

Exhibits 31.1 and 31.2

    Comment 4:

    Please revise both your Certification of Principal Financial
Officer and Certification of Principal Executive Officer to
amend paragraph 4 as follows: “... and internal control over
financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)....”. Refer to Item 601 of Regulation
S-K.

    Response:

    Midwest has revised Exhibits 31.1 and 31.2 as recommended
above. Exhibits “C” and “D” to this letter are the revised
Certification of Principal Executive Officer and Principal
Financial Officer.

*****

     Please be advised that Midwest understands and agrees that:

    •
    Midwest is responsible for the adequacy and accuracy of the disclosure in the
filing;

    •
    Staff comments or changes to disclosure in response to staff comments do not
foreclose the Commission from taking any action with respect to the filing; and

    •
    Midwest may not assert staff comments as a defense in any proceeding initiated by
the Commission or any person under the federal securities laws of the United States.

Mr. Paul Cline

May 20, 2005

Page 5

Please contact the undersigned at (708) 450-6759 if you have any comments or questions regarding
these matters.

Sincerely,

Daniel R. Kadolph

Senior Vice President and

Chief Financial Officer

Mr. Paul Cline

May 20, 2005

Page 6

EXHIBIT “A”

ITEM 9A EXCERPT WITH REVISIONS MARKED

     The revised evaluation reads, “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 240.13a-15(e)). Based on
that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded
that the Company’s current disclosure controls and procedures are not 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.” Deleted portion: “except for financial reporting controls
established to monitor the measurement of floating rate perpetual preferred equity
securities, classified as available-for-sale, for purposes of determining if any such
securities are other-than-temporarily impaired.”

     Please refer to the following discussion for further details.

Mr. Paul Cline

May 20, 2005

Page 7

EXHIBIT “B”

NOTE 3 EXCERPT WITH REVISIONS MARKED

(Bold underlined markings are revisions)

     The following is a summary of the fair value of securities with unrealized losses and an aging
of those unrealized losses:

    December 31, 2004

    Less Than 12 Months

    12 Months or More

    Total

    Weighted-

    Average

    Number of

    Months in

    Unrealized

    Fair

    Unrealized

    Fair

    Unrealized

    Loss

    Fair

    Unrealized

    Value

    Losses

    Value

    Losses

    Position

    Value

    Losses

    (In thousands)

    Securities available-for-sale:

    Obligations of U.S.
government-sponsored entities (1)

    $
    29,306

    $
    (528
    )

    $
    341,528

    $
    (26,148
    )

    16.7

    $
    370,834

    $
    (26,676
    )

    Mortgage-backed securities:

    U.S. government agencies (2)

    345

    (1
    )

    748

    (8
    )

    16.7

    1,093

    (9
    )

    U.S. government-sponsored entities (1)

    245

    (5
    )

    38,886

    (827
    )

    17.0

    39,131

    (832
    )

    Equity securities (3)

    3,975

    (6
    )

    7,445

    (56
    )

    15.7

    11,420

    (62
    )

    Corporate and other debt
securities

    —

    —

    10,653

    (421
    )

    16.2

    10,653

    (421
    )

    Total available-for-sale

    $
    33,871

    $
    (540
    )

    $
    399,260

    $
    (27,460
    )

    16.7

    $
    433,131

    $
    (28,000
    )

    Securities held-to-maturity:

    Mortgage-backed securities:

    U.S. government-sponsored entities (1)

    $
    40,874

    $
    (597
    )

    $
    —

    $
    —

    —

    $
    40,874

    $
    (597
    )

    Total temporarily impaired
securities

    $
    74,745

    $
    (1,137
    )

    $
    399,260

    $
    (27,460
    )

    16.7

    $
    474,005

    $
    (28,597
    )

    (1)

    Includes obligations of the Federal Home Loan Corporation (FHLMC) and Federal
National Mortgage Association (FNMA).

    (2)

    Includes obligations of the Government National Mortgage Association.

    (3)

    Includes issues from government-sponsored entities (FNMA and FHLMC).

     The Company recognized a $10.1 million “other-than-temporary” non-cash impairment charge
on its investment in a single Federal National Mortgage Association preferred stock issuance.
Although this investment has a variable, tax-advantaged dividend rate that resets every two years
at the two-year treasury rate less 16 basis points and carries an investment grade rating, the
market value of this investment is impacted by the current and expected level of interest rates.
As a result, this investment has reflected varying loss positions since 2003. While the Company
expected this investment to recover its original cost as interest rates increase and had both the
intent and ability to hold the investment until such recovery occurred, this investment was deemed
to be other-than-temporarily impaired given the duration of the unrealized loss position and
uncertainty as to the timing of a full recovery. It is the practice of the Company not to retain
securities that are classified other-than-temporarily impaired. These securities were liquidated
in February 2005 at a $1.3 million gain in excess of the year-end value.

Mr. Paul Cline

May 20, 2005

Page 8

     Management does not believe any remaining individual unrealized loss as of December 31, 2004
represents other-than-temporary impairment.

    •
    The unrealized loss for U.S. government-sponsored entities agencies and
mortgage-backed securities relate primarily to debt securities issued by FNMA
and FHLMC; each security has a stated maturity date. FNMA is rated Aa3, AA- and A+
by Moody’s, S&P and Fitch, respectively. FHLMC is rated Aa3 and AA- by Moody’s and
Fitch, respectively. The obligations of U.S. government-sponsored entities are notes
with a weighted average maturity of approximately 8 years and a weighted average rate
of 4.12%; these notes are all fixed rate obligations.  The obligations of the
mortgage-backed securities are notes with a weighted average maturity of approximately
28 years and a weighted average rate of 5.50%.

    •
    The unrealized losses reported for corporate and other debt securities relate to
securities which were rated single A minus or more better by a nationally
recognized rating agency.

The unrealized losses in the previous table are primarily attributable to changes in interest
rates. A de minimis amount of the unrealized losses may be caused by slight diminutions in
the creditworthiness of the issuer, particularly related to the Company’s investments in
corporate and other debt securities.  Nevertheless, the Company has both the intent
and ability to hold each of the securities contained in the previous table for a
time necessary to recover its amortized cost. The above temporary loss is reflected net of tax
in other comprehensive loss, which does not impact regulatory capital.

Mr. Paul Cline

May 20, 2005

Page 9

EXHIBITS “C”

EXHIBIT 31.1 REVISED CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

(Bold underlined markings are revisions)

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, James J. Giancola, 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 annual 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 Ac