10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year-ended December 31, 2002

OR

¨ 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 0-10967

FIRST MIDWEST BANCORP, INC.

(Exact name of registrant as specified in its charter)

Delaware	36-3161078
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

300 Park Blvd., Suite 405, P.O. Box 459

Itasca, Illinois 60143-9768

(Address of principal executive offices) (zip code)

Registrant’s telephone number, including area code: (630) 875-7450

Securities registered pursuant to Section 12(b) of the Act: None

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

Title of each class:	Name of each exchange on which registered:
Common Stock, $.01 Par Value	NASDAQ Market System
Preferred Share Purchase Rights	NASDAQ Market System

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  x   No  ¨.

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.  x.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes  x  No  ¨.

The aggregate market value of the registrant’s outstanding voting common stock held by non-affiliates on June 28, 2002, determined using a per share closing price on that date of $27.78, as quoted on the NASDAQ stock market, was $1,206,439,507.

At March 3, 2003 there were 46,885,754 shares of common stock, $.01 par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Registrant’s Proxy Statement for the 2003 Annual Shareholders’ Meeting – Part III

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FORM 10-K

TABLE OF CONTENTS

		Page
Part I
ITEM 1.	Business	3
ITEM 2.	Properties	8
ITEM 3.	Legal Proceedings	8
ITEM 4.	Submissions of Matters to a Vote of Security Holders	8
Part II
ITEM 5.	Market for the Registrant’s Common Equity and Related Stockholder Matters.	9
ITEM 6.	Selected Financial Data	10
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
ITEM 7a.	Qualitative and Quantitative Disclosures about Market Risk	39
ITEM 8.	Financial Statements and Supplementary Data	40
ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	67
Part III
ITEM 10.	Directors and Executive Officers of the Registrant	68
ITEM 11.	Executive Compensation	68
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management	68
ITEM 13.	Certain Relationships and Related Transactions	68
ITEM 14.	Controls and Procedures	68
Part IV
ITEM 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	69

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PART I

ITEM 1. BUSINESS

First Midwest Bancorp, Inc.

First Midwest Bancorp, Inc. (“First Midwest” or the “Company”) is a Bank holding company incorporated in Delaware in 1982 for the purpose of becoming a multi-bank holding company registered under the Bank Holding Company Act of 1956, as amended (the “Act”). The Company is one of Illinois’ largest publicly traded banking companies with assets of $6.0 billion at year-end 2002 and is headquartered in the Chicago suburb of Itasca, Illinois.

The Company operates two 100%-owned subsidiaries (the “Affiliates”): First Midwest Bank (the “Bank”) and First Midwest Insurance Company, employing 1,517 full time equivalent employees at December 31, 2002.

The Company has responsibility for the overall conduct, direction, and performance of its Affiliates. The Company provides advice and specialized services to the Affiliates in various financial, operational, and administrative areas; establishes Company policies and procedures; and serves as a source of strength in providing capital and other resources as needed. Responsibility for the management of the Affiliates rests with their respective Boards of Directors and Officers.

First Midwest Bank

At December 31, 2002, the Bank had $6.0 billion in total assets, $4.2 billion in total deposits, and operated 67 banking offices primarily in suburban metropolitan Chicago.

The Bank is engaged in commercial and retail banking and offers a broad range of lending, depository, and related financial services, including accepting deposits; commercial and industrial, consumer and real estate lending; collections; trust and investment management services; safe deposit box operations; and other banking services tailored for individual, commercial and industrial, and governmental customers. The Bank also provides an electronic banking center on the Internet at www.firstmidwest.com, which affords transactional capabilities for its customers and information about its products and services to the general public.

In 2001, the Company merged its stand alone investment management subsidiary, First Midwest Trust Company, which provided trust and investment management services, acting as executor, administrator, trustee agent and various other fiduciary capacities, into the Bank. The merger allowed for a more seamless and integrated delivery of such investment management services to the Bank’s extensive commercial and personal client base and expanded opportunities to fully meet the financial needs of its clients consistent with the Bank’s mission.

The Bank is comprised of two divisions, a sales division (structured along commercial and retail product lines) in five geographical regions and a centralized support division providing corporate, administrative, and support services through various functional departments. The Company believes that this structure further leverages customer relationships and enhances sales effectiveness.

First Midwest Insurance Company

First Midwest Insurance Company operates as a reinsurer of credit life, accident, and health insurance sold through the Bank, primarily in conjunction with the consumer lending operations. All sales and support activities of First Midwest Insurance Company are discharged by Bank and Company personnel.

Competition

Illinois, and more specifically the metropolitan Chicago area, is a highly competitive market for banking and related financial services. Competition is generally expressed in terms of interest rates charged on loans and paid on deposits, the ability to garner new deposits, the scope and type of services offered, extended banking hours, delivery of bank services through branches, ATMs and the Internet, and the offering of additional services such as investment management, fiduciary and brokerage services. The Bank competes with other banking institutions and savings and loan associations, personal loan and finance companies, and credit unions within its market areas. In addition, the Bank competes for deposits with money market mutual funds and investment brokers. The Bank is experiencing increased competition in its market areas from the acquisition of local financial institutions by out-of-state commercial banking institutions. In fact, a number of local and out-of-state financial institutions have publicly announced plans for large-scale branch office expansion, also called de novo expansion, in the suburban Chicago markets.

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The Bank also competes with retail and discount stockbrokers, investment advisors, mutual funds, insurance companies, and to a lesser extent, financial institutions for investment management clients. Factors influencing this type of competition generally involve the variety of products and services that can be offered to clients. With the proliferation of investment management service companies such as mutual funds and discount brokerage services, competition for investment management services comes not only from financial service providers within market areas served but also competitors outside of the geographic areas in which the Bank maintains offices.

Offering a broad array of products and services at competitive prices is an important element in competing for customers. However, the Company believes that delivering quality services, through a systematic approach in which a customer’s financial needs are the object and measurement of sales activities, is the most important aspect in retaining and expanding its customer base and differentiates First Midwest from many of its competitors.

Supervision and Regulation

On June 30, 2001, the Bank converted from a national banking association to an Illinois banking corporation.

The Company and its Affiliates are subject to regulation and supervision by various governmental regulatory authorities including, but not limited to, the Federal Reserve Board, the Federal Deposit Insurance Corporation (the “FDIC”), the Illinois Commissioner of Banks and Real Estate Companies (the “Commissioner of Illinois”), and the Arizona Department of Insurance. Financial institutions and their holding companies are extensively regulated under federal and state law. The effect of such statutes, regulations, and policies can be significant and cannot be predicted with a high degree of certainty.

Federal and state laws and regulations generally applicable to financial institutions, such as the Company and the Affiliates, regulate, among other things, the scope of business, investments, reserves against deposits, capital levels relative to operations, the nature and amount of collateral for loans, the establishment of branches, mergers, consolidations, and dividends. This supervision and regulation is intended primarily for the protection of the FDIC’s bank (the “BIF”) and savings association (the “SAIF”) insurance funds and the depositors, rather than the stockholders, of a financial institution.

The following references to material statutes and regulations affecting the Company and its Affiliates are brief summaries thereof and are qualified in their entirety by reference to such statutes and regulations. Any change in applicable law or regulations may have a material effect on the business of the Company and its Affiliates. The operations of the Company and the Bank may be affected by legislative and regulatory changes as well as by changes in the policies of various regulatory authorities. The Company cannot accurately predict the nature or the extent of the effects that such changes may have in the future on its business and earnings.

Illinois Banking Law

Illinois bank holding companies are permitted to acquire banks and bank holding companies and be acquired by bank holding companies, located in any state which authorizes such acquisitions under qualifications and conditions which are not unduly restrictive, as determined by the Commissioner of Illinois, when compared to those imposed under Illinois law.

Under interstate banking legislation, adequately capitalized and managed bank holding companies are permitted to acquire control of a bank in any state. States, however, may prohibit acquisitions of banks that have not been in existence for at least five years. The Federal Reserve Board is prohibited from approving an application for acquisition if the applicant controls more than 10 percent of the total amount of deposits of insured depository institutions nationwide. In addition, interstate acquisitions may also be subject to statewide concentration limits.

The Federal Reserve Board would be prohibited from approving an application if, prior to consummation, the proposed acquirer controls any insured depository institution or branch in the home state of the target bank, and the applicant, following consummation of an acquisition, would control 30 percent or more of the total amount of deposits of insured depository institutions in that state. This legislation also provides that the provisions on concentration limits do not affect the authority of any state to limit the percentage of the total amount of deposits in the state which would be held or controlled by any bank or bank holding company to the extent the application of this limitation does not discriminate against out-of-state institutions. States may also waive the statewide concentration limit. The legislation authorizes the Federal Reserve Board to approve an application without regard to the 30 percent statewide concentration limit, if the state allows a greater percentage of total deposits to be so controlled, or the acquisition is approved by the state bank regulator and the standard on which such approval is based does not have the effect of discriminating against out-of-state institutions.

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Interstate branching under the Interstate Banking and Branching Act (the “Branching Act”) permits banks to merge across state lines, thereby creating a bank headquartered in one state with branches in other states. Approval of interstate bank mergers is subject to certain conditions including: adequate capitalization; adequate management; Community Reinvestment Act compliance; deposit concentration limits (as set forth above); and compliance with federal and state antitrust laws. An interstate merger transaction may involve the acquisition of a branch without the acquisition of the bank only if the law of the state in which the branch is located permits out-of-state banks to acquire a branch of a bank in that state without acquiring the bank. Following the consummation of an interstate transaction, the resulting bank may establish additional branches at any location where any bank involved in the transaction could have established a branch under applicable federal or state law, if such bank had not been a party to the merger transaction.

Interstate branching is required to comply with host state community reinvestment, consumer protection, fair lending, and intrastate branching laws, as if the branch were chartered by the host state. All other laws of the host state apply to the branch to the same extent as if the branch were a bank, the main office being located in the host state.

The interstate branching by merger provisions became effective on June 1, 1997, and allowed each state, prior to the effective date, the opportunity to “opt out”, thereby prohibiting interstate branching within that state. Of those states in which the Company’s banking subsidiaries are located (Illinois and Iowa), neither has adopted legislation to “opt out” of the interstate branching provisions. Furthermore, pursuant to the Branching Act, a bank is now able to add new branches in a state in which it does not already have banking operations if such state enacts a law permitting such de novo branching.

The effects on the Company of the changes in interstate banking and branching laws cannot be accurately predicted, but it is likely that there will be increased competition from national and regional banking firms headquartered outside of Illinois.

An item of legislation with the potential to have an impact on the Bank is the Banking on Illinois Act (“BIA”), which became effective in mid-1999 and amended the Illinois Banking Act (“IBA”) to provide potential wide range of new activities for the Bank. The provisions of the BIA are to be construed liberally in order to create a favorable business climate for banks in Illinois. The main features of the BIA are to expand bank powers through a new “wild card” provision authorizing Illinois chartered banks to offer virtually any product or service that any bank or thrift may offer anywhere in the country, subject to certain safety and soundness considerations. The BIA also gives Illinois chartered banks more options with respect to corporate governance, and gives the banks new liability protections, especially with respect to fees. Management of the Bank remains aware of the favorable environment created by the BIA and will consider the advantages that may become available to the Bank as a result of such legislation.

The Commissioner of Illinois has adopted predatory lending regulations. These regulations apply to “high cost” mortgages which are defined as mortgages which exceed a specified interest rate or are assessed points in excess of a specified minimum. Once any of these thresholds is reached, the regulations impose certain restrictions on the lender including obligating the lender to verify the borrower’s ability to repay the loan based on the borrower’s income and debt obligations; prohibiting deceptive refinancing known as loan flipping where a lender refinances existing loans, charging additional points and fees, without any financial benefit to the consumer; prohibiting the financing of a single premium credit insurance; prohibiting the financing of points and fees to excess of 6% of the total loan; limiting the size and interval of balloon payments; and limiting prepayment penalties that could be charged to consumers. These regulations also require the lender to make certain disclosures to borrowers who are seeking high cost mortgages. The regulations apply to all state licensed financial institutions making residential loans in Illinois. The regulations also require lenders to file with the Commissioner of Illinois semi-annual reports on mortgage loans, including information relating to defaults and foreclosures.

The Illinois legislature has also considered the adoption of legislation aimed at curbing what some legislators and consumer-oriented advocacy groups consider to be predatory lending practices by some mortgage brokers and other lenders active in the State of Illinois. “Predatory” lending consists of fraudulent and deceptive sales practices that occur when borrowers are pressured into taking out loans they do not need or cannot afford. Inasmuch as neither the Company nor the Bank indulges in such practices, it is unlikely that any legislation adopted in Illinois to combat this perceived problem would have an impact on either the Company or the Bank other than the creation of additional reporting requirements.

As an Illinois banking corporation controlled by a bank holding company, the Bank is not only subject to the rules regarding change of control in the Act and the Federal Deposit Insurance Act and the regulations promulgated thereunder, it is also subject to the rules regarding change in control of Illinois banks contained in the IBA.

The Bank is subject to Sections 22(h), 23A and 23B of the Federal Reserve Act, which restrict financial transactions between banks and affiliated companies. The statute limits credit transactions between a bank and its executive officers and its

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affiliates, prescribes terms and conditions for bank affiliate transactions deemed to be consistent with safe and sound banking practices, and restricts the types of collateral security permitted in connection with a bank’s extension of credit to an affiliate.

Bank Holding Company Act of 1956, As Amended (the “Act”)

A bank holding company is subject to regulation under the Act and is registered with the Federal Reserve Board under the Act. A bank holding company is required by the Act to file an annual report of its operations and such additional information as the Federal Reserve Board may require and is subject, along with its subsidiaries, to examination by the Federal Reserve Board. The Federal Reserve Board has jurisdiction to regulate the terms of certain debt issues of bank holding companies including the authority to impose reserve requirements.

The Act currently prohibits a bank holding company, or any subsidiary thereof, other than a bank, from acquiring all or substantially all the assets of any bank located outside of Illinois or for a bank holding company or any subsidiary from acquiring 5% or more of the voting shares of any bank located outside of Illinois unless such acquisition is specifically authorized by the laws of the state in which the bank is located and the acquirer receives prior approval from the Federal Reserve Board. The acquisition of five 5% or more of the voting shares of any bank located in Illinois requires the prior approval of the Federal Reserve Board and is subject to state law limitations.

The Act also prohibits, with certain exceptions, a bank holding company from acquiring direct or indirect ownership or control of more than five 5% of the voting shares of any company which is not a bank and from engaging in any business other than that of banking, managing and controlling banks, or furnishing services to banks and their subsidiaries, except that bank holding companies may engage in, and may own shares of, companies engaged in certain businesses found by the Federal Reserve Board to be “so closely related to bankingas to be a proper incident thereto.” Under current regulations of the Federal Reserve Board, a bank holding company and its nonbank subsidiaries are permitted, among other activities, to engage in such banking-related business ventures as sales and consumer finance, equipment leasing, computer service bureau and software operations, mortgage banking and brokerage, and sale and leaseback and other forms of real estate banking. The Act does not place territorial restrictions on the activities of a bank holding company or its nonbank subsidiaries.

Federal law prohibits acquisition of “control” of a bank or bank holding company without prior notice to certain federal bank regulators. “Control” is defined in certain cases as the acquisition of as little as 10% of the outstanding shares. Furthermore, under certain circumstances, a bank holding company may not be able to purchase its own stock where the gross consideration will equal 10% or more of the company’s net worth without obtaining approval of the Federal Reserve Board.

Graham-Leach-Bliley Act of 1999

The enactment of the Graham-Leach-Bliley Act of 1999 (the “GLB Act”) swept away large parts of a regulatory framework that had its origins in the Depression Era of the 1930s. Effective March 11, 2000, new opportunities became available for banks, other depository institutions, insurance companies and securities firms to enter into combinations that permit a single financial services organization to offer customers a more complete array of financial products and services. To further this goal, the GLB Act amends section 4 of the Act providing a new regulatory framework for regulation through the financial holding company (“FHC”), which has as its umbrella regulator the Federal Reserve Board. Functional regulation of the FHC’s separately regulated subsidiaries will be conducted by its primary functional regulator. Pursuant to the GLB Act, bank holding companies, subsidiary depository institutions thereof and foreign banks electing to qualify as a FHC must be “well managed”, “well capitalized” and at least rated satisfactory under the Community Reinvestment Act in order for them to engage in new financial activities.

An FHC may engage in securities, insurance and other activities that are financial in nature or incidental to a financial activity. While aware of the flexibility of the FHC statute, the Company has, for the time being, decided not to convert to a FHC, but will continue to follow the reception given FHCs in the marketplace. The activities of bank holding companies that are not FHCs will continue to be limited to activities under the Act.

The GLB Act also prohibits a financial institution from disclosing non-public information about a consumer to nonaffiliated third parties unless the institution satisfies various disclosure and opt out requirements and the consumer has not elected to opt out of the disclosure. Under the GLB Act, a financial institution must provide its customers with a notice of its privacy policies and practices, and the Federal Reserve Board, the FDIC and other financial regulatory agencies are authorized to issue regulations to implement notice requirement and restrictions on a financial institution’s ability to disclose non-public personal information about consumers to nonaffiliated third parties. Because the Company and the Bank are not now engaged in selling or transferring non-public customer information to nonaffiliated third parties, it is anticipated that this burden will not result in material economic cost to the Company or the Bank.

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The GLB Act provides a federal right to privacy for non-public personal information of individual customers. First Midwest and its Affiliates are also subject to certain state laws that deal with the use and distribution of non-public personal information.

The GLB Act is expected, in time, to alter the competitive landscape of the product markets presently served by the Company. Companies that are presently engaged primarily in insurance activities or securities activities will be permitted to acquire banks and bank holding companies, such as First Midwest. First Midwest may, in the future, face increased competition from a broader range of larger, more diversified financial companies.

USA Patriot Act

On October 26, 2001, the President signed into law comprehensive anti-terrorism legislation known as the USA Patriot Act. Title III of the USA Patriot Act requires financial institutions, including First Midwest and the Bank, to help prevent, detect and prosecute international money laundering and the financing of terrorism. The Department of the Treasury has adopted additional requirements to further implement Title III.

Under these regulations, a mechanism has been established for law enforcement to communicate names of suspected terrorists and money launderers to financial institutions, in return for securing the ability 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 Treasurer’s 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 from the statutory safe harbor from liability, provided each financial institution notifies FinCEN of its intent to share information.

The Department of the 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.

First Midwest and the Bank have augmented their systems and procedures to accomplish compliance with these requirements. First Midwest and the Bank believe that the cost of compliance with Title III of the USA Patriot Act is not likely to be material to them.

Capital Guidelines

The Federal Reserve Board and the FDIC have established risk-based capital guidelines to provide a framework for assessing the adequacy of the capital of national and state banks and their bank holding companies (collectively “banking institutions”). These guidelines apply to all banking institutions regardless of size and are used in the examination and supervisory process as well as in the analysis of applications to be acted upon by the regulatory authorities. These guidelines require banking institutions to maintain capital based on the credit risk of their operations, both on and off-balance sheet.

The minimum capital ratios established by the guidelines are based on both tier 1 and total capital to total risk-based assets. In addition to the risk-based capital requirements, the Federal Reserve Board and the FDIC require banking institutions to maintain a minimum leveraged-capital ratio to supplement the risk-based capital guidelines

The Company exceeds the minimum required capital guidelines for both risk-based capital ratios and the leverage ratio at December 31, 2002. The Company’s capital structure and capital ratios relative to the regulatory guidelines are further detailed in the “Management of Capital” section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” commencing on page 26.

Dividends

The Company’s primary source of liquidity is dividend payments from the Bank. In addition to capital guidelines, the Bank is limited in the amount of dividends it can pay to the Company under the IBA. Under this act, the Bank is permitted to declare and pay dividends in amounts up to the amount of its accumulated net profits, provided that it shall retain in its surplus at least one-tenth of its net profits since the date of the declaration of its most recent dividend until said additions to surplus, in the aggregate, equals at least the paid-in capital of the Bank. In no event may the Bank, while it continues its banking business, pay dividends in excess of its net profits then on hand (after deductions for losses and bad debts). As of

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December 31, 2002, the Bank could distribute dividends of approximately $187 million without approval from the Commissioner of Illinois.

Since the Company is a legal entity, separate and distinct from the Bank, its dividends to stockholders are not subject to the bank dividend guidelines discussed above. The appropriate Illinois regulatory authority is authorized to determine, under certain circumstances relating to the financial condition of a bank or bank holding company, that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof.

FDIC Insurance Premiums

The Bank’s deposits are predominantly insured through the BIF, with certain deposits held by the Bank insured through the SAIF, both of which are administered by the FDIC. As insurer, the FDIC imposes deposit insurance premiums and is authorized to conduct examinations of, and to require reporting by, FDIC-insured institutions. It also may prohibit any FDIC-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious risk to the FDIC.

The FDIC’s deposit insurance premiums are assessed through a risk-based system under which all insured depository institutions are placed into one of nine categories and assessed insurance premiums on deposits based upon their level of capital and supervisory evaluation. For 2003, the Bank will pay premium assessments on both its BIF and SAIF insured deposits in order to service the interest on the Financing Corporation (“FICO”) bond obligations which were used to finance the cost of “thrift bailouts” in the 1980’s. The FICO assessment rates for the first semi-annual period of 2003 were set at $.0168 per $100 of insured deposits each for BIF and SAIF assessable deposits. These rates may be adjusted quarterly to reflect changes in assessment basis for the BIF and SAIF.

Where You Can Find More Information About First Midwest

First Midwest makes available, free of charge, on its website, http://www.firstmidwest.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after and, in any event, on the same days as, such material is electronically filed with or furnished to the SEC.

ITEM 2. PROPERTIES

	Markets Served	Property Type/Location	Ownership
The Company		Administrative office: Itasca, Illinois	Leased
The Bank	Cook, Champaign, DuPage, Grundy, Knox, Lake, LaSalle,	Administrative office: Itasca, Illinois	Leased
	McHenry, Rock Island, Vermilion and Will Counties, Illinois; Scott County, Iowa	Sixty-seven banking offices located in markets served.	52 owned/ 15 leased

In addition to the banking locations listed above, the Bank owns 93 automatic teller machines, some of which are housed within a banking office and some of which are independently located.

First Midwest Insurance Company operates in the same markets and locations as the Bank and maintains no separate properties.

ITEM 3. LEGAL PROCEEDINGS

There are certain legal proceedings pending against First Midwest and its Affiliates in the ordinary course of business at December 31, 2002. First Midwest believes that any liabilities arising from these proceedings would not have a material adverse effect on the consolidated financial condition of First Midwest.

ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no items submitted to a vote of security holders during the fourth quarter of 2002.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY

AND RELATED STOCKHOLDER MATTERS.

First Midwest’s common stock is traded on the NASDAQ Market System under the symbol “FMBI.” Stock price quotations can be found in The Wall Street Journal and other major daily newspapers. As of December 31, 2002, there were 2,877 stockholders of record. The following table sets forth the common stock price, dividends per share, and book value per share during each quarter of 2002 and 2001.

	2002												2001
	Fourth			Third			Second			First			Fourth			Third			Second			First
Market price of common stock
High	$	28.79		$	30.13		$	32.16		$	29.81		$	29.81		$	28.00		$	24.68		$	23.40
Low	$	23.80		$	23.34		$	26.24		$	27.01		$	24.54		$	23.04		$	22.01		$	20.65
Quarter-end	$	26.71		$	26.86		$	27.78		$	29.04		$	29.19		$	27.02		$	24.68		$	22.52
Cash dividends per share	$	0.19		$	0.17		$	0.17		$	0.17		$	0.17		$	0.16		$	0.16		$	0.16
Dividend yield at quarter-end(1)		2.85	%		2.53	%		2.45	%		2.34	%		2.33	%		2.37	%		2.59	%		2.84	%
Book value per share at quarter-end	$	10.42		$	10.44			9.91		$	9.21		$	9.18		$	9.31		$	9.03		$	9.14

⁽¹⁾ Ratios are presented on an annualized basis.

A discussion regarding the regulatory restrictions applicable to the Bank’s ability to pay dividends to the Company is included in the “Dividends” section under Item 1 located on page 7. A discussion of the Company’s history and philosophy regarding the payment of dividends is included in the “Management of Capital” section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” commencing on page 26.

Equity Compensation Plans

The following table sets forth information, as of December 31, 2002, relating to equity compensation plans of the Company pursuant to which options, restricted stock, restricted stock units, or other rights to acquire shares may be granted from time to time.

	Equity Compensation Plan Information
Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants, and rights (a)	Weighted-average exercise prices of outstanding options, warrants, and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders(1)	2,062,850	$	21.8775	2,757,139
Equity compensation plans not approved by security holders(2)	6,600		14.8800	—
Total	2,069,450	$	21.8551	2,757,139

⁽¹⁾ Includes all outstanding options and awards under the Omnibus Stock and Incentive Plan and the Non-Employee Directors’ 1997 Stock Option Plan (the “Plans”). Additional information and details about the Plans are also disclosed in Notes 1 and 14 of “Notes to Consolidated Financial Statements” commencing on pages 44 and 59, respectively, of this Form 10-K.

⁽²⁾ Represents shares underlying deferred stock units credited under the Company’s Nonqualified Retirement Plan, payable on a one-for-one basis in shares of the Company’s common stock.

The Nonqualified Retirement Plan is a defined contribution deferred compensation plan under which participants are credited with deferred compensation equal to contributions and benefits that would have accrued to the participant under the Company’s tax-qualified plans, but for limitations under the Code, and to amounts of salary and annual bonus that the participant has elected to defer. Participant accounts are deemed to be invested in separate investment accounts under the plan, which mirror the investment accounts available under the Company’s tax-qualified savings and profit sharing plan, including an investment account deemed invested in shares of Company common stock. The accounts are adjusted to reflect the investment return related to such deemed investments. Except for the 6,600 shares set forth in the table above, all amounts credited under the Plan are paid in cash.

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ITEM 6. SELECTED FINANCIAL DATA

Consolidated financial information reflecting a summary of the operating results and financial condition of First Midwest for the each of the five years ended December 31, 2002 is presented in the table that follows. This summary should be read in conjunction with the consolidated financial statements and accompanying notes included elsewhere in this Form 10-K. A more detailed discussion and analysis of the factors affecting First Midwest’s financial condition and operating results is presented in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” commencing on the following page 11.

	Years ended December 31,
	2002			2001			2000			1999			1998
Operating Results (Amounts in thousands)
Interest income	$	329,664		$	385,218		$	421,517		$	361,279		$	364,597
Interest expense		110,910			180,838			231,906			168,615			177,016
Net interest income		218,754			204,380			189,611			192,664			187,581
Provision for loan losses(1)		15,410			19,084			9,094			5,760			5,542
Noninterest income		66,991			68,866			63,198			58,334			55,462
Noninterest expense		148,052			145,356			144,416			149,809			142,654
Acquisition costs and expenses(2)		—			—			—			—			16,148
Income tax expense		32,133			26,668			23,759			24,520			23,995
Net income(2)	$	90,150		$	82,138		$	75,540		$	70,909		$	54,704
Per Share Data
Basic earnings per share	$	1.88		$	1.64		$	1.47		$	1.35		$	0.99
Diluted earnings per share(2)		1.86			1.63			1.46			1.34			0.98
Cash dividends declared		0.700			0.650			0.592			0.528			0.488
Book value at period end		10.42			9.18			8.75			7.19			8.32
Market value at period end		26.71			29.19			23.00			21.20			20.30
Performance Ratios
Return on average equity(2)		18.82	%		17.89	%		19.17	%		17.39	%		11.78	%
Return on average assets(2)		1.53	%		1.43	%		1.30	%		1.34	%		1.07	%
Net interest margin—tax equivalent		4.28	%		4.10	%		3.76	%		4.24	%		4.21	%
Dividend payout ratio		37.63	%		39.88	%		40.55	%		39.40	%		49.80	%
Average equity to average asset ratio		8.12	%		7.99	%		6.79	%		7.71	%		9.12	%
Consolidated Statements of Condition Highlights (Amounts in thousands)	As of December 31,
	2002			2001			2000			1999			1998
Total assets	$	5,980,533		$	5,667,919		$	5,906,484		$	5,511,588		$	5,192,887
Loans		3,406,846			3,372,306			3,233,196			2,962,487			2,664,417
Deposits		4,172,954			4,193,921			4,252,205			4,001,183			4,050,451
Stockholders’ equity		491,953			447,267			446,723			369,261			452,898

⁽¹⁾ 1998 includes $650 in provisions for loan losses incident to conforming the credit policies of an acquiree to those of the Company.

⁽²⁾ 1998 net income, diluted earnings per share, return on average equity and return on average assets on a pro forma basis excluding the after tax effect of the provisions for loan losses discussed in (1) above and acquisition costs and expense are $67,237, $1.20, 14.48%, and 1.32% respectively.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

The following discussion and analysis is intended to address the significant factors affecting First Midwest’s Consolidated Statements of Income for the years 2000 through 2002 and Consolidated Statements of Condition as of December 31, 2001 and 2002. The discussion is designed to provide stockholders with a more comprehensive review of the operating results and financial condition than could be obtained from a review of the consolidated financial statements alone and should be read in conjunction with the consolidated financial statements, accompanying notes thereto, and other financial information presented in this Form 10-K.

A condensed review of operations for the fourth quarter of 2002 is included herein, commencing on page 38. The review provides an analysis of the quarterly earnings performance for the fourth quarter of 2002 as compared to the same period in 2001.

All amounts are presented in thousands, except per share data. Unless otherwise stated, all earnings per share data included in this section and through the remainder of this discussion are presented on a diluted basis.

FORWARD LOOKING STATEMENTS

Statement under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995: First Midwest and its representatives may from time to time make written or oral statements that are “forward-looking” and provide 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 shareholders. 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 risk 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 current statements.

Among the factors that could have an impact on the Company’s ability to achieve operating results and growth plan goals are:

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

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

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

• The sufficiency of allowances for possible loan losses to absorb the amount of actual future 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;

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• 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 reserves for loan losses and estimations of values of collateral and various financial assets and liabilities;

• Volatility of rate sensitive deposits;

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

• Asset/liability matching risks and liquidity risks;

• Changes in the economic environment, competition or other factors that may influence the anticipated growth rate of loans and deposits, the quality of the loan portfolio and loan and deposit pricing and Company’s ability to successfully pursue acquisition and expansion strategies;

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

• 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 and operational limitations;

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

• Changes in accounting principles, policies or guidelines affecting the businesses conducted by the Company or its Affiliates;

• Acts of war or terrorism; and

• Other economic, competitive, governmental, regulatory and technical factors affecting First Midwest’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, as well as the Company’s 2001 Annual Report on Form 10-K, 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.

The following information should be read in conjunction with the consolidated financial statements of the Company and its Affiliates and notes thereto, appearing elsewhere in this report.

CRITICAL ACCOUNTING POLICIES

First Midwest’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States and are consistent with predominant practices in the financial services industry. Application of critical accounting policies, those policies that Management believes are the most important to the Company’s financial position and results, requires Management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes and are based on information available as of the date of the financial statements. Future changes in information may affect these estimates, assumptions, and judgments, which, in turn, may affect amounts reported in the financial statements.

First Midwest has numerous accounting policies, of which the most significant are presented in Note 1 of “Notes to Consolidated Financial Statements” commencing on page 44 of this Form 10-K. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, Management has determined that its accounting policies with respect to the reserve for loan losses and income taxes are the accounting areas requiring subjective or complex judgments that are most important to the Company’s financial position and results of operations, and, as such, are considered to be critical accounting policies as discussed below.

Reserve for Loan Losses

Arriving at an appropriate level of reserve for loan losses involves a high degree of judgment. The Company’s reserve for loan losses provides for probable losses based upon evaluations of known, and inherent risks in the loan portfolio.

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Management uses historical information to assess the adequacy of the reserve for loan losses as well as the prevailing business environment; as it is affected by changing economic conditions and various external factors, which may impact the portfolio in ways currently unforeseen. The reserve is increased by provisions for loan losses and by recoveries of loans previously charged-off and reduced by loans charged-off. For a full discussion of the Company’s methodology of assessing the adequacy of the reserve for loan losses, see Note 1 of “Notes to Consolidated Financial Statements” commencing on page 44 of this Form 10-K.

Income Taxes

The Company accounts for income tax expense by applying an estimated effective tax rate to its pre-tax income. The effective tax rate is based on Management’s judgments and estimates regarding permanent differences in the treatment of specific items of income and expense for financial statement and income tax purposes. In addition, the Company recognizes deferred tax assets and liabilities, recorded in the Consolidated Statements of Condition, based on Management’s judgments and estimates regarding temporary differences in the recognition of income and expenses for financial statement and income tax purposes.

The Company must also assess the likelihood that any deferred tax assets will be realized through the reduction or refund of taxes in future periods and establish a valuation allowance for those assets for which recovery is unlikely. In making this assessment, Management must make judgments and estimates regarding the ability to realize the asset through carryback to taxable income in prior years, the future reversal of existing taxable temporary differences, future taxable income, and the possible application of future tax planning strategies. Although the Company has determined a valuation allowance is not required for all deferred tax assets, there is no guarantee that these assets are recognizable. For additional discussion of income taxes, see Notes 1 and 13 of “Notes to Consolidated Financial Statements” commencing on pages 44 and 58, respectively, of this Form 10-K.

SUMMARY OF RESULTS

Net Income

Net income for 2002 increased to a record $90,150, or $1.86 per share, as compared to $82,138, or $1.63 per share, in 2001 and $75,540, or $1.46 per share, in 2000. Net income per share increased by 14.1% in 2002 as compared to 2001 and followed an increase of 11.6% in 2001 as compared to 2000. The improvement in 2002 resulted primarily from increases in net interest income, while the increase in 2001 from 2000 resulted primarily from a similar increase in net interest income coupled with an increase in noninterest income from fee based services.

Performance Ratios

Performance for 2002 resulted in a return on average assets of 1.53% as compared to 1.43% for 2001 and 1.30% for 2000 and a return on average equity of 18.82% as compared to 2001’s 17.89% and 2000’s 19.17%. The return on average equity is influenced in part by fluctuations in average stockholders’ equity resulting from changes in the level of unrealized security gains and losses occurring over the course of a year. For the year 2002, average net unrealized security gains added $34,226 to average stockholders’ equity as compared to $50,991 in 2001.

Credit Quality

Nonperforming loans at December 31, 2002 totaled $12,525, or .37% of total loans, improving from $16,847, or .50% of total loans, at year-end 2001, with the 2002 year-end level representing the lowest such level in five years. Foreclosed real estate increased to $5,496 at December 31, 2002 as compared to $3,630 at December 31, 2001. Nonperforming assets (comprised of nonperforming loans plus foreclosed real estate) totaled $18,021 at December 31, 2002 as compared to $20,477 at year-end 2001, the lowest such level in five years. Additionally, loans past due 90 days and still accruing interest totaled $3,307 at December 31, 2002 as compared to $5,783 at year-end 2001, representing the lowest such level in the last eight years.

The provision for loan losses charged to operating expense for 2002 totaled $15,410 as compared to $19,084 and $9,094 for 2001 and 2000, respectively. Net charge-offs for 2002 were .45% of average loans as compared to .49% for 2001 and .21% for 2000. Provisions for loan losses for 2002 fully covered net charge-offs, resulting in the ratio of the reserve for loan losses to total loans at December 31, 2002 being maintained at 1.41% and approximating the level of the last nine quarters.

13

Loan Growth and Funding

Total loans for the year ended December 31, 2002 were 1.0% higher than for 2001 on both a period end and average basis, with all loan categories experiencing growth except for 1-4 family real estate and indirect consumer lending.

Total average deposits for 2002 totaled $4,213,974, increasing 1.0% from 2001’s $4,170,899. Reflective of customer liquidity preferences and targeted sales promotions, average balances maintained in core transactional accounts (demand, savings, NOW, and money market accounts) increased $275,215, or 12.5%, from 2001. Average balances maintained in time deposits decreased by $232,140, or 11.8%, from 2001, as pricing strategies encouraged customers desiring shorter-term maturities to transfer balances to the targeted transactional accounts just described.

Capital and Dividends

First Midwest continued to maintain a strong capital structure at December 31, 2002 with tier 1 and total capital to risk-based asset ratios of 9.93% and 11.03%, respectively, compared with the minimum “well capitalized” levels for regulatory purposes of 6% and 10%, respectively.

The Company’s capital position and earnings have allowed it to increase its dividend in 2002, the eleventh increase in the last ten years, to an indicated annual rate of $.76 per share, from $.68 in 2001 and $.64 in 2000. First Midwest also repurchased 1,866 shares of its stock during 2002.

MANAGEMENT OF NET INTEREST MARGIN

Net Interest Income

The primary source of the Company’s traditional banking revenue is net interest income, which represents the difference between interest income and fees earned on loans, securities, and other earning assets and interest expense paid for the funding sources used to finance these assets. Changes in net interest income generally occur due to fluctuations in the volume of earning assets and paying liabilities and the rates earned and paid, respectively, on these assets and liabilities. Net interest margin represents net interest income as a percentage of total interest-earning assets. For purposes of this discussion, both net interest income and margin have been adjusted to a fully tax equivalent basis to more appropriately compare the returns on certain tax-exempt loans and securities to those on taxable earning assets. The accounting policies underlying the recognition of interest income on loans, securities, and other earning assets are presented in Notes 1, 5, and 20 of “Notes to Consolidated Financial Statements” commencing on pages 44, 52, and 64, respectively, of this Form 10-K.

Net interest income on a tax equivalent basis increased by $14,151, or 6.5%, to $232,768 in 2002 compared to $218,617 in 2001 and $204,982 in 2000. Tax equivalent net interest margin was 4.28% in 2002 as compared to 4.10% in 2001 and 3.76% in 2000. The increase from 2001 in both net interest margin and net interest income was primarily due to the magnitude and timing of 2001’s historic decline in interest rates and the continued low level of interest rates in 2002. As a result, 2002’s interest expense declined by $69,928 from 2001 outpacing the decline in interest income of $55,777. In 2001, the increase in both net interest margin and net interest income from 2000 was driven by profitable loan growth and the drop in interest rates over the course of the year.

Table 1 summarizes First Midwest’s average interest-earning assets and funding sources over the last three years, as well as interest income and interest expense related to each category of assets and funding sources and the yield earned and rates paid on each. The table also shows the trend in net interest margin on a quarterly basis for 2002 and 2001, including the tax equivalent yields on earning assets and rates paid on interest-bearing liabilities. Table 2 analyzes the changes in interest income, interest expense, and net interest income that result from changes in the volumes of earning assets and funding sources, as well as fluctuations in interest rates.

Tax equivalent interest income was $343,678 in 2002 as compared to $399,455 and $436,888 for 2001 and 2000, respectively. Interest-earning assets repricing in 2002 and 2001’s lower rate environment caused the yield on average earning assets to decline by 118 basis points to 6.32% in 2002 and 52 basis points to 7.50% in 2001 and accounted for $64,222, or 92%, and $36,437, or 97%, respectively, of the decrease in interest income compared to the preceding year.

Average interest-earning assets for 2002 increased by $111,334, or 2.1%, to $5,440,772 as compared to $5,329,438 in 2001 with the growth in volume increasing 2002’s interest income by $8,445. Average loans outstanding for 2002 increased by $32,618, or 1%, over 2001, while average securities increased by $78,872, or 4%. In 2001, average interest-earning assets

14

decreased by $117,384, or 2.2%, as compared to 2000. 2001’s interest income was unaffected by the overall decrease in volume as average growth in higher yielding loans offset the decline in securities.

Interest expense declined by $69,928 to $110,910 in 2002 as compared to $180,838 in 2001 and $231,906 in 2000. Interest-bearing liabilities repricing in the lower rate environment caused the rate paid on average interest-bearing deposits to fall by 158 basis points to 2.40% in 2002 and by 96 basis points to 3.98% in 2001. The lower interest rates paid on customer deposits and borrowed funds accounted for $65,534, or 94%, and $43,797, or 86%, respectively, of the decrease in 2002 and 2001 interest expense as compared to the preceding year.

Average interest-bearing liabilities for 2002 increased by $71,528, or 1.6%, to $4,619,707, while, in 2001, average interest-bearing liabilities decreased by $143,718, or 3.1%. The mix of average deposits in 2002 and 2001 saw a shift from higher costing time deposits to less expensive core transactional deposits. This shift resulted in lower interest expense for 2002 and 2001 of $4,394 and $7,271, respectively. As discussed in the subsequent section entitled “Funding and Liquidity Management,” customer repositioning of deposit balances was influenced by pricing and promotional strategies as well as liquidity preferences given the existent interest rate and economic climate.

Tax equivalent net interest margin was 4.28% in 2002, as compared to 4.10% in 2001. Net interest margin trended upward for each quarter of 2001 and the first half of 2002 peaking at 4.43% for second quarter 2002. This positive trend was the result of the sensitivity of interest-bearing liabilities to changing interest rates during the declining rate environment of 2001. This positive trend reversed in the second half of 2002 as a greater volume of earning assets began to reprice in the stable, low interest rate environment that existed for most of 2002. As a result, net interest margin declined to 4.26% and 4.10%, respectively, for third and fourth quarters 2002. In part, the speed of decline was also accelerated by the impact of refinance related prepayments on mortgage-backed securities and certain measures taken by management to better insulate net interest income and margin from the potential of rising interest rates. The section entitled “Market Risk and Interest Rate Sensitivity Management,” commencing on page 17, describes the measures taken during the year and discusses the techniques used to manage the volatility and other factors that affect net interest margin and net interest income.

15

Table 1

Net Interest Income and Margin Analysis

(Amounts in thousands)

	2002						2001						2000
	Average Balance			Interest		Yield/ Rate (%)	Average Balance			Interest		Yield/ Rate (%)	Average Balance			Interest		Yield/ Rate (%)
Assets:
Interest-bearing deposits with banks	$	5,474		$	106	1.94	$	7,653		$	281	3.67	$	2,812		$	181	6.44
Securities:
Available for sale—taxable		1,463,643			76,705	5.24		1,391,278			90,551	6.51		1,720,841			114,779	6.67
Available for sale—nontaxable(1)		476,946			35,786	7.50		478,361			35,171	7.35		485,785			37,045	7.63
Held to maturity—taxable		43,310			2,548	5.88		23,829			1,570	6.59		22,631			1,620	7.16
Held to maturity—nontaxable(1)		54,900			4,003	7.29		66,459			5,466	8.22		21,478			1,810	8.43
Total securities		2,038,799			119,042	5.84		1,959,927			132,758	6.77		2,250,735			155,254	6.90
Federal funds sold and securities purchased under agreements to resell		3,587			69	1.92		2,361			97	4.11		14,376			930	6.47
Mortgages held for sale		10,404			642	6.17		9,607			640	6.66		5,016			413	8.23
Loans, net of unearned discount(1)(2)		3,382,508			223,819	6.62		3,349,890			265,679	7.93		3,173,883			280,110	8.83
Total interest-earning assets (1)(2)		5,440,772			343,678	6.32		5,329,438			399,455	7.50		5,446,822			436,888	8.02
Cash and due from banks		165,847						156,348						151,614
Reserve for loan losses		(48,312	)					(46,498	)					(43,784	)
Other assets		343,591						310,101						252,456
Total assets	$	5,901,898					$	5,749,389					$	5,807,108
Liabilities and Stockholders Equity:
Savings deposits	$	454,588			4,191	0.92	$	435,575			7,168	1.65	$	467,746			9,158	1.96
NOW accounts		723,634			10,291	1.42		501,800			8,574	1.71		474,108			9,367	1.98
Money market deposits		552,440			10,993	1.99		572,973			17,587	3.07		489,589			21,712	4.43
Time deposits		1,739,017			56,141	3.23		1,971,157			101,168	5.13		2,019,914			115,650	5.73
Borrowed funds		1,150,028			29,294	2.55		1,066,674			46,341	4.34		1,240,540			76,019	6.13
Total interest-bearing liabilities		4,619,707			110,910	2.40		4,548,179			180,838	3.98		4,691,897			231,906	4.94
Demand deposits		744,295						689,394						664,683
Other liabilities		58,788						52,584						56,447
Stockholders’ equity		479,108						459,232						394,081
Total liabilities and stockholders’ equity	$	5,901,898					$	5,749,389					$	5,807,108
Net interest income/margin(1)				$	232,768	4.28				$	218,617	4.10				$	204,982	3.76

Quarterly Net Interest Margin Trend

	2002								2001
	Fourth		Third		Second		First		Fourth		Third		Second		First
Yield on interest-earning assets	5.95	%	6.28	%	6.50	%	6.55	%	6.91	%	7.44	%	7.69	%	7.94	%
Rates paid on interest-bearing liabilities	2.19	%	2.37	%	2.43	%	2.62	%	3.04	%	3.71	%	4.27	%	4.86	%
Net interest margin(1)	4.10	%	4.26	%	4.43	%	4.32	%	4.33	%	4.27	%	4.04	%	3.77	%

⁽¹⁾ Interest income and yields are presented on a tax equivalent basis, assuming a federal tax rate of 35%.

⁽²⁾ Loans on a nonaccrual basis for the recognition of interest income totaled $12,525, $16,847 and $19,849, as of December 31, 2002, 2001, and 2000, respectively, and are included in loans, net of unearned discount, for purposes of this analysis.

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Table 2

Changes in Net Interest Income Applicable to Volumes and Interest Rates

(Amounts in thousands)

2002 as Compared to 2001	Interest Income/Expense							Increase/(Decrease) due to:(1)
	2002		2001		Increase (Decrease)			Volume			Rate			Total
Interest-bearing deposits with banks	$	106	$	281		(175	)	$	(66	)	$	(109	)	$	(175	)
Securities:
Available for sale—taxable		76,705		90,551		(13,846	)		5,044			(18,890	)		(13,846	)
Available for sale—nontaxable(2)		35,786		35,171		615			(104	)		719			615
Held to maturity—taxable		2,548		1,570		978			1,125			(147	)		978
Held to maturity—nontaxable(2)		4,003		5,466		(1,463	)		(886	)		(577	)		(1,463	)
Total securities		119,042		132,758		(13,716	)		5,179			(18,895	)		(13,716	)
Federal funds sold and securities purchased under agreements to resell		69		97		(28	)		700			(728	)		(28	)
Mortgages held for sale		642		640		2			18			(16	)		2
Loans, net of unearned discount(2)		223,819		265,679		(41,860	)		2,614			(44,474	)		(41,860	)
Total interest income(2)		343,678		399,455		(55,777	)		8,445			(64,222	)		(55,777	)
Savings deposits		4,191		7,168		(2,977	)		328			(3,305	)		(2,977	)
NOW accounts		10,291		8,574		1,717			2,767			(1,050	)		1,717
Money market deposits		10,993		17,587		(6,594	)		(610	)		(5,984	)		(6,594	)
Time deposits		56,141		101,168		(45,027	)		(10,849	)		(34,178	)		(45,027	)
Borrowed funds		29,294		46,341		(17,047	)		3,970			(21,017	)		(17,047	)
Total interest expense		110,910		180,838		(69,928	)		(4,394	)		(65,534	)		(69,928	)
Net interest income(2)	$	232,768	$	218,617	$	14,151		$	12,839		$	1,312		$	14,151
2001 as Compared to 2000	Interest Income/Expense							Increase/(Decrease) due to:(1)
	2001		2000		Increase (Decrease)			Volume			Rate			Total
Interest-bearing deposits with banks:	$	281	$	181	$	100		$	133		$	(33	)	$	100
Securities:
Available for sale—taxable		90,551		114,779		(24,228	)		(21,510	)		(2,718	)		(24,228	)
Available for sale—nontaxable(2)		35,171		37,045		(1,874	)		(560	)		(1,314	)		(1,874	)
Held to maturity—taxable		1,570		1,620		(50	)		100			(150	)		(50	)
Held to maturity—nontaxable(2)		5,466		1,810		3,656			3,699			(43	)		3,656
Total securities		132,758		155,254		(22,496	)		(18,271	)		(4,225	)		(22,496	)
Federal funds sold and securities purchased under agreements to resell		97		930		(833	)		(580	)		(253	)		(833	)
Mortgages held for sale		640		413		227			287			(60	)		227
Loans, net of unearned discount(2)		265,679		280,110		(14,431	)		17,435			(31,866	)		(14,431	)
Total interest income(2)		399,455		436,888		(37,433	)		(996	)		(36,437	)		(37,433	)
Savings deposits		7,168		9,158		(1,990	)		(600	)		(1,390	)		(1,990	)
NOW accounts		8,574		9,367		(793	)		603			(1,396	)		(793	)
Money market deposits		17,587		21,712		(4,125	)		5,109			(9,234	)		(4,125	)
Time deposits		101,168		115,650		(14,482	)		(2,737	)		(11,745	)		(14,482	)
Borrowed funds		46,341		76,019		(29,678	)		(9,646	)		(20,032	)		(29,678	)
Total interest expense		180,838		231,906		(51,068	)		(7,271	)		(43,797	)		(51,068	)
Net interest income(2)	$	218,617	$	204,982	$	13,635		$	6,275		$	7,360		$	13,635

⁽¹⁾ For purposes of this table, changes which are not due solely to volume changes or rate changes are allocated to such categories on the basis of the percentage relationship of each to the sum of the two.

⁽²⁾ Interest income is presented on a tax equivalent basis, assuming a federal tax rate of 35%.

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Market Risk and Interest Rate Sensitivity Management

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates, and equity prices. Interest rate risk is First Midwest’s primary market risk and is the result of reprice, basis, and option risk. Reprice risk represents timing mismatches in First Midwest’s ability to alter contractual rates earned on financial assets or paid on liabilities in response to market interest rates. Basis risk refers to the potential for changes in the underlying relationship between market rates or indices, which subsequently result in a narrowing of the spread earned on a loan or investment relative to its cost of funds. Option risk arises from the “embedded options” present in many financial instruments such as loan prepayment options or deposit early withdrawal options. These provide customers opportunities to take advantage of directional changes in rates and could have an adverse impact on First Midwest’s margin performance.

First Midwest seeks to achieve consistent growth in net interest income and net income while managing volatility that arises from shifts in interest rates. The Asset and Liability Management Committee (“ALCO”) oversees financial risk management by developing programs to measure and manage interest rate risks within Board authorized limits. ALCO is also responsible for approving First Midwest’s asset/liability management policies, overseeing the formulation and implementation of strategies to improve balance sheet positioning and earnings, and reviewing First Midwest’s interest rate sensitivity position. Management uses net interest income and economic value of equity simulation modeling tools to analyze and capture near-term and longer-term interest rate exposures.

Net interest income represents First Midwest’s primary tool for measuring interest rate sensitivity. Net interest income simulation analysis measures the sensitivity of net interest income to various interest rate movements and balance sheet structures. The simulation is based on actual cash flows and repricing characteristics for on and off-balance sheet instruments and incorporates market-based assumptions regarding the effect of changing interest rates on the prepayment rates of certain assets and liabilities. The simulation includes Management projections for activity levels in each of the product lines offered by the Company. Assumptions based upon the historical behavior of deposit rates and balances in relation to interest rates are also incorporated into the simulation. These assumptions are inherently uncertain, and as a result, the simulation cannot precisely measure net interest income or precisely predict the impact of the fluctuation in interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude, and frequency of interest rate changes as well as changes in market conditions and management strategies.

ALCO monitors and manages interest rate risk within approved policy limits. The simulation model assesses the magnitude of changes in net interest income resulting from changes in interest rates over both a 12 and 24 month horizon and uses multiple rate scenarios. These scenarios include, but are not limited to, a flat or unchanged rate environment, a “most likely” forecast (which the Company believes to be the most probable outlook), a graduated increase and decrease of 200 basis points that occurs in equal steps over a six month time horizon, and immediate increases and decreases of 200 and 300 basis points.

The Company’s current interest rate risk policy limits are determined by measuring the change in net interest income over a 12 month horizon assuming a significant 200 basis point graduated increase in all interest rate limits. Current policy limits this exposure to plus or minus 8% of the anticipated level of net interest income over the corresponding 12 month horizon assuming no change in current interest rates.

The Company’s 12 month net interest income sensitivity profile as of year-end 2002 and 2001 is as follows.

Table 3

Analysis of Net Interest Income Sensitivity

	Graduated Change in Rates(1)				Immediate Change in Rates
	-200(2)		+200		-200(2)		+200		-300(2)		+300
December 31, 2002	-4.8	%	-1.8	%	-6.1	%	+1.0	%	-6.1	%	+1.8	%
December 31, 2001	+1.3	%	-3.6	%	+5.8	%	-5.0	%	+5.8	%	-7.5	%

⁽¹⁾ Reflects an assumed change in interest rates that occurs in equal steps over a six month horizon.

⁽²⁾ Due to the low level of interest rates as of year-end 2002 and 2001, Management’s judgment was used to set reasonable levels of change in the yield curve and establish, where appropriate, interest rate floors for select interest-earning assets and interest-bearing liabilities.

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2002’s sensitivity profile reflects a decrease from 2001 in the degree of net interest income change, given a significant rise in interest rates. In the case of an immediate 200 basis point change in rates, the adverse impact to net interest income declined to a negative 1.8% in 2002 from a negative 3.6% in 2001. This decrease is reflective of Management’s efforts to better insulate future net interest income exposure to rising interest rates. As mortgage interest rates reached 40-year historic lows in third quarter 2002, refinance-related prepayments accelerated, and cash flows received from mortgage-backed securities increased significantly. As further discussed in the subsequent section entitled “Investment Portfolio Management,” the Company adopted investment strategies that allowed the effective duration of its $2.0 billion securities portfolio to shorten. This strategy, while dampening net interest margin in third and fourth quarter 2002, gives the Company the flexibility to extend the portfolio’s duration and receive higher yields as market opportunities present themselves in 2003. In addition, through pricing and promotional strategies further described in the subsequent section titled “Funding and Liquidity Management,” the Company was able to reduce its exposure to rising rates by growing core, non-indexed transactional accounts and lengthening the maturity of time deposits and certain borrowed funds.

In the case of a 200 basis point graduated change in interest rates, net interest income is estimated to be adversely impacted both in rising (-1.8%) and falling (-4.8%) rate scenarios. This condition is caused by differing repayment rates of mortgage loans and mortgage-backed securities in increasing and decreasing rate environments and the greater latitude to raise rather than lower some deposit rates, given the already very low level of interest rates.

In addition to the simulation analysis, Management uses an economic value of equity sensitivity technique to capture the risk in both short and long-term positions. ALCO uses the economic value of equity sensitivity analysis to study the impact of long-term cash flows on earnings and capital. Economic value of equity involves discounting present values of expected cash flows on all assets, liabilities, and off-balance sheet contracts under different interest rate scenarios. The discounted present value of all cash flows represents First Midwest’s economic value of equity. Economic value of equity does not represent the true fair value of asset, liability, and derivative positions, since it does not consider factors like credit risk and liquidity nor does it consider the impact of future changes to the balance sheet. First Midwest’s policy guidelines call for preventative measures to be taken in the event that an immediate increase or decrease in interest rates of 200 basis points is estimated to reduce the economic value of equity by more than 20%.

At December 31, 2002, an immediate 200 basis point increase in market rates would negatively impact First Midwest’s economic value of equity by 6.8% as compared to 10.6% in 2001. An immediate 200 basis point decrease in market rates, as adjusted to allow for 2002’s already low level of interest rates, would positively impact the economic value of equity by 3.8% in 2002 as compared to 6.9% in 2001. Consistent with previously discussed net interest income simulation findings, 2002’s sensitivity of the economic value of equity to rising interest rates was reduced due to certain security portfolio management and deposit pricing strategies undertaken to reduce exposure to rising interest rates. 2002’s sensitivity to falling rates was reduced in comparison to 2001 due to the low level of interest rates that existed at the end of 2002.

Overall, First Midwest believes that its current balance sheet structure and net interest income performance, while adversely impacted by significant, rapid increases in interest rates, is less vulnerable to increasing interest rates as compared to the condition that existed at year-end 2001. Conversely, First Midwest’s balance sheet and net interest income is more vulnerable to an immediate decrease in interest rates than it was at the year-end 2001 due to the low level of interest rates.

As part of its approach to controlling the interest rate risk within its balance sheet, First Midwest has utilized derivative instruments (specifically interest rate swaps with third parties) in order to limit volatility in net interest income. The advantages of using such interest rate derivatives include minimization of balance sheet leverage resulting in lower capital requirements as compared to cash instruments, the ability to maintain or increase liquidity, and the opportunity to customize the interest rate swap to meet desired risk parameters. The accounting policies underlying the treatment of derivative financial instruments in the Consolidated Statements of Condition and Income of First Midwest are described in Notes 1 and 20 of “Notes to Consolidated Financial Statements” commencing on pages 44 and 64, respectively, of this Form 10-K.

Interest rate swap transactions involve exchanges of fixed and floating rate interest payments without the exchange of the underlying notional (i.e., principal) amount on which the interest payments are calculated. When the interest rate swap has been appropriately designated as a hedge, the net cash flow paid or received by First Midwest on these transactions is treated as an adjustment to interest income and expense on the underlying earning asset or funding source to which the swap relates. A risk associated with interest rate swap transactions is credit risk, defined as the ability of the swap counterparty to perform its interest payment obligation under the terms of the agreement. Credit risk on interest rate swap transactions consists of the aggregate net interest payable to First Midwest by the counterparty in addition to the aggregate unrealized gain on the swap position. First Midwest controls this credit risk by reviewing each counterparty for creditworthiness prior to entering into transactions and maintaining a policy limiting credit exposure to any one counterparty to not more than 2.5% of consolidated stockholders’ equity. In addition, First Midwest’s interest rate swap transactions require the establishment of a mutual mark-

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to-market arrangement whereby cash collateral is required to be on deposit with First Midwest and/or the counterparty, depending upon the existing net settlement position. First Midwest does not act as an intermediary in arranging interest rate swaps for customers.

As of December 31, 2002 and 2001, First Midwest had total interest rate swaps with an aggregate notional amount of $125,000 and $100,000 in place, respectively, hedging various balance sheet categories. The specific terms of the interest rate swaps outstanding as of December 31, 2002 and 2001 are discussed in Note 20 of “Notes to Consolidated Financial Statements” commencing on page 64 of this Form 10-K.

Funding and Liquidity Management

Liquidity management is the ability to provide funding sources at a minimum cost to meet fluctuating deposit, withdrawal, and loan demand needs. First Midwest’s liquidity policy establishes parameters as to how liquidity should be managed to maintain flexibility in responding to changes in liquidity needs over a 12 month forward period, including the requirement to formulate a quarterly liquidity compliance plan for review by the Bank Board of Directors. The compliance plan includes a recorded analysis that measures projected needs to purchase and sell funds. Inherent in the analysis is a set of projected balance sheet assumptions that are updated quarterly throughout the year. Based on such assumptions, First Midwest determines its total cash liquidity on hand and adds to that position excess collateral capacity from pledging, unused federal funds purchased lines, and other unused borrowing capacity such as Federal Home Loan Bank advances, resulting in a calculation of First Midwest’s total liquidity capacity. First Midwest’s total policy-directed liquidity requirement is 7.5% of total sources (demand deposits, interest-bearing transactions deposits, retail time deposits, other borrowings, and other liabilities and equity) less pledged deposits. Based upon First Midwest’s projections as of December 31, 2002, the Company expects to have net excess liquidity capacity, based upon policy guidelines, for the forward twelve-month period.

Table 4 provides a year-to-year comparison of the sources of First Midwest’s liability funding based upon average balances over the last three years. Average, rather than period-end, balances are more meaningful in analyzing First Midwest’s funding sources because of the inherent fluctuations that occur on a monthly basis within most deposit categories.

Table 4

Funding Sources—Average Balances

(Amounts in thousands)

	2002		% of Total	2001		% of Total	2000		% of Total
Demand deposits	$	744,295	13.9	$	689,394	13.2	$	664,683	12.4
Savings deposits		454,588	8.5		435,575	8.3		467,746	8.7
NOW accounts		723,634	13.5		501,800	9.6		474,108	8.9
Money market accounts		552,440	10.3		572,973	10.9		489,589	9.1
Core transactional deposits		2,474,957	46.1		2,199,742	42.00		2,096,126	39.1
Time deposits		1,739,017	32.4		1,971,157	37.6		2,019,914	37.7
Core deposits		4,213,974	78.6		4,170,899	79.6		4,116,040	76.8
Repurchase agreements		519,113	9.6		618,518	11.8		1,006,133	18.8
Funds purchased and other borrowed funds		630,915	11.8		448,156	8.6		234,407	4.4
Borrowed funds		1,150,028	21.4		1,066,674	20.4		1,240,540	23.2
Total funding sources	$	5,364,002	100.0	$	5,237,573	100.0	$	5,356,580	100.0

In 2001 and 2002, First Midwest focused its sales efforts on increasing core funding sources from deposits as funding costs are generally less expensive than wholesale, borrowed funds and do not typically require the pledging of securities as collateral. As discussed previously in the section entitled “Market Risk and Interest Rate Sensitivity,” commencing on page 17 of this Form 10-K, these efforts were in concert with First Midwest’s strategy to reduce it exposure to increases in market interest rates. As shown in Table 4, average core deposits for 2002 totaled $4,213,974, representing an increase of $43,075, or 1.0%, in 2002 and followed an increase of 1.3% in 2001 over 2000.

2002’s level of average core deposits represented 78.6% of total funding sources and approximated 2001’s level of 79.6%. Average core transactional deposits increased by $275,215, or 12.5%, over 2001 while average time deposits declined by

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$232,140, or 11.8%. The shift in deposit mix was driven by a combination of pricing and promotional strategies employed during late 2001 and throughout 2002.

In late 2001, First Midwest introduced a non-indexed, “high yield” interest-bearing checking account at a 90 day promotional rate, which by the end of 2001 totaled $207,731. The balances remained outstanding during all of 2002 and drove the 44.2% increase in average NOW accounts as compared to the prior year. Over the same time period, time deposit pricing, while competitive across all terms, specifically emphasized longer-term maturities.

The combination of these pricing strategies and the overall low level of interest rates and instability in the equity markets, created an incentive for customers seeking liquidity to shift balances to transactional accounts as opposed to shorter-term time deposits. As equity markets stabilize or interest rates increase, Management expects that customer liquidity preferences will change and some portion of transactional balances will revert to time deposits as influenced by then existent pricing and competition.

Tables 5 and 6 that follow provide additional information regarding First Midwest’s time deposit and wholesale funding activities over the last 3 years.

Table 5

Maturities of Time Deposits of $100 or More

(Amounts in thousands)

	As of December 31,
	2002		2001		2000
Maturing within 3 months	$	256,755	$	250,793	$	334,816
After 3 but within 6 months		100,090		170,793		212,236
After 6 but within 12 months		122,926		125,570		126,789
After 12 months		72,585		65,804		56,834
Total	$	552,356	$	612,960	$	730,675

Table 6

Borrowed Funds

(Amounts in thousands)

	2002			2001			2000
	Amount		Rate (%)	Amount		Rate (%)	Amount		Rate (%)
At year-end:
Securities sold under agreements to repurchase	$	384,408	1.21	$	494,851	2.04	$	911,872	6.37
Federal funds purchased		278,000	1.24		207,000	1.53		124,000	6.43
Federal Home Loan Bank advances		575,000	3.72		270,000	4.79		110,000	6.90
Total borrowed funds	$	1,237,408	2.38	$	971,851	2.70	$	1,145,872	6.43
Average for the year:
Securities sold under agreements to repurchase	$	519,113	1.65	$	618,518	4.14	$	1,006,133	6.08
Federal funds purchased		193,929	1.72		214,814	3.85		84,582	6.42
Federal Home Loan Bank advances		436,986	3.98		233,342	5.35		149,426	6.30
Other borrowed funds		—	—		—	—		399	6.77
Total borrowed funds	$	1,150,028	2.55	$	1,066,674	4.34	$	1,240,540	6.13
Maximum month-end balance:
Securities sold under agreements to repurchase	$	621,630		$	691,940		$	1,162,484
Federal funds purchased		278,000			297,000			170,000
Federal Home Loan Bank advances		575,000			270,000			180,000
Other borrowed funds		—			—			5,000

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Average borrowed funds totaled $1,150,028 representing an increase of $83,354, or 7.8%, over 2001 and stood in contrast to 2001’s decrease of 14.0% from 2000. First Midwest makes extensive, interchangeable use of both repurchase agreements and Federal Home Loan Bank (“FHLB”) advances to supplement core deposits and leverage the interest yields produced through its securities portfolio. As of December 31, 2002, the weighted average maturity of repurchase agreements and FHLB advances was 1.67 years as compared to .92 years for 2001. This increase was consistent with Management strategies to opportunistically lengthen interest-bearing liability terms in the current low interest rate environment.

The liquidity needs of First Midwest Bancorp, Inc. (“parent company”) consist primarily of operating expenses of the parent company and dividend payments to First Midwest’s stockholders. The primary source of liquidity for the parent company is dividends from Affiliates. At December 31, 2002, the parent company had short-term credit facilities, which require no compensating balances, available to fund cash flow needs totaling $50,000. The parent company also has the ability to enhance its liquidity position by raising capital or incurring debt. The parent company had no long-term debt or debt outstanding under its short-term credit facilities as of year-end 2002 and had cash and equivalent short-term investments of $27,063 as of such date.

ANALYSIS OF NONINTEREST INCOME AND EXPENSE

Noninterest Income

Noninterest income, exclusive of security gains, decreased by 2.3% in 2002 from 2001, following an increase of 9.9% in 2001. In 2002, the lower interest rate environment, as well as weakened debt and equity markets, negatively impacted market-sensitive revenue streams, such as trust revenue, corporate owned life insurance, and investment product fees derived from third party mutual funds and annuities (included in other income). Offsetting these negatives were greater revenues derived from service charges on deposit accounts. The year-to-year improvement in 2001 as compared to 2000 was realized primarily in the categories of service charges on deposit accounts and other commissions and fees and resulted from a combination of increased volumes of deposit accounts, greater customer activity, and improved fee assessment and collection practices started in the previous year.

The following table analyzes the components of noninterest income, excluding net security gains, for the years 2000 through 2002.

Table 7

Analysis of Noninterest Income ⁽¹⁾

(Amounts in thousands)

							% Change
	2002		2001		2000		2002-2001		2001-2000
Service charges on deposit accounts		25,362	$	24,148	$	21,341	5.0		13.2
Trust and investment management fees		10,309		10,445		10,671	(1.3	)	(2.1	)
Other service charges, commissions, and fees		18,019		18,471		16,282	(2.4	)	13.4
Corporate owned life insurance		6,728		8,190		6,517	(17.9	)	25.7
Other income		6,113		6,822		7,149	(10.4	)	(4.6	)
Total noninterest income	$	66,531	$	68,076	$	61,960	(2.3	)	9.9

⁽¹⁾ For a discussion of Security Gains, refer to the “Investment Portfolio Management” section commencing on page 28 of this Form 10-K.

Service charges on deposit accounts represent the largest component of noninterest income and consists of fees on both interest-bearing and noninterest-bearing deposit accounts as well as fees related to checks drawn upon customer accounts with insufficient funds (“NSF fees”) and stop payment requests. Service charges on deposit accounts include both hard dollar charges and charges assessed through account analysis, the latter being reduced by earnings credits indexed to a short-term U.S. Treasury yield and applicable to business deposit accounts only. Service charges on deposit accounts increased 5.0% to $25,362 in 2002, following a 13.2% increase in 2001. The $1,214 increase in 2002 is primarily attributable to a $750 increase in NSF fee revenues incident to a pricing increase implemented in first quarter 2002. Further contributing to the increase are higher service charges on business checking accounts due to greater transaction volumes combined with lower earnings credit paid thereon as a consequence of lower short-term interest rates that reduced the value of account balances maintained to compensate the Bank for deposit service, which resulted in higher fees collected for account maintenance. The increase of $2,807 in 2001 over 2000 was also attributable to an increase in NSF fees as well as increases in service charges on business checking and savings accounts.

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The Company provides trust and investment management services to its customers, acting as executor, administrator, trustee, agent, and in various other fiduciary capacities for client accounts. These services were previously provided to clients through a stand-alone trust company, which was merged into the Bank in 2001, thereby generating a more seamless integrated delivery of trust, investment management, and fiduciary services to the Bank’s more extensive commercial and personal client base. Assets under management and in nondiscretionary custody accounts totaled $1,935,339 and $1,987,920 at December 31, 2002 and 2001, respectively. This category of noninterest income decreased by 1.3% in 2002 as compared to 2001 following a decrease of 2.1% in 2001 from 2000. Trust and investment management fees generally follow the amount of total assets under management, as well as conditions in the equity and credit markets, as fees on certain accounts are based on market value. Trust and investment management fees have declined since 2000 principally as a result of a decline in the equity markets, which has reduced the value of assets under administration. To a lesser extent, a shift in the mix of assets under administration from equity investment products to money market funds, which generate lower fees, also served to reduce trust and investment management fee income.

Other service charges, commissions, and fees decreased by $452, or 2.4%, in 2002 as compared to 2001. The 2002 decline resulted from decreases in market-sensitive official check commissions, insurance premiums earned, and alternative investment revenues, offset by increases in debit card income and commissions on mortgage loan originations. The reduction in insurance premiums earned is attributable to a modification in the design of the product offered, which altered the revenue stream from the third party insurance carrier as compared to that in the prior year. 2001 fees increased by $2,189, or 13.4%, to $18,471 as compared to 2000 with commissions on mortgage loan originations contributing to over half of the 2001 increase in addition to improvement seen in debit card income, alternative investment revenues, and non-yield loan fees.

First Midwest owns life insurance policies, insuring the lives of certain First Midwest officers. First Midwest is the beneficiary under these corporate owned life insurance (“COLI”) policies, and uses the proceeds from the policies to offset the costs of certain employee benefits. Late in 2000 and early 2001, First Midwest exchanged and transferred certain of the policies to a new insurance carrier and renegotiated the terms of the existing policies. At December 31, 2002 and 2001 First Midwest held COLI policies, with a total value of $141,362 and $135,280, respectively, with six national insurance carriers, all of whom were rated in the top ranking levels by insurance carrier rating agencies.

COLI income represents the increase in cash surrender value (“CSV”) of the policies, net of any premiums paid. The increase in CSV is primarily attributable to earnings credited to the policies, based on investments made by the insurers. Under applicable tax law, this increase in CSV is not subject to federal taxation. The tax equivalent yield on the COLI was 6.8%, 9.4%, and 8.6% at December 31, 2002, 2001, and 2000 respectively. The decline in yield in 2002 reflects a reduction in the earnings on investments made by the insurer and credited to the policies, which resulted primarily from a shortening of the duration of those investments. The 80 basis point yield improvement in 2001 over 2000 was a result of improved earnings rates in connection with the prior year renegotiation of terms previously mentioned.

Other income decreased by $709, or 10.4%, in 2002 from 2001. In addition to a decline in automatic teller machine (“ATM”) interchanges fees, the reduction in other income in 2002 was due in part to certain nonrecurring activities in 2001, including a $348 one-time gain from the sale of excess property and a $150 one-time recovery. Other income decreased 4.6% in 2001 over 2000 and was the result of a decrease in mortgage banking revenues offset by greater ATM fees due to higher pricing and increased transaction volumes.

Noninterest Expense

Noninterest expense totaled $148,052 in 2002 as compared to $145,356 in 2001 and $144,416 in 2000, and represented an increase of 1.9% and 0.7% in 2002 and 2001, respectively. The elimination of goodwill amortization expense (as discussed in Notes 1 and 7 of “Notes to Consolidated Financial Statements” commencing on pages 44 and 53, respectively, of this Form 10-K) reduced noninterest expense for 2002 by $2,160. Factoring out the elimination of goodwill amortization expense, total noninterest expense for 2002 increased 3.4% over 2001.

The efficiency ratio for 2002 was 48.2% as compared to 49.7% for 2001 and 53.1% for 2000. The “lower-is-better” efficiency ratio indicates the percentage of operating costs that is used to generate each dollar of net revenue—that is, during 2002, 48.2 cents were spent to generate each $1 of net revenue. Net revenue is defined as net interest income, on a tax equivalent basis, plus other income less securities gains. The combination of top line revenue performance and continued cost control resulted in record efficiency ratios in 2002, with the 2001 efficiency ratio representing the first ever sub-50% efficiency ratio achieved by First Midwest for a full year. Table 8 analyzes the components of noninterest expense for the years 2000 through 2002.

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Table 8

Analysis of Noninterest Expense

(Amounts in thousands)

										% Change
	2002			2001			2000			2002-2001		2001-2000
Compensation expense (Table 9)	$	80,626		$	76,780		$	75,707		5.0		1.4
Occupancy expense		14,298			14,353			13,635		(0.4	)	5.3
Equipment expense		7,769			7,644			7,900		1.6		(3.2	)
Technology and related costs		9,796			10,186			10,894		(3.8	)	(6.5	)
Professional services		6,627			6,270			7,538		5.7		(16.8	)
Advertising and promotions		4,195			3,314			3,859		26.6		(14.1	)
Other expenses		24,741			26,809			24,883		(7.7	)	7.7
Total noninterest expense	$	148,052		$	145,356		$	144,416		1.9		0.7
Efficiency ratio		48.2	%		49.7	%		53.1	%

Compensation expense, the largest component of noninterest expense, includes employee salaries and wages, retirement and other employee benefits, and expense relating to temporary personnel costs. Table 9 analyzes the components of compensation expense for the years 2000 through 2002.

Table 9

Analysis of Compensation Expense

(Amounts in thousands, except for FTE data)

							% Change
	2002		2001		2000		2002-2001		2001-2000
Salaries and wages	$	61,834	$	60,089	$	59,528	2.9		0.9
Retirement and other employee benefits		17,716		15,308		14,702	15.7		4.1
Temporary personnel expense		1,076		1,383		1,477	(22.2	)	(6.4	)
Total compensation expense	$	80,626	$	76,780	$	75,707	5.0		1.4
Average full-time equivalent (FTE) employees		1,525		1,531		1,583	(0.4	)	(3.3	)

Salaries and wages increased by 2.9% in 2002 following an increase of 0.9% in 2001. First Midwest’s staffing levels on a full-time equivalent basis moderated in 2002 following a decrease of 52 persons in 2001 as a result of staffing reductions from the reorganization of certain support operations of the Bank. Salaries and wages increased by $1,745 in 2002 and $561 in 2001, and retirement and other employee benefits increased 15.7% in 2002 and 4.1% in 2001. The 2002 increase resulted from a combination of annual merit increases and a higher level of commissions associated with mortgage origination and sales activity, higher health care and retirement plan contributions, and greater performance based payments under various compensation programs. The 2001 increase in this category was primarily attributable to a larger profit sharing contribution due to record earnings performance and a $475 special healthcare contribution to reimburse the Company’s self-insured healthcare trust for certain extraordinary claim costs incurred during the year. Further discussion of First Midwest’s retirement plans can be found in Note 12 of “Notes to Consolidated Financial Statements” commencing on page 56 of this Form 10-K.

Occupancy expense decreased by 0.4% in 2002 from 2001 following an increase of 5.3% in 2001 over 2000. The 2002 decrease is primarily due to lower utilities expense and other seasonal costs resulting from favorable weather conditions in addition to the elimination of operating costs associated with three smaller branch office closings in the prior year. The 2001 increase is attributable to higher utility and snow removal costs as well as various fixed asset and leasehold improvement write-offs approximating $200 each relating to the closing of two supermarket branches and the sale of a building incident to the previously discussed trust company merger.

Equipment expense increased by 1.6% in 2002 following a decrease of 3.2% in 2001. The 2002 increase is attributable to higher depreciation costs on new assets placed in service and greater non-capitalized equipment expenditures. The 2001

24

reduction was the result of reduced repair costs and lower maintenance contract costs resulting from a Company-wide renegotiation of contracts with vendors.

Technology and related costs include expenses related to core bank data processing, trust, network communications, and other external processing systems. This category decreased by 3.8% in 2002 from 2001 and 6.5% in 2001 from 2000. The 2002 decrease is principally due to cost savings achieved from a change in voice and data circuits provider. Almost half of the 2001 decrease is incident to the discontinuation of mortgage subsidiary operations in 2000 and the balance due to lower data network costs as a result of renegotiated contract terms.

Professional services increased 5.7% in 2002 following a 16.8% decrease in 2001. The increase in 2002 was predominately due to consulting services related to enhancing retail target marketing strategies, as well as greater loan related costs primarily due to increased home equity loan volume. The 2002 increase was offset in part by lower personnel recruitment costs and cost savings in regulatory exam fees in connection with the Bank’s 2001 charter conversion. 2001’s reduction was due to lower loan related expenses and the elimination of certain consulting costs. Additionally, the Bank’s mid-year charter conversion was effected to realize a reduction in supervisory costs, with such reduction totaling $250 for the second half of 2001.

Advertising and promotions expense increased by 26.6% in 2002 following a decrease of 14.1% in 2001. The 2002 increase resulted from a return to more normalized expense levels as compared to 2001, as well as costs associated with participation in community development projects. The reduction of advertising expense in 2001 was due to a transitional shift in marketing strategy and the scaling back of certain advertising programs.

Other expenses decreased $2,068, or 7.7%, in 2002 as compared to 2001 after increasing 7.7% in 2001 as compared to 2000. Other expenses include various categories such as freight and courier costs, merchant credit card expense, supplies and printing, and telephone expense incurred in the day-to-day operations of the Company. The 2002 decrease is primarily reflective of the cost containment measures embraced throughout the Company and the elimination of $2,160 in goodwill amortization due to the adoption of Financial Accounting Standards Board Statement No. 142 (“FASB No. 142”), “Goodwill and Other Intangible Assets,” which ceased the amortization of all goodwill. Further discussion of the adoption of FASB Statement No. 142 and the impact on the Company is included in Notes 1 and 7 of “Notes to the Consolidated Financial Statements” commencing on pages 44 and 53, respectively, of this Form 10-K. The increase in 2001 was related to certain costs that were incurred to change stationary, supplies, etc. incident to the Bank charter conversion, in addition to higher postage costs incident to the 2001 rate increases.

INCOME TAXES

First Midwest annually develops an income tax plan that focuses on the maximization of long-term, after-tax profitability on a consolidated basis. First Midwest’s provision for income taxes includes both federal and state income tax expense. An analysis of the provision for income taxes and the effective income tax rates for the periods 2000 through 2002 are detailed in Table 10.

Table 10

Analysis of Income Tax Expense

(Amounts in thousands)

	2002			2001			2000
Income before income tax expense	$	122,283		$	108,806		$	99,299
Income tax expense	$	32,133		$	26,668		$	23,759
Effective income tax rate		26.3	%		24.5	%		23.9	%

First Midwest’s accounting policies underlying the recognition of income taxes in the Consolidated Statements of Condition and Income are included in Notes 1 and 13 of “Notes to Consolidated Financial Statements” commencing on pages 44 and 58, respectively, of this Form 10-K. In accordance with such policies, First Midwest records income tax expense (benefits) in accordance with FASB Statement No. 109, “Accounting for Income Taxes” (“FASB No. 109”). Pursuant to FASB No. 109, First Midwest recognizes deferred tax assets and liabilities based on temporary differences in the recognition of income and expenses for financial statement and income tax purposes. Deferred tax assets totaling $15,242 at December 31, 2002 are recorded in other assets. The tax effect of adjustments related to other comprehensive income totaling $25,136 at December 31, 2002 is recorded in other liabilities in the accompanying Consolidated Statements of Condition.

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Under FASB No. 109, deferred tax assets must be reduced by a valuation allowance if it is more likely than not that some portion or the entire deferred tax asset will not be realized. In assessing whether a valuation allowance is required, First Midwest considers the ability to realize the asset through carryback to taxable income in prior years, the future reversal of existing taxable temporary differences. Based on this assessment, First Midwest has determined that a valuation allowance is not required for any of the deferred tax assets it has recorded.

MANAGEMENT OF CAPITAL

Stockholders’ Equity

Stockholders’ equity at December 31, 2002 was $491,953, an increase of $44,686, or 10%, from December 31, 2001. The stockholders’ equity increase was largely the result of an increase in the net unrealized gains in the Company’s available-for-sale investment portfolio and earnings less dividends paid to shareholders. Equity as a percentage of assets was 8.2% at December 31, 2002, compared to 7.9% a year ago. Book value per common share increased to $10.42 at December 31, 2002, up from $9.18 at December 31, 2001.

Capital Measurements

A strong capital structure is crucial in maintaining investor confidence, accessing capital markets, and enabling First Midwest to take advantage of future profitable growth opportunities. First Midwest’s Capital Policy requires that the Bank maintain a capital ratio in excess of the minimum regulatory guidelines and also serves as an internal discipline in analyzing business risks and internal growth opportunities, in addition to setting targeted levels of return on equity. Under regulatory capital adequacy guidelines, First Midwest and the Bank are subject to various capital requirements set and administered by the federal banking agencies. Capital adequacy guidelines require that First Midwest meet specific guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components of capital and assets, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require First Midwest to maintain minimum amounts and ratios of total and tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of tier 1 capital to average assets (as defined). As of December 31, 2002, First Midwest and the Bank met all capital adequacy requirements to which they were subject.

To be categorized as “well capitalized,” First Midwest and the Bank must maintain minimum total and tier 1 capital to risk-weighted assets and tier 1 capital to average assets ratios as set forth in the table below. The following table summarizes the actual capital amounts and ratios for First Midwest and compares them to the capital levels and ratios necessary to be categorized as adequately capitalized and “well capitalized”.

Table 11

Capital Measurements

(Amounts in thousands)

	First Midwest Actual				For Capital Adequacy Purposes				Well Capitalized for FDICIA
	Capital		Ratio		Capital		Ratio		Capital		Ratio
As of December 31, 2002:
Total capital (to risk-weighted assets):
First Midwest Bancorp, Inc	$	482,512	11.03	%	$	349,960	8.00	%	$	437,450	10.00	%
First Midwest Bank		460,426	10.56			348,826	8.00			436,033	10.00
Tier 1 capital (to risk-weighted assets):
First Midwest Bancorp, Inc		434,583	9.93			174,980	4.00			262,470	6.00
First Midwest Bank		412,497	9.46			174,413	4.00			261,620	6.00
Tier 1 leverage (to average assets):
First Midwest Bancorp, Inc		434,583	7.32			178,126	3.00			296,877	5.00
First Midwest Bank		412,497	7.01			176,683	3.00			294,471	5.00

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	First Midwest Actual				For Capital Adequacy Purposes				Well Capitalized for FDICIA
	Capital		Ratio		Capital		Ratio		Capital		Ratio
As of December 31, 2001:
Total capital (to risk-weighted assets):
First Midwest Bancorp, Inc.	$	471,728	11.08	%	$	340,488	8.00	%	$	425,611	10.00	%
First Midwest Bank		458,022	10.81			338,998	8.00			423,747	10.00
Tier 1 capital (to risk-weighted assets):
First Midwest Bancorp, Inc.		423,983	9.96			170,244	4.00			255,366	6.00
First Midwest Bank		410,277	9.68			169,499	4.00			254,248	6.00
Tier 1 leverage (to average assets):
First Midwest Bancorp, Inc.		423,983	7.43			171,181	3.00			285,301	5.00
First Midwest Bank		410,277	7.25			170,047	3.00			283,412	5.00

Management of Capital

In August 2002, First Midwest’s Board of Directors authorized the repurchase of up to 3,000 of its common shares, or 6.28% of shares outstanding. The new plan is the ninth such program since the Company’s formation in 1983 and authorizes repurchases in both open market and privately negotiated transactions and has no execution time limit. Subject to ongoing capital, investment, and acquisition considerations, management intends to continue share repurchases in 2003 on an opportunistic basis. First Midwest repurchased 1,866 and 2,604 shares of its common stock during 2002 and 2001, respectively, under repurchase programs in effect at that time, and at December 31, 2002, 2,401 shares authority remained. The following table shows the current and all previous authorizations.

Table 12

Repurchase Authorizations

(Amounts in thousands)

Date	Shares Authorized	Authorized as a % of Outstanding		Shares Repurchased		Repurchased as a % of Authorization		Average Cost Per Repurchased Share
November 1991	1,125	4.80	%	799		71	%	$	9.87
November 1993	1,125	4.90	%	409	(1)	36	%		11.20
November 1995	1,500	6.60	%	173	(1)	12	%		12.21
November 1996	1,690	5.30	%	1,038		62	%		16.27
September 1998	1,600	2.90	%	1,600		100	%		21.55
February 1999	3,750	6.90	%	3,750		100	%		20.92
November 1999	1,875	3.75	%	1,188	(2)	63	%		23.90
August 2001	3,125	6.25	%	2,436	(3)	78	%		27.26
August 2002	3,000	6.28	%	599	(4)	—			27.53

⁽¹⁾ Authorizations suspended as a result of pooling-of-interests restrictions in connection with acquisitions.

⁽²⁾ Balance rescinded and replaced by August 2001 authorization.

⁽³⁾ Balance rescinded and replaced by August 2002 authorization.

⁽⁴⁾ Represents repurchases through December 31, 2002, with 2,401 shares authority remaining.

The repurchased shares are held as treasury stock and available for issuances in conjunction with First Midwest’s Dividend Reinvestment Plan, qualified and nonqualified retirement plans, and stocks option plans as well as for other general corporate purposes. First Midwest has reissued shares held in the treasury to fund such plans totaling 352 shares and 258 shares in 2002 and 2001, respectively.

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Dividends

First Midwest paid dividends per common share of $0.70 in 2002 and $0.65 in 2001 and has paid dividends every year since its formation in 1983. First Midwest believes that it has a responsibility not only to judiciously manage its capital structure but also to reward its stockholders with a meaningful current return on their investment. As part of the Company’s dividend policy, the Board of Directors reviews its dividend payout ratio periodically to ensure that it is consistent with internal capital guidelines, industry standards, and peer group practices. As a result of improved performance from operations as well as First Midwest’s perceived future prospects, the Board of Directors has increased the quarterly dividend every year since 1993. The following table summarizes the dividend increases declared since 1993.

Table 13

Dividend Increases Declared

Date	Quarterly Rate Per Share		% Increase
November 2002	$	0.190	12	%
November 2001		0.170	6	%
November 2000		0.160	11	%
November 1999		0.144	13	%
November 1998		0.128	7	%
November 1997		0.120	13	%
November 1996		0.107	18	%
February 1996		0.090	13	%
February 1995		0.081	15	%
February 1994		0.072	13	%
February 1993		0.064	16	%

The dividend payout ratio, which represents the percentage of earnings per share declared to shareholders, was 37.6% and 39.9% for the years 2002 and 2001, respectively. The dividend payout ratio has averaged approximately 41% for the past five years.

INVESTMENT PORTFOLIO MANAGEMENT

The investment portfolio is managed to maximize the return on invested funds within acceptable risk guidelines, to meet pledging and liquidity requirements, and to adjust balance sheet rate sensitivity to insulate net interest income against the impact of changes in interest rate movements. The following table sets forth the year-end carrying value of securities for the last three years.

Table 14

Composition of Investment Portfolio

(Amounts in thousands)

	As of December 31,
	2002			2001			2000
	Amount		% of Total	Amount		% of Total	Amount		% of Total
By Type:
U.S. Treasury	$	1,705	0.1	$	2,211	0.1	$	2,425	0.1
U.S. Agency		201,883	9.6		70,521	3.8		422,764	19.1
Collateralized Mortgage Obligations		867,080	41.5		806,414	43.3		646,156	29.2
Other Mortgage-Backed Securities		282,660	13.5		355,325	19.1		520,368	23.5
State and Municipal		641,529	30.7		542,626	29.2		538,911	24.3
Other		96,742	4.6		83,737	4.5		84,321	3.8
Total	$	2,091,599	100.0	$	1,860,834	100.0	$	2,214,945	100.0
By Classification:
Available for sale	$	1,986,186	95.0	$	1,771,607	95.2	$	2,130,148	96.2
Held to maturity		105,413	5.0		89,227	4.8		84,797	3.8
Total	$	2,091,599	100.0	$	1,860,834	100.0	$	2,214,945	100.0

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The following sections describe First Midwest’s investment portfolio.

Securities Available for Sale—Securities that First Midwest believes could be sold prior to maturity in order to manage interest rate, prepayment, or liquidity risk are classified as securities available for sale and are carried at fair market value. Unrealized gains and losses on this portfolio segment are reported on an after-tax basis as a separate component of stockholders’ equity in Accumulated Other Comprehensive Income.

At December 31, 2002 and 2001, the after-tax unrealized net gain on the securities available for sale portfolio totaled $40,013 and $7,085, respectively. The unrealized net appreciation or depreciation on this portfolio represents the difference, net of taxes, between the aggregate cost and market value of the portfolio. This balance sheet component will fluctuate as current market interest rates and conditions change, thereby affecting the aggregate market value of the portfolio.

The maturity distribution and average yields, on a tax equivalent basis, of the securities available for sale portfolio at December 31, 2002 are presented in Table 15.

Table 15

Securities Available for Sale

Maturity Distribution and Portfolio Yields

(Amounts in thousands)

	As of December 31, 2002
	U.S. Agency			Collateralized Mortgage Obligations(1)			Other Mortgage- Backed Securities(1)			State and Municipal(2)			Other			Total
One year or less:
Market Value	$	194,729		$	396,879		$	96,114		$	3,543		$	6,394		$	697,659
Amortized Cost		193,542			391,007			92,675			3,272			6,394			686,890
Yield (%)		2.50	%		2.08	%		6.16	%		11.43	%		1.86	%		2.79	%
One year to five years:
Market Value		7,028			296,992			95,873			141,076			28,700			569,669
Amortized Cost		6,985			292,598			92,443			130,273			30,010			552,309
Yield (%)		5.80	%		5.79	%		6.37	%		8.56	%		1.54	%		6.31	%
Five years to ten years:
Market Value		—			150,152			48,303			339,709			—			538,164
Amortized Cost		—			147,930			46,575			313,695			—			508,200
Yield (%)		—			5.57	%		6.24	%		7.30	%		—			6.70	%
After ten years:
Market Value		—			23,057			42,370			89,200			26,067			180,694
Amortized Cost		—			22,716			40,853			82,368			27,256			173,193
Yield (%)		—			5.57	%		6.23	%		4.88	%		1.54	%		4.76	%
Total:
Market Value	$	201,757		$	867,080		$	282,660		$	573,528		$	61,161		$	1,986,186
Amortized Cost	$	200,527		$	854,251		$	272,546		$	529,608		$	63,660		$	1,920,592
Yield (%)		2.61	%		4.05	%		6.26	%		7.26	%		1.57	%		5.01	%

⁽¹⁾ The maturity distributions of mortgaged-backed securities are based upon estimated future cash flows and prepayments. Actual maturities of the securities may differ from that reflected in the table.

⁽²⁾ Yields on state and municipal securities are reflected on a tax equivalent basis, assuming a federal tax rate of 35%.

At December 31, 2002, the available for sale securities portfolio totaled $1,986,186 compared with $1,771,607 at December 31, 2002. Approximately 58% of the portfolio is comprised of mortgage-backed securities as compared to 66% and 55%, respectively, at year-end 2001 and 2000. The low level of mortgage interest rates, which reached 40-year historic lows during third quarter 2002, increased refinance-related prepayments and accelerated cash flows. Given the low level of interest rates, a flattening yield curve, and Management’s concerns regarding the potential for rising interest rates, cash flow reinvestments were deployed such that the sensitivity of the portfolio to changing interest rates was decreased. The effective

29

duration of the portfolio, used in this context to represent the estimated percentage change in the market value of the securities portfolio given a 100 basis point change up or down in the level of interest rates, shortened significantly, dropping from 3.54% as of year-end 2001 to 1.28% in 2002.

The overall lower level of interest rates in 2002 increased the pre-tax unrealized gain in the securities available for sale portfolio (representing the difference between the total portfolio amortized cost and market value at December 31) from $11,615 at year-end 2001 to $65,594 at year-end 2002. Combined with the shorter effective duration of the portfolio, the level of unrealized gain gives First Midwest the flexibility to extend portfolio duration and receive higher yields as market opportunities present themselves in 2003.

Securities Held to Maturity—Securities which First Midwest has the ability and intent to hold until maturity are classified as securities held to maturity and are accounted for using historical cost, adjusted for amortization of premium and accretion of discount. First Midwest has no trading account securities.

The maturity distribution and average yields, on a tax equivalent basis, of the securities held to maturity portfolio as of December 31, 2002 are presented on Table 16.

Table 16

Securities Held to Maturity

Maturity Distribution and Portfolio Yields

(Amounts in thousands)

	As of December 31, 2002
	U.S. Treasury			U.S. Agency			State and     Municipal(1)			Other			Total			Market Value as a % of Amortized Cost
One year or less:
Market Value	$	1,714		$	127		$	18,436		$	—		$	20,277		100.12
Amortized Cost		1,705			126			18,421			—			20,252
Yield (%)		1.99	%		3.02	%		5.54	%		—			5.23	%
One year to five years:
Market Value		—			—			12,023			—			12,023		100.80
Amortized Cost		—			—			11,927			—			11,927
Yield (%)		—			—			8.27	%		—			8.27	%
Five years to ten years:
Market Value		—			—			21,559			—			21,559		100.13
Amortized Cost		—			—			21,532			—			21,532
Yield (%)		—			—			10.08	%		—			10.08	%
After ten years:
Market Value		—			—			16,128			35,581			51,709		100.01
Amortized Cost		—			—			16,121			35,581			51,702
Yield (%)		—			—			4.22	%		5.18	%		4.88	%
Total:
Market Value	$	1,714		$	127		$	68,146		$	35,581		$	105,568		100.15
Amortized Cost	$	1,705		$	126		$	68,001		$	35,581		$	105,413
Yield (%)		1.99	%		3.02	%		7.14	%		5.18	%		6.39	%

⁽¹⁾      Yields on state and municipal securities are reflected on a tax equivalent basis, assuming a federal tax rate of 35%.

Securities Gains, Net—Net gains on sales of securities decreased in 2002 to $460 as compared to $790 in 2001 and $1,238 in 2000. The 2002 and 2001 gains resulted primarily from the sales of short-maturity securities in which the Company felt the gains fully discounted any future interest rate movements.

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LOAN PORTFOLIO AND CREDIT QUALITY

Loans represent the principal source of revenue to First Midwest. First Midwest’s revenue from lending activities is primarily represented by interest income but also includes loan origination and commitment fees (net of related costs) and earned discounts on consumer loans. The accounting policies underlying recording of loans in the Consolidated Statements of Condition and the recognition and/or deferral of interest income and fees (net of costs) arising from lending activities are included in Notes 1 and 4 of “Notes to Consolidated Financial Statements” commencing on pages 44 and 51, respectively, of this Form 10-K.

Portfolio Composition

First Midwest’s long-term strategy is to distribute its loan portfolio approximately evenly among the categories of commercial and industrial (including agricultural), consumer (including real estate 1—4 family) and real estate (both commercial and construction). First Midwest also looks to maintain a portfolio of corporate loans (commercial and industrial, agricultural, commercial real estate and real estate construction) that is well balanced and minimized exposure to any particular industry segment. This type of diversification spreads the risk and reduces the exposure to economic downturns that may occur in different segments of the economy or in different industries.

It is First Midwest’s policy to concentrate its lending activities in the geographic market areas it serves, generally lending to consumers and small to mid-sized businesses from whom deposits are gathered in the same market areas, with the primary market concentration being the Chicago suburban banking market. Although First Midwest’s legal lending limit approximates $84 million, the largest loan to one borrower at year-end 2002 was approximately $28.4 million, with only 24 credits in the portfolio representing aggregate loans to one borrower in excess of $10 million.

The following table summarizes the total loans outstanding, and their percent of the loan portfolio, as of the end of the last five years.

Table 17

Loan Portfolio

(Amounts in thousands)

	As of December 31,
	2002			% of Total	2001			% of Total	2000			% of Total	1999			% of Total	1998			% of Total
Commercial and industrial	$	897,845		26.4	$	827,281		24.5	$	817,208		25.3	$	780,500		26.3	$	750,956		28.2
Agricultural		91,381		2.7		87,188		2.6		67,736		2.1		56,852		1.9		49,397		1.9
Consumer		914,820		26.8		947,246		28.1		924,189		28.6		847,997		28.6		688,774		25.8
Real estate—1-4 family		138,302		4.1		196,741		5.8		250,635		7.7		253,268		8.6		257,307		9.7
Real estate—commercial		1,019,989		29.9		998,857		29.6		900,781		27.9		834,852		28.2		769,514		28.8
Real estate—construction		344,509		10.1		314,993		9.4		272,647		8.4		189,018		6.4		148,469		5.6
Total	$	3,406,846		100.0	$	3,372,306		100.0	$	3,233,196		100.0	$	2,962,487		100.0	$	2,664,417		100.0
Growth vs. prior year–end		1.0	%			4.3	%			9.1	%			11.2	%			(12.5	%)

Loan growth during 2002, while continuing the positive trend begun in 1999, was slowed by overall softness in the economy and an emphasis on profitable pricing and sound underwriting standards. Total loans at December 31, 2002 grew $34,540, or 1.0%, with all loan categories experiencing growth except for 1-4 family real estate and consumer lending. Commercial loan growth was strong for 2002, up 8.5% over 2001, while commercial and construction real estate increased by 2.1% and 9.4%, respectively, in comparison to 2001. Retail consumer lending declined by $32,426, or 3.4%, due to lower indirect automobile lending volumes and accelerated prepayments resulting from zero percent financing promotions offered by automobile manufacturers. 1-4 family real estate lending declined by $58,439, or 29.7%, as refinance related prepayments in the current low rate environment continued to outpace new volumes.

Total loans in 2001 grew 4.3%, or $139 million, with all loan categories experiencing growth except 1-4 family real estate lending. Excluding 1-4 family real estate loans, total loans at year-end 2001 grew by 6.5%. Loan growth in 2000 was 9.1% and was influenced by the sale of $30 million of home equity loans during fourth quarter 2000. Factoring out such sale, loan growth in 2000 would have been 10.2%. Total loans in 1999 grew 11.2%.

In 1998, loans declined by 12.5%. During this period, loan growth was affected by First Midwest’s efforts to integrate $1.9 billion in assets represented by the 1997 and 1998 acquisitions of Spar Bank, Incorporated and Heritage Financial Services.

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As a result of those significant acquisitions and the related integration activities, First Midwest outsourced certain loans that did not conform to its lending policies and securitized other loans, thereby removing them from the loan portfolio.

Commercial and industrial loans increased 8.5%, or $70,564, in 2002. This category of loans is diversified from an industry standpoint and includes loans to manufacturing, wholesalers, retailing, and other service businesses. Consistent with First Midwest’s emphasis on relationship banking, most of these credits represent core, multi-relationship customers who also maintain deposit relationships and use other First Midwest banking services such as cash management.

Consumer loans, which decreased 3.4%, or $32,426, in 2002 consist of loans made directly to individuals for various personal purposes, as well as indirect installment loans represented mainly by automobile financings acquired from dealerships in First Midwest’s primary markets. This category also includes direct home equity loans and other direct installment loans. The mix of credits within this lending category has shifted. Since the start of 2002, promotional sales have increased home equity line balances by approximately $66.2 million, or 32%, and effectively offset declines in both direct consumer and home equity loans. The 2001 loan growth in this category was experienced across all types of consumer loans.

Real estate 1-4 family loans are comprised predominately of owner occupied residential properties. With the discontinuation of operations of its mortgage banking subsidiary in 2000, First Midwest reorganized the manner in which it offers mortgage products, whereby sales activities moved to its branch network while all administrative activities, including servicing, were outsourced to a third party vendor. First Midwest now earns commissions from the origination of mortgage loans, which are then either retained for portfolio or sold in the secondary market by the outsourcing vendor. Mortgage loan originations for 2002 increased by 3.0% over 2001 following an increase of 167.5% in 2001 from 2000, due primarily to increased loan demand as a result of lower market interest rates. Driven by asset-liability structural considerations, in 2001 First Midwest elected not to retain a majority of its mortgage loan origination production, thereby accounting for the approximate 51.2% decrease in 2002 and the 21.5% decrease in 2001.

Real estate commercial loans, which increased by 2.1%, or $21,132, in 2002 represent income-producing commercial property loans, multi-unit residential mortgages, and commercial real estate mortgages, many housing the operations of the borrower’s business. Growth in this category has slowed following larger increases in this category during 2001 and 2000, which, at that time, were reflective of the continuing significant demand for commercial properties in the suburban Chicago banking market.

Real estate construction loans, which grew by $29,516, or 9.4%, in 2002 consist primarily of single-family and multi-family residential as well as non-residential projects located in First Midwest’s primary markets. Real estate construction loans are a profitable line of lending for First Midwest due to the higher level of interest rates and fees earned on such loans as compared to other loan categories and the favorable loss experience on these loans. The growth experienced in 2002 was primarily the result of continued strong demand for single-family and 1-4 family residential construction in the Chicago banking market.

The strength of the suburban Chicago real estate market over the past several years has enabled real estate commercial and construction lending to grow to over one-third of First Midwest’s total loans. Real estate commercial and construction lending has been an area of specialty for the Company since its formation in 1983. The combination of seasoned, long-time borrowers, experienced senior lending officers, Management’s focus on market fundamentals, and a stringent underwriting process has given the Company a competitive market advantage. Along with balanced exposure to any particular industry segment (as subsequently described in the section entitled “Distribution By Industry Segment”), these same areas of strength reduce First Midwest’s exposure to loss through periods of economic downturn. First Midwest’s loan loss experience for these two categories of lending is detailed in Table 20 on page 36 of this Form 10-K.

Distribution By Industry

Table 18 summarizes First Midwest’s twelve largest industry segments, as classified pursuant to the North American Industrial Classification System standard industry descriptions for the corporate loan portfolio as of December 31, 2002 and 2001. Portfolio analysis by industry segment provides useful insight as to credit exposure to any particular industry or market segment. The effectiveness of such analysis, however, is limited to the extent that classification by segment requires that allocation of a customer’s aggregate loans outstanding be based upon the nature of the borrower’s ongoing business activity as opposed to the purpose of collateral underlying an individual loan. To the extent that a borrower’s underlying business activity changes, classification differences will arise. As a result, First Midwest periodically reassesses and adjusts industry classifications.

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Table 18

Corporate Loan Portfolio by Industry Segment

(Amounts in thousands)

	As of December 31,
	2002			2001
	Amount		% of Total	Amount		% of Total
Lessors of real estate	$	493,508	21.0	$	445,129	20.0
Manufacturing trade		179,634	7.6		183,780	8.2
Wholesaler trade		149,046	6.3		135,481	6.1
Land subdivision and land development		147,824	6.3		155,302	7.0
Retailer trade		145,157	6.2		133,195	6.0
Agriculture, forestry, fishing, and hunting		143,517	6.1		130,476	5.9
Heavy construction and trade contractors		131,517	5.6		109,312	4.9
Nonresidential building construction		118,750	5.0		77,260	3.5
Residential building construction		115,995	4.9		129,946	5.8
Health care and social assistance		84,190	3.5		84,689	3.8
Accommodation		72,246	3.1		78,899	3.5
Food service		69,779	3.0		71,172	3.2
Subtotal		1,851,163	78.6		1,734,641	77.9
All other segments		502,561	21.4		493,678	22.1
Total	$	2,353,724	100.0	$	2,228,319	100.0

First Midwest believes it is well balanced in terms of exposure to any industry or market segment. As of December 31, 2002, “Lessors of Real Estate” totaled $493,508, or 21.0%, of total corporate loans and represented the single largest industry segment. This segment includes a variety of industry types as represented by the tenants whom are both owner-occupiers of the real estate or third party lessees. Consequently, industry risk is further diversified within this segment.

As of year-end 2002, First Midwest has virtually no direct credit exposure to such high profile sectors as energy, cable, telecommunication, airline, or foreign loan exposures, nor does the Company have any significant exposures outside of its geographic market.

Maturity and Interest Rate Sensitivity of Loans

Table 19 summarizes the maturity distribution of First Midwest’s commercial, agricultural, commercial real estate, and real estate construction loan portfolios as of December 31, 2002 as well as the interest rate sensitivity of loans in these categories that have maturities in excess of one year.

Table 19

Maturities and Sensitivities of Loans to Changes in Interest Rates

(Amounts in thousands)

	Due in 1 year or less		Due after 1 year through 5 years		Due after 5 years		Total
Commercial, industrial, and agricultural	$	581,541	$	369,989	$	37,696	$	989,226
Real estate—commercial		222,233		738,925		58,831		1,019,989
Real estate—construction		227,878		115,590		1,041		344,509
Total	$	1,031,652	$	1,224,504	$	97,568	$	2,353,724

33

Interest Rate Sensitivity of Loans

Maturing in Over 1 Year

(Amounts in thousands)

	Fixed Rate		Floating Rate		Total
Commercial, industrial, and agricultural	$	269,114	$	138,571	$	407,685
Real estate—commercial		556,135		241,621		797,756
Real estate—construction		15,908		100,723		116,631
Total	$	841,157	$	480,915	$	1,322,072

Credit Quality Management and the Reserve for Loan Losses

First Midwest’s loan portfolios are subject to varying degrees of credit risk. As discussed in the previous section entitled “Portfolio Composition,” credit risk is mitigated through portfolio diversification, which limits exposure to any single industry or customer. Similarly, credit risk is also addressed through the establishment of a thorough system of internal controls, which includes standard lending policies, underwriting criteria and collateral safeguards. These internal controls that address credit risk also include the establishment and monitoring of formal credit policies and procedures as well as continuing surveillance and evaluation of the quality, trends, collectibility, and collateral protection within the loan portfolio which are monitored by an internal loan review staff. The policy and procedures are reviewed and modified on an ongoing basis in order to remain suitable for the management of risk as conditions change and new credit products are offered.

First Midwest’s credit administration policies include a comprehensive loan rating system and an annual review by the internal loan review staff of at least 70% of all corporate loans and commitments, which includes all new loans and commitments in excess of $1 million. Furthermore, account officers are vested with the responsibility of monitoring their customer relationships and act as the first line of defense in determining changes in the loan ratings on credits for which they are responsible. First Midwest believes that any significant change in the overall quality of the loan portfolio will first manifest itself in the migration of loan ratings within this monitoring system.

Finally, First Midwest has historically had a very active process of senior manager review of those loans that have migrated in the loan rating system to a level that requires some form of remediation. Such loans are reviewed at regularly scheduled quarterly meetings between the credit administration staff and the account officers where action plans are developed to either remedy any emerging problem loans or develop a specific plan for removing such loans from the portfolio over a short, forward time frame. During times of economic duress, First Midwest will increase the frequency of these meetings to an every other month cycle rather than quarterly.

First Midwest maintains a reserve for loan losses to absorb probable losses in the loan portfolio. The accounting policies underlying the establishment and maintenance of the reserve for loan losses through provisions charged to operating expense are discussed in Notes 1 and 5 of “Notes to Consolidated Financial Statements” commencing on pages 44 and 52, respectively, of this Form 10-K. The appropriate level of the reserve for loan losses is determined by systematically performing a review of the loan portfolio quality as required by the credit administration policy and procedures described above. The reserve for loan losses consists of three components: (i) specific reserves established for any impaired commercial, real estate commercial and real estate construction loan for which the recorded investment in the loan exceeds the measured value of the loan; (ii) reserves based on historical loan loss experience; and (iii) reserves based on general economic conditions as well as specific economic factors in the markets in which First Midwest operates.

Loans within the portfolio that are selected for review to determine whether specific reserves are required include both loans over a specified dollar limit as well as loans where the internal credit rating is below a predetermined classification. Loans subject to this review process generally include commercial and agricultural loans, real estate commercial and real estate construction loans. Specific reserves for these loans are determined in accordance with the provisions of the accounting policies referred to above. Consumer and other retail loan reserve allocations are based upon the evaluation of pools or groups of such loans.

The component of the reserve based on historical loan loss experience is determined statistically using a loss migration analysis that examines loss experience and the related internal rating of loans charged off. The loss migration analysis is performed quarterly and loss factors are periodically updated based on actual experience.

34

The third component is determined based upon a number of general factors including the changes in composition of the loan portfolio, recent net charge-off experience by loan category, as well as general economic conditions, and involves a higher degree of subjectivity in its determination and allocation. This component of the reserve considers risk factors that may not have manifested themselves in First Midwest’s historical loss experience.

Table 20 shows the allocation of the reserve for loan losses by loan category, as well as charge-off and recovery information for the last 5 years. As of year-end 2002, the allocation of the reserve for loan losses to commercial and industrial, commercial real estate, real estate construction, and consumer loan categories increased as compared to 2001. This increase was due to general delinquency trends and the level of nonperforming loans, as well as continued concerns arising from existent economic and geopolitical uncertainty in 2002. The decrease in the agriculture category allocation for 2002 compared to 2001 was the result of lower nonperforming loan levels and improved delinquency trends.

Consistent with both the continued weakness in the overall economy during 2002 and 2001 and the Company’s aggressive problem loan identification and charge-off strategy, total loans charged off, net of recoveries, were $15,226, or .45% of average loans, in 2002 and $16,432, or 0.49% of average loans, in 2001. This was higher as a percent of average loans than both the 2000 levels of $6,646, or .21%, and the 1999 levels of $6,405, or .23%. Gross charge-offs were approximately $10 million higher in 2001 than in 2000 with the largest increase occurring in the consumer category where 2001 charge-offs to average loans was .92% as compared to .47% in 2000.

The provision for loan losses charged to operating expense in any given year is dependent on factors including loan growth and changes in the composition of the loan portfolio, net charge-off levels, and the Company’s assessment of the reserve for loan losses based upon the previously discussed methodology.

The provision for loan losses decreased in 2002 to $15,410 compared to $19,084 in 2001 and as compared to $9,094 in 2000 and $5,760 in 1999. The 2002 provision for loan losses exceeded the year’s net charge-offs by $184. The ratio of reserve for loan losses to total loans at year-end 2002 was 1.41% down from 1.42% at the end of 2001 but up from 1.39% at the end of 2000.

35

Table 20

Analysis of the Reserve for Loan Losses and

Summary of Loan Loss Experience

(Amounts in thousands)

	Years ended December 31,
	2002			2001			2000			1999			1998
Change in reserve for loan losses:
Balance at beginning of year	$	47,745		$	45,093		$	42,645		$	43,290		$	46,965
Loans charged-off		(18,177	)		(19,330	)		(9,149	)		(9,141	)		(12,955	)
Recoveries on loans previously charged-off		2,951			2,898			2,503			2,736			3,738
Net loans charged-off		(15,226	)		(16,432	)		(6,646	)		(6,405	)		(9,217	)
Provisions charged to operating expense		15,410			19,084			9,094			5,760			5,542
Balance at end of year	$	47,929		$	47,745		$	45,093		$	42,645		$	43,290
Allocation of reserve for loan losses by loan category at December 31:
Commercial and industrial	$	10,973		$	10,886		$	10,193		$	8,633		$	6,900
Agricultural		1,308			1,674			2,338			2,351			2,634
Consumer		14,191			13,399			10,238			8,542			8,407
Real estate—1 – 4 family		249			155			1,204			1,151			1,205
Real estate—commercial		4,090			2,600			4,957			5,332			3,130
Real estate—construction		1,867			1,459			1,472			841			1,004
Unallocated		15,251			17,572			14,691			15,795			20,010
Total	$	47,929		$	47,745		$	45,093		$	42,645		$	43,290
Reserve as a percent of loans at year-end		1.41	%		1.42	%		1.39	%		1.44	%		1.62	%
Loans charged-off:
Commercial and industrial	$	(4,967	)	$	(4,620	)	$	(2,560	)	$	(2,147	)	$	(5,179	)
Agricultural		(1,283	)		(104	)		—			(54	)		(35	)
Consumer		(10,126	)		(11,363	)		(6,253	)		(6,358	)		(7,458	)
Real estate—1 – 4 family		(87	)		(124	)		(177	)		(69	)		(56	)
Real estate—commercial		(591	)		(3,119	)		(159	)		(513	)		(215	)
Real estate—construction		(1,123	)		—			—			—			(12	)
Total	$	(18,177	)	$	(19,330	)	$	(9,149	)	$	(9,141	)	$	(12,955	)
Recoveries on loans previously charged-off:
Commercial and industrial	$	339		$	363		$	531		$	568		$	963
Agricultural		22			1			—			14			—
Consumer		2,569			2,534			1,957			2,137			2,625
Real estate—1 – 4 family		—			—			—			1			—
Real estate—commercial		21			—			15			16			150
Total	$	2,951		$	2,898		$	2,503		$	2,736		$	3,738
Net loans charged-off:
Commercial and industrial	$	(4,628	)	$	(4,257	)	$	(2,029	)	$	(1,579	)	$	(4,216	)
Agricultural		(1,261	)		(103	)		—			(40	)		(35	)
Consumer		(7,557	)		(8,829	)		(4,296	)		(4,221	)		(4,833	)
Real estate—1 – 4 family		(87	)		(124	)		(177	)		(68	)		(56	)
Real estate—commercial		(570	)		(3,119	)		(144	)		(497	)		(65	)
Real estate—construction		(1,123	)		—			—			—			(12	)
Total	$	(15,226	)	$	(16,432	)	$	(6,646	)	$	(6,405	)	$	(9,217	)
Ratio of net loans charged-off to average loans outstanding for the period		0.45	%		0.49	%		0.21	%		0.23	%		0.31	%

36

Nonperforming Loans and Assets

Nonperforming assets consist of nonaccrual loans, restructured loans, and foreclosed real estate. Past due loans are loans which are delinquent 90 days or more and are still accruing interest. It is First Midwest’s policy to discontinue the accrual of interest income on any loan, including an impaired loan, when there is reasonable doubt as to the timely collectibility of interest or principal. Nonaccrual loans are returned to accrual status when the financial position of the borrower and other relevant factors indicate there is no longer doubt as to such collectibility.

The following table summarizes nonperforming assets and past due loans for the past five years as well as certain information relating to interest income on nonaccrual loans outstanding during 2002.

Table 21

Analysis of Nonperforming Assets and Past Due Loans

(Amounts in thousands)

	Years ended December 31,
	2002			2001			2000			1999			1998
Nonaccrual loans	$	12,525		$	16,847		$	19,849		$	20,278		$	20,638
Foreclosed real estate		5,496			3,630			1,337			1,157			1,015
Total nonperforming assets	$	18,021		$	20,477		$	21,186		$	21,435		$	21,653
90 days past due loans (still accruing interest)	$	3,307		$	5,783		$	7,045		$	5,286		$	5,342
Nonperforming loans to total loans		0.37	%		0.50	%		0.61	%		0.68	%		0.77	%
Nonperforming assets to total loans plus foreclosed real estate		0.53	%		0.61	%		0.65	%		0.72	%		0.81	%
Nonperforming assets to total assets		0.30	%		0.36	%		0.36	%		0.39	%		0.42	%
Reserve for loan losses as a percent of:
Total loans at year-end		1.41	%		1.42	%		1.39	%		1.44	%		1.62	%
Nonperforming loans		383	%		283	%		227	%		210	%		210	%

The effect of nonaccrual loans on interest income for 2002 is presented below:

	2002
Interest which would have been included at the normal contract rates	$	1,040
Interest included in income during the year		(195	)
Interest income not recognized in the financial statements	$	845

As shown on Table 21, nonaccrual loans totaled $12,525 at year-end 2002 as compared to $16,847 at year-end 2001, decreasing as a percentage of total loans to .37% from .50%, respectively. The following table summarizes nonaccrual loans by category as of December 31, 2002 and 2001.

Table 22

Composition of Nonaccrual Loans

(Amounts in thousands)

	2002		2001
Loan Category
Commercial and industrial	$	3,986	$	8,181
Agricultural		241		1,420
Consumer		1,803		1,796
Real estate 1 – 4 family		1,399		1,810
Real estate commercial		4,096		1,737
Real estate construction		1,000		1,903
Total	$	12,525	$	16,847

37

The ratio of the reserve for loan losses to nonperforming loans at year-end 2002 was 383%, the highest level achieved since year-end 1994.

In addition to the loans summarized in Table 21, the Securities and Exchange Commission Industry Guide for Bank Holding Companies requires that certain other loans, which First Midwest is monitoring, but where current conditions do not warrant classification as nonaccrual or restructured, be disclosed. These loans, which totaled $27,067 at December 31, 2002, as compared to $21,295 at year-end 2001, continue to accrue interest and are specifically considered in the evaluation of the adequacy of the reserve for loan losses.

QUARTERLY REVIEW

Table 23 summarizes First Midwest’s quarterly earnings performance for 2002 and 2001.

Table 23

Quarterly Earnings Performance⁽¹⁾

(Amounts in thousands, except per share data)

	2002												2001
	Fourth			Third			Second			First			Fourth			Third			Second			First
Interest income	$	78,221		$	83,259		$	84,241		$	83,943		$	88,064		$	95,351		$	99,162		$	102,641
Interest expense		25,468			27,801			27,945			29,696			34,216			42,072			48,797			55,753
Net interest income		52,753			55,458			56,296			54,247			53,848			53,279			50,365			46,888
Provision for loan losses		4,235			3,020			3,100			5,055			6,313			5,248			4,065			3,458
Noninterest income		17,151			16,880			16,358			16,142			17,400			17,183			17,271			16,222
Security gains (losses), net		427			9			24			—			33			55			(2	)		704
Noninterest expense		35,696			38,106			38,614			35,636			36,660			36,884			36,719			35,093
Income tax expense		7,934			8,542			8,030			7,627			7,034			7,136			6,559			5,939
Net income		22,466			22,679			22,934			22,071			21,274			21,249			20,291			19,324
Basic earnings per share	$	0.47		$	0.47		$	0.47		$	0.45		$	0.44		$	0.43		$	0.40		$	0.38
Diluted earnings per share	$	0.47		$	0.47		$	0.47		$	0.45		$	0.43		$	0.42		$	0.40		$	0.38
Return on average equity		17.92	%		18.46	%		19.60	%		19.39	%		18.24	%		18.57	%		17.65	%		17.06	%
Return on average assets		1.49	%		1.50	%		1.57	%		1.55	%		1.47	%		1.47	%		1.41	%		1.36	%
Net interest margin – tax equivalent		4.10	%		4.26	%		4.43	%		4.32	%		4.33	%		4.27	%		4.04	%		3.77	%

⁽¹⁾ All ratios are presented on an annualized basis.

FOURTH QUARTER 2002 vs. 2001

Net income for fourth quarter ended December 31, 2002 increased to $22,466, or $.47 per diluted share, as compared to fourth quarter 2001 of $21,274, or $.43 per diluted share, representing an increase of 9.3% on a per diluted share basis. Performance for fourth quarter 2002 resulted in an annualized return on average assets of 1.49% as compared to 1.47% for fourth quarter 2001 and an annualized return on average equity of 17.9% as compared to 18.2% for fourth quarter 2002.

Net interest income was $52,753 for fourth quarter 2002 as compared to $53,848 for 2001’s fourth quarter or a decrease of 2.0%. Net interest margin for fourth quarter 2002 was 4.10%, down from 4.33% for fourth quarter 2001 and 4.26% for third quarter 2002. Consistent with First Midwest’s expectations, the margin contraction from third quarter 2002 resulted primarily from lower earning asset rates due to the continued low interest rate environment, management’s steps taken during the year to insulate net interest income against the potential for rising interest rates, and the impact of refinance-related prepayments on mortgage-backed securities. This was partially offset by the Federal Reserve lowering the federal funds rate by 50 basis points on November 6, 2002, which positively impacted margin, as interest-bearing liabilities could be repriced more quickly than interest-earning assets.

38

Total loans at December 31, 2002 were 1% higher than at December 31, 2001 with all loan categories experiencing growth except for 1-4 family real estate and indirect lending. On a linked-quarter basis, total loans remained stable as growth in commercial real estate and construction lending offset decreases in 1-4 family real estate, direct consumer and indirect lending. Mindful of the uncertain economy, First Midwest has remained steadfast in its focus on both sound underwriting and profitable pricing.

Total average deposits for fourth quarter 2002 were essentially unchanged from the same quarter in 2001 and were down 1.3% on a linked-quarter basis. Reflective of customer liquidity preferences and targeted sales promotions, average balances maintained in demand, savings, and now accounts were relatively stable on a linked-quarter basis while growing $266 million, or 15.5%, from the prior year’s like quarter. As compared to fourth quarter 2001, money market and time deposits decreased by $68 million and $175 million, respectively, as pricing strategies encouraged customers desiring shorter-term maturities to transfer balances to the targeted transactional accounts (demand, savings, and NOW) just described.

Excluding net securities gains, total noninterest income for fourth quarter 2002 decreased by 1.4% from fourth quarter 2001. On a linked-quarter basis, noninterest income increased by 1.6% evidencing continued improvement in service charges on deposit accounts and stabilizing trust income while offsetting lower income from corporate owned life insurance.

Total noninterest expenses for fourth quarter 2002 decreased 2.6% from 2001’s fourth quarter. The elimination of goodwill amortization expense (resulting from the implementation of FASB No. 142 effective January 1, 2002) reduced noninterest expense for fourth quarter 2002 by $540. Factoring out the elimination of goodwill amortization expense, total noninterest expense for fourth quarter 2002 decreased by 1.2% from the same quarter in 2001.

The combination of top line revenue performance and continued cost control resulted in a record efficiency ratio for fourth quarter 2002 of 47.2%, continuing the strong performance of this key ratio.

Net charge-offs for fourth quarter and full year 2002 were .49% and .45% of average loans, respectively, as compared to. 73% and .49% for fourth quarter and full year 2001, respectively. Provisions for loan losses for the both the current quarter and year 2002 fully covered net charge-offs resulting in the ratio of the reserve for loan losses to total loans at December 31, 2002 being maintained at 1.41% and approximating the level of the last nine quarters. The reserve for loan losses at December 31, 2002 represented 383% of nonperforming loans as compared to 283% at year-end 2001, representing the highest year-end level in the last eight years.

ITEM 7A. QUALITATIVE AND QUANTITATIVE

DISCLOSURES ABOUT MARKET RISK

Discussions regarding qualitative and quantitative disclosures about market risk is located commencing on page 18 of this report.

39

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

FIRST MIDWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF CONDITION

(Amounts in thousands)

	December 31,
	2002			2001
Assets
Cash and due from banks	$	195,153		$	155,822
Federal funds sold and other short-term investments		11,745			4,334
Mortgages held for sale		18,521			15,240
Securities available for sale, at market value		1,986,186			1,771,607
Securities held to maturity, at amortized cost (market value 2002 – $105,568; 2001 – $89,390)		105,413			89,227
Loans, net of unearned discount		3,406,846			3,372,306
Reserve for loan losses		(47,929	)		(47,745	)
Net loans		3,358,917			3,324,561
Premises, furniture, and equipment		81,627			77,172
Accrued interest receivable		31,005			32,027
Investment in corporate owned life insurance		141,362			135,280
Goodwill		16,397			16,397
Other intangible assets		—			1,313
Other assets		34,207			44,939
Total assets	$	5,980,533		$	5,667,919
Liabilities
Demand deposits	$	789,392		$	738,175
Savings deposits		475,366			421,079
NOW accounts		717,542			662,530
Money market deposits		525,621			584,030
Time deposits		1,665,033			1,788,107
Total deposits		4,172,954			4,193,921
Borrowed funds		1,237,408			971,851
Accrued interest payable		8,503			10,231
Other liabilities		69,715			44,649
Total liabilities		5,488,580			5,220,652
Stockholders’ Equity
Preferred stock, no par value; 1,000 shares authorized, none issued		—			—
Common stock, $.01 par value; authorized 100,000 shares; issued 56,927 shares outstanding: 2002 – 47,206 shares; 2001 – 48,725 shares		569			569
Additional paid-in capital		71,020			74,961
Retained earnings		594,192			537,600
Accumulated other comprehensive income, net of tax		39,365			5,265
Treasury stock, at cost: 2002 – 9,721 shares; 2001 – 8,202 shares		(213,193	)		(171,128	)
Total stockholders’ equity		491,953			447,267
Total liabilities and stockholders’ equity	$	5,980,533		$	5,667,919

See notes to consolidated financial statements.

40

FIRST MIDWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except per share data)

	Years ended December 31,
	2002		2001		2000
Interest Income
Loans	$	223,393	$	265,191	$	278,907
Securities:
Available for sale – taxable		76,705		90,551		114,779
Available for sale – nontaxable		23,702		23,038		23,442
Held to maturity – taxable		2,548		1,570		1,620
Held to maturity – nontaxable		2,499		3,850		1,245
Total interest on securities		105,454		119,009		141,086
Federal funds sold and other short-term investments		817		1,018		1,524
Total interest income		329,664		385,218		421,517
Interest Expense
Savings deposits		4,191		7,168		9,158
NOW accounts		10,291		8,574		9,367
Money market deposits		10,993		17,587		21,712
Time deposits		56,141		101,168		115,650
Borrowed funds		29,294		46,341		76,019
Total interest expense		110,910		180,838		231,906
Net interest income		218,754		204,380		189,611
Provision for loan losses		15,410		19,084		9,094
Net interest income after provision for loan losses		203,344		185,296		180,517
Noninterest Income
Service charges on deposit accounts		25,362		24,148		21,341
Trust and investment management fees		10,309		10,445		10,671
Other service charges, commissions, and fees		18,019		18,471		16,282
Corporate owned life insurance income		6,728		8,190		6,517
Security gains, net		460		790		1,238
Other income		6,113		6,822		7,149
Total noninterest income		66,991		68,866		63,198
Noninterest Expense
Salaries and wages		61,834		60,089		59,528
Retirement and other employee benefits		18,792		16,691		16,179
Net occupancy expense		14,298		14,353		13,635
Equipment expense		7,769		7,644		7,900
Technology and related costs		9,796		10,186		10,894
Professional services		6,627		6,270		7,538
Advertising and promotions		4,195		3,314		3,859
Other expenses		24,741		26,809		24,883
Total noninterest expense		148,052		145,356		144,416
Income before income tax expense		122,283		108,806		99,299
Income tax expense		32,133		26,668		23,759
Net income	$	90,150	$	82,138	$	75,540
Per Share Data
Basic earnings per share	$	1.88	$	1.64	$	1.47
Diluted earnings per share	$	1.86	$	1.63	$	1.46
Weighted average shares outstanding		48,074		50,057		51,314
Weighted average diluted shares outstanding		48,415		50,401		51,604

See notes to consolidated financial statements.

41

FIRST MIDWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Amounts in thousands, except per share data)

	Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
Balance at December 31, 1999	$	569	$	81,731		$	442,711		$	(49,072	)	$	(106,678	)	$	369,261
Comprehensive Income:
Net income		—		—			75,540			—			—			75,540
Other comprehensive income, net of tax:
Unrealized gains on securities		—		—			—			42,033			—			42,033
Total comprehensive income																117,573
Dividends declared ($.59 per share)		—		—			(30,373	)		—			—			(30,373	)
Purchase of treasury stock		—		—			—			—			(12,195	)		(12,195	)
Treasury stock issued to (purchased for) benefit plans		—		(1	)		—			—			(217	)		(218	)
Exercise of stock options		—		(3,569	)		—			—			6,228			2,659
Fair value adjustment to treasury stock held in grantor trust		—		(6	)		—			—			22			16
Balance at December 31, 2000		569		78,155			487,878			(7,039	)		(112,840	)		446,723
Comprehensive Income:
Net income		—		—			82,138			—			—			82,138
Other comprehensive income, net of tax:
Unrealized gains on securities		—		—			—			14,124			—			14,124
Unrealized (losses) on hedging activities		—		—			—			(1,820	)		—			(1,820	)
Total comprehensive income																94,442
Dividends declared ($.65 per share)		—		—			(32,416	)		—			—			(32,416	)
Purchase of treasury stock		—		—			—			—			(64,582	)		(64,582	)
Treasury stock issued to (purchased for) benefit plans		—		(1	)		—			—			(121	)		(122	)
Exercise of stock options		—		(3,192	)		—			—			6,414			3,222
Fair value adjustment to treasury stock held in grantor trust		—		(1	)		—			—			1			—
Balance at December 31, 2001		569		74,961			537,600			5,265			(171,128	)		447,267
Comprehensive Income:
Net income		—		—			90,150			—			—			90,150
Other comprehensive income, net of tax:
Unrealized gains on securities		—		—			—			32,928			—			32,928
Unrealized gains on hedging activities		—		—			—			1,172			—			1,172
Total comprehensive income																124,250
Dividends declared ($.70 per share)		—		—			(33,558	)		—			—			(33,558	)
Purchase of treasury stock		—		—			—			—			(52,117	)		(52,117	)
Treasury stock issued to (purchased for) benefit plans		—		9			—			—			(155	)		(146	)
Exercise of stock options		—		(3,954	)		—			—			10,217			6,263
Fair value adjustment to treasury stock held in grantor trust		—		4			—			—			(10	)		(6	)
Balance at December 31, 2002	$	569	$	71,020		$	594,192		$	39,365		$	(213,193	)	$	491,953

See notes to consolidated financial statements.

42

FIRST MIDWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

	Years ended December 31,
	2002			2001			2000
Operating Activities
Net income	$	90,150		$	82,138		$	75,540
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		15,410			19,084			9,094
Depreciation of premises, furniture, and equipment		8,690			8,739			8,696
Net amortization (accretion) of premium (discount) on securities		9,812			2,210			(3,598	)
Net (gains) on sales of securities		(460	)		(790	)		(1,238	)
Net (gains) on sales of other real estate owned		(176	)		(172	)		(481	)
Net losses (gains) on sales of premises, furniture, and equipment		92			(306	)		(11	)
Net loss on sale of mortgage servicing rights		—			—			222
Net pension cost		2,461			1,950			2,208
Tax benefit from employee exercises of nonqualified stock options		985			979			715
Net decrease (increase) in deferred income taxes		554			1,239			(2,642	)
Net amortization of goodwill and other intangibles		1,313			2,962			3,034
Originations and purchases of mortgage loans held for sale		(286,450	)		(277,987	)		(103,907	)
Proceeds from sales of mortgage loans held for sale		283,169			268,185			110,684
Net (increase) in corporate owned life insurance		(6,082	)		(8,420	)		(21,517	)
Net decrease in accrued interest receivable		1,022			9,562			1,592
Net (decrease) in accrued interest payable		(1,728	)		(10,337	)		(1,154	)
Net (increase) decrease in other assets		(8,826	)		(13,211	)		3,090
Net increase (decrease) in other liabilities		21,771			1,326			(3,782	)
Net cash provided by operating activities		131,707			87,151			76,545
Investing Activities
Securities available for sale:
Proceeds from maturities, repayments, and calls		575,629			607,405			206,408
Proceeds from sales		300,212			525,498			544,459
Purchases		(1,045,792	)		(752,674	)		(774,031	)
Securities held to maturity:
Proceeds from maturities, repayments, and calls		35,547			33,973			10,037
Purchases		(51,734	)		(38,356	)		(51,286	)
Net (increase) in loans		(57,982	)		(160,572	)		(281,098	)
Proceeds from sales of other real estate owned		6,526			2,909			4,044
Proceeds from sales of premises, furniture, and equipment		1,446			3,146			837
Purchases of premises, furniture, and equipment		(14,683	)		(6,871	)		(10,994	)
Proceeds from sale of mortgage servicing rights		—			—			22,564
Net cash (used) provided by investing activities		(250,831	)		214,458			(329,060	)
Financing Activities
Net (decrease) increase in deposit accounts		(20,967	)		(58,284	)		251,022
Net increase (decrease) in borrowed funds		265,557			(174,021	)		68,140
Purchase of treasury stock		(52,117	)		(64,582	)		(12,195	)
Proceeds from issuance of treasury stock		9			16			7
Cash dividends paid		(32,879	)		(32,297	)		(29,598	)
Exercise of stock options		6,263			3,222			2,659
Net cash provided (used) by financing activities		165,866			(325,946	)		280,035
Net increase (decrease) in cash and cash equivalents		46,742			(24,337	)		27,520
Cash and cash equivalents at beginning of year		160,156			184,493			156,973
Cash and cash equivalents at end of year	$	206,898		$	160,156		$	184,493

See notes to consolidated financial statements.

43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share data)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations - First Midwest Bancorp, Inc. (“First Midwest” or the “Company”) is a Delaware corporation and bank holding company that was incorporated in 1982, began operations on March 31, 1983, and was formed through an exchange of common stock. First Midwest is headquartered in Itasca, Illinois and has operations primarily located in Northern Illinois with approximately 86% of its banking assets in the suburban metropolitan Chicago area. First Midwest is engaged in commercial and retail banking and offers a comprehensive selection of financial products and services including lending, depository, trust, investment management, insurance, and other related financial services tailored to the needs of its individual, business, institutional, and governmental customers.

Principles of Consolidation - The consolidated financial statements include the accounts and results of operations of the Company after elimination of all significant intercompany accounts and transactions. Assets held by its subsidiaries (the “Affiliates”) in a fiduciary or agency capacity are not assets of the Affiliates and, accordingly, are not included in the consolidated financial statements.

Basis of Presentation - Certain reclassifications have been made to prior year amounts to conform to the current year presentation. For purposes of the Consolidated Statements of Cash Flows, cash and cash equivalents has been defined by Management to include cash and due from banks, funds sold, and other short-term investments. The Company uses the accrual basis of accounting for financial reporting purposes, except for immaterial sources of income and expense, which are recorded when received or paid.

Use of Estimates - The accounting and reporting policies of the Company and its Affiliates conform to accounting principles generally accepted in the United States and general practice within the banking industry. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires Management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed in the preparation of the consolidated financial statements.

Securities - Securities are classified as held to maturity or available for sale at the time of purchase. Securities classified as held to maturity, which Management has the positive intent and ability to hold to maturity, are reported at amortized cost, adjusted for amortization of premiums and accretion of discounts, using the level-yield method. The amortized cost of debt securities classified as held to maturity or available for sale is adjusted for amortization of premiums and accretion of discounts over the estimated life of the security. In determining the estimated life of a mortgage-related security, certain judgments are required as to the timing and amount of future principal prepayments. These judgments are made based upon the actual performance of the underlying security and the general market consensus regarding changes in mortgage interest rates. Amortization of premium and accretion of discount is included in interest income from the related security.

Available for sale securities are reported at fair value with unrealized gains and losses, net of related deferred income taxes, included in stockholders’ equity as a separate component of other comprehensive income. Realized securities gains or losses and declines in value judged to be other than temporary are included in investment securities gains (losses), net in the Consolidated Statements of Income. The cost of securities sold is based on the specific identification method. Any security for which there has been other than temporary impairment of value is written down to its estimated fair value through a charge to earnings. The Company does not carry any securities for trading purposes.

Loans - Loans are carried at the principal amount outstanding, net of unearned discount, including certain net deferred loan origination fees. Residential real estate mortgage loans held for sale are carried at the lower of aggregate cost or market value. Unearned discount on certain consumer installment loans is credited to income over the term of the loan using the level-yield method. Interest income on loans is accrued based on principal amounts outstanding. Loan and lease origination and commitment fees and certain direct loan origination costs are deferred and the net amount amortized over the estimated life of the related loans or commitments as a yield adjustment. Other credit-related fees, including letter and line of credit fees are recognized as fee income when earned.

Generally, commercial loans and loans secured by real estate (including impaired loans) are designated as nonaccrual: (a) when either principal or interest payments are 90 days or more past due based on contractual terms unless the loan is sufficiently collateralized such that full repayment of both principal and interest is expected and is in the process of collection; or (b) when an individual analysis of a borrower’s creditworthiness indicates a credit should be placed on

44

nonaccrual status. When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the reserve for loan losses. Future interest income may only be recorded on a cash basis after recovery of principal is reasonably assured. Nonaccrual loans are returned to accrual status when the financial position of the borrower and other relevant factors indicate there is no longer doubt as to such collectibility.

Commercial loans and those secured by real estate are generally charged-off to the extent principal and interest due exceed the net realizable value of the collateral, with the charge-off occurring when the loss is reasonably quantifiable. Consumer loans are subject to mandatory charge-off at a specified delinquency date and are usually not classified as nonaccrual prior to being charged-off. Closed-end consumer loans, which include installment, automobile, and single payment loans are generally charged-off in full no later than the end of the month in which the loan becomes 120 days past due. Open-end unsecured consumer loans, such as credit card loans, are generally charged-off in full no later than the end of the month in which the loan becomes 180 days past due.

Reserve for Loan Losses - The reserve for loan losses is maintained at a level believed adequate by Management to absorb probable losses inherent in the loan portfolio and is based on the size and current risk characteristics of the loan portfolio; an assessment of individual problem loans; actual and anticipated loss experience; and current economic events in specific industries and geographical areas including regulatory guidance, general economic conditions, and other pertinent factors. Determination of the reserve is inherently subjective, as it requires significant estimates, including the amounts 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, all of which may be susceptible to significant change. Loan losses are charged-off against the reserve, while recoveries of amounts previously charged-off are credited to the reserve. A provision for loan losses is charged to operating expense based on Management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors.

Based on an estimation done pursuant to the requirements of Financial Accounting Standards Board (“FASB”) Statement No. 5, “Accounting for Contingencies,” and FASB Statement Nos. 114 and 118, “Accounting by Creditors for Impairment of a Loan,” the reserve for loan losses consists of three components: (i) specific reserves established for expected losses resulting from analysis developed through specific credit allocations on individual loans for which the recorded investment in the loan exceeds its fair value; (ii) general allocated reserves based on historical loan loss experience for each loan category; and (iii) unallocated reserves based on general economic conditions as well as specific economic factors in the markets in which the Company operates.

The specific reserves component of the reserve for loan losses is based on a regular analysis of impaired loans over a fixed-dollar amount where the internal credit rating is at or below a predetermined classification. A loan is considered impaired when it is probable that the Company will be unable to collect all contractual principal and interest due according to the terms of the loan agreement. Loans subject to impairment valuation are defined as nonaccrual and restructured loans exclusive of smaller homogeneous loans such as home equity, installment, and 1-4 family residential loans. The fair value of the loan is determined based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the market price of the loan, or the fair value of the underlying collateral less costs to sell, if the loan is collateral dependent.

The general allocated component of the reserve for loan losses is determined statistically using a loss migration analysis that examines loss experience and the related internal grading of loans charged-off. The loss migration analysis is performed quarterly and loss factors are updated regularly based on actual experience. The general allocated component of the reserve for loan losses also includes consideration of the amounts necessary for concentrations and changes in portfolio mix and volume.

The unallocated component of the reserve for loan losses reflects Management’s estimate of probable inherent, but undetected, losses within the portfolio due to uncertainties in economic conditions, delays in obtaining information, including unfavorable information about a borrower’s financial condition, the difficulty in identifying triggering events that correlate perfectly to subsequent loss rates, and risk factors that have not yet manifested themselves in loss allocation factors. In addition, the unallocated component includes a portion that explicitly accounts for the inherent imprecision in loan loss migration models. The uncertainty following the events of September 11, 2001 and the recessionary environment also impact the allocation model’s estimate of loss. The historical losses used in the migration analysis may not be representative of actual losses inherent in the portfolio that have not yet been realized.

Foreclosed Real Estate - Foreclosed real estate includes properties acquired in partial or total satisfaction of certain loans and is included in other assets in the accompanying Consolidated Statements of Condition. Properties are recorded at the lower of the recorded investment in the loans for which the properties previously served as collateral or the fair value, which

45

represents the estimated sales price of the properties on the date acquired less estimated selling costs. Any write-downs in the carrying value of a property at the time of acquisition are charged against the reserve for loan losses. Management periodically reviews the carrying value of foreclosed real estate properties. Any write-downs of the properties subsequent to acquisition, as well as gains or losses on disposition and income or expense from the operations of foreclosed real estate, are recognized in operating results in the period they are realized. At December 31, 2002 and 2001, foreclosed real estate totaled $5,496 and $3,630, respectively.

Premises, Furniture and Equipment - Premises, furniture and equipment, and leasehold improvements are stated at cost less accumulated depreciation. Depreciation expense is determined by the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line basis over the shorter of the life of the asset or the lease term. Rates of depreciation are generally based on the following useful lives: buildings - 25 to 40 years; building improvements - 3 to 15 years; and furniture and equipment - 3 to 10 years. Gains and losses on dispositions are reflected in other income and other expense, respectively. Maintenance and repairs are charged to operating expenses as incurred, while improvements that extend the useful life are capitalized and depreciated over the estimated remaining life.

Corporate Owned Life Insurance - Corporate Owned Life Insurance (“COLI”) is recorded as an asset at the amount that could be realized under the insurance contract as of the date of the Consolidated Statements of Condition. The change in cash surrender value during the period is an adjustment of premiums paid in determining the expense or income to be recognized under the contract for the period. This change is recorded as COLI income in noninterest income on the Consolidated Statements of Income.

Goodwill and Other Intangibles - Goodwill represents the excess of purchase price over the fair value of net assets acquired using the purchase method of accounting. Core deposit intangibles, representing the premium associated with the acquisition of certain deposit liabilities, are amortized to operating expense on an accelerated basis over the average lives of such deposit liabilities.

Effective January 1, 2002, the Company adopted FASB Statement No. 142, “Goodwill and Other Intangible Assets” (“FASB No. 142”), which addresses the accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion 17. Under FASB No. 142, goodwill and intangible assets deemed to have indefinite lives are no longer amortized but reviewed for impairment annually, or more frequently if certain indicators arise. In addition, the Statement requires intangible assets with identifiable lives to be evaluated periodically and to continue to be amortized over their useful lives. As of December 31, 2002, the carrying value of goodwill totaled $16,397. The Company had no other intangible assets as of December 31, 2002. Note 7 to the consolidated financial statements on page 53 of this form 10-K includes a summary of the Company’s goodwill and other intangible assets for 2002 and 2001 as well as further details about the impact of the adoption of FASB No. 142. Prior to adopting FASB No. 142, goodwill was being amortized using the straight-line method over periods not exceeding 20 years.

Advertising Costs - All advertising costs incurred by the Company are expensed in the period in which they are incurred.

Derivative Financial Instruments - The Company maintains an overall interest rate risk management strategy that incorporates the use of derivative instruments to minimize significant unplanned fluctuations in earnings and cash flows caused by interest rate volatility. This is accomplished by modifying the repricing characteristics of certain assets and liabilities so that changes in interest rates do not adversely affect the net interest margin and cash flows. The Company is also required to recognize certain contracts and commitments as derivatives when the characteristics of those contracts and commitments meet the definition of a derivative.

Under the guidelines of FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“FASB No. 133”), as amended, all derivative instruments are required to be recorded on the Consolidated Statements of Condition at fair value. The accounting for changes in fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship.

Derivative instruments designated in a hedge relationship to mitigate exposure to changes in fair value of an asset or liability attributable to a particular risk, such as interest rate risk, are considered to be fair value hedges. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows to be received or paid related to an asset or liability or other types of forecasted transactions are considered to be cash flow hedges. On the date the Company enters into a derivative contract, it designates the derivative instrument as either a fair value hedge or cash flow hedge.

46

Fair value hedges are accounted for by recording the changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset or liability or of an unrecognized firm commitment attributable to the hedged risk on the Consolidated Statements of Condition with a corresponding offset recorded in current period net income. The adjustment to the hedged asset or liability is included in the basis of the hedged item, while the fair value of the derivative is recorded as a freestanding asset or liability. Actual cash receipts or payments and related amounts accrued during the period on derivatives included in a fair value hedge relationship are recorded as adjustments to the interest income or expense recorded on the hedged asset or liability.

Cash flow hedges are accounted for by recording the fair value of the derivative instrument on the Consolidated Statements of Condition as either a freestanding asset or liability with changes in the fair value of the derivative instrument to the extent that it is effective, recorded, net of tax, in accumulated other comprehensive income within shareholders’ equity and subsequently reclassified to net income in the same line associated with the forecasted cash flows in the same period(s) that the hedged transaction impacts net income.

Under both fair value and cash flow hedge methods, derivative gains and losses not considered highly effective in hedging the change in fair value or expected cash flows of the hedged risk are recognized immediately in the Consolidated Statements of Income.

Prior to entering a hedge transaction, the Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivative instruments that are designated as fair value or cash flow hedges to specific assets and liabilities on the Consolidated Statements of Condition or to specific forecasted transactions. At the hedge’s inception and at least quarterly thereafter, a formal assessment is performed to determine whether changes in the fair values or cash flows of the derivative instruments have been highly effective in offsetting changes in the fair values or cash flows of the hedged item and whether they are expected to be highly effective in the future. If it is determined that the derivative instrument is not highly effective as a hedge, hedge accounting is discontinued prospectively and subsequent changes in the fair value of the derivative instrument is recorded in net income. FASB No. 133 basis adjustments recorded on hedged assets and liabilities are amortized over the remaining life of the hedged item no later than when hedge accounting ceases. First Midwest does not hold or issue derivative financial instruments for trading purposes.

Income Taxes - The Company’s deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period, adjusted for the change during the period in deferred tax assets and liabilities.

The Company and its subsidiaries file a consolidated federal income tax return. The intercompany settlement of taxes paid is based on tax sharing agreements, which generally allocate taxes to each entity on a separate return basis.

Earnings Per Share - Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding for the period. The basic EPS computation excludes the dilutive effect of all common stock equivalents. Diluted EPS is computed by dividing net income by the weighted average number of common shares outstanding plus all potential common shares. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The Company’s potential common shares represent shares issuable under its long-term incentive compensation plans. Such common stock equivalents are computed based on the treasury stock method using the average market price for the period.

Treasury Stock - Treasury stock acquired is recorded at cost and is carried as a reduction of stockholders’ equity in the Consolidated Statements of Condition. Treasury stock issued is valued based on the “last in, first out” inventory method. The difference between the consideration received upon issuance and the carrying value is changed or credited to additional paid in capital.

Stock-Based Compensation - The Company’s stock-based compensation plans are accounted for based on the intrinsic value method set forth in Accounting Principals Board Opinion 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related Interpretations. Under APB 25, no compensation expense is recognized, as the exercise price of the Company’s stock options is equal to the fair market value of its common stock on the date of the grant.

47

Pursuant to FASB Statement No. 123, “Accounting for Stock Based Compensation” (“FASB No. 123”), as amended by FASB Statement No. 148 (“FASB No. 148”), disclosure requirements, pro forma net income and earnings per share are presented in the following table as if compensation cost for stock options was determined under the fair value method and amortized to expense over the options’ vesting periods.

	Years ended December 31,
	2002			2001			2000
Net income, as reported	$	90,150		$	82,138		$	75,540
Less: pro forma expense related to options granted		(2,499	)		(2,526	)		(1,390	)
Pro Form net income	$	87,651		$	79,612		$	74,150
Basic Earnings Per Share:
As reported	$	1.88		$	1.64		$	1.47
Pro forma	$	1.82		$	1.59		$	1.45
Diluted Earnings Per Share:
As reported	$	1.86		$	1.63		$	1.46
Pro forma	$	1.81		$	1.58		$	1.44

The fair values of stock options granted were estimated at the date of grant using a Black-Scholes option-pricing model. The following weighted-average assumptions were used in the model to determine the fair value of options granted: a risk-free interest rate of 4.69%, 4.93%, and 6.45% for 2002, 2001, and 2000, respectively; an expected life of the option of 7.8 years, 7.2 years, and 7.8 years for 2002, 2001, and 2000, respectively; an expected dividend yield of 2.72%, 2.75%, and 2.57% for 2002, 2001, and 2000, respectively; and expected stock volatility of 22% for 2002, 23% for 2001, and 22% for 2000. The weighted average fair values of options at their date of grant during 2002, 2001, and 2000 were $6.99, $5.51, and $5.54, respectively.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Option valuation models such as the Black-Scholes require the input of highly subjective assumptions including the expected stock price volatility. First Midwest’s stock options have characteristics significantly different from traded options and inasmuch as changes in the subjective input assumptions can materially affect the fair value estimate, in Management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

For additional details on the Company’s stock-based compensation plans see Note 14 to the consolidated financial statements commencing on page 59 of this Form 10-K.

Comprehensive Income - Comprehensive income is the total of reported net income and all other revenues, expenses, gains and losses that under accounting principles generally accepted in the United States bypass reported net income. The Company includes changes in unrealized gains or losses, net of tax, on securities available for sale and changes in the fair value of derivatives designated under cash flow hedges in other comprehensive income and is presented in the Consolidated Statements of Changes in Stockholders Equity.

Segment Disclosures - Operating segments are components of a business about which separate financial information is available and that are evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assessing performance. Public companies are required to report certain financial information about operating segments in interim and annual financial statements. First Midwest’s chief operating decision maker evaluates the operations of the Company as one operating segment, commercial banking, due to the materiality of the commercial banking operation to the Company’s financial condition and results of operations, taken as a whole, and as a result, separate segment disclosures are not required. The Company offers the following products and services to external customers: deposits, loans, and trust services. Revenues for each of these products and services are disclosed separately in the Consolidated Statements of Income.

2. RECENT ACCOUNTING PRONOUNCEMENTS

Accounting For Long-Lived Assets - Effective January 1, 2002, the Company adopted FASB Statement No. 144, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of” (“FASB No. 144”), which addresses how and when to measure impairment on long-lived assets and how to account for long-lived assets that an

48

entity plans to dispose of either through sale, abandonment, exchange, or distribution to owners. The new provisions supersede FASB No. 121, which addressed asset impairment, and certain provisions of APB Opinion 30 related to reporting the effects of the disposal of a business segment, and requires expected future operating losses from discontinued operations to be recorded in the period in which the losses are incurred rather than the measurement date. Under FASB No. 144, more dispositions may qualify for discontinued operations treatment in the Consolidated Statements of Income. The adoption of FASB No. 144 had no material impact on the Company’s financial position, results of operations, or liquidity.

Acquisitions Of Certain Financial Institutions - In October 2002, the FASB issued FASB Statement No. 147, “Acquisitions of Certain Financial Institutions” (“FASB No. 147”), which provides guidance on the accounting for the acquisition of a financial institution and supersedes the specialized accounting guidance provided in FASB No. 72, “Accounting for Certain Acquisitions of Banking or Thrift Institutions.” FASB No. 147 became effective upon issuance and requires companies to cease amortization of unidentified intangible assets associated with certain branch acquisitions and reclassify these assets to goodwill. FASB No. 147 also modifies FASB No. 144 to include in its scope long-term customer-relationship intangible assets and thus subject those intangible assets to the same undiscounted cash flow recoverability test and impairment loss recognition and measurement provisions required for other long-lived assets.

While FASB No. 147 may affect how future business combinations, if undertaken, are accounted for and disclosed in the financial statements, the issuance of the new guidance had no effect on the Company’s results of operations, financial position, or liquidity as the Company does not have any assets subject to the specialized accounting guidance provided in FASB No. 72 or FASB No. 147.

Accounting For Stock-Based Compensation - In December 2002, the FASB issued FASB Statement No.148, “Accounting for Stock-Based Compensation - Transition and Disclosure” (“FASB No. 148”), which provides guidance on how to transition from the intrinsic value method of accounting for stock-based employee compensation under APB 25 to FASB No. 123’s fair value method of accounting, if a company so elects. FASB No. 148 also amends the disclosure provisions of FASB No. 123 and APB Opinion No. 25 to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. While FASB No. 148 does not amend FASB No. 123 to require companies to account for employee stock options using the fair value method, the disclosure provisions of FASB No. 148 are applicable to all companies with stock-based employee compensation, regardless of whether they account for that compensation using the fair value method of FASB No. 123 or the intrinsic value method of APB 25. The recognition provisions of FASB No. 148 are not applicable to the Company at this time as it continues to account for stock-based compensation using the intrinsic value method. The Company has provided the disclosures pursuant to FASB No. 148 in Note 1, Summary of Significant Accounting Policies – Stock Based Compensation commencing on page 47 of this Form 10-K.

Guarantees - In November 2002, the FASB issued FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. This interpretation expands the disclosures to be made by a guarantor in its financial statements about its obligations under certain guarantees and requires the guarantor to recognize a liability for the fair value of an obligation assumed under a guarantee. FIN 45 clarifies the requirements of FASB No. 5, “Accounting for Contingencies,” relating to guarantees. In general, FIN 45 applies to contracts or indemnification agreements that contingently require the guarantor to make payments to the guaranteed party based on changes in an underlying that is related to an asset, liability, or equity security of the guaranteed party. Certain guarantee contracts are excluded from both the disclosure and recognition requirements of this interpretation, including, among others, guarantees relating to employee compensation, residual value guarantees under capital lease arrangements, commercial letters of credit, loan commitments, subordinated interests in an SPE, and guarantees of a company’s own future performance. Other guarantees are subject to the disclosure requirements of FIN 45 but not to the recognition provisions and include, among others, a guarantee accounted for as a derivative instrument under FASB No. 133, a parent’s guarantee of debt owed to a third party by its subsidiary or vice versa, and a guarantee which is based on performance rather than price. The disclosure requirements of FIN 45 are effective for the Company as of December 31, 2002 and require disclosure of the nature of the guarantee, the maximum potential amount of future payments that the guarantor could be required to make under the guarantee, and the current amount of the liability, if any, for the guarantor’s obligations under the guarantee. The recognition requirements of FIN 45 are to be applied prospectively to guarantees issued or modified after December 31, 2002. Significant guarantees that have been entered into by the Company are disclosed in Note 17 to the consolidated financial statements commencing on page 62 of this Form 10-K. The Company does not expect the requirements of FIN 45 to have a material impact on results of its operations, financial position, or liquidity.

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3. SECURITIES

The aggregate amortized cost, gross unrealized gains and losses, and market value of securities as of December 31 were as follows.

	2002									2001
	Amortized Cost		Gross Unrealized					Market Value		Amortized Cost		Gross Unrealized					Market Value
			Gains		Losses							Gains		Losses
Securities Available for Sale
U.S. Treasury	$	—	$	—	$	—		$	—	$	200	$	5	$	—		$	205
U.S. Agency		200,527		1,231		(1	)		201,757		70,217		208		(30	)		70,395
Collateralized Mortgage Obligations		854,251		14,793		(1,964	)		867,080		800,270		8,328		(2,183	)		806,415
Other Mortgage-Backed Securities		272,546		10,208		(94	)		282,660		352,265		3,763		(704	)		355,324
State and Municipal		529,608		43,976		(56	)		573,528		473,873		9,347		(4,046	)		479,174
Other		63,660		351		(2,850	)		61,161		63,167		51		(3,124	)		60,094
Total	$	1,920,592	$	70,559	$	(4,965	)	$	1,986,186	$	1,759,992	$	21,702	$	(10,087	)	$	1,771,607
Securities Held to Maturity
U.S. Treasury	$	1,705	$	9	$	—		$	1,714	$	2,006	$	40	$	—		$	2,046
U.S. Agency		126		1		—			127		126		—		—			126
State and Municipal		68,001		145		—			68,146		63,452		127		(4	)		63,575
Other		35,581		—		—			35,581		23,643		—		—			23,643
Total	$	105,413	$	155	$	—		$	105,568	$	89,227	$	167	$	(4	)	$	89,390

The following table shows securities available for sale and held to maturity as of December 31, 2002 by remaining contractual maturity. Included in securities available for sale are collateralized mortgage obligations and other mortgage-backed securities. All of these securities are presented based on their expected average lives using historical and predicted prepayment trends.

	Available for Sale				Held to Maturity
	Amortized Cost		Market Value		Amortized Cost		Market Value
One year or less	$	686,890	$	697,659	$	20,252	$	20,277
One year to five years		552,309		569,669		11,927		12,023
Five years to ten years		508,200		538,164		21,532		21,559
After ten years		173,193		180,694		51,702		51,709
Total	$	1,920,592	$	1,986,186	$	105,413	$	105,568

The following table presents proceeds from sales of securities and the components of net security gains for the years ended December 31.

	2002			2001			2000
Proceeds from sales	$	300,212		$	525,498		$	544,459
Gross realized gains	$	1,921		$	3,297		$	2,659
Gross realized losses		(1,461	)		(2,507	)		(1,421	)
Net realized gains	$	460		$	790		$	1,238
Income taxes on net realized gains	$	179		$	308		$	483

The carrying value of securities available for sale, securities held to maturity, and securities purchased under agreements to resell, which were pledged to secure deposits and for other purposes as permitted or required by law at December 31, 2002 and 2001 totaled $1,691,700 and $1,557,003, respectively.

Excluding securities issued by the U.S. Government and its agencies and corporations, there were no investments in securities from one issuer that exceeded 10% of consolidated stockholders’ equity on December 31, 2002 or 2001.

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4.    LOANS

Total loans, net of deferred loan fees and other discounts of $2,046 and $2,325 at December 31, 2002 and 2001, respectively, were as follows.

	2002		2001
Commercial and industrial	$	897,845	$	827,281
Agricultural		91,381		87,188
Consumer		914,820		947,246
Real estate—1-4 family		138,302		196,741
Real estate—commercial		1,019,989		998,857
Real estate—construction		344,509		314,993
Total loans	$	3,406,846	$	3,372,306

First Midwest concentrates its lending activity in the geographic market areas that it serves, generally lending to consumers and small to mid-sized businesses from whom deposits are garnered in the same market areas. As a result, First Midwest strives to maintain a loan portfolio that is diverse in terms of loan type, industry, borrower, and geographic concentrations. Such diversification reduces the exposure to economic downturns that may occur in different segments of the economy or in different industries. As of December 31, 2002 and 2001, there were no significant loan concentrations with any single borrower, industry, or geographic segment.

It is the policy of First Midwest to review each prospective credit in order to determine the appropriateness and, when required, the adequacy of security or collateral to obtain prior to making a loan. The type of collateral, when required, will vary in ranges from liquid assets to real estate. The Company’s access to collateral, in the event of borrower default, is assured through adherence to state lending laws and the Company’s lending standards and credit monitoring procedures.

The following table summarizes the book value of loans that were pledged to secure deposits and for other purposes as required or permitted by law at December 31, 2002 and 2001.

	2002		2001
Loans pledged to secure:
Deposits	$	51,375	$	43,319
Federal Home Loan Bank Advances		268,530		284,662
Total	$	319,905	$	327,981

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5. RESERVE FOR LOAN LOSSES AND IMPAIRED LOANS

A summary of the transactions in the reserve for loan losses and details regarding impaired loans follows for the years ended December 31.

	2002			2001			2000
Balance at beginning of year	$	47,745		$	45,093		$	42,645
Loans charged-off		(18,177	)		(19,330	)		(9,149	)
Recoveries of loans previously charged-off		2,951			2,898			2,503
Net loans charged-off		(15,226	)		(16,432	)		(6,646	)
Provision for loan losses		15,410			19,084			9,094
Balance at end of year	$	47,929		$	47,745		$	45,093
Impaired loans:
With valuation reserve required(1)	$	1,587		$	4,828		$	2,206
With no valuation reserve required		7,736			8,414			12,145
Total impaired loans	$	9,323		$	13,242		$	14,351
Valuation reserve related to impaired loans	$	1,336		$	3,954		$	667
Average impaired loans	$	10,855		$	15,979		$	15,433
Interest income recognized on impaired loans	$	345		$	237		$	518

⁽¹⁾ These impaired loans require a valuation reserve because the value of the loans is less than the recorded investment in the loans.

6. PREMISES, FURNITURE, AND EQUIPMENT

Premises, furniture, and equipment at December 31 are summarized as follows.

	2002			2001
Land	$	27,510		$	22,669
Premises		87,714			85,828
Furniture and equipment		63,572			59,007
Total cost		178,796			167,504
Accumulated depreciation		(97,169	)		(90,332	)
Net book value	$	81,627		$	77,172

Depreciation expense on premises, furniture, and equipment for the years 2002, 2001, and 2000 totaled $8,690, $8,739, and $8,696, respectively.

Operating Leases

At December 31, 2002, the Company and the Bank were obligated under certain noncancellable operating leases for premises and equipment, which expire at various dates through the year 2014. Many of these leases contain renewal options, and certain leases provide options to purchase the leased property during or at the expiration of the lease period at specific prices. Some leases contain escalation clauses calling for rentals to be adjusted for increased real estate taxes and other operating expenses, or proportionately adjusted for increases in the consumer or other price indices. The following summary reflects the future minimum rental payments, by year, required under operating leases that, as of December 31, 2002, have initial or remaining noncancellable lease terms in excess of one year.

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	Total
Year-ending December 31,
2003	$	1,668
2004		1,405
2005		719
2006		280
2007		262
2008 and thereafter		262
Total minimum lease payments	$	4,596

Rental expense charged to operations in 2002, 2001, and 2000, amounted to approximately $1,864, $1,903, and $2,248, respectively, including amounts paid under short-term cancelable leases. Occupancy expense has been reduced by rental income from premises leased to others in the amount of $222 in 2002, $213 in 2001, and $232 in 2000.

7. INTANGIBLE ASSETS

Upon the adoption of FASB No. 142 on January 1, 2002, the Company discontinued the amortization of goodwill, which decreased noninterest expense and increased net income in 2002 as compared to 2001 and 2000. The Company’s carrying value of goodwill was $16,397 at December 31, 2002 and 2001. A reconciliation of previously reported net income and earnings per share as adjusted for the exclusion of goodwill amortization is presented below had the Company accounted for goodwill under FASB No. 142 for all periods presented.

	2002		2001		2000
Reported net income	$	90,150	$	82,138	$	75,540
Add back of goodwill amortization		—		2,160		2,160
Adjusted net income	$	90,150	$	84,298	$	77,700
Basic earnings per share:
Reported net income	$	1.88	$	1.64	$	1.47
Add back of goodwill amortization		—		0.04		0.04
Adjusted net income	$	1.88	$	1.68	$	1.51
Diluted earnings per share:
Reported net income	$	1.86	$	1.63	$	1.46
Add back of goodwill amortization		—		0.04		0.04
Adjusted net income	$	1.86	$	1.67	$	1.50

In conjunction with the adoption of FASB No. 142, the Company re-evaluated and adjusted the useful lives of other intangible assets to better match the benefits received thereon. As a result of the realignment, all other intangible assets were fully amortized in 2002. Information regarding the Company’s other intangible assets at December 31, 2002 and 2001 follows.

	2002		2001
	Net Carrying Amount		Carrying Amount		Accumulated Amortization		Net
Other intangible assets:
Core deposit premium	$	—	$	6,982	$	5,856	$	1,126
Other identified intangibles		—		423		236		187
Total	$	—	$	7,405	$	6,092	$	1,313

Amortization expense of other intangible assets totaled $1,313, $802, and $874 for the years ended December 31, 2002, 2001, and 2000, respectively.

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8. DEPOSITS

The following is a summary of deposits at December 31.

	2002		2001
Demand deposits	$	789,392	$	738,175
Savings deposits		475,366		421,079
NOW accounts		717,542		662,530
Money market deposits		525,621		584,030
Time deposits less than $100		1,112,677		1,175,147
Time deposits of $100 or more		552,356		612,960
Total deposits	$	4,172,954	$	4,193,921

The scheduled maturities of time deposits as of December 31, 2002, for the years 2003 through 2008 and thereafter, were as follows.

	Total
Year-ending December 31,
2003	$	1,281,349
2004		246,345
2005		95,129
2006		17,930
2007		23,980
2008 and thereafter		300
Total	$	1,665,033

9. BORROWED FUNDS

The following is a summary of borrowed funds and rates for the years ended December 31.

	2002			2001			2000
	Amount		Rate (%)	Amount		Rate (%)	Amount		Rate (%)
At year-end:
Securities sold under agreements to repurchase	$	384,408	1.21	$	494,851	2.04	$	911,872	6.37
Federal funds purchased		278,000	1.24		207,000	1.53		124,000	6.43
Federal Home Loan Bank advances		575,000	3.72		270,000	4.79		110,000	6.90
Total borrowed funds	$	1,237,408	2.38	$	971,851	2.70	$	1,145,872	6.43
Average for the year:
Securities sold under agreements to repurchase	$	519,113	1.65	$	618,518	4.14	$	1,006,133	6.08
Federal funds purchased		193,929	1.72		214,814	3.85		84,582	6.42
Federal Home Loan Bank advances		436,986	3.98		233,342	5.35		149,426	6.30
Other borrowed funds		—	—		—	—		399	6.77
Total borrowed funds	$	1,150,028	2.55	$	1,066,674	4.34	$	1,240,540	6.13
Maximum month-end balance:
Securities sold under agreements to repurchase	$	621,630		$	691,940		$	1,162,484
Federal funds purchased		278,000			297,000			170,000
Federal Home Loan Bank advances		575,000			270,000			180,000
Other borrowed funds		—			—			5,000

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Securities sold under agreements to repurchase and federal funds purchased generally mature within 1 to 90 days from the transaction date. Securities sold under agreements to repurchase are treated as financings, and the obligations to repurchase securities sold are reflected as a liability in the Consolidated Statements of Condition. Repurchase agreements are secured by U.S. Treasury and U.S. Agency securities, which are held in third party pledge accounts. The securities underlying the agreements remain in the respective asset accounts. As of December 31, 2002, First Midwest did not have amounts at risk under repurchase agreements with any individual counterparty or group of counterparties that exceed 10% of stockholders’ equity.

The Company’s banking subsidiary, First Midwest Bank is a member of the Federal Loan Home Bank (“FHLB”) and has access to term financing from the FHLB. These advances are secured by qualifying residential mortgages and mortgage-related securities. At December 31, 2002, all advances from the FHLB are fixed rate with interest payable monthly. FHLB advances are callable in whole or in part at the discretion of the Federal Home Loan Bank of Chicago with all current outstanding advances callable within the first quarter 2003 and quarterly thereafter.

As of December 31, 2002, the maturity and rate schedule for FHLB advances is as follows.

Maturity	Advance Amount		Rate (%)
February 17, 2003(1)	$	50,000	5.25
July 16, 2003(1)		25,000	4.58
September 25, 2003(2)		50,000	3.41
October 10, 2003(1)		25,000	3.19
January 30, 2004(1)		50,000	3.50
February 16, 2004(3)		25,000	3.36
June 18, 2004(2)		50,000	3.33
January 10, 2005(1)		50,000	4.34
January 31, 2005(1)		50,000	4.30
August 1, 2005(3)		100,000	3.22
August 1, 2005(3)		100,000	3.35
Total/Average rate	$	575,000	3.72

⁽¹⁾ Callable January 2003 and quarterly thereafter.

⁽²⁾ Callable March 2003 and quarterly thereafter.

⁽³⁾ Callable February 2003 and quarterly thereafter.

Other borrowed funds consist of term federal funds purchased, treasury tax and loan deposits, and short-term credit arrangements with unaffiliated banks and are generally repaid within 30 to 90 days from the transaction date. None of First Midwest’s borrowings have any related compensating balance requirements that restrict the usage of Company assets.

Exclusive of certain correspondent bank and Federal Reserve Bank discount borrowing facilities, First Midwest had $907 million of unused short-term credit lines available for use at December 31, 2002.

10. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31.

	2002		2001		2000
Basic earnings per share.
Net income	$	90,150	$	82,138	$	75,540
Average common shares outstanding		48,074		50,057		51,314
Basic earnings per share	$	1.88	$	1.64	$	1.47
Diluted earnings per share:
Net income	$	90,150	$	82,138	$	75,540
Average common shares outstanding		48,074		50,057		51,314
Dilutive effect of stock options		341		344		290
Diluted average common shares outstanding		48,415		50,401		51,604
Diluted earnings per share	$	1.86	$	1.63	$	1.46

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During 2002, 2001, and 2000, options to purchase 354 shares, 150 shares, and 405 shares, respectively, were not included in the computation of diluted earnings per share because the exercise price of these options was greater than the average market price of the Company’s common stock, and therefore, the effect would be antidilutive.

11. COMPREHENSIVE INCOME

The following table summarizes reclassification adjustments and the related income tax effect to the components of other comprehensive income for the years ended December 31.

	2002			2001			2000
Unrealized holding gains on available for sale securities arising during the period:
Unrealized net gains	$	54,185		$	23,947		$	70,152
Related tax (expense)		(21,132	)		(9,340	)		(27,359	)
Net after tax unrealized gains on available for sale securities		33,053			14,607			42,793
Less: Reclassification adjustment for net gains realized during the period:
Realized net gains on sales of available for sale securities		206			792			1,246
Related tax (expense)		(81	)		(309	)		(486	)
Net after tax reclassification adjustment		125			483			760
Net unrealized holding gains on available for sale securities		32,928			14,124			42,033
Unrealized holding gains (losses) on derivatives used in cash flow hedging relationships:
Unrealized net gains (losses)		1,921			(2,984	)		—
Related tax (expense) benefit		(749	)		1,164			—
Net after tax unrealized gains (losses) on derivatives used in cash flow hedging relationships		1,172			(1,820	)		—
Total other comprehensive income	$	34,100		$	12,304		$	42,033

Provided below is the change in accumulated other comprehensive income for the years ended December 31.

	2002			2001			2000
Beginning balance	$	5,265		$	(7,039	)	$	(49,072	)
Current year change		34,100			12,304			42,033
Ending balance	$	39,365		$	5,265		$	(7,039	)
Ending balance consists of:
Accumulated unrealized gains (losses) on securities available for sale	$	40,013		$	7,085		$	(7,039	)
Accumulated unrealized (losses) on hedging activities		(648	)		(1,820	)		—
Total accumulated other comprehensive income (loss)	$	39,365		$	5,265		$	(7,039	)

12. RETIREMENT PLANS

A summary of the Company’s retirement plans, including the funding policies and benefit information, is presented below.

First Midwest Savings and Profit Sharing Plan (the “Profit Sharing Plan”)—The Profit Sharing Plan covers substantially all full-time employees, provides for retirement benefits based upon vesting requirements with full vesting after 7 years, and allows for employees, at their option, to make contributions up to 15% of a pre-tax base salary through salary deductions under the provisions of Section 401(k) of the Internal Revenue Code. Employee contributions are invested, at the employees’ direction, among a variety of investment alternatives.

The Company provides a matching contribution to the Profit Sharing Plan of 2% of defined compensation of the contributing participants and a discretionary contribution of up to an additional 6%, based upon both individual Affiliate performance and the overall consolidated performance of First Midwest. The Company’s matching contribution vests immediately.

At December 31, 2002, the Profit Sharing Plan held as investments 1,938 shares of First Midwest common stock,

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representing 4.1%, in the aggregate, of the total shares outstanding at such date. Fair value of shares held by the Profit Sharing Plan at December 31, 2002 and dividends paid thereon during 2002 were $51,759 and $1,353, respectively.

First Midwest Pension Plan (the “Pension Plan”)—The Pension Plan covers substantially all full-time employees, is noncontributory, and provides for retirement benefits based upon years of service and compensation levels of the participants. Actuarially determined pension costs are charged to current operations. The Company’s funding policy is to contribute amounts to its plans sufficient to meet the minimum funding requirements of the Employee Retirement Income Security Act of 1974, plus such additional amounts as the Company determines to be appropriate. Plan assets of the defined benefit pension plan consist primarily of marketable equity securities and bonds.

The following table summarizes the Pension Plan’s costs and obligations to participants for the years ended December 31.

	2002			2001
Change in benefit obligation:
Projected benefit obligation at beginning of year	$	20,887		$	16,510
Service cost		2,797			2,230
Interest cost		1,539			1,257
Actuarial losses		2,992			1,838
Benefits paid		(1,937	)		(948	)
Plan amendments		38			—
Projected benefit obligation at end of year	$	26,316		$	20,887
Change in plan assets:
Fair value of plan assets at beginning of year	$	17,336		$	12,936
Actual return on plan assets		(1,109	)		(555	)
Employer contributions		3,659			5,903
Benefits paid		(1,937	)		(948	)
Fair value of plan assets at end of year	$	17,949		$	17,336
Reconciliation of funded status:
Funded status	$	(8,367	)	$	(3,551	)
Unamortized prior service cost		49			(16	)
Unrecognized net actuarial losses		10,582			4,632
Net accrued benefit cost recognized	$	2,264		$	1,065
Amounts recognized in the consolidated statements of condition consist of:
Accrued benefit asset	$	2,264		$	1,065

	Years ended December 31,
	2002			2001			2000
Components of net periodic benefit cost:
Service cost	$	2,797		$	2,230		$	2,236
Interest cost		1,539			1,257			1,149
Expected return on plan assets(1)		(1,945	)		(1,456	)		(1,091	)
Recognized transition (asset)		—			—			(5	)
Amortization of prior service cost		(26	)		(81	)		(81	)
Recognized net actuarial loss		96			—			—
Net periodic cost	$	2,461		$	1,950		$	2,208
Weighted-average assumptions:
Discount rate(2)		6.75	%		7.25	%		7.75	%
Expected return on plan assets(3)		8.75	%		9.00	%		9.00	%
Rate of compensation increase		4.50	%		4.50	%		4.50	%

⁽¹⁾ Based on the calculated value of plan assets and the use of the arithmetic method of calculation.

⁽²⁾ Based on Moody’s AA corporate bond rate as of December 31, 2002.

⁽³⁾ Based on historical return levels of the Pension Plan’s return on plan assets.

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The increase in 2002 net period cost as compared to 2001 is due to both the decline in the fair value of plan assets and the use of a lower discount rate in actuarial calculations. Assumed discount rates and expected rates of return have a significant impact on the amounts reported. Using a discount rate of 6.75% and an expected rate of return of 8.75%, it is believed that, based on actuarial estimates, 2003’s net periodic pension cost would increase by approximately 30% as compared to 2002.

The aggregate expense related to the Company’s retirement plans for the periods noted, included in retirement and other employee benefits in the accompanying Consolidated Statements of Income, is summarized in the table below.

	Year ended December 31,
	2002		2001		2000
Profit Sharing Plan	$	4,037	$	3,743	$	3,175
Pension Plan		2,461		1,950		2,208
Total	$	6,498	$	5,693	$	5,383

13. INCOME TAXES

Total income taxes (benefits) reported in the Consolidated Statements of Income for the years ended December 31, 2002, 2001, and 2000 include the following components.

	2002		2001			2000
Current tax expense (benefit):
Federal	$	30,874	$	25,550		$	26,462
State		705		(121	)		(61	)
Total		31,579		25,429			26,401
Deferred tax expense (benefit):
Federal		512		1,574			(2,155	)
State		42		(335	)		(487	)
Total		554		1,239			(2,642	)
Total income tax expense	$	32,133	$	26,668		$	23,759

Differences between the amounts reported in the consolidated financial statements and the tax bases of assets and liabilities result in temporary differences for which deferred tax assets and liabilities have been recorded. Deferred tax assets and liabilities as of December 31, 2002 and 2001 were as follows.

	2002			2001
Deferred tax assets:
Reserve for loan losses	$	16,775		$	16,711
Depreciable assets		1,157			1,516
Accrued retirement benefits		1,751			1,953
State tax benefits		2,218			2,245
Other		1,826			1,274
Total deferred tax assets		23,727			23,699
Deferred tax liabilities:
Purchase accounting adjustments		(1,435	)		(1,632	)
Dividends receivable		(3,469	)		(3,168	)
Deferred loan fees		(1,912	)		(1,102	)
Other		(1,669	)		(2,001	)
Total deferred tax liabilities		(8,485	)		(7,903	)
Net deferred tax assets		15,242			15,796
Tax effect of adjustments related to other comprehensive income		(25,136	)		(3,326	)
Net deferred tax (liabilities) assets including adjustments	$	(9,894	)	$	12,470

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Deferred tax assets and liabilities are included in other assets and other liabilities, respectively, in the accompanying Consolidated Statements of Condition. Management believes that it is more likely than not that the deferred tax assets will be fully realized, therefore no valuation allowance has been recorded as of December 31, 2002 or 2001.

The differences between the statutory federal income tax rate and the effective tax rate on income for the years ended December 31, 2002, 2001, and 2000 are as follows.

	2002		2001		2000
Statutory federal income tax rate	35.0	%	35.0	%	35.0	%
Tax exempt income, net of interest expense disallowance	(7.1	)%	(7.7	)%	(7.9	)%
State income tax, net of federal tax effect	0.4	%	(0.3	)%	(0.4	)%
Other, net	(2.0	)%	(2.5	)%	(2.8	)%
Effective tax rate	26.3	%	24.5	%	23.9	%

As of December 31, 2002, 2001, and 2000, First Midwest’s retained earnings includes an appropriation for an acquired thrift’s tax bad debt reserves of approximately $2,480 for which no provision for federal or state income taxes has been made. If, in the future, this portion of retained earnings is distributed as a result of the liquidation of First Midwest or its Affiliates, federal and state income taxes would be imposed at the then applicable rates.

14. STOCK OPTION PLANS

Omnibus Stock and Incentive Plan (the “Omnibus Plan”)—In February 1989, the Board of Directors of First Midwest adopted the Omnibus Plan, which allows for the granting of both incentive and non-statutory (“nonqualified”) stock options, stock appreciation rights, restricted stock, performance units, and performance shares to certain key employees. The total number of shares of First Midwest’s common stock available for awards under the Omnibus Plan, as amended, may not exceed 6,432 of which 325 shares may be granted in restricted stock.

Since the inception of the Omnibus Plan, in February of each year certain key employees have been granted nonqualified stock options. The option exercise price is set at the fair market value of First Midwest common stock on the date the options are granted. All options have a term of ten years from the date of grant and vest over three years (subject to accelerated vesting in connection with death, disability or a change-in-control, as defined in the Omnibus Plan) with 50% exercisable after two years from the date of grant and the remaining 50% exercisable three years after the grant date.

Nonemployee Directors Stock Option Plan (the “Directors Plan”)—In 1997 the Board of Directors of First Midwest adopted the Directors Plan, which provides for the granting of nonqualified options for shares of common stock to nonmanagement Board members of the Company. A maximum of 281 nonqualified options for shares of common stock are available for grant under the Directors Plan. The timing, amounts, recipients, and other terms of the option grants are determined by the provisions of, or formulas in, the Directors Plan. The exercise price of the options is equal to the fair market value of the common stock on the grant date. All options have a term of ten years from the date of grant and become exercisable one year from the grant date subject to accelerated vesting in the event of death, disability, or a change-in-control, as defined in the Directors Plan. Directors elected during the service year are granted options on a pro-rata basis to those granted to the directors at the start of the service year.

Both the Omnibus Plan and the Directors Plan have been submitted to and approved by the shareholders of First Midwest.

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A summary of the nonqualified stock option transactions under the Omnibus Plan and Directors Plan for the periods noted are as follows.

	Years ended December 31,
	2002				2001				2000
	Options		Average Exercise Price		Options		Average Exercise Price		Options		Average Exercise Price
Outstanding at beginning of year	2,069		$	19.34	1,906		$	17.18	1,849		$	15.30
Granted	596			28.86	727			23.55	730			19.47
Exercised	(580	)		19.84	(516	)		17.04	(500	)		12.53
Forfeited	(16	)		25.01	(48	)		21.83	(126	)		19.52
Expired	(6	)		28.72	—			—	(47	)		21.71
Outstanding at end of year	2,063			21.88	2,069			19.34	1,906			17.18
Exercisable at end of year	989		$	19.55	809		$	16.52	793		$	13.62

The following is a summary of options outstanding and exercisable at December 31, 2002.

	Options Outstanding				Exercisable Options
Range of Exercise Prices	Number Outstanding	Average Life(1)	Average Exercise Price		Number Exercisable	Average Exercise Price
$9.39 – $17.10	305	2.72	$	12.87	305	$	12.87
$18.40 – $22.40	690	6.57		19.22	457		19.60
$22.50 – $28.62	534	7.69		23.36	88		26.37
$28.70 – $31.01	534	7.99		28.97	139		29.67
Total	2,063	6.66	$	21.88	989	$	19.55

⁽¹⁾ Average contractual life remaining in years.

15. STOCKHOLDER RIGHTS PLAN

On February 15, 1989, the Board of Directors of First Midwest declared a dividend, paid March 1, 1989, of one right (“Right”) for each outstanding share of common stock of First Midwest held on record on March 1, 1989 pursuant to a Rights Agreement dated February 15, 1989. The Rights Agreement was amended and restated on November 15, 1995 and again amended on June 18, 1997, to exclude an acquisition. As amended, each right entitles the registered holder to purchase from First Midwest 1/100 of a share of Series A Preferred Stock for a price of $100, subject to adjustment. The Rights will be exercisable only if a person or group has acquired, or announces the intention to acquire, 10% or more of First Midwest’s outstanding shares of common stock. First Midwest is entitled to redeem the Rights at $0.01 per Right, subject to adjustment, at any time prior to the earlier of the tenth business day following the acquisition by any person or group of 10% or more of the outstanding shares of First Midwest common stock, or the expiration of the Rights in November, 2005.

As a result of the Rights distribution, 600 of the 1,000 shares of authorized preferred stock were reserved for issuance as Series A Preferred Stock.

16. REGULATORY AND CAPITAL MATTERS

The principal source of cash flow for First Midwest is dividends from its banking and other subsidiaries. Various federal and state banking regulations and capital guidelines limit the amount of dividends that may be paid to First Midwest by the Bank. Future payment of dividends by the subsidiaries is dependent on individual regulatory capital requirements and levels of profitability. Without prior regulatory approval, the Bank can initiate aggregate dividend payments in 2003 of $186,865 plus an additional amount equal to their net profits for 2003, as defined by statute, up to the date of any such dividend declaration. Since First Midwest is a legal entity, separate and distinct from its subsidiaries, the dividends of First Midwest are not subject to such bank regulatory guidelines.

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Under the provisions of the Federal Reserve Act, depository institutions are required to maintain certain average balances in the form of cash or noninterest-bearing balances with the Federal Reserve Bank. Average reserve balances aggregating $57,025 in 2002 were maintained in fulfillment of these requirements.

First Midwest and the Bank are subject to various capital requirements set up and administered by the federal banking agencies. Under capital adequacy guidelines, First Midwest and the Bank must meet specific guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components of capital and assets, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require First Midwest and the Bank to maintain minimum amounts and ratios of total and tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of tier 1 capital to average assets (as defined). Failure to meet minimum capital requirements can initiate certain mandatory, and possible additional discretionary, actions by regulators that, if undertaken, could have a material effect on the Company’s financial statements. As of December 31, 2002, First Midwest and the Bank meet all capital adequacy requirements to which they are subject.

As of December 31, 2002, the most recent regulatory notification classified the Bank as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized”, the Bank must maintain minimum total and tier 1 capital to risk-weighted assets and tier 1 capital to average assets ratios as set forth in the table below. There are no conditions or events since that notification that Management believes have changed the Bank’s classification.

The following table summarizes the actual capital ratios for First Midwest and the Bank, as well as those required to be categorized as adequately capitalized and “well capitalized.”

	First Midwest Actual				For Capital Adequacy Purposes				Well Capitalized for FDICIA
	Capital		Ratio		Capital		Ratio		Capital		Ratio
As of December 31, 2002:
Total capital (to risk-weighted assets):
First Midwest Bancorp, Inc	$	482,512	11.03	%	$	349,960	8.00	%	$	437,450	10.00	%
First Midwest Bank		460,426	10.56			348,826	8.00			436,033	10.00
Tier 1 capital (to risk-weighted assets):
First Midwest Bancorp, Inc		434,583	9.93			174,980	4.00			262,470	6.00
First Midwest Bank		412,497	9.46			174,413	4.00			261,620	6.00
Tier 1 leverage (to average assets):
First Midwest Bancorp, Inc		434,583	7.32			178,126	3.00			296,877	5.00
First Midwest Bank		412,497	7.01			176,683	3.00			294,471	5.00
As of December 31, 2001:
Total capital (to risk-weighted assets):
First Midwest Bancorp, Inc.	$	471,728	11.08	%	$	340,488	8.00	%	$	425,611	10.00	%
First Midwest Bank		458,022	10.81			338,998	8.00			423,747	10.00
Tier 1 capital (to risk-weighted assets):
First Midwest Bancorp, Inc.		423,983	9.96			170,244	4.00			255,366	6.00
First Midwest Bank		410,277	9.68			169,499	4.00			254,248	6.00
Tier 1 leverage (to average assets):
First Midwest Bancorp, Inc.		423,983	7.43			171,181	3.00			285,301	5.00
First Midwest Bank		410,277	7.25			170,047	3.00			283,412	5.00

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17. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

In the normal course of business, First Midwest enters into financial instruments with off-balance sheet risk in order to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. All financial instruments are held or issued for purposes other than trading. These instruments include commitments to extend credit, standby letters of credit, commercial letters of credit (collectively “credit commitments”), and recourse on assets sold. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Statements of Condition. The contract or notional amounts of these financial instruments at December 31 were as follows.

	2002		2001
Commitments to extend credit:
Fixed rate	$	229,309	$	111,656
Floating rate		848,132		868,791
Letters of credit:
Standby		85,375		83,948
Commercial		774		376
Recourse on assets sold		—		6,271

The amount of unused home equity lines of credit included in commitments to extend credit totaled $195,091 and $153,142 at December 31, 2002 and 2001, respectively.

Credit Commitments—Commitments to extend credit are agreements to lend funds to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash-flow requirements.

Standby and commercial letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party and are most often issued in favor of a municipality where construction is taking place to ensure that the borrower adequately completes the construction. Commercial letters of credit are issued specifically to facilitate commerce and typically result in the commitment being drawn on when the underlying transaction is consummated between the customer and the third party. This type of letter of credit is typically issued on behalf of a customer who is generally involved in an international business activity such as the importing of goods.

A majority of the Company’s credit commitments expire within one year. First Midwest’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for credit commitments is represented by the contractual amount of those instruments. The credit risk is essentially the same as that involved in extending loans to customers and is subject to normal credit policies. First Midwest uses the same credit policies in making credit commitments as it does for on-balance sheet instruments, with such exposure to credit loss minimized due to various collateral requirements in place.

Recourse on Assets Sold—Recourse on assets sold results from an arrangement in which the reporting institution retains any risk of credit loss directly or indirectly associated with a transferred (sold) asset. First Midwest had no assets sold with recourse at December 31, 2002.

18. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

Accounting principles generally accepted in the United States require disclosure of the estimated fair values of certain financial instruments, both assets and liabilities, on and off-balance sheet, for which it is practical to estimate the fair value. Because the estimated fair values provided herein exclude disclosure of the fair value of certain other financial instruments and all non-financial instruments, any aggregation of the estimated fair value amounts presented would not represent the underlying value of First Midwest. Examples of non-financial instruments having significant value include the future earnings potential of significant customer relationships and the value of First Midwest’s trust division operations and other fee-generating businesses. In addition, other significant assets including property, plant, and equipment, and goodwill are not considered financial instruments and therefore have not been valued.

Various methodologies and assumptions have been utilized in Management’s determination of the estimated fair value of First Midwest’s financial instruments, which are detailed below. The fair value estimates are made at a discrete point in time based upon relevant market information. Because no market exists for a significant portion of these financial instruments,

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fair value estimates are based on judgments regarding future expected economic conditions and loss experience and risk characteristics of the financial instruments. These estimates are subjective, involve uncertainties, and cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

The following methods and assumptions were used in estimating the fair value of financial instruments.

Short-Term Financial Assets and Liabilities—For financial instruments with a short or no stated maturity, prevailing market rates, and limited credit risk, carrying amounts approximate fair value. Those financial instruments include cash and due from banks, funds sold and other short-term investments, mortgages held for sale, corporate owned life insurance, accrued interest receivable, and accrued interest payable.

Securities Available for Sale and Held to Maturity—The fair value of securities is based on quoted market prices or dealer quotes. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

Loans—The fair value of loans was estimated using present value techniques by discounting the future cash flows of the remaining maturities of the loans. The discount rate was based on the London Interbank Offering Rate (“Libor”) yield curve, with rate adjustments for prepayment, liquidity, and credit risk. The primary impact of credit risk on the present value of the loan portfolio, however, was accommodated through the use of the reserve for loan losses, which is believed to represent the current fair value of all possible future losses for purposes of the fair value calculation.

Deposit Liabilities—The fair value of demand, savings, money market deposits, and fixed-maturity certificates of deposits was estimated using a discounted cash flow analysis based on the Libor yield curve. The cash flows used for demand, savings, and money market deposits were developed using a weighted average life based on current and historical experiences regarding portfolio retention and interest rate repricing behavior.

Borrowed Funds—The fair value of repurchase agreements and Federal Home Loan Bank advances is estimated by discounting the agreements based on maturities using the rates currently offered for repurchase agreements of similar remaining maturities. The carrying amounts of funds purchased and other borrowed funds approximate their fair value due to their short-term nature.

Derivative Liabilities—The fair value of derivative instruments are based either on cash flow projection models acquired from third parties or observable market price.

Commitments—Given the limited interest rate exposure posed by the commitments outstanding at year-end due to their general variable nature, coupled with the general short-term nature of the commitment periods entered into, termination clauses provided in the agreements, and the market rate of fees charged, First Midwest has not estimated the fair value of commitments outstanding and believes that, if measured, the resulting fair value would be immaterial.

The carrying amount and estimated fair value of First Midwest’s financial instruments at December 31, 2002 and 2001 are as follows.

	2002				2001
	Carrying Amount		Estimated Fair value		Carrying Amount		Estimated Fair value
Financial Assets:
Cash and due from banks	$	195,153	$	195,153	$	155,822	$	155,822
Funds sold and other short-term investments		11,745		11,747		4,334		4,336
Mortgages held for sale		18,521		18,521		15,240		15,240
Securities available for sale		1,986,186		1,986,186		1,771,607		1,771,607
Securities held to maturity		105,413		105,568		89,227		89,390
Loans, net of reserve for loan losses		3,406,846		3,530,226		3,324,561		3,437,676
Accrued interest receivable		31,005		31,005		32,027		32,027
Investment in corporate owned life insurance		141,362		141,362		135,280		135,280
Financial Liabilities:
Deposits	$	4,172,954	$	4,000,720	$	4,193,921	$	4,205,302
Borrowed funds		1,237,408		1,248,956		971,851		973,333
Derivative liabilities		1,063		1,063		2,984		2,984
Accrued interest payable		8,503		8,503		10,231		10,231

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19. SUPPLEMENTARY CASH FLOW INFORMATION

Supplemental disclosures to the Consolidated Statements of Cash Flows for the three years ended December 31 are as follows.

	2002		2001		2000
Income taxes paid	$	27,495	$	25,056	$	29,054
Interest paid to depositors and creditors		112,638		191,175		233,060
Non-cash transfers of loans to foreclosed real estate		8,216		5,030		3,743
Dividends declared but unpaid		8,982		8,303		8,184

20. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

First Midwest maintains an overall interest rate risk management strategy that incorporates the use of derivative instruments to minimize significant unplanned fluctuations in earnings and cash flows caused by interest rate volatility. This is accomplished by modifying the repricing characteristics of certain assets and liabilities so that changes in interest rates do not adversely affect the net interest margin and cash flows. Derivative instruments represent contracts between parties that usually require no initial net investment and result in one party delivering cash or another type of asset to the other party based on a notional amount and underlying as specified in the contract. A notional amount represents the number of units of a specific item, such as currency units or shares. An underlying represents a variable, such as an interest rate, security price, or price index. The amount of cash or other asset delivered from one party to the other is determined based on the interaction of the notional amount of the contract with the underlying. Derivatives are also implicit in certain contracts and commitments.

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates, or equity prices. The Company’s primary market risk is interest rate risk. Management uses derivative instruments to protect against the risk of interest rate movements on the value of certain assets and liabilities and on future cash flows. The derivative instruments the Company primarily uses are interest rate swaps with indices that relate to the pricing of specific assets and liabilities. The nature and volume of the derivative instruments used to manage interest rate risk depend on the level and type of assets and liabilities on the Consolidated Statements of Condition and the risk management strategies for the current and anticipated rate environment.

FASB No. 133 requires all derivative instruments to be carried at fair value on the Consolidated Statements of Condition. FASB No. 133 provides special hedge accounting provisions that permit the change in fair value of the hedged item related to the risk being hedged to be recognized in earnings in the same period and in the same income statement line as the change in fair value of the derivative. Note 1 provides further detail on how derivative instruments are accounted for in the financial statements. The Company usually designates derivative instruments used to manage interest rate risk into FASB No. 133 hedge relationships with the specific assets, liabilities, or cash flows being hedged. Some derivative instruments used for interest rate risk management may not be designated in a FASB No. 133 hedge relationship. Such will be the case if the derivative instrument is being used to offset risk related to an asset or liability that is accounted for at fair value in the financial statements, if the derivative instrument has been moved out of a FASB No. 133 relationship because the hedge was deemed not effective, or if operational or cost constraints make it prohibitive to apply hedge accounting.

As with any financial instrument, derivative instruments have inherent risks. Market risk is the adverse effect a change in interest rates, currency, or implied volatility has on the value of a financial instrument. First Midwest manages market risk associated with derivative instruments by establishing and monitoring limits as to the degree of risk that may be undertaken. The risk is periodically measured as part of the Company’s overall market risk monitoring process, which includes the use of net interest income and economic value of equity simulation methodologies. This process is carried out by the Company’s Asset Liability Management Committee. See further discussion of this process in the Market Risk and Interest Rate Sensitivity Management section of Management’s Discussion and Analysis commencing on page 18 of this Form 10-K.

Credit risk is the risk that a counterparty to a derivative contract with an unrealized gain fails to perform according to the terms of the agreement. Credit risk is managed by limiting the aggregate amount of net unrealized gains in agreements outstanding, monitoring the size and the maturity structure of the derivative portfolio, applying uniform credit standards maintained for all activities with credit risk, and collateralizing gains. First Midwest maintains a policy limiting credit exposure to any one counterparty to not more than 2.5% of stockholders’ equity. Additionally, the Company has established

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bilateral collateral agreements with its major derivative dealer counterparties that provide for exchanges of marketable securities or cash to collateralize either party’s net gains. On December 31, 2002, these collateral agreements covered 100% of the notional amount of the total dealer interest rate swap portfolio, and the Company held cash with a $4.2 million fair value master netting agreement to collateralize net gains with counterparties.

Fair Value Hedges – During 2002, First Midwest did not enter into any fair value hedges.

Cash Flow Hedges – During 2002, First Midwest hedged cash flow variability related to variable-rate funding products, specifically certain indexed deposit accounts, through the use of pay fixed, receive variable interest rate swaps.

All derivative contracts are valued using observable market prices. Pricing models used for valuing derivative instruments are regularly validated by testing through comparison with other third parties. The valuations and expected lives presented in the following table are based on yield curves, forward yield curves, and implied volatilities that were observable in the cash and derivatives markets on December 31 of the respective year presented.

Summary information regarding interest rate swap derivative instruments designated as cash flow hedges under FASB No. 133 at December 31, 2002, 2001, and 2000 are as follows.

	2002			2001		2000
Notional amount outstanding	$	125,000		100,000		$	—
Weighted average interest rate paid		4.76	%	5.25	%		—
Weighted average interest rate received		1.39	%	1.89	%		—
Weighted average maturity (in years)		0.64		1.13			—
Fair value gain (loss)	$	(1,063	)	(2,984	)	$	—

The Company recognized no ineffective cash flow hedge gains or losses and no gains or losses were recognized related to components of derivative instruments that were excluded from the assessment of hedge ineffectiveness during 2002.

At December 31, 2002, accumulated other comprehensive income included a deferred after-tax net loss of $648 for the derivatives used to hedge funding cash flows. See Note 11 on page 56 for further detail of the amounts included in accumulated other comprehensive income. The net after-tax derivative loss included in other comprehensive income at December 31, 2002 related to the derivatives used to hedge funding cash flows is projected to be reclassified into earnings in conjunction with the recognition of interest payments through September 2005, with $710 of net loss expected to be reclassified within the next year.

Other Derivative Activities – During 2002, the Company had no derivative instruments in its derivative portfolio not included in FASB No. 133 hedge relationships. The Company does not enter into derivative transactions for purely speculative purposes.

21. RELATED PARTY TRANSACTIONS

The Company, through the Bank, has made loans and had transactions with certain of its directors and executive officers. However, all such loans and transactions were made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and did not involve more than the normal risk of collectibility or present other unfavorable features. The Securities and Exchange Commission has determined that, with respect to the Company and significant subsidiaries, disclosure of borrowings by directors and executive officers and certain of their related interests should be made if the loans are greater than 5% of stockholders’ equity, in the aggregate. These loans totaling $714 and $666 in aggregate were not greater than 5% of stockholders’ equity at December 31, 2002 or 2001, respectively.

22. CONTINGENT LIABILITIES AND OTHER MATTERS

As of December 31, 2002, there are certain legal proceedings pending against First Midwest and its Affiliates in the ordinary course of business. In assessing these proceedings, including the advice of counsel, First Midwest believes that liabilities arising from these proceedings, if any, would not have a material adverse effect on the consolidated financial condition of First Midwest.

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23. CONDENSED PARENT COMPANY FINANCIAL STATEMENTS

The following represents the condensed financial statements of First Midwest Bancorp, Inc., the Parent Company.

Statements of Condition

(Parent Company only)

	December 31,
	2002		2001
Assets
Cash and interest-bearing deposits	$	27,063	$	16,504
Investment in and advances to Affiliates		461,973		427,355
Goodwill		8,943		8,943
Other assets		13,385		13,577
Total assets	$	511,364	$	466,379
Liabilities and Stockholders’ Equity
Accrued expenses and other liabilities	$	19,411	$	19,112
Stockholders’ equity		491,953		447,267
Total liabilities and stockholders’ equity	$	511,364	$	466,379

Statements of Income

(Parent Company only)

	Years ended December 31,
	2002		2001		2000
Income
Dividends from Affiliates	$	92,310	$	69,547	$	48,709
Interest income		376		1,221		1,485
Security transactions and other income		319		519		363
Total income		93,005		71,287		50,557
Expenses
Interest expense		—		—		27
Salaries and employee benefits		3,155		2,802		2,045
Amortization of intangible assets		149		880		836
Other expenses		2,659		2,092		1,527
Total expenses		5,963		5,774		4,435
Income before income tax expense and equity in undistributed income of Affiliates		87,042		65,513		46,122
Income tax benefit		1,831		1,652		1,668
Income before undistributed income of Affiliates		88,873		67,165		47,790
Equity in undistributed income of Affiliates		1,277		14,973		27,750
Net income	$	90,150	$	82,138	$	75,540

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Statements of Cash Flows

(Parent Company only)

	Years ended December 31,
	2002			2001			2000
Operating Activities
Net income	$	90,150		$	82,138		$	75,540
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed income from Affiliates		(1,277	)		(14,973	)		(27,750	)
Depreciation of premises, furniture, and equipment		57			87			117
Net (gains) losses on sales of securities		(254	)		2			8
Tax benefit from employee exercises of nonqualified stock options		985			979			715
Net amortization of goodwill and other intangibles		149			880			836
Net (increase) decrease in other assets		(688	)		5,053			(6,859	)
Net (decrease) in other liabilities		(380	)		(1,497	)		(2,035	)
Net cash provided by operating activities		88,742			72,669			40,572
Investing Activities
Purchases of securities available for sale		(1,346	)		(1,218	)		(657	)
Proceeds from sales of securities available for sale		954			824			614
Purchase of other assets, net of sales		833			2,096			(343	)
Net cash provided (used) by investing activities		441			1,702			(386	)
Financing Activities
Net (decrease) in borrowed funds		—			—			(6,300	)
Net purchases of treasury stock		(52,117	)		(64,582	)		(12,195	)
Proceeds from issuance of treasury stock		9			16			7
Cash dividends paid		(32,879	)		(32,297	)		(29,598	)
Exercise of stock options		6,363			3,222			2,659
Capital contributions and other advances and repayments from Affiliates		—			—			33,083
Net cash (used) by financing activities		(78,624	)		(93,641	)		(12,344	)
Net increase (decrease) in cash and cash equivalents		10,559			(19,270	)		27,842
Cash and cash equivalents at beginning of year		16,504			35,774			7,932
Cash and cash equivalents at end of year	$	27,063		$	16,504		$	35,774

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON

ACCOUNTING AND FINANCIAL DISCLOSURE

None.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding the Directors and Executive Officers of First Midwest, their family relationships and their business experience is contained in the Registrant’s Proxy Statement for the 2003 Annual Meeting of Shareholders of First Midwest, which information is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

Information regarding compensation of the Executive Officers of First Midwest is contained in the “Executive Officers and Executive Compensation” section of the Registrant’s Proxy Statement for the 2003 Annual Meeting of Shareholders of First Midwest, which section is incorporated herein by reference.

The Compensation Committee’s Report on Executive Compensation contained in the “Executive Compensation” section of the Registrant’s Proxy Statement shall not be deemed incorporated by reference by any general statement incorporating by reference the Registrant’s Proxy Statement into any filing under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except to the extent First Midwest specifically incorporates this information by reference, and shall not otherwise be deemed “filed” under such Acts.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN

BENEFICIAL OWNERS AND MANAGEMENT

Information regarding security ownership of certain beneficial owners and management is contained in the Registrant’s Proxy Statement for the 2003 Annual Meeting of Shareholders of First Midwest, which information is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information regarding certain relationships and related transactions of First Midwest is contained in the Registrant’s Proxy Statement for the 2003 Annual Meeting of Shareholders of First Midwest, which information is incorporated herein by reference.

ITEM 14. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.

Within 90 days prior to the filing date of this report (the “Evaluation Date”), the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s President and Chief Executive Officer and its Executive Vice President, Chief Financial Officer, and Principal Accounting Officer of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-14 and 15d-14 of the Securities and Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the President and Chief Executive Officer and Executive Vice President, Chief Financial Officer, and Principal Accounting Officer concluded that as of the Evaluation Date, the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

(b) Changes in internal controls.

There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the Evaluation Date nor were there any significant deficiencies or material weaknesses in the Company’s internal controls.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND

REPORTS ON FORM 8-K

(a)    The following exhibits, financial statements and financial statement schedules are filed as part of this report.

FINANCIAL STATEMENTS

Consolidated Statements of Condition – As of December 31, 2002 and 2001

Consolidated Statements of Income – Years ended December 31, 2002, 2001, and 2000

Consolidated Statements of Changes in Stockholders’ Equity – Years ended December 31, 2002, 2001, and 2000

Consolidated Statements of Cash Flows – Years ended December 31, 2002, 2001, and 2000

Notes to Consolidated Financial Statements

Report of Independent Auditors

FINANCIAL STATEMENT SCHEDULES

All financial statement schedules have been omitted from this Annual Report because the required information is presented in the consolidated financial statements or in the notes thereto, the amounts involved are not significant, or the required subject matter is not applicable.

EXHIBITS

See Exhibit Index commencing on page 72.

(b) Reports on Form 8-K -

(1) The Company filed a Current Report on Form 8-K, dated October 9, 2002, to announce the Company’s third quarter 2002 earnings release date and to reiterate earnings guidance.

(2) The Company filed a Current Report on Form 8-K, dated October 23, 2002, to announce the Company’s earnings results for the quarter and nine months ended September 30, 2002

(3) The Company filed a Current Report on Form 8-K, dated November 6, 2002, to announce the Company’s participation in the Sandler O’Neill 2002 Bank Conference.

(4) The Company filed a Current Report on Form 8-K, dated November 13, 2002, to make available the slide presentation presented by the Company at the Sandler O’Neill 2002 Bank Conference.

(5) The Company filed a Current Report on Form 8-K, dated November 20, 2002, to announce a change in the Company’s Annual Meeting of Shareholders date.

(6) The Company filed a Current Report on Form 8-K, dated November 21, 2002, to announce the appointment of Patrick J. McDonnell to the Company’s Board of Directors.

(7) The Company filed a Current Report on Form 8-K, dated November 21, 2002, to announce an increase in the Company’s cash dividend rate.

(8) The Company filed a Current Report on Form 8-K, dated December 19, 2002, to announce the Company’s fourth quarter 2002 earnings release date and conference call participation details.

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Management’s Report

To Our Stockholders:

The accompanying consolidated financial statements were prepared by Management, which is responsible for the integrity and objectivity of the data presented. In the opinion of Management, the financial statements, which necessarily include amounts based on Management’s estimates and judgments, have been prepared in conformity with accounting principles generally accepted in the United States.

Management depends upon First Midwest’s system of internal controls in meeting its responsibilities for reliable financial statements. This system is designed to provide reasonable assurance that assets are safeguarded and that transactions are properly recorded and executed in accordance with Management’s authorization. Judgments are required to assess and balance the relative cost and the expected benefits of these controls. As an integral part of the system of internal controls, First Midwest relies upon a professional Internal Audit function that conducts operational, financial, and special audits, and coordinates audit coverage with the Independent Auditors.

The consolidated financial statements have been audited by the Independent Auditors, Ernst and Young LLP, who render an independent professional opinion on Management’s financial statements.

The Audit Committee of First Midwest’s Board of Directors, composed solely of outside directors, meets regularly with the Internal Auditors, the Independent Auditors and Management to assess the scope of the annual examination plan and to discuss audit, internal control and financial reporting issues, including major changes in accounting policies and reporting practices. The Internal Auditors and the Independent Auditors have free access to the Audit Committee, without Management present, to discuss the results of their audit work and their evaluations of the adequacy of internal controls and the quality of financial reporting.

/s/ JOHN M. O’MEARA	/s/ MICHAEL L. SCUDDER
John M. O’Meara	Michael L. Scudder
President and Chief Executive Officer	Executive Vice President, Chief Financial Officer, and Principal Accounting Officer

January 21, 2003

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Reports of Independent Auditors

The Board of Directors and Stockholders

First Midwest Bancorp, Inc:

We have audited the accompanying consolidated statements of condition of First Midwest Bancorp, Inc. as of December 31, 2002 and 2001, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of First Midwest Bancorp, Inc. as of December 31, 2002 and 2001, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States.

/s/ ERNST & YOUNG LLP

Chicago, Illinois

January 21, 2003

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EXHIBIT INDEX

Exhibit Number	Description of Documents
3	Restated Certificate of Incorporation is incorporated herein by reference to Exhibit 3 to the Quarterly Report on Form 10-Q dated March 31, 2002.
3.1	Restated Bylaws of the Company.
4	Amended and Restated Rights Agreement, Form of Rights Certificate and Designation of Series A Preferred Stock of the Company, dated November 15, 1995, is incorporated herein by reference to Exhibits (1) through (3) of the Company’s Registration Statement on Form 8-A filed with the Securities and Exchange Commission on November 21, 1995.
4.1	First Amendment to Rights Agreements, dated June 18, 1997, is incorporated herein by reference to Exhibit 4 of First Midwest’s Amendment No. 2 to the Registration Statement on Form 8-A filed with the Securities and Exchange Commission on June 30, 1997.
10	Restated Omnibus Stock and Incentive Plan.
10.1	Retirement and Consulting Agreement and Continuing Participant Agreement to the Omnibus Stock and Incentive Plan executed between the Company and former executive of the Company is incorporated herein by reference to Exhibit 10.1 and 10.2 to the Quarterly Report on Form 10-Q dated June 30, 2002.
10.2	Retirement and Consulting Agreement and Continuing Participant Agreement to the Omnibus Stock and Incentive Plan executed between the Company and former executive of the Company.
10.3	Amended and Restated Non-Employee Directors’ 1997 Stock Option Plan is incorporated herein by reference to Exhibit 10 to the Quarterly Report on Form 10-Q dated September 30, 2000.
10.4	Restated Nonqualified Stock Option-Gain Deferral Plan.
10.5	Restated Deferred Compensation Plan for Nonemployee Directors.
10.6	Restated Nonqualified Retirement Plan.
10.7	Restated Savings and Profit Sharing Plan is incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q dated September 30, 2002.
10.8	Form of Letter Agreement for Nonqualified Stock Options Grant executed between the Company and the executive officers of the Company pursuant to the Company’s Omnibus Stock and Incentive Plan.
10.9	Form of Letter Agreement for Nonqualified Stock Options Grant executed between the Company and the directors of the Company pursuant to the Company’s Non-Employee Directors’ 1997 Stock Option Plan is incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q dated September 30, 2000.
10.10	Form of Indemnification Agreements executed between the Company and executive officers and directors of the Company is incorporated herein by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K dated December 31, 1991.
10.11	Form of Employment Agreements executed between the Company and certain executive officers of the Company is incorporated herein by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K dated December 31, 1997.
10.12	Form of Split-Dollar Life Insurance Agreements executed between the Company and certain executive officers of the Company is incorporated herein by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K dated December 31, 1991.
10.13	Form of Amendment to Split-Dollar Life Insurance Agreements executed between the Company and certain executive officers of the Company is incorporated herein by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K dated December 31, 1992.

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11	Statement re: Computation of Per Share Earnings - The computation of basic and diluted earnings per share is included in Note 55 of the Company’s Notes to Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Date” of this document.
21	Subsidiaries of the Registrant.
23	Consents of Experts and Counsel.

Exhibits 10 through 10.6 and 10.8 through 10.13 are management contracts or compensatory plans or arrangements required to be filed as an exhibit pursuant to item 14(a)3.

All other Exhibits that are required to be filed with this form are not applicable.

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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.

FIRST MIDWEST BANCORP, INC. Registrant
By	/s/ JOHN M. O’MEARA
	John M. O’Meara
	President and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in their capacities on March 7, 2003.

Signatures
/s/ ROBERT P. O’MEARA Robert P. O’Meara	Chairman of the Board
/s/ JOHN M. O’MEARA John M. O’Meara	President and Chief Executive Officer, and Director
/s/ MICHAEL L. SCUDDER Michael L. Scudder	Executive Vice President, Chief Financial Officer, and Principal Accounting Officer
Vernon A. Brunner	Director
/s/ BRUCE S. CHELBERG Bruce S. Chelberg	Director
/s/ WILIAM J. COWLIN William J. Cowlin	Director
/s/ O. RALPH EDWARDS O. Ralph Edwards	Director
/s/ JOSEPH W. ENGLAND Joseph W. England	Director
/s/ BROTHER JAMES GAFFNEY, FSC Brother James Gaffney, FSC	Director
/s/ THOMAS M. GARVIN Thomas M. Garvin	Director
/s/ PATRICK J. MCDONNELL Patrick J. McDonnell	Director
/s/ JOHN L. STERLING John L. Sterling	Director
/s/ J. STEPHEN VANDERWOUDE J. Stephen Vanderwoude	Director

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CERTIFICATIONS

I, John M. O’Meara, certify that:

1. I have reviewed this annual report on Form 10-K of First Midwest Bancorp 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 annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a. designed such disclosure controls and procedures 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 annual report is being prepared;

b. evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s board of directors (or persons performing the equivalent function):

a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including anycorrective actions with regard to significant deficiencies and material weaknesses.

Date:	March 7, 2003	/s/ JOHN M. O’MEARA
		[Signature]
		President and Chief Executive Officer

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I, Michael L. Scudder, certify that:

1. I have reviewed this annual report on Form 10-K of First Midwest Bancorp 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 annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a. designed such disclosure controls and procedures 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 annual report is being prepared;

b. evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s board of directors (or persons performing the equivalent function):

a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including anycorrective actions with regard to significant deficiencies and material weaknesses.

Date:	March 7, 2003	/s/ MICHAEL L. SCUDDER
		[Signature]
		Executive Vice President, Chief Financial Officer, and Principal Accounting Officer

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EX-3.1

Exhibit 3.1

FIRST MIDWEST BANCORP, INC.

AMENDED AND RESTATED BY-LAWS

(ADOPTED BY THE BOARD OF DIRECTORS FEBRUARY 19, 2003)

ARTICLE 1

OFFICES

Section 1.1 Registered Office. The registered office shall be established and maintained at the office of United States Corporation Company, in the City of Dover, in the County of Kent, in the State of Delaware, and said United States Corporation Company shall be the registered agent of this corporation in charge thereof.

Section 1.2 Other Offices. First Midwest Bancorp, Inc. (the “Corporation”) may have other offices, either within or outside of the State of Delaware, at such place or places as the Board of Directors may from time to time appoint or the business of the corporation may require.

ARTICLE 2

MEETINGS OF THE STOCKHOLDERS

Section 2.1 Place of Meetings. All meetings of the stockholders for the election of directors shall be held at such place either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof.

Section 2.2 Annual Meeting of Stockholders. The annual meeting of stockholders for the election of directors and for such other business as may be stated in the notice of the meeting shall be held, in each year at such time and date as the Board of Directors, by resolution, shall determine and as stated in the notice of the meeting. In the event the Board of Directors fails to so determine the time and date of meeting, the annual meeting of stockholders shall be held at 9:00 a.m. on the third Wednesday in April. If the date of the annual meeting shall fall upon a legal holiday, the meeting shall be held on the next succeeding business day. At each annual meeting the stockholders entitled to vote shall elect a Board of Directors and they may transact such other corporate business as shall be stated in the notice of the meeting.

Section 2.3 Other Meetings. Meetings of stockholders for any purpose other than the election of directors may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting.

Section 2.4 Voting. Each stockholder entitled to vote in accordance with the terms of the Restated Certificate of Incorporation of the corporation (the “Certificate of Incorporation”) and in accordance with the provisions of these By-Laws shall be entitled to that number of votes, in person

or by proxy, for each share of stock entitled to vote held by such stockholder as shall be granted to such share pursuant to the Certificate of Incorporation, but no proxy shall be voted after three years from its date unless such proxy provides for a longer period. All questions shall be decided by majority vote of the quorum, except as otherwise provided by the Certificate of Incorporation or the laws of the State of Delaware. Unless otherwise permitted by law or the Certificate of Incorporation, all elections of directors shall be by written ballot. The Board of Directors in its discretion may require that the vote upon any question before the meeting shall be by ballot. The requirement of a written ballot shall be satisfied by a ballot submitted by electronic transmission as provided in Section 211(e) of the Delaware General Corporation Law, as amended from time to time (the “DGCL”).

Section 2.5 List of Stockholders. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.

Section 2.6 Quorum. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business, except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

Section 2.7 Special Meetings. Special meetings of the stockholders for any purpose or purposes may be called only as prescribed in the Certificate of Incorporation.

Section 2.8 Notice of Meetings. Except as otherwise required by law, written notice, stating the place, date and time of the meeting, the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and entitled to vote at the meeting as provided in Section 211 of the DGCL, and the general nature of the business to be considered, shall be given to each stockholder entitled to vote thereat at his address as it appears on the records of the corporation, or by a single written notice to such stockholders who share a single address as provided in Section 233 of the DGCL, not less than ten nor more than sixty days before the date of the meeting. Written notice shall be effective if given by a form of electronic transmission as provided in Section 232 of the DGCL.

2

ARTICLE 3

DIRECTORS

Section 3.1 Number. The number of directors that shall constitute the whole Board of Directors shall be determined as prescribed in the Certificate of Incorporation. Directors need not be stockholders.

Section 3.2 Vacancies. Vacancies (including those created by any increase in the authorized number of directors) may be filled in the manner prescribed by the Certificate of Incorporation. If there are no directors in office, then an election of directors may be held in the manner provided by statute.

Section 3.3 Resignations. Any director, member of a committee or other officer may resign at any time. Such resignation shall be made in writing, and shall take effect at the time specified therein, and if no time be specified, at the time of its receipt by the Chief Executive Officer or Secretary. The acceptance of a resignation shall not be necessary to make it effective.

Section 3.4 Removal. Any director or directors may be removed in the manner prescribed by the Certificate of Incorporation.

Section 3.5 Powers. The Board of Directors shall exercise all of the powers of the corporation except such as are by law, by the Certificate of Incorporation or by these By-Laws conferred upon or reserved to stockholders.

Section 3.6 Chairman of the Board. The Board of Directors shall elect one of its members to be the Chairman of the Board of Directors. The Chairman of the Board of Directors shall lead the Board of Directors in fulfilling its responsibilities as set forth in these By-Laws and perform all other duties and exercise all other powers which are or from time to time may be delegated to the Chairman by the Board of Directors.

Section 3.7 Meetings. The Board of Directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware.

The first meeting of each newly elected Board of Directors for the purpose of organization and the transaction of any business which may come before the meeting may be held immediately after the annual meeting of the stockholders, if a quorum be present, and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting. In the event such meeting is not held immediately after the annual meeting of the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the directors.

Regular meetings of the directors may be held without notice at such places and times as shall be determined from time to time by resolution of the directors.

Special meetings of the board may be called by or at the request of the Chairman of the Board, the Chief Executive Officer or such number of directors as shall constitute at least one-third

3

of the whole Board of Directors on at least two days’ notice to each director, either personally or by mail or by telegram.

Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.

Meetings of the Board of Directors shall be presided over by the Chairman of the Board of Directors, or in the absence of the Chairman, by the Chief Executive Officer, or in the absence of the Chief Executive Officer, by the President or such other person or persons as the Board of Directors may designate or the members present may select.

Section 3.8 Quorum. A majority of the directors shall constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute, by the Certificate of Incorporation or by these By-Laws. If at any meeting of the Board there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time until a quorum is obtained, and no further notice thereof need be given other than by announcement at the meeting which shall be so adjourned.

Section 3.9 Compensation. The Board of Directors, by the affirmative vote of a majority of the directors then in office and irrespective of any personal interest of any of its members, shall have the authority to establish reasonable compensation of directors for services to the corporation as directors, officers and otherwise. By resolution of the Board of Directors, the directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors or a committee thereof.

Section 3.10 Action Without Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the board or of such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee.

Section 3.11 Meetings by Conference Telephone. Members of the Board of Directors, or any committee designated by such Board, may participate in a meeting of such board or committee by means of conference telephone or similar communication equipment by means of which all persons participating in the meeting can hear each other, and participation in such meeting shall constitute presence in person at such meeting.

Section 3.12 Committees of the Board. There shall be such committees as the Board of Directors may, by resolution or resolutions passed by a majority of the whole Board, designate, each committee to consist of one or more directors of the corporation and a majority of its members shall constitute a quorum. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member of the committee. In the absence or disqualification of any member of a committee, the members thereof present at any meeting and not disqualified from voting, whether or not he or they then constitute a quorum, may unanimously appoint another member of the Board of Directors to act at such meeting in place of any such absent or disqualified member.

Section 3.13 Powers, Procedures and Quorum of Committees. To the extent provided in the resolution of the Board of Directors creating such committee and permissible under the laws

4

of the State of Delaware, each committee shall have and may exercise, except as otherwise limited by law, all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it; provided, however, that, notwithstanding the foregoing, no committee shall have the power or authority to authorize the purchase or redemption by the corporation of its own shares of capital stock. The committees shall keep regular minutes of their proceedings and report the same to the Board of Directors when required.

ARTICLE 4

OFFICERS

Section 4.1 Officers. The officers of the corporation shall be a Chief Executive Officer, a President, a Secretary, a Treasurer and such Vice Presidents, Assistant Secretaries and Assistant Treasurers, as the Board of Directors may deem proper. The officers shall be elected at the first meeting of the Board of Directors after each annual meeting. None of the officers of the corporation need be directors except the Chief Executive Officer. Any number of offices may be held by the same person.

Section 4.2 Other Officers and Agents. The Board of Directors may appoint such other officers and agents as it may deem advisable, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors.

Section 4.3 Salaries. The salaries of all officers and agents of the corporation shall be fixed by the Board of Directors or a committee thereof.

Section 4.4 Tenure and Removal. The officers of the corporation shall hold office until their successors are chosen and qualified. Any officer elected by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors in office. Any vacancy occurring in any office of the corporation shall be filled by the Board of Directors.

Section 4.5 Chief Executive Officer. The Chief Executive Officer shall have active and general supervision and management over the business and affairs of the corporation and shall have all the powers that usually attach or pertain to such office. The Chief Executive Officer shall preside, in the absence of the Chairman of the Board of Directors, at all meetings of the Board of Directors.

Section 4.6 President. In the absence of the Chief Executive Officer or in the event of his inability or refusal to act, the President shall perform the duties of the chief executive officer of the corporation and shall have all the powers that usually attach or pertain to such office. The President shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.

Section 4.7 Vice President. In the absence of the President or in the event of his inability or refusal to act, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated, or in the absence of any designation, then in the order of

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their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Each Vice President shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.

Section 4.8 Treasurer. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate account of receipts and disbursements in books belonging to the corporation. He shall deposit all moneys and other valuables in the name and to the credit of the corporation in such depositary as may be designated by the Board of Directors.

The Treasurer shall disburse the funds of the corporation as may be ordered by the Board of Directors or the President, taking proper vouchers for such disbursements. He shall render to the Chief Executive Officer and Board of Directors at the regular meetings of the Board of Directors, or whenever they may request it, an account of all his transactions as Treasurer and of the financial condition of the corporation. If required by the Board of Directors, he shall give the corporation a bond for the faithful discharge of his duties in such amount and with such surety as the board shall prescribe.

Section 4.9 Assistant Treasurer. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.

Section 4.10 Secretary. The Secretary shall give, or cause to be given, notice of all meetings of stockholders and directors, and all other notices required by law or by these By-Laws, and in case of his absence or refusal or neglect so to do, any such notice may be given by any person thereunto directed by the Chief Executive Officer, or by the directors, or stockholders, upon whose requisition the meeting is called as provided in these By-Laws. He shall record all the proceedings of the meetings of the corporation and of the directors in a book to be kept for that purpose, and shall perform such other duties as may be assigned to him by the directors or the Chief Executive Officer. He shall have the custody of the seal of the corporation and shall affix the same to all instruments requiring it, when authorized by the directors or the Chief Executive Officer, and attest the same

Section 4.11 Assistant Secretary. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.

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ARTICLE 5

PROVISIONS REGARDING STOCK OF CORPORATION

Section 5.1 Certificates of Stock. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by, the Chairman of the Board of Directors, the Chief Executive Officer, the President or a Vice President, and the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the corporation, certifying the number of shares owned by him in the corporation. Where a certificate is countersigned (1) by a transfer agent other than the corporation or its employee, or (2) by a registrar other than the corporation or its employee, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.

Section 5.2 Lost Certificate. A new certificate of stock may be issued in the place of any certificate theretofore issued by the corporation, alleged to have been lost or destroyed, and the directors may, in their discretion, require the owner of the lost or destroyed certificate, or his legal representatives, to give the corporation a bond, in such sum as they may direct, to indemnify the corporation against any claim that may be made against it on account of the alleged loss of any certificate or the issuance of any such new certificate.

Section 5.3 Transfer of Shares. The shares of stock of the corporation shall be transferable only upon its books by the holders thereof in person or by their duly authorized attorneys or legal representatives, and upon such transfer the old certificates shall be surrendered to the corporation by the delivery thereof to the person in charge of the stock and transfer books and ledgers, or to such other person as the directors may designate, by whom they shall be cancelled, and new certificates shall thereupon be issued. A record shall be made of each transfer and whenever a transfer shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer, if when the certificates are presented for transfer both the transferor and the transferee request the corporation to do so.

Section 5.4 Stockholders Record Date. In order that the corporation may determine the stockholder entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action.

If no record date is fixed:

(1) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.

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(2) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

Section 5.5 Registered Stockholders. The corporation shall be entitled to treat the record holder of any shares of stock of the corporation as the owner thereof for all purposes, including all rights deriving from such shares, and shall not be bound to recognize any equitable or other claim to, or interest in, such shares or rights deriving from such shares, on the part of any other person, including, but without limiting the generality thereof, a purchaser, assignee or transferee of such shares or rights deriving from such shares, unless and until such purchaser, assignee, transferee or other person becomes the record holder of such shares, whether or not the corporation shall have either actual or constructive notice of the interest of such purchaser, assignee, transferee or other person. Any such purchaser, assignee, transferee or other person shall not be entitled to receive notice of the meetings of stockholders; to vote at such meetings; to examine a complete list of the stockholders entitled to vote at meetings; or to own, enjoy, and exercise any other property or rights deriving from such shares against the corporation, until such purchaser, assignee, transferee or other person has become the record holder of such shares.

Section 5.6 Dividends. Subject to the provisions of the Certificate of Incorporation and any resolution of the Board of Directors providing for the issue of any preferred stock adopted pursuant thereto, the Board of Directors may, out of funds legally available therefore at any regular or special meeting, declare dividends upon the capital stock of the corporation as and when they deem expedient. Before declaring any dividend there may be set apart out of any funds of the corporation available for dividends, such sum or sums as the directors from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for equalizing dividends or for such other purposes as the directors shall deem conducive to the interests of the corporation.

ARTICLE 6

INDEMNIFICATION

Section 6.1 To the extent permitted by Delaware law from time to time in effect and subject to the provisions of Section 6.4 of this Article, the corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed

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to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.

Section 6.2 To the extent permitted by Delaware law from time to time in effect and subject to the provisions of Section 6.4 of this Article, the corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

Section 6.3 To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 6.1 and 6.2, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection therewith.

Section 6.4 Any indemnification under Section 6.1 and 6.2 of this Article (unless ordered by a court) shall be made by the corporation only upon a determination in the specific case that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in said Sections 6.1 and 6.2. Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, (2) by a committee of such directors designated by a majority vote of such directors, even though less than a quorum, (3) if such quorum is not obtainable, or, even if obtainable and a quorum of disinterested directors so directs, by independent legal counsel (compensated by the corporation) in a written opinion, or (4) by the stockholders.

Section 6.5 Expenses (including attorneys’ fees) incurred in defending a civil, criminal, administrative or investigative action, suit or proceeding, or threat thereof, shall be paid or reimbursed by the corporation promptly upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Article.

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Section 6.6 The indemnification and advancement of expenses provided by the other Sections of this Article shall not be deemed exclusive of any other rights to which a person seeking indemnification or advancement of expenses may be entitled under any agreement, vote of stockholders, disinterested directors, or otherwise, both as to action in this official capacity and as to action in another capacity while holding such office.

Section 6.7 The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article or of the DGCL.

Section 6.8 For purposes of this Article references to “the corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees and agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.

Section 6.9 For purposes of this Article, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the corporation” shall include any service as a director, officer, employee or agent of the corporation which imposes duties on or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the corporation” as referred to in this Article.

Section 6.10 The indemnification and advancement of expenses provided by this Article shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

ARTICLE 7

GENERAL PROVISIONS

Section 7.1 Seal. The Corporate seal shall be circular in form and shall contain the name of the corporation and the words “CORPORATE SEAL DELAWARE”. Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.

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Section 7.2 Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors.

Section 7.3 Checks. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation, and in such manner as shall be determined from time to time by resolution of the Board of Directors.

Section 7.4 Notice. Whenever, under the provisions of the statutes or of the Certificate of Incorporation or of these By-laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram.

Section 7.5 Waiver of Notice. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation or of these By-Laws, a written waiver thereof, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice.

ARTICLE 8

AMENDMENTS

Section 8.1 By-Law Amendments. The Board of Directors, by resolution adopted by the affirmative vote of at least a majority of all members thereof, shall have concurrent power with the stockholders to adopt, amend or repeal the By-Laws of the corporation; provided, however, that the By-Laws of the corporation shall not be adopted, amended or repealed by the stockholders except by the affirmative vote of the holders of at least 67% of the voting power of the then outstanding shares of capital stock of the corporation entitled to vote generally in the election of directors, voting together as a single class (it being understood that, for purposes of this Section 8.1, each share of such capital stock shall have the number of votes granted to it pursuant to the Certificate of Incorporation), and such affirmative vote shall be required notwithstanding the fact that a lesser percentage may be specified by law or in any agreement with any national securities exchange or otherwise.

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EX-10

Exhibit 10

[LOGO] First Midwest Bancorp, Inc.

OMNIBUS STOCK AND INCENTIVE PLAN

(As amended and Restated February 19, 2003)

Table of Contents

		Page
SECTION 1.	ESTABLISHMENT, PURPOSE, AND EFFECTIVE DATE OF PLAN	1
1.1	Establishment	1
1.2	Purpose	1
1.3	Effective Date	1
SECTION 2.	DEFINITIONS	1
2.1	Definitions	1
2.2	Gender and Number	3
SECTION 3.	ELIGIBILITY AND PARTICIPATION	3
3.1	Eligibility and Participation	3
SECTION 4.	ADMINISTRATION	4
4.1	Administration	4
4.2	Delegation of Authority	4
4.3	Award Agreements	4
SECTION 5.	STOCK SUBJECT TO PLAN	4
5.1	Number of Shares Available for Awards	4
5.2	Reuse	4
5.3	Limitations on Awards to a Single Participant	5
5.4	Adjustment in Capitalization	5
SECTION 6.	DURATION OF PLAN	5
6.1	Duration of Plan	5
SECTION 7.	STOCK OPTIONS	5
7.1	Grant of Options	5
7.2	Option Price	6
7.3	Exercise of Options	6
7.4	Payment	6
7.5	Limitations on ISOs	7
7.6	Restrictions on Stock Transferability	7
7.7	Termination of Employment Due to Death, Disability, Retirement	7
7.8	Termination of Employment other than Due to Death, Disability, Retirement or for Cause; Termination for Cause	7
7.9	Nontransferability of Options	8
SECTION 8.	STOCK APPRECIATION RIGHTS	8
8.1	Grant of Stock Appreciation Rights	8
8.2	Exercise of SARs in Lieu of Options	9
8.3	Exercise of SARs in Addition to Options	9

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Table of Contents

(continued)

		Page
8.4	Exercise of SARs Independent of Options	9
8.5	Exercise of SARs Upon Lapse of Options	9
8.6	Payment of SAR Amount	9
8.7	Form and Timing of Payment	9
8.8	Limit of Appreciation	9
8.9	Term of SAR	10
8.10	Termination of Employment	10
8.11	Nontransferability of SARs	10
SECTION 9.	RESTRICTED STOCK AND RESTRICTED STOCK UNITS	10
9.1	Grant of Restricted Stock or Restricted Stock Units	10
9.2	Transferability	10
9.3	Other Restrictions	10
9.4	Voting Rights	10
9.5	Dividends and Other Distributions	10
9.6	Termination of Employment Due to Retirement	11
9.7	Termination of Employment Due to Death or Disability	11
9.8	Termination of Employment for Reasons other than Death, Disability, or Retirement	11
9.9	Nontransferability	11
SECTION 10.	PERFORMANCE UNITS AND PERFORMANCE SHARES	11
10.1	Grant of Performance Units or Performance Shares	11
10.2	Value of Performance Units and Performance Shares	11
10.3	Payment of Performance Units and Performance Shares	12
10.4	Form and Timing of Payment	12
10.5	Termination of Employment Due to Death, Disability, or Retirement	12
10.6	Termination of Employment for Other Reasons	12
10.7	Nontransferability	12
10.8	Performance Goals	12
SECTION 11.	OTHER AWARDS	13
11.1	Grant of Other Awards	13
11.2	Terms of Other Awards	13
SECTION 12.	BENEFICIARY DESIGNATION	13
12.1	Beneficiary Designation	13
SECTION 13.	RIGHTS OF EMPLOYEES	13
13.1	Employment	13
13.2	Participation	13

ii

Table of Contents

(continued)

		Page
SECTION 14.	CHANGE IN CONTROL	13
14.1	In General	13
14.2	Definition	13
SECTION 15.	AMENDMENT, MODIFICATION AND TERMINATION OF PLAN	15
15.1	Amendment, Modification, Suspension and Termination of Plan	15
SECTION 16.	TAX WITHHOLDING	15
16.1	Tax Withholding	15
16.2	Share Withholding	15
SECTION 17.	INDEMNIFICATION	15
17.1	Indemnification	15
SECTION 18.	REQUIREMENTS OF LAW	16
18.1	Requirements of Law	16
18.2	Governing Law	16

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Section 1. Establishment, Purpose, and Effective Date of Plan

1.1 Establishment. First Midwest Bancorp, Inc., a Delaware corporation, hereby amends and restates the “FIRST MIDWEST BANCORP, INC. 1989 OMNIBUS STOCK AND INCENTIVE PLAN” as the “FIRST MIDWEST BANCORP, INC. OMNIBUS STOCK AND INCENTIVE PLAN.”

1.2 Purpose. The purpose of the Plan is to advance the interests of the Company by providing to employees additional incentives and motivation toward superior performance of the Company and its subsidiaries, and by enabling the Company and its subsidiaries to attract and retain the services of employees upon whose judgment, interest, and special effort the successful conduct of its operations is largely dependent.

1.3 Effective Date. The Plan, as amended and restated, shall become effective immediately upon its adoption by the Board of Directors of the Company on February 19, 2003.

Section 2. Definitions

2.1 Definitions. Whenever used herein, the following terms shall have their respective meanings set forth below:

(a) “Award” means any Stock Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Unit, Performance Share or Other Award granted under this Plan.

(b) “Award Agreement” means the agreement that sets forth the terms, conditions and limitations applicable to an Award.

(c) “Board” means the Board of Directors of the Company.

(d) “Cause” shall mean any one of the following:

(i) gross misconduct in, or the continued and willful refusal by the Participant after written notice by the Company to make himself available for the performance of the Participant’s duties for the Company or a subsidiary; or

(ii) conviction for a felony for a matter related to the Company or a subsidiary; or

(iii) suspension due to the direction of any authorized bank regulatory agency that the Participant be relieved of his duties and responsibilities to the Company or a subsidiary.

(e) “Code” means the Internal Revenue Code of 1986, as amended.

(f) “Committee” means the Compensation Committee of the Board of Directors or such other committee appointed from time to time by the Board of Directors to administer this Plan. The Committee shall consist of two or more members, each of whom shall

qualify as a “non-employee director,” as the term (or similar or successor term) is defined by Rule 16b-3, and as an “outside director” within the meaning of Code Section 162(m) and regulations thereunder.

(g) “Company” means First Midwest Bancorp, Inc., a Delaware corporation.

(h) “Disability” means totally and permanently disabled as from time to time defined under the First Midwest Bancorp Consolidated Pension Plan.

(i) “Employee” means a regular salaried employee (including officers and directors who are also employees) of the Company or its Subsidiaries, or any branch or division thereof. A regular salaried employee who, with the approval of the Board of Directors or the Committee enters into a continuing participant agreement with the Company or its Subsidiaries effective upon such person ceasing to be a regular salaried employee, shall continue to be an Employee for purposes of this Plan and shall not be deemed to incur a termination of employment during the term of such continuing participant Agreement.

(j) “Fair Market Value” means the average of the highest and lowest prices of the Stock as reported by the consolidated tape of the NASDAQ National Market System on a particular date. In the event that there are no Stock transactions on such date, the Fair Market Value shall be determined as of the immediately preceding date on which there were Stock transactions.

(k) “Option” means the right to purchase Stock at a stated price for a specified period of time. For purposes of the Plan an Option may be either (i) an “Incentive Stock Option,” or “ISO” within the meaning of Section 422 of the Code, (ii) a “Nonstatutory (Nonqualified) Stock Option,” or “NSO,” or (iii) any other type of option encompassed by the Code.

(l) “Other Award” means an Award, other than a Stock Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Unit or Performance Share granted under this Plan, including the right to receive Stock or a fixed or variable share denominated unit granted under this Plan or any deferred compensation plan established from time to time by the Company.

(m) “Participant” means any Employee designated by the Committee to participate in the Plan.

(n) “Performance Unit” means a right to receive a payment equal to the value of a Performance Unit as determined by the Committee based upon performance and pursuant to Section 10 of the Plan.

(o) “Performance Share” means a right to receive a payment equal to the value of a Performance Share as determined by the Committee based on performance and pursuant to Section 10 of the Plan.

(p) “Period of Restriction” means the period during which the transfer of shares of Restricted Stock is restricted pursuant to Section 9.2 of the Plan.

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(q) “Plan” means the First Midwest Bancorp, Inc. Omnibus Stock and Incentive Plan as set forth herein and any amendments hereto.

(r) “Previously Acquired Share” means a share of Stock acquired by the Participant or any beneficiary of Participant other than pursuant to an Award under this Plan or the predecessor to this Plan, or if so acquired, such share of Stock has been held for a period of not less than six months.

(s) “Restricted Stock” means Stock granted to a Participant pursuant to Section 9 of the Plan.

(t) “Restricted Stock Unit” means a right to receive a payment equal to the value of a share of Stock, pursuant to Section 9 of the Plan.

(u) “Retirement” means termination of employment other than for Cause, at or after the Participant’s (a) age 65 (“Normal Retirement Date”) or (b) age 55 (but prior to age 65), with fifteen or more years of service, or such other date prior to age 65 which constitutes an Early Retirement Date (“Early Retirement Date”) as defined from time to time under the First Midwest Bancorp Consolidated Pension Plan. Years of service shall be determined in accordance with said Pension Plan.

(v) “Rule 16b-3” means Rule 16b-3 or any successor or comparable rule or rules applicable to Awards granted under the Plan promulgated by the Securities and Exchange Commission under Section 16(b) of the Securities Exchange Act of 1934, as amended.

(w) “Stock” means the Common Stock, without par value, of the Company.

(x) “Stock Appreciation Right” and “SAR” mean the right to receive a payment from the Company equal to the excess of the Fair Market Value of a share of stock at the date of exercise over a specified price fixed by the Committee, which shall not be less than 100% of the Fair Market Value of the Stock on the date of grant. In the case of a Stock Appreciation Right which is granted in conjunction with an Option, the specified price shall be the Option exercise price.

2.2 Gender and Number. Except when otherwise indicated by the context, words in the masculine gender when used in the Plan shall include the feminine gender, the singular shall include the plural, and the plural shall include the singular.

Section 3. Eligibility and Participation

3.1 Eligibility and Participation. Participants in the Plan shall be selected by the Committee from among those Employees who, in the opinion of the Committee, are Employees in a position to contribute to the Company’s continued growth and development and to its long-term financial success.

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Section 4. Administration

4.1 Administration. The Committee shall be responsible for the administration of the Plan. The Committee, by majority action thereof (whether taken during a meeting or by written consent), shall determine the type or types of Awards to be made under the Plan and shall designate from time to time the Employees who are to be recipients of such Awards. The Committee is authorized to interpret the Plan, to prescribe, amend, and rescind rules and regulations relating to the Plan, to provide for conditions and assurances deemed necessary or advisable to protect the interests of the Company, and to make all other determinations necessary or advisable for the administration of the Plan, but only to the extent not contrary to the express provisions of the Plan. Determinations, interpretations, or other actions made or taken by the Committee pursuant to the provisions of the Plan shall be final and binding and conclusive for all purposes and upon all persons whomsoever. To the extent deemed necessary or advisable for purposes of Rule 16b-3 or otherwise, the Board may act as the Committee hereunder.

4.2 Delegation of Authority. To the extent provided by resolution of the Board, the Committee may authorize the Chief Executive Officer of the Corporation and other senior officers of the Company to designate officers and employees to be recipients of Awards, to determine the terms, conditions, form and amount of any such Awards, and to take such other actions which the Committee is authorized to take under this Plan, provided that the Committee may not delegate to any person the authority to grant Awards to, or take other action with respect to, Participants who at the time of such Awards or action are subject to Section 16 of the Exchange Act or are “covered employees” as defined in Section 162(m) of the Code.

4.3 Award Agreements. Each Award shall be embodied in an Award Agreement, which shall contain such terms, conditions and limitations as shall be determined by the Committee. The Award Agreement shall be delivered to, and, to the extent required by the Committee, signed by the Participant.

Section 5. Stock Subject to Plan

5.1 Number of Shares Available for Awards. The total number of shares of Stock which may be issued pursuant to Awards under the Plan may not exceed 6,431,641 (inclusive of shares issued prior to February 19, 2003, the date this amended and restated Plan was approved by the Board) of which an aggregate of not more than 325,000 shares shall be issued under Awards which are Restricted Stock or Restricted Stock Units. Such number of shares shall be subject to adjustment upon occurrence of any of the events indicated in Section 5.4. The shares to be delivered under the Plan may consist, in whole or in part, of authorized but unissued Stock or treasury Stock, not reserved for any other purpose.

5.2 Reuse. If, and to the extent:

(a) An Option shall expire or terminate for any reason without having been exercised in full (including, without limitation, cancellation and re-grant), or in the event that an Option is exercised or settled in a manner such that some or all of the shares of Stock related to the Option are not issued to the Participant (or beneficiary) (including as the result of a share-for-share exercise or the use of shares for withholding taxes), the shares of Stock subject thereto

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which have not become outstanding shall (unless the Plan shall have terminated) remain available for issuance under the Plan; or

(b) Any Awards under the Plan are forfeited for any reason, or settled in cash in lieu of Stock or in a manner such that some or all of the shares of Stock related to the Award are not issued to the Participant (or beneficiary) (including as a result of the use of shares for tax withholding), such shares of Stock shall (unless the Plan shall have terminated) remain available for issuance under the Plan, except as provided in Section 8.2 which relates to the exercise of SARs in lieu of Options.

5.3 Limitations on Awards to a Single Participant. Notwithstanding anything to the contrary contained in this Plan, the following limitations shall apply to Awards made hereunder:

(a) No Participant may be granted, during any calendar year period, Awards consisting of Options or SARs that are exercisable for more than 250,000 shares of Stock (500,000 in the Participant’s initial calendar year as an Employee), subject to adjustment pursuant to the provisions of Section 5.4;

(b) No Participant may be granted, during any calendar period, Awards consisting of shares of Common Stock or units denominated in such shares (other than any Awards consisting of Options or SARs) covering or relating to more than 250,000 shares of Common Stock (500,000 in the Participant’s initial calendar year as an Employee), subject to adjustment pursuant to the provisions of paragraph 5.4 hereof; and

5.4 Adjustment in Capitalization. In the event of any change in the outstanding shares of Stock that occurs after ratification of the Plan by the stockholders of the Company by reason of a Stock dividend or split, recapitalization, merger, consolidation, combination, exchange of shares, or other similar corporate change, the aggregate number of shares of Stock available for issuance under Section 5.1, subject to each outstanding Award and the other terms thereof, and the limitations set forth in Section 5.3, shall be adjusted appropriately by the number of shares the Committee, whose determination shall be conclusive; provided, however, that fractional shares shall be rounded to the nearest whole share.

Section 6. Duration of Plan

6.1 Duration of Plan. This Plan shall remain in effect, subject to the Board’s right to earlier terminate the Plan pursuant to Section 15 hereof, until all Stock subject to it shall have been purchased or acquired pursuant to the provisions hereof. Notwithstanding the foregoing, no Award may be granted under the Plan on or after February 21, 2011.

Section 7. Stock Options

7.1 Grant of Options. Subject to the provisions of Section 5 and 6, Options may be granted to Participants at any time and from time to time as shall be determined by the Committee. The Committee shall have complete discretion in determining the number of Options granted to each Participant. The Committee may grant any type of Option to purchase Stock that is permitted by law at the time of grant.

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7.2 Option Price. No Option granted pursuant to the Plan shall have an Option price that is less than the Fair Market Value of the Stock on the date the Option is granted.

7.3 Exercise of Options. Options awarded under the Plan shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall approve, either at the time of grant of such Options or pursuant to a general determination, and which need not be the same for all Participants, provided that, to the extent required to comply with Rule 16b-3, no Option shall be exercisable within the first six months of its term, unless death or Disability of the Participant occurs during such period. Each Option which is intended to qualify as an Incentive Stock Option pursuant to Section 422 of the Code, and each Option which is intended to qualify as another type of ISO which may subsequently be authorized by law, shall comply with the applicable provisions of the Code pertaining to such Options.

7.4 Payment. Options shall be exercised by the delivery of a written notice of exercise to the Company, setting forth the number of shares of Stock with respect to which the Option is to be exercised, accompanied by full payment for the Stock. The Option Price upon exercise of any Option shall be payable to the Company in full either:

(a) in cash or its equivalent (including, for this purpose, the proceeds from a cashless exercise as permitted under Federal Reserve Board’s Regulation),

(b) by tendering Previously-Acquired Shares having an aggregate Fair Market Value at the time of exercise equal to the total Option price (including, for this purpose, Stock deemed tendered by affirmation of ownership),

(c) by any other means which the Committee determines to be consistent with the Plan’s purpose and applicable law, or

(d) by a combination of (a), (b), and (c).

The exercise of an Option shall cancel any related SAR to the extent of the number of shares as to which the Option is exercised. As soon as practicable after receipt of each notice and full payment, the Company shall deliver to the Participant a certificate or certificates representing the acquired shares of Stock. Notwithstanding the foregoing, the Option price payable with respect to the exercise of any Options by a Participant who has a deferral election in effect under the Company’s Nonqualified Stock Option—Gain Deferral Plan (the “Gain Deferral Plan”) shall be made solely be tendering previously-acquired Stock in accordance with paragraph (b) above. As soon as practicable after receipt of notice of exercise and payment, the Company shall deliver to the trustee of the trust established under the Gain Deferral Plan, a certificate or certificates representing such number of shares of Stock determined by dividing (i) the excess of (A) the Fair Market Value of the shares of Stock purchased pursuant to such Option exercise, over (B) the aggregate exercise price of the shares of Stock purchased, by (ii) the Fair Market Value of one share of Stock. In addition, as soon as practicable after receipt of such notice and payment of the Option price (other than payment by affirmation of ownership), the Company shall deliver to the Participant a certificate or certificates representing shares with a Fair Market Value equal to the aggregate option exercise price paid, net of any tax withholding pursuant to Section 15.2. For purposes of the foregoing, Fair Market Value shall be determined on the date of Option exercise.

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7.5 Limitations on ISOs. All shares authorized for issuance under this Plan may be issued pursuant to Incentive Stock Options. Notwithstanding anything in the Plan to the contrary, to the extent required from time to time by the Code, the following additional provisions shall apply to the grant of Options which are intended to qualify as Incentive Stock Options (as such term is defined in Section 422 of the Code):

(a) The aggregate Fair Market Value (determined as of the date the Option is granted) of the shares of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Participant during any calendar year (under all plans of the Company) shall not exceed $100,000 or such other amount as may subsequently be specified by the Code; provided that, to the extent that such limitation is exceeded, any excess Options (as determined under the Code) shall be deemed to be Nonstatutory (Nonqualified) Stock Options.

(b) Any Incentive Stock Option authorized under the Plan shall contain such other provisions as the Committee shall deem advisable, but shall in all events be consistent with and contain or be deemed to contain all provisions required in order to qualify the Options as Incentive Stock Options.

(c) All Incentive Stock Options must be granted within ten years from the earlier of the date on which this Plan was adopted by the Board of Directors or the date this Plan was approved by the stockholders.

(d) Unless exercised, terminated, or cancelled sooner, all Incentive Stock Options shall expire no later than ten years after the date of grant.

7.6 Restrictions on Stock Transferability. The Committee shall impose such restrictions on any shares of Stock acquired pursuant to the exercise of an Option under the Plan as it may deem advisable, including, without limitation, restrictions under the applicable Federal securities law, under the requirements of any stock exchange upon which such shares of Stock are then listed and under any blue sky or state securities laws applicable to such shares.

7.7 Termination of Employment Due to Death, Disability, Retirement. In the event the employment of a Participant is terminated by reason of death, Disability, or Retirement, any outstanding Options then exercisable may be exercised at any time prior to the expiration date of the Options or within three (3) years after such date of termination of employment, whichever period is the shorter. For purposes of the preceding sentence, in the event such termination is due to death or Disability, then any outstanding Options shall vest 100% and be deemed exercisable in full as of such termination. However, in the case of Incentive Stock Options, the favorable tax treatment prescribed under Section 422 of the Code shall not be available if such options are not exercised within three (3) months after date of termination, or twelve (12) months in the case of Disability, provided such Disability constitutes total and permanent disability as defined in Section 22(e)(3) of the Code. If an Incentive Stock Option is not exercised within three (3) months of termination due to Retirement, it shall be treated as a Nonstatutory (Nonqualified) Stock Option for the remainder of its allowable exercise period.

7.8 Termination of Employment other than Due to Death, Disability, Retirement or for Cause; Termination for Cause. If the employment of the Participant shall terminate for any

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reason other then death, Disability, Retirement, or involuntarily for Cause, the rights under any then outstanding Option granted pursuant to the Plan shall terminate upon the expiration date of the Option or one month after such date of termination of employment, whichever first occurs; provided, however, that in the event such termination of employment occurs after a Change in Control (as defined in Section 14.2 of the Plan), the rights under any then outstanding Option granted pursuant to the Plan shall terminate upon the expiration date of the Option or three years after such date of termination of employment, whichever first occurs. Where termination of employment is involuntarily for Cause, rights under all Options shall terminate immediately upon termination of employment.

7.9 Nontransferability of Options. Except as provided below, no Option granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and distribution. Further, all Options granted to a Participant under the Plan shall be exercisable during his lifetime only by such Participant. Notwithstanding the foregoing, the Committee may, in its discretion, authorize all or a portion of the Options (other than Incentive Stock Options) granted to a Participant to be on terms which permit transfer by such Participant to:

(a) the spouse, children or grandchildren of the Participant (“Immediate Family Members”);

(b) a trust or trusts for the exclusive benefit of such Immediate Family Members, or;

(c) a partnership in which such Immediate Family Members are the only partners, provided that:

(i) there may be no consideration for any such transfer;

(ii) the Award Agreement pursuant to which such Options are granted expressly provides for transferability in a manner consistent with this Section 7.10; and

(iii) subsequent transfers of transferred Options shall be prohibited except those in accordance with Section 12. Following transfer, any such Options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of Section 11 hereof the term “Participant” shall be deemed to refer to the transferee. The provisions of Sections 7 and 14 relating to the period of exercisability and expiration of the Option shall continue to be applied with respect to the original Participant, and the Options shall be exercisable by the transferee only to the extent, and for the periods, set forth in said Sections 7 and 14.

Section 8. Stock Appreciation Rights

8.1 Grant of Stock Appreciation Rights. Subject to the provisions of Sections 5 and 6, Stock Appreciation Rights (“SARs”) may be granted to Participants at any time and from time

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to time as shall be determined by the Committee. An SAR may be granted at the discretion of the Committee in any of the following forms:

(a) In lieu of Options,

(b) In addition to Options,

(c) Upon lapse of Options,

(d) Independent of Options,

(e) Each of the above in connection with previously awarded Options.

8.2 Exercise of SARs in Lieu of Options. SARs granted in lieu of Options may be exercised for all or part of the shares of Stock subject to the related Option upon the surrender of the right to exercise an equivalent number of Options. The SAR may be exercised only with respect to the shares of Stock for which its related Option is then exercisable. Option shares with respect to which the SAR shall have been exercised may not be subject again to an Award under this Plan. SARs granted pursuant to this Section 8.2 with respect to which the Option shares have been exercised will immediately lapse upon such exercise.

8.3 Exercise of SARs in Addition to Options. SARs granted in addition to Options shall be deemed to be exercised upon the exercise of the related Options.

8.4 Exercise of SARs Independent of Options. SARs granted independent of Options may be exercised upon whatever terms and conditions the Committee, in its sole discretion, imposes upon the SARs.

8.5 Exercise of SARs Upon Lapse of Options. SARs granted upon lapse of Options shall be deemed to have been exercised upon the lapse of the related Options as to the number of shares of Stock subject to the Options. Notwithstanding Section 5.2 above, cancelled Options in an amount equal to the related SARs shall not be available again for Awards under the Plan.

8.6 Payment of SAR Amount. Upon exercise of the SAR, the holder shall be entitled to receive payment of an amount (subject to Section 8.8 below) determined by multiplying:

(a) The difference between the Fair Market Value of a share of Stock at the date of exercise over the price fixed by the Committee at the date of grant, by

(b) The number of shares with respect to which the Stock Appreciation Right is exercised.

8.7 Form and Timing of Payment. At the discretion of the Committee, payment for SARs may be made in cash or Stock, or in a combination thereof.

8.8 Limit of Appreciation. At the time of grant, the Committee may establish in its sole discretion, a maximum amount per share which will be payable upon exercise of an SAR.

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8.9 Term of SAR. The term of an SAR granted under the Plan shall not exceed ten years and one day.

8.10 Termination of Employment. In the event the employment of a Participant is terminated by reason of death, Disability, Retirement, or any other reason, any SARs outstanding shall terminate in the same manner as specified for Options under Sections 7.8 and 7.9 herein.

8.11 Nontransferability of SARs. No SAR granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and distribution. Further, all SARs granted to a Participant under the Plan shall be exercisable during his lifetime only by such Participant.

Section 9. Restricted Stock and Restricted Stock Units

9.1 Grant of Restricted Stock or Restricted Stock Units. Subject to the provisions of Sections 5 and 6, the Committee, at any time and from time to time, may grant shares of Restricted Stock or Restricted Stock Units under the Plan to such Participants and in such amounts as it shall determine. Each grant of Restricted Stock or Restricted Stock Units shall be in writing. The Committee, in its discretion, may permit a Participant to defer receipt of any Restricted Stock Units beyond the expiration of any applicable Period of Restriction.

9.2 Transferability. Except as provided in Sections 9.8 and 9.9 hereof, the shares of Restricted Stock and Restricted Stock Units granted hereunder may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated for such period of time as shall be determined by the Committee and shall be specified in the Restricted Stock grant or the Restricted Stock Unit grant, or upon earlier satisfaction of other conditions (which may include the attainment of performance goals as defined in Section 10.8 hereof), as specified by the Committee in its sole discretion and set forth in the Restricted Stock grant or the Restricted Stock Unit grant.

9.3 Other Restrictions. The Committee shall impose such other restrictions on any shares of Restricted Stock or Restricted Stock Units granted pursuant to the Plan as it may deem advisable including, without limitation, restrictions under applicable Federal or state securities laws, and may legend the certificates representing Restricted Stock to give appropriate notice of such restrictions.

9.4 Voting Rights. Participants holding shares of Restricted Stock or Restricted Stock Units granted hereunder may exercise full voting rights with respect to those shares during the Period of Restriction.

9.5 Dividends and Other Distributions. During the Period of Restriction, Participants holding shares of Restricted Stock or Restricted Stock Units granted hereunder shall be entitled to receive all dividends and other distributions paid with respect to those shares or units while they are so held. If any such dividends or distributions are paid in shares of Stock, the shares shall be subject to the same restrictions on transferability as the shares of Restricted Stock or Restricted Stock Units with respect to which they were paid.

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9.6 Termination of Employment Due to Retirement. In the event a Participant’s employment terminates on or after his Normal Retirement Date, the Period of Restriction applicable to the Restricted Stock or the Restricted Stock Units pursuant to Subsection 9.2 hereof shall automatically terminate and, except as otherwise provided in Subsection 9.3, the shares of Restricted Stock shall thereby be free of restrictions and freely transferable. In the event a Participant terminates employment on or after his Early Retirement Date but prior to Normal Retirement Date, any shares of Restricted Stock and any Restricted Stock Units still subject to restrictions at the date of such termination automatically shall be forfeited and returned to the Company; provided, however, that the Committee in its sole discretion may waive the restrictions remaining on any or all shares of Restricted Stock or any and all Restricted Stock Units, or add such new restrictions to those shares of Restricted Stock or Restricted Stock Units as it deems appropriate.

9.7 Termination of Employment Due to Death or Disability. In the event a Participant terminates his employment with the Company because of death or Disability during the Period of Restriction, the restrictions applicable to the shares of Restricted Stock or to the Restricted Stock Units pursuant to Section 9.2 hereof shall automatically terminate and, except as otherwise provided in Subsection 9.3, the shares of Restricted Stock shall thereby be free of restrictions and freely transferable.

9.8 Termination of Employment for Reasons other than Death, Disability, or Retirement. In the event that a Participant terminates his employment with the Company for any reason other than those set forth in Sections 9.6 and 9.7 hereof during the Period of Restriction, then any shares of Restricted Stock and any Restricted Stock Units still subject to restrictions at the date of such termination automatically shall be forfeited and returned to the Company; provided, however, that, in the event of an involuntary termination of the employment of a Participant by the Company other than for Cause, the Committee in its sole discretion may waive the automatic forfeiture of any or all such shares or units, and/or may add such new restrictions to such shares of Restricted Stock or Restricted Stock Units as it deems appropriate.

9.9 Nontransferability. No shares of Restricted Stock or Restricted Stock Units granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and distribution until the termination of the applicable Period of Restriction. All rights with respect to Restricted Stock or Restricted Stock Units granted to a Participant under the Plan shall be exercisable during his lifetime only by such Participant.

Section 10. Performance Units and Performance Shares

10.1 Grant of Performance Units or Performance Shares. Subject to the provisions of Sections 5 and 6, Performance Units or Performance Shares may be granted to Participants at any time and from time to time as shall be determined by the Committee. The Committee shall have complete discretion in determining the number of Performance Units or Performance Shares granted to each Participant.

10.2 Value of Performance Units and Performance Shares. Each Performance Unit shall have an initial value of one hundred dollars ($100) and each Performance Share initially

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shall represent one share of Stock. The Committee shall set performance goals in its discretion which, depending on the extent to which they are met, will determine the ultimate value of the Performance Unit or Performance Share to the Participant. The time period during which the performance goals must be met shall be called a performance period, and also is to be determined by the Committee.

10.3 Payment of Performance Units and Performance Shares. After a performance period has ended, the holder of a Performance Unit or Performance Share shall be entitled to receive the value thereof as determined by the extent to which performance goals discussed in Section 10.2 have been met.

10.4 Form and Timing of Payment. Payment in Section 10.3 above shall be made in cash, stock, or a combination thereof as determined by the Committee. Payment may be made in a lump sum or installments as prescribed by the Committee. If any payment is to be made on a deferred basis, the Committee may provide for the payment of dividend equivalents or interest during the deferral period.

10.5 Termination of Employment Due to Death, Disability, or Retirement. In the case of death, Disability, or Retirement, the holder of a Performance Unit or Performance Share shall receive prorata payment based on the number of months’ service during the performance period but based on the achievement of performance goals during the entire performance period. Payment shall be made at the time payments are made to Participants who did not terminate service during the performance period.

10.6 Termination of Employment for Other Reasons. In the event that a Participant terminates employment with the Company for any reason other than death, Disability or Retirement, all Performance Units and Performance Shares shall be forfeited; provided, however, that in the event of an involuntary termination of the employment of the Participant by the Company other than for Cause, the Committee in its sole discretion may waive the automatic forfeiture provisions and pay out on a prorata basis.

10.7 Nontransferability. Units or Performance Shares granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and distribution until the termination of the applicable performance period. All rights with respect to Performance Units and Performance Shares granted to a Participant under the Plan shall be exercisable during his lifetime only by such Participant.

10.8 Performance Goals. For purposes of Sections 9.2 and 10.2 hereof, “performance goals” shall mean the criteria and objectives, determined by the Committee pursuant to the Plan, which shall be satisfied or met during the applicable restriction period or performance period, as the case may be, as a condition to the Participant’s receipt, in the case of a grant of the Restricted Stock or a grant of Performance Shares, of the shares of Stock subject to such grant, or in the case of a Performance Unit Award, of payment with respect to such Award. Such criteria and objectives may include, but are not limited to, return on assets, return on equity, growth in net earnings, growth in earnings per share, growth in the Fair Market Value of the Stock, or any combination of the foregoing or any other criteria and objectives determined by the Committee. Upon completion of the restricted period or the performance period, as the case may be, the

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Committee shall certify the level of the performance goals attained and the amount of the Award payable as a result thereof.

Section 11. Other Awards

11.1 Grant of Other Awards. Subject to the provisions of Section 5 and 6, Other Awards may be granted to Participants at any time and from time to time as shall be determined by the Committee.

11.2 Terms of Other Awards. Other Awards may be made in contribution or in tandem, with, in replacement of, or as alternatives to Awards under Section 7, 8, 9 or 10 of this Plan or of any other incentive or employee benefit plan of the Company or any of its subsidiaries. An Other Award may provide for payment in cash or in Stock or a combination thereof.

Section 12. Beneficiary Designation

12.1 Beneficiary Designation. Each Participant under the Plan may name, from time to time, any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of his death before he receives any or all of such benefit. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Committee, and will be effective only when filed by the Participant in writing with the Committee during his lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant’s death shall be paid to his estate.

Section 13. Rights of Employees

13.1 Employment. Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant’s employment at any time, nor confer upon any Participant any right to continue in the employ of the Company.

13.2 Participation. No employee shall have a right to be selected as a Participant, or, having been so selected, to be selected again as a Participant.

Section 14. Change in Control

14.1 In General. Except as expressly provided, otherwise in an Award Agreement, in the event of a Change in Control of the Company as defined in Section 14.2 below, all Awards under the Plan shall vest 100%, whereupon all Options shall become exercisable in full, the restrictions applicable to Restricted Stock shall terminate, and Performance Units and Performance Shares shall be paid out based upon the extent to which performance goals during the performance period have been met up to the date of the Change in Control, or at target, whichever is higher, and all Other Awards shall be paid out based on the terms thereof.

14.2 Definition. For purposes of the Plan, a “Change in Control” shall mean any of the following events:

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(a) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than (i) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a subsidiary, or (ii) a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 10% or more of the total voting power of the then outstanding shares of capital stock of the Company entitled to vote generally in the election of directors (the “Voting Stock”), provided, however, that the following shall not constitute a change in control: (A) such person becomes a beneficial owner of 10% of more of the Voting Stock as the result of an acquisition of such stock directly from the Company, or (B) such person becomes a beneficial owner of 10% or more of the Voting Stock as a result of the decrease in the number of outstanding shares caused by the repurchase of shares by the Company, or (C) such person becomes a beneficial owner of 10% or more of the Voting Stock without any plan or intention to seek or affect control of the Company, if such person promptly enters into an irrevocable commitment promptly to divest, and thereafter promptly divests, such shares of Voting Stock so that such person ceases to beneficially own 10% or more of the Voting Stock; provided, further, that in the event a person described in clause (A) or (B) shall thereafter increase (other than in circumstances described in clause (A) or (B)) beneficial ownership of stock representing more than 1% of the Voting Stock, such person shall then be deemed to become a beneficial owner of 10% or more of the Voting Stock for purposes of this paragraph (a), provided such person continues to beneficially own 10% or more of the Voting Stock after such subsequent increase in beneficial ownership, or

(b) During any period of two consecutive years, individuals, who at the beginning of such period constitute the Board of Directors of the Company, and any new director, whose election by the Board of Directors or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3rds) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or

(c) the stockholders of the Company approve, or if such approval is not necessary or required, the consummation of, a reorganization, merger or consolidation, the sale or other disposition of all or substantially all of the assets, or a similar transaction or series of transactions involving the Company (a “Business Combination”) in each case, unless (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Voting Stock immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the total voting power represented by the voting securities entitled to vote generally in the election of directors of the Company or the corporation resulting from the Business Combination (including, without limitation, a corporation which as a result of the Business Combination owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries), in substantially the same proportions as their ownership, immediately prior to the Business Combination of the Voting Stock of the Company, and (2) at least a majority of the members of the board of directors of the Company or such corporation resulting from the Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or action of the Incumbent Board, providing for such Business Combination; or

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(d) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company.

The Board has final authority to determine the exact date on which a Change in Control has been deemed to have occurred under (a), (b), (c) and (d) above.

Section 15. Amendment, Modification and Termination of Plan

15.1 Amendment, Modification, Suspension and Termination of Plan. The Board may amend, modify, suspend or terminate this Plan for the purpose of meeting or addressing any changes in legal requirements or for any other purpose permitted by law, except that no amendment or alteration that would adversely affect the rights of any Participant under any Award previously granted to such Participant shall be made without the consent of such Participant.

Section 16. Tax Withholding

16.1 Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy Federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of the Plan.

16.2 Share Withholding. With respect to withholding required upon the exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock, or upon any other taxable event arising as a result of awards granted hereunder, Participants may elect to satisfy the withholding requirement, in whole or in part, by having the Company withhold shares of Stock having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax which would be imposed on the transaction; provided, however, that in the event a deferral election is in effect with respect to the shares deliverable upon exercise of an Option, then the Participant may only elect to have such withholding made from the Stock tendered to exercise such Option. All such elections shall be irrevocable, made in writing, signed by the Participant, and shall be subject to any restrictions or limitations that the Committee, in its sole discretion, deems appropriate.

Section 17. Indemnification

17.1 Indemnification. Each Person who is or shall have been a member of the Committee or of the Board shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him in connection with or resulting from any claim, action, suit, or proceeding to which he may be a party or in which he may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him in settlement thereof, with the Company’s approval, or paid by him in satisfaction of any judgment in any such action, suit, or proceeding against him, provided he shall give the Company an opportunity, at its own expense, to handle and defend the same before he undertakes to handle and defend it on his own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s Certificate of

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Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.

Section 18. Requirements of Law

18.1 Requirements of Law. The granting of Awards and the issuance of shares of Stock upon the exercise of an Option shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.

18.2 Governing Law. The Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Delaware.

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EX-10.2

Exhibit 10.2

RETIREMENT AND CONSULTING AGREEMENT

THIS AGREEMENT made this 18th day of December, 2002 (the “Effective Date”), by and between First Midwest Bancorp, Inc., a Delaware corporation (hereinafter referred to as the “Company,” which term shall for all purposes include its successors and assigns) and Robert P. O’Meara (the “Executive”).

W I T N E S S E T H:

WHEREAS, Executive is currently an employee and serves as the Chairman and Chief Executive Officer of the Company;

WHEREAS, Executive has announced his intention to retire from his position as Chief Executive Officer effective December 31, 2002, and from active employment with the Company effective April 30, 2003;

WHEREAS, Executive also serves and will continue to serve at the pleasure of the Board as Chairman of the Board of the Company and as a director of one or more subsidiaries;

WHEREAS, Executive also has expertise, experience and capability in the business of the Company and its affiliates;

WHEREAS, the Company wishes to retain the services of the Executive, and the Executive wishes to perform services for the Company or its subsidiaries and affiliates after his retirement from active employment, on the terms and conditions set forth in this Agreement; and

WHEREAS, the Company and Executive desire to set forth agreements relating to certain compensation matters with respect to his retirement and the services hereunder;

NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which consideration is mutually acknowledged by the parties, it is hereby agreed as follows:

1. Recitals. The recitals hereinbefore set forth constitute an integral part of this Agreement, evidencing the intent of the parties in executing this Agreement, and describing the circumstances surrounding its execution. Said recitals are by express reference made a part of the covenants hereof, and this Agreement shall be construed in the light thereof.

2. Retirement as Chief Executive Officer. Executive hereby retires from the position of Chief Executive Officer of the Company, effective as of the close of business on December 31, 2002. Executive’s compensation with respect to the period ending December 31, 2002 shall be paid and provided in accordance with the Employment Agreement dated September 1, 1997 between Executive and the Company (the “Employment Agreement”),

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including the award in February 2003 of the STIC bonus for 2002 and of an LTIC grant, in each case determined without regard to Executive’s retirement as Chief Executive Officer.

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3. Retirement from Employment. Executive shall remain an employee of the Company until retirement on April 30, 2003 (the “Retirement Date”). With respect to the period from December 31, 2002 through the Retirement Date, Executive’s annual base salary shall be $150,000, and no STIC, LTIC or other incentive compensation shall be awarded or paid, or perquisites earned or accrued with respect to such period. Executive shall continue to participate in the Company’s executive and employee qualified and non-qualified retirement, deferred compensation, welfare, fringe benefit and expense reimbursement plans and programs.

4. Board of Directors Matters. Executive’s position as Chairman of the Board of Directors of the Company and as a member of the Executive Committee of the Board shall not be affected as a result of his retirement as Chief Executive Officer or retirement from active employment. Executive will be nominated by the Board for re-election as a Director at the 2003 Annual Meeting of Stockholders and will be considered for nomination at the 2006 Annual Meeting, subject to his mandatory Board retirement date of December 31, 2007. Executive will continue to serve as a director of First Midwest Bank (and as a member of any executive committee established by such board) for so long as he serves as a director of the Company. Effective May 1, 2003, the Executive shall be compensated for his service as a director of the Company and of the Bank on the same basis as other non-employee directors.

5. Retirement Compensation Matters. In connection with Executive’s retirement:

(a) Executive shall be entitled to continue to maintain health benefits coverage for himself and his spouse (and his spouse shall be entitled to continue such coverage in the event of his death) on the same basis as if his full-time employment continued; provided that Executive’s (or his spouse’s) premium for such coverage shall be determined on the basis of the same cost-sharing percentage applicable to Executive as of December 31, 2002.

(b) The Company agrees to extend to Executive a Continuing Participant Agreement under the 1989 Omnibus Stock and Incentive Plan, as amended from time to time for a period through April 30, 2006. A copy of the separate Continuing Participant Agreement is attached hereto as Exhibit A.

(c) Executive’s active participation as an employee under the Company’s employee and executive benefit plans will cease upon his Retirement Date and benefits shall thereafter be paid or provided as set forth in such plans. Executive shall be entitled to receive reimbursement from the Company for up to $25,000 of professional fees and expenses for financial, tax and estate planning services incurred during 2002 and 2003.

6. Consulting Engagement. Effective as of the Retirement Date, the Company engages the Executive to provide services, as specified in Section 8 below, to the Company and its affiliates, and the Executive hereby agrees to provide these services to those companies, in accordance with the terms and conditions set forth in this Agreement.

7. Term of Consulting Agreement. The consulting engagement shall commence on the Retirement Date and expire on December 31, 2005 (the “Consulting Term”), unless earlier terminated. The Consulting Term may be terminated or amended at any time prior to December 31, 2005 by the mutual consent of the parties, or, if a Change of Control (as defined in the Employment Agreement as in effect on December 31, 2002) occurs, the Consulting Term

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may be terminated by the Company or the Executive at any time upon or after such event. Upon termination of the Consulting Term, neither party shall have any further obligations hereunder with respect to the consulting engagement, except that:

(a) the Company shall be obligated to pay to Executive any compensation earned or expenses to be reimbursed under Sections 9 and 10 below,

(b) if such termination occurs after a Change of Control, the aggregate amount of monthly installments to be paid through December 31, 2005 shall be paid to Executive in a lump sum, and

(c) Executive’s obligations described in Section 11, 12 and 13 and the Company’s remedies under Section 13 (for breaches under Section 11 and 12) shall continue notwithstanding the termination of the Consulting Term.

8. Consulting Services. During the Consulting Term, Executive shall make himself available for consultation services to assist management and the Board of Directors of the Company at such times and in such manner as Executive shall reasonably agree; provided, however, that Executive shall not be obligated to make himself available for more than five (5) days during any calendar month during the Consulting Term.

9. Consulting Fees. As compensation for his consulting services and related agreements hereunder, Executive shall be paid at an annual rate of $150,000, payable in monthly installments of $12,500.00 during the Consulting Term.

10. Assistance/Expenses. The Company agrees to provide or to cause to be provided to Executive such assistance as Company determines to be required for Executive to discharge any responsibilities assigned pursuant to Section 8. The Company shall pay or reimburse Executive for the reasonable and appropriate out-of-pocket expenses incurred by him in connection with the performance of services as an employee prior to retirement, the performance of services as a director of the Company or any of its subsidiaries, and the performance of his consulting services during the Consulting Term, in each instance in accordance with the Company’s expense reimbursement policies. Executive must provide proper documentation to Company for all expenses before the Company’s obligations to reimburse arise. During the period that Executive remains a director of the Company or any of its subsidiaries or is providing consulting services to the Company, the Company shall also provide Executive with office and support services in Lake Forest, Illinois substantially the same as currently provided to him in that locale.

11. Confidential Information. Executive understands and acknowledges: (a) his obligations to the Company under Section 12 of the Employment Agreement, and (b) that such obligations, as well as his obligations pursuant to applicable policies of the Company provided to him and under applicable law relating to confidential information, shall continue to apply to and obligate Executive during and after the Term, as if set forth herein in full.

12. Non-Competition. Executive understands and acknowledges and agrees (a) his obligations under Section 13 of the Employment Agreement and (b) that such obligations shall continue to apply and restrict Executive during and after the Term and for the period through

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April 30, 2006. Executive acknowledges and agrees that the continuation of such restrictions to April 30, 2006 represents an extension beyond the date otherwise applicable under the Employment Agreement and that the benefits and payments provided hereunder represent adequate consideration for such extension.

13. Remedies. Executive acknowledges that the restraints and agreements above provided are fair and reasonable, that enforcement of the obligations described in Sections 11 and 12 will not cause him undue hardship and that said provisions are reasonably necessary and commensurate with the need to protect the Company and its legitimate and proprietary business interests and property from irreparable harm. Executive acknowledges and agrees that (a) a material breach of any of the obligations described in Sections 11 or 12 above, will result in irreparable harm to the business of the Company, (b) a remedy at law in the form of monetary damages for any material breach by him of any of the obligations described in Sections 11 and 12 is inadequate, (c) in addition to any remedy at law or equity for such material breach, the Company shall be entitled to institute and maintain appropriate proceedings in equity, including a suit for injunction to enforce the specific performance by Executive of the obligations hereunder and to enjoin Executive from engaging in any activity in violation hereof and (d) the obligations on his part described in Sections 11 and 12, shall be construed as agreements independent of any other provisions in this Agreement, and the existence of any claim, setoff or cause of action by Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense or bar to the specific enforcement by the Company of said covenants.

14. Independent Contractor. The parties to this Agreement intend that during the Consulting Term, the Executive will perform under this Agreement as an independent contractor, and not as an employee of the Company or its affiliates; and that neither this Agreement nor the Continuing Participant Agreement shall be construed to continue Executive’s employment by the Company beyond the date of his retirement. Consequently, during the Consulting Term:

(a) the Executive shall be solely responsible for the payment of all taxes in connection with the fee payable under Section 9, and the Company shall not withhold taxes from his remuneration; and

(b) the Executive shall not accrue or receive any benefits under any employee benefit plan maintained by the Company or any of its subsidiaries or affiliates except for such payments and participation described in Sections 3 and 4, attributable to his services hereunder, provided that nothing in this Agreement shall affect any rights to benefits Executive (and Executive’s spouse and dependents) might have under any employee benefit plans of the Company by virtue of his service as an employee and/or his retirement.

15. Indemnification. Executive shall continue to be entitled to indemnification and advancement of expenses to the fullest extent permitted by Delaware law, the Company’s Restated Certificate of Incorporation, the Company’s By-Laws, any prior agreement with the Company or any insurance policy or policies maintained by the Company, with respect to costs, expenses and obligations Executive may pay or incur as a result of any claim made or threatened which is related to the fact that he is or was an officer, director, employee, agent or fiduciary of the Company, or is or was serving in any such capacity for any corporation, employee benefit

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plan or other entity at the request of the Company, or Executive providing services hereunder. In addition, to the extent the Company maintains an insurance policy or policies providing director and officer liability insurance, Executive will continue to be covered by such policy or policies, in accordance with their terms, to the maximum extent of the coverage available for any Company director or officer. The rights described in this Section 15 shall be in addition to any rights Executive may have to indemnification and advancement of expenses under Delaware or any other law, the Company’s governing documents, or any other agreement or insurance policy.

16. Entire Understanding. This Agreement constitutes the entire understanding between the parties relating to certain matters concerning Executive’s retirement, Executive’s employment during the period from December 31, 2002 through the Retirement Date, and consulting services hereunder. To the extent that any provision hereof relating to the terms and conditions of Executive’s employment with the Company are inconsistent with the provisions of the Employment Agreement, then the provisions of this Agreement shall constitute an amendment to the Employment Agreement, it being agreed that nothing herein or any event arising after December 31, 2002, shall give rise to any severance or separation payments under Section 8(b) or (c) of the Employment Agreement. Any amendment of this Agreement shall be effective only to the extent that it is in writing, executed by the Company and Executive.

17. Binding Effect. This Agreement shall be binding upon and inure to the benefit of Executive’s executors, administrators, legal representatives, heirs and legatees and on the Company and its affiliates and their respective successors and assigns.

18. Payment in the Event of Death. In the event payment is due and owing by the Company to the Executive under this Agreement upon the death of the Executive, payment shall be made to such beneficiary as the Executive may designate in writing, or failing such designation, then the executor of his estate, in full settlement and satisfaction of all claims and demands on behalf of the Executive, who shall be entitled to receive all amounts owing to the Executive at the time of death under this Agreement.

19. Waiver. The waiver of any party hereto of a breach of any provision of this Agreement by any other party shall not operate or be construed as a waiver of any subsequent breach.

20. Governing Law. This Agreement shall be governed by, and interpreted, construed and enforced in accordance with, the laws of the State of Illinois.

21. Headings. The headings of the Sections of this Agreement are for reference purposes only and do not define or limit, and shall not be used to interpret or construe the contents of this Agreement.

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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed at Itasca, Illinois, on the date above set forth.

EXECUTIVE		FIRST MIDWEST BANCORP, INC.
By:	/s/ ROBERT P. O’MEARA	By:	/s/ JOHN M. O’MEARA
	Robert P. O’Meara		John M. O’Meara, President and Chief Operating Officer

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Exhibit A to Retirement and Consulting Agreement

Continuing Participant Agreement

May 1, 2003

Mr. Robert P. O’Meara

First Midwest Bancorp, Inc.

300 Park Boulevard, Suite 405

Itasca, IL 60143

Re:     Continuing Participation Agreement—May 1, 2003

Dear Robert:

I am pleased to submit to you this Continuing Participant Agreement (the “Agreement”) under the First Midwest Bancorp, Inc. 1989 Omnibus Stock and Incentive Plan, as Amended (the “Plan”). The term of this Agreement is three years, commencing on May 1, 2003, the date you will cease to be an employee of the Company and its subsidiaries (the “Continuation Period”). The remainder of this letter details how this Agreement impacts your outstanding Options listed in Schedule A attached hereto (the “Options”).

The Agreement is subject to the terms and conditions of the Plan, including any Amendments thereto, which are incorporated herein by reference, and to the following provisions:

(1) Exercisability. Except as otherwise provided in paragraphs (3) and (4) below, the Options shall continue to vest and shall become and/or remain exercisable during the Continuation Period on the same basis as if you were an Employee during such period. In no event, however, will an Option be exercisable after the Expiration Date thereof.

(2) Procedure for Exercise.   The procedures relating to exercise of your Options set forth in the Letter Agreements entered into with respect to the grant of each Option (each an “Option Agreement”) shall continue to apply, including participation in the Nonqualified Stock Option Gain Deferral Plan.

(3) Termination of Employment Upon Termination of Continuation Period.   As stated above, solely for purposes of your Options, your employment with the Company will not be deemed to have terminated until the termination of the Continuation Period. The Continuation Period will terminate upon the earlier of (a) your death, (b) the third anniversary of the commencement of the Continuation Period, or (c) the termination of this Agreement by the Company for “cause.” “Cause” shall mean any activity by you which would violate Section 12 (Confidential Information) of your Employment Agreement with First Midwest Bancorp, Inc. dated September 1, 1997 that would be materially and demonstrably injurious to First Midwest Bancorp, Inc. or its subsidiaries; or any activity by you which would violate Section 13 (Noncompetition) of such Employment Agreement.

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In the event of your death during the Continuation Period, all vesting or exercise restrictions will lapse and your Options will become immediately exercisable in full. Upon the termination of the Continuation Period pursuant to clause (a), (b) or (c) above, your Options will continue to be exercisable by you (or in the event of your death, by your beneficiary or your estate’s executor or administrator) to the same degree that your Options were exercisable at the termination of the Continuation Period (including any acceleration of vesting which may occur in the event of death), until the first of the following occur:

(i)   the expiration of three years after the date of termination of the Continuation Period; or

(ii)   the Expiration Date.

(4) Merger, Consolidation or Change in Control. In the event of a Change in Control as defined in Section 13 of the Plan, as amended by the Board of Directors of the Company on February 18, 1998, prior to the termination of the Continuation Period, all holding period and vesting exercise restrictions will lapse and the your options will become immediately exercisable in full and remain exercisable in accordance with paragraph (3) above.

(5) Limited Transferability. Your options remain personal to you and may not be sold, transferred, pledged, assigned or otherwise alienated, other than as provided in the Plan.

(6) Securities Law Restrictions. You understand and acknowledge that applicable securities laws govern and may restrict your right to offer, sell, or otherwise dispose of any option shares.

(7) Future Grants: Reload Provisions. You are not entitled to receive any additional stock options pursuant to the Plan during the Continuation Period. Accordingly, no reload stock option will be granted upon any exercise of your Options during the Continuation Period.

(8) Employment; Successors. Except as provided herein with respect to your Options, nothing in this Agreement shall confer any right on you as an employee of the Company or any of its subsidiaries or to receive any compensation or benefits as an employee with respect to any period after the termination of your employment with the Company and its Subsidiaries. This Agreement shall be binding upon, and inure to the benefit of, any successor or successors of the Company and to your successors and beneficiaries.

(9) Effect on Options; Other Matters. Except as expressly provided in this Agreement, the terms and conditions of all Option Agreements shall continue in full force and effect. This Agreement only addresses the impact of the Continuation Period on your Options.

Nothing herein modifies or changes any of the other benefits which have accrued to you through your termination of employment. We advise you to keep your beneficiary designation form and all other necessary forms up to date and to review the Plan, the Plan’s “Summary Description” and the document entitled “How to Exercise Your Stock Options” for all securities, tax and other necessary information. You are strongly encouraged to contact your tax advisor

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regarding any federal tax consequences related to your options and any other advisor from whom you may receive assistance.

To confirm your understanding and acceptance of this Agreement, please sign and return the extra copy of this Agreement. The original copy of this Agreement should be retained for your permanent records. If you have any questions, please do not hesitate to contact the office of the Senior Vice President and Corporate Controller of First Midwest Bancorp, Inc. at (630) 875-7459.

Very truly yours,

John O’Meara

President and Chief Operating Officer

First Midwest Bancorp, Inc.

Acknowledged and agreed:

Robert P. O’Meara

Date:

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Schedule A to Continuing Participant Agreement

The following is a summary of your stock options under the First Midwest Bancorp, Inc. 1989 Omnibus Stock and Incentive Plan, as amended.

Option Number	Option Date	Vest Date	Exercise Price	Number of Shares
00000663	8/18/99	8/18/02	$21.8334	12,622
00000749	2/16/00	2/16/03	$18.4000	35,731
00000907	2/21/01	2/21/03	$22.5000	15,272
	2/21/01	2/21/04	$22.5000	15,272
00000981	4/25/01	4/25/03	$22.5000	15,928
	4/25/01	4/25/04	$22.5000	15,928
00001067	2/20/02	2/20/04	$28.6950	26,346
	2/20/02	2/20/05	$28.6950	26,346
R8991034	12/20/01	6/20/02	$28.4350	9,693
R98-1035	12/20/01	6/20/02	$28.4350	8,315
R99-1036	12/20/01	6/20/02	$28.4350	8,648
R94-1009	3/28/02	9/28/02	$29.1300	9,013
R95-1010	3/28/02	9/28/02	$29.1300	9,614
R96-1011	3/28/02	9/28/02	$29.1300	9,999
R97-1012	3/28/02	9/28/02	$29.1300	10,407
R98-1013	3/28/02	9/28/02	$29.1300	8,117
R99-1014	3/28/02	9/28/02	$29.1300	8,441
R00-1015	3/28/02	9/28/02	$29.1300	22,571

This Schedule A is subject to change to reflect Options outstanding as of May 1, 2003.

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EX-10.4

Exhibit 10.4

First Midwest Bancorp, Inc.

Nonqualified Stock Option

    Gain Deferral Plan

Master Plan Document

Amended and Restated

Effective January 1, 2003

TABLE OF CONTENTS

ARTICLE I	GENERAL	1
1.1	Effective Date	1
1.2	Purpose	1
1.3	Intent	1
ARTICLE II	DEFINITIONS AND USAGE	2
2.1	Definitions	2
2.2	Usage	3
ARTICLE III	ELIGIBILITY AND PARTICIPATION	3
3.1	Eligibility	3
3.2	Participation	4
3.3	Deferral Election Procedure	4
3.4	Stock-for-Stock Payment Method for Options	4
3.5	Delivery of Stock	4
ARTICLE IV	PARTICIPANT ACCOUNTS	5
4.1	Accounts	5
4.2	Participant Deferrals	5
4.3	Investment Procedure	5
4.4	Valuation of Accounts	5
ARTICLE V	PAYMENT OF BENEFITS	6
5.1	Entitlement to Benefit Payments	6
5.2	Commencement of Benefit Payments	6
5.3	Short-Term Payout	7
5.4	Unforeseeable Financial Emergencies	7
5.5	Withdrawal Election	7
5.6	Payments in Stock	8
ARTICLE VI	PAYMENT OF BENEFIT ON OR AFTER DEATH	8
6.1	Commencement of Payments After Death	8
6.2	Designation of Beneficiary	8
ARTICLE VII	ADMINISTRATION	8
7.1	General	8
7.2	Administrative Rules	8
7.3	Duties	8
7.4	Fees	9
ARTICLE VIII	CLAIMS PROCEDURE	9
8.1	General	9
8.2	Denials	9
8.3	Notice	9
8.4	Appeals Procedure	9

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8.5	Review	10
ARTICLE IX	MISCELLANEOUS PROVISIONS	10
9.1	Amendment	10
9.2	Termination	10
9.3	No Assignment	10
9.4	Incapacity	10
9.5	Successors and Assigns	11
9.6	Governing Law	11
9.7	No Guarantee of Employment	11
9.8	Severability	11
9.9	Notification of Addresses	11
ARTICLE X	ADOPTING EMPLOYERS	11
10.1	Adoption of Plan	11
10.2	Administration	11
10.3	Company as Agent	11
10.4	Termination	12
ARTICLE XI	TRUST	12
11.1	Trust	12
11.2	Contributions and Expense	12
11.3	Trustee Duties	12
11.4	Voting Rights	12
11.5	Reversion to the Company	12

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FIRST MIDWEST BANCORP, INC.

NONQUALIFIED STOCK OPTION—GAIN DEFERRAL PLAN

(As Amended and Restated as of January 1, 2003)

WHEREAS, First Midwest Bancorp, Inc. (“the Company’) has established the First Midwest Bancorp, Inc. Omnibus Stock and Incentive Plan, as Amended and Restated as of January 1, 2003, (the “Stock Plan”) for its Employees; and

WHEREAS, the Company recognizes the unique qualifications of key employees and the valuable services that they have provided; and

WHEREAS, the Company desires to increase Company stock ownership by facilitating the deferral of gains resulting from the exercise of Company nonqualified stock Options;

NOW, THEREFORE, the Company hereby amends and restates the First Midwest Bancorp, Inc. Nonqualified Stock Option—Gain Deferral Plan (the “Plan”) as hereinafter provided:

ARTICLE I

GENERAL

1.1 Effective Date. The provisions of the Plan shall be effective as of December 1, 1997 (the “Effective Date”). The rights, if any, of any person whose status as an Employee of the Company and its subsidiaries and affiliates, if any, has terminated shall be determined pursuant to the Plan as in effect on the date such Employee terminated, unless a subsequently adopted provision of the Plan is made specifically applicable to such person.

1.2 Purpose. The purpose of the Plan is to increase Company stock ownership by facilitating the deferral of gains resulting from the exercise of Company nonqualified stock Options.

1.3 Intent. With respect to the participation of Employees hereunder, the Plan is intended to be (and shall be construed and administered as) an “employee pension benefit plan” under the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”) which is unfunded and maintained by the Company or an Employer solely to provide retirement income to a select group of management or highly compensated Employees as such group is described under section 201(2), 301(a)(3), and 401(a)(1) of ERISA as interpreted by the U.S. Department of Labor. The Plan is not intended to be a plan described in section 401(a) of the Code, or section 3(2)(A) of ERISA. With respect to the participation in the Plan by nonemployee directors of the Company, the Plan is intended to be a plan of deferred compensation. The obligation of the Company and an Employer to make payments under this Plan constitutes nothing more than an unsecured promise to make such payments and any property of the Company or an Employer that may be set aside for the payment of benefits under the Plan shall in the event of the Company’s or Employer’s bankruptcy or insolvency, remain subject to the claims of the Company’s general creditors and the Employer’s general creditors, respectively, until such benefits are distributed in accordance with Article V herein.

ARTICLE II

DEFINITIONS AND USAGE

2.1 Definitions. Wherever used in the Plan, the following words and phrases shall have the meaning set forth below unless the context plainly requires a different meaning:

(a) “Account” means the account established on behalf of the Participant as described in Section 4.1.

(b) “Administrator” means the person or persons described in Article VII.

(c) “Board” means the Board of Directors of the Company.

(d) “Code” means the Internal Revenue Code of 1986, as amended from time to time.

(e) “Committee” means the Compensation Committee of the Board of Directors or such other committee appointed from time to time by the Board of Directors to administer this Plan. The Committee shall consist of two or more members, each of whom shall qualify as a “non-employee director,” as the term (or similar successor term) is defined by Rule 16b-3, and as an “outside director” within the meaning of Code Section 162(m) and regulations thereunder.

(f) “Company” means First Midwest Bancorp, Inc. and any successor thereto.

(g) “Effective Date” means December 1, 1997, the original effective date of the Plan.

(h) “Employee” means a regular salaried employee (including officers and directors who are also employees) of the Company or an Employer, or any branch or division thereof.

(i) “Employer” means the Company and any subsidiary or affiliate of the Company that adopts the Plan for the benefit of its key Employees with the approval of the Company and in accordance with Article X.

(j) “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

(k) “Fair Market Value” means the average of the highest and lowest prices of the Stock as reported by the consolidated tape of the NASDAQ National Market System on a particular date. In the event that there are no Stock transactions on such date, the Fair Market Value shall be determined as of the immediately preceding date on which there were Stock transactions.

(l) “Option” means the right to purchase Stock at a stated price for a specified period of time granted by the Company to an Employee under the Stock Plan. For

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purposes of the Plan, an Option shall be a “Nonstatutory (Nonqualified) Stock Option,” or “NSO,” as provided for under the Stock Plan.

(m) “Participant” means an eligible Employee and any nonemployee director of the Company who is participating in the Plan in accordance with Section 3.1.

(n) “Plan” means the First Midwest Bancorp, Inc. Nonqualified Stock Option—Gain Deferral Plan.

(o) “Plan Year” means the calendar year. Notwithstanding the foregoing, the initial Plan Year shall be the period beginning on the Effective Date and ending December 31, 1997.

(p) “Profit Shares” means, (A) with respect to any exercise of an Option, the number of shares equal in value to the excess of (i) the Fair Market Value of the shares of Stock purchased on Option exercise over (ii) the exercise price of the shares of Stock purchased, divided by the Fair Market Value of one share of Stock, and (B) with respect to any Stock Award, the number of shares payable upon the vesting of such Award For purposes of this definition, Fair Market Value shall be determined as of the date of Option exercise.

(q) “Stock” means the common stock, $0.01 par value per share, of the Company.

(r) “Stock Award” means any award under the Stock Plan, other than an Option, which is payable in Stock, including, but not limited to, restricted stock or performance share awards.

(s) “Stock Plan” means the First Midwest Bancorp, Inc. Omnibus Stock and Incentive Plan, as amended from time to time, and any other similar or successor plan established by the Company and under which Employees have been granted nonqualified stock options.

(t) “Valuation Date” means the last business day of each Plan Year and such other dates as determined from time to time by the Administrator.

2.2 Usage. Except where otherwise indicated by the context, any masculine terminology used herein shall also include the feminine and vice versa, and the definition of any term herein in the singular shall also include the plural and vice versa.

ARTICLE III

ELIGIBILITY AND PARTICIPATION

3.1 Eligibility. The Committee shall designate from time to time those Employees who shall participate in the Plan; provided, however, that such Employees are members of a select group of management or highly compensated Employees as such group is described under sections 201(2), 301(a)(3), and 401(a)(1) of ERISA as interpreted by the Department of Labor. In addition, each nonemployee director of the Company shall also be entitled to participate in the Plan.

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3.2 Participation. An Employee shall commence participation in the Plan as of the date designated by the Committee. A nonemployee director shall commence participation in the Plan as of the later of the Effective Date or the date service as a nonemployee director commences. The participation of any Participant may be suspended or terminated by the Committee at any time, but no such suspension or termination shall operate to reduce the balance of the Account of the Participant as of the Valuation Date that precedes or coincides with the date of such suspension or termination without such Participant’s consent. An Employee or nonemployee director shall cease to be a Participant when he terminates employment and service as a director with the Company and all Employers and the balance in his Account is distributed to him or on his behalf.

3.3 Deferral Election Procedure.

(a) Each Participant may execute one or more Deferral Election Forms in the form prescribed by the Administrator. Each Deferral Election Form shall be treated in accordance with Section 4.2. In order to be effective with respect to the exercise of any Option or payment of any Stock Award, a Deferral Election Form must be executed by the Participant: (i) in a calendar year preceding the exercise of such Options or vesting of the Stock Award; and (ii) at least six months (or such shorter period as the Committee may approve) prior to the exercise of such Options or vesting of the Stock Award; provided, however, that a Deferral Election Form executed by a Participant during the first 30 days following the later of the Effective Date of the Plan or the participation commencement date designated by the Committee pursuant to Section 3.2 for such Participant, shall be effective with respect to the exercise of Options or vesting of the Stock Award after the date of such Deferral Election Form without regard to clauses (i) and (ii).

(b) An Agreement shall be effective no earlier than the date on which it is delivered to the Administrator and shall continue in effect for all succeeding Plan Years unless otherwise superseded by a subsequent Deferral Election Form (or Deferral Revocation Form).

3.4 Stock-for-Stock Payment Method for Options. If a Participant has executed a Deferral Election Form, and such Deferral Election Form is effective under the terms of the Plan with respect to the Option being exercised, then the Option price shall be payable to the Company in full solely by tendering shares of Stock, which have been held for at least six months prior to the date of the exercise of the Option, having an aggregate Fair Market Value at the time of exercise equal to the total Option price (including, for this purpose, Stock deemed tendered by affirmation of ownership). Shares of Stock tendered or deemed tendered shall, for purposes of the six month holding rule, be deemed to be newly-held following use to exercise the Option and thus cannot be used for a subsequent exercise until six months have elapsed.

3.5 Delivery of Stock. As soon as practicable after (a) receipt of the tendered Stock or the affirmation of ownership of Stock pursuant to Section 3.4 above, or (b) vesting of the Stock Award, the Company shall deliver to the Trustee, as named pursuant to Article XI of the Plan, a certificate or certificates representing the Profit Shares generated with respect to the exercise of any such Option or vesting of the Stock Award.

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ARTICLE IV

PARTICIPANT ACCOUNTS

4.1 Accounts. The Administrator shall establish and maintain, pursuant to the terms of the Plan, one or more Accounts for each Participant consisting of amounts credited to such Account pursuant to Section 4.2 below. All amounts which are credited to a Participant’s Account shall be credited solely for purposes of accounting and computation, and shall remain assets of the Company subject to the claims of the Company’s general creditors. A Participant shall not have any interest or right in or to such Account at any time.

4.2 Participant Deferrals. The Administrator shall credit to a Participant’s Account for a Plan Year the amount of Profit Shares resulting from the exercise of an Option or Options or vesting of Stock Awards for which a valid Deferral Election Form is in effect. In order for a Deferral Election Form to be valid with respect to the exercise of an Option: (a) the Deferral Election Form must have been timely executed in accordance with Section 3.5; and (b) with respect to an Option, (i) the exercise complies with all of the applicable terms of the Option and of the Stock Plan; and (ii) the Option price is satisfied by a tender of Stock as described in Section 3.4.

4.3 Investment Procedure. A Participant’s Account shall be deemed invested in Stock of the Company. Any dividends deemed paid on Stock shall be deemed to be reinvested in Stock. In the event of a change in the Stock of the type that results in an adjustment to the Stock pursuant to adjustment provisions set forth in the Stock Plan, then the Participant’s Account shall be deemed invested in Stock as so adjusted; provided, however, to the extent that the adjustment results in a deemed investment in cash and stock, such cash shall be deemed reinvested in Stock (as adjusted); provided, further, that if such adjustment results in the deemed investment of the Account entirely in cash, then such cash shall be deemed invested in an interest-bearing account and credited with interest quarterly at an annual rate equal to the prime rate as published in The Wall Street Journal at the beginning of such quarterly period plus 2%, or such other investments as the Committee may permit the Participants to recommend to the trustee of the Trust established pursuant to Article XI below.

4.4 Valuation of Accounts. The value of a Participant’s Account shall be determined from time to time by the Administrator in the following manner:

(a) The income and expense, gains, and losses, both realized and unrealized, from such deemed investments as are required under Section 4.3 shall be determined by the Administrator. The amount so determined shall be allocated to the Account of a Participant proportionately in accordance with the procedures established by the Administrator.

(b) Each Participant’s Account shall be valued as of the Valuation Date of each Plan Year or more frequently as determined in the sole discretion of the Administrator, and shall again be valued as of the date that a Participant receives a payment under the Plan, in accordance with the procedures established by the Administrator.

(c) A Participant’s Account shall be reduced by the amount of any benefits distributed to or on behalf of the Participant pursuant to Article V.

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(d) All allocations to and deductions from a Participant’s Account under this Section 4.4 shall be deemed to have been made on the applicable Valuation Date in the order of priority set forth in this Section 4.4, even though actually determined at a later date.

ARTICLE V

PAYMENT OF BENEFITS

5.1 Entitlement to Benefit Payments. Upon a Participant’s separation from service as an Employee or nonemployee director, as applicable, from the Company and all Employers, the Participant shall be entitled to his Account Balance payable by the Company or by his Employer at the time and in the manner determined in accordance with Section 5.2. Notwithstanding the foregoing, if a Participant’s separation from service is the result of termination “for cause,” no benefits shall be payable to the Participant under the Plan and his Account balance shall be zero. A Participant shall be deemed to have been terminated “for cause” if his employment or service as a director is terminated voluntarily or involuntarily as a result of the Participant’s fraud, misappropriation or embezzlement of Company or Employer funds or property. The Committee shall determine whether a Participant’s separation from service is “for cause.”

5.2 Commencement of Benefit Payments. In connection with commencement of participation in the Plan, a Participant shall elect on an election form to receive payment of the Account Balance in a lump sum or in annual or quarterly installments over a period of up to fifteen years. The Participant may annually change the election to an allowable alternative payout period by submitting a new election form to the Committee, provided that any such election form is submitted during a calendar year preceding and at least six months (or such shorter period as the Committee may approve) prior to the Participant’s separation from service and is accepted by the Committee in its sole discretion; provided, however, that such advance filing period shall not apply to an election form submitted prior to a Change in Control (as defined in the Stock Plan) which is applicable to a separation from service which occurs on or after the date of such Change in Control. The election form most recently accepted by the Committee shall govern the payout of the Account Balance. If a Participant does not make any election with respect to the payment of the Participant’s Account Balance, then such benefit shall be payable in five annual installments. The lump sum payment shall be made, or installment payments shall commence, no later than 30 days after the last day of the calendar quarter in which the Participant experiences the separation from service; provided, however, the Participant may elect to have the payment commencement date delayed for up to five (5) years from the separation date by submitting an election form to that effect which is accepted by the Committee at least six months (or such shorter period as the Committee may approve) prior to the separation date; provided, further, if the Participant’s Account Balance is less than $25,000 at the time of separation from service, payment of the Account Balance will be made in a lump sum no later than 30 days after the last day of the calendar quarter in which the separation from service occurs. Notwithstanding the foregoing, the Committee, in its sole discretion, shall establish the commencement date for the payment of benefits, the deductibility of which may be limited by Code Section 162(m), as the earliest practicable date upon which such limitations would not apply.

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5.3 Short-Term Payout. In connection with a Deferral Election, a Participant may irrevocably elect to receive a future “Short-Term Payout” from the Plan with respect to the amounts covered by such Deferral Election. The Short-Term Payout shall be a lump sum payment in an amount that is equal to the Profit Shares covered by the particular Deferral Election plus additional shares credited in the manner provided in Section 4.2 above on that amount, determined at the time that the Short-Term Payout becomes payable. Subject to the other terms and conditions of this Plan, each Short-Term Payout elected shall be paid out during a 60 day period commencing immediately after the last day of any Plan year designed by the Participant that is at least three Plan Years after the Plan Year in which the Profit Shares were actually deferred. Notwithstanding the foregoing, the Committee, in its sole discretion may delay the payment of any Short-Term Payment, the deductibility of which may be limited by Code Section 162(m), to this earliest practicable date upon which such limitations would not apply.

5.4 Unforeseeable Financial Emergencies. If the Participant experiences an Unforeseeable Financial Emergency, the Participant may petition the Committee to (i) suspend any Deferral Election made by a Participant and/or (ii) receive a partial or full payout of the Participant’s Account Balance from the Plan. The payout shall not exceed the lesser of the Participant’s Account Balance, or the amount reasonably needed to satisfy the Unforeseeable Financial Emergency. If, subject to the sole discretion of the Committee, the petition for a suspension and/or payout is approved, suspension shall take effect upon the date of approval and any payout shall be made within 60 days of the date of approval. For purposes of this Section 5.4, “Unforeseeable Financial Emergency” shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant that would result in severe financial hardship to the Participant resulting from (i) a sudden and unexpected illness or accident of the Participant or a dependent of the Participant, (ii) a loss of the Participant’s property due to casualty, or (iii) such other extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant in which distribution is necessary to preserve the value of the benefits of this Plan to the Participant, all as determined in the sole discretion of the Committee.

5.5 Withdrawal Election. A Participant (or, after a Participant’s death, his or her Beneficiary) may elect, at any time, to withdraw all of his or her Account Balance, less a withdrawal penalty equal to 10% of such amount (the net amount shall be referred to as the “Withdrawal Amount”). This election can be made at any time, before or after death or separation from service and whether or not the Participant (or Beneficiary) is in the process of being paid pursuant to an installment payment schedule. No partial withdrawals of the Withdrawal Amount shall be allowed. The Participant (or his or her Beneficiary) shall make this election by giving the Committee advance written notice of the election in a form determined from time to time by the Committee. The Participant (or his or her Beneficiary) shall be paid the Withdrawal Amount within 60 days of his or her election. Once the Withdrawal Amount is paid, the Participant’s right to voluntarily submit Deferral Elections under the Plan shall terminate and the Participant shall not be eligible to make any Deferral Election for the remainder of the Plan Year of the Withdrawal Election and the next Plan Year. Notwithstanding the foregoing, the Committee, in its sole discretion may delay the payment of any Withdrawal Amount, the deductibility of which may be limited by Code Section 162(m), to this earliest practicable date upon which such limitations would not apply.

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5.6 Payments in Stock. Unless a Participant’s Account Balance has been deemed invested in cash pursuant to an adjustment described in Section 4.2 above, all payments with respect to such Account Balance shall be made in shares of Stock (as such Stock may be adjusted in accordance with Section 4.2).

ARTICLE VI

PAYMENT OF BENEFIT ON OR AFTER DEATH

6.1 Commencement of Payments After Death. If a Participant dies before receiving his entire Account Balance, the remainder of the Account otherwise payable with respect to the Participant shall be paid to the Participant’s beneficiary or beneficiaries as a single lump-sum amount within ninety (90) days following the date on which the Administrator is notified of the Participant’s death.

6.2 Designation of Beneficiary. A Participant may, by executing a Beneficiary Designation Form (in the form prescribed by the Administrator) during the Participant’s lifetime, designate one or more primary and contingent beneficiaries to receive his Account balance which may be payable to the Participant hereunder following the Participant’s death, and may designate the proportions in which such beneficiaries are to receive such payments. A Participant may change such designations from time to time, and the last written designation filed with the Administrator prior to the Participant’s death shall control. If a Participant fails to specifically designate a beneficiary or, if no designated beneficiary survives the Participant, payment shall be made by the Administrator in the following order of priority:

(a) to the Participant’s surviving spouse; or if none,

(b) to the Participant’s children, per stirpes; or if none,

(c) to the Participant’s estate.

ARTICLE VII

ADMINISTRATION

7.1 General. The Administrator shall be the Committee, or such other person or persons as designated by the Board or the Committee. Except as otherwise specifically provided in the Plan, the Administrator shall be responsible for the administration of the Plan. The Administrator shall be the “named fiduciary” within the meaning of Section 402(c)(2) of ERISA.

7.2 Administrative Rules. The Administrator may adopt such rules of procedure as it deems desirable for the conduct of its affairs, except to the extent that such rules conflict with the provisions of the Plan.

7.3 Duties. The Administrator shall have the following rights, powers and duties:

(a) The decision of the Administrator in matters within its jurisdiction shall be final, binding and conclusive upon each Employer and upon any other person affected by such decision, subject to the claims procedure hereinafter set forth.

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(b) The Administrator shall have the duty and authority to interpret and construe the provisions of the Plan, to decide any question which may arise regarding the rights of Employees, Participants and beneficiaries, and the amounts of their respective interests, to adopt such rules and to exercise such powers as the Administrator may deem necessary for the administration of the Plan, and to exercise any other rights, powers or privileges granted to the Administrator by the terms of the Plan.

(c) The Administrator shall maintain full and complete records of its decisions. Its records shall contain all relevant data pertaining to the Participant and his rights and duties under the Plan. The Administrator shall have the duty to maintain Account records of all Participants.

(d) The Administrator shall cause the principal provisions of the Plan to be communicated to the Participants, and a copy of the Plan and other documents shall be available at the principal office of the Company for inspection by the Participants at reasonable times determined by the Administrator.

(e) The Administrator shall periodically report to the Committee with respect to the status of the Plan.

7.4 Fees. No fee or compensation shall be paid to any person for services as the Administrator.

ARTICLE VIII

CLAIMS PROCEDURE

8.1 General. Any claim for benefits under the Plan shall be filed by the Participant or beneficiary (“claimant”) on the form prescribed for such purpose with the Administrator.

8.2 Denials. If a claim for benefits under the Plan is wholly or partially denied, notice of the decision shall be furnished to the claimant by the Administrator within a reasonable period of time after receipt of the claim by the Administrator.

8.3 Notice. Any claimant who is denied a claim for benefits shall be furnished written notice setting forth:

(a) the specific reason or reasons for the denial;

(b) specific reference to the pertinent provision of the Plan upon which the denial is based;

(c) a description of any additional material or information necessary for the claimant to perfect the claim; and

(d) an explanation of the claim review procedure under the Plan.

8.4 Appeals Procedure. In order that a claimant may appeal a denial of a claim, the claimant or the claimant’s duly authorized representative may:

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(a) request a review by written application to the Administrator, or its designate, no later than sixty (60) days after receipt by the claimant of written notification of denial of a claim;

(b) review pertinent documents; and

(c) submit issues and comments in writing.

8.5 Review. A decision on review of a denied claim shall be made not later than sixty (60) days after receipt of a request for review, unless special circumstances require an extension of time for processing, in which case a decision shall be rendered within a reasonable period of time, but not later than one hundred and twenty (120) days after receipt of a request for review. The decision on review shall be in writing and shall include the specific reason(s) for the decision and the specific reference(s) to the pertinent provisions of the Plan on which the decision is based.

ARTICLE IX

MISCELLANEOUS PROVISIONS

9.1 Amendment. The Company reserves the right to amend the Plan in any manner that it deems advisable by a resolution of the Board or the Committee. No amendment shall, without the Participant’s written consent, affect the amount of the Participant’s Account balance at the time the amendment becomes effective or the right of the Participant to receive a distribution of his Account balance. Notwithstanding the foregoing, following a Change in Control (as defined in the Stock Plan), no amendment or termination of the Plan shall, without the Participant’s written consent, have an adverse effect on the computation or amount or entitlement to benefits of such Participant, including, but not limited to the time or manner of the payment of the Account. For purposes hereof, an “adverse effect” shall include, but not be limited to, any acceleration of the payment of the Account.

9.2 Termination. The Company reserves the right to terminate the Plan at any time. No termination shall, without the Participant’s written consent, affect the amount of the Participant’s Account balance prior to the termination or the right of the Participant to receive a distribution of his Account balance.

9.3 No Assignment. The Participant shall not have the power to pledge, transfer, assign, anticipate, mortgage or otherwise encumber or dispose of in advance any interest in amounts payable hereunder or any of the payments provided for herein, nor shall any interest in amounts payable hereunder or in any payments be subject to seizure for payments of any debts, judgments, alimony or separate maintenance, or be reached or transferred by operation of law in the event of bankruptcy, insolvency or otherwise.

9.4 Incapacity. If any person to whom a benefit is payable under the Plan is an infant or if the Administrator determines that any person to whom such benefit is payable is incompetent by reason of physical or mental disability, the Administrator may cause the payments becoming due to such person to be made to another for his benefit. Payments made pursuant to this Section shall, as to such payment, operate as a complete discharge of the Plan, the Company, each Employer, the Committee and the Administrator.

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9.5 Successors and Assigns. The provisions of the Plan are binding upon and inure to the benefit of the Company, each Employer, its respective successors and assigns, and the Participant, his beneficiaries, heirs, legal representatives and assigns.

9.6 Governing Law. The Plan shall be subject to and construed in accordance with the laws of Illinois to the extent not pre-empted by the provisions of ERISA.

9.7 No Guarantee of Employment. Nothing contained in the Plan shall be construed as a contract of employment or deemed to give any Participant the right to be retained in the employ of any Employer or any equity or other interest in the assets, business or affairs of any Employer. No Participant hereunder shall have a security interest in the assets of any Employer used to make contributions or pay benefits.

9.8 Severability. If any provision of the Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of the Plan, but the Plan shall be construed and enforced as if such illegal or invalid provision had never been included herein.

9.9 Notification of Addresses. Each Participant and each beneficiary shall file with the Administrator, from time to time, in writing, the post office address of the Participant, the post office address of each beneficiary, and each change of post office address. Any communication, statement or notice addressed to the last post office address filed with the Administrator (or if no such address was filed with the Administrator, then to the last post office address of the Participant or beneficiary as shown on the Company’s or Employer’s records) shall be binding on the Participant and each beneficiary for all purposes of the Plan and neither the Administrator nor the Company or an Employer shall be obligated to search for or ascertain the whereabouts of any Participant or beneficiary.

ARTICLE X

ADOPTING EMPLOYERS

10.1 Adoption of Plan. The Plan may be adopted by any subsidiary or affiliate of the Company for the benefit of any Employee designated by the Committee to participate herein. Such adoption shall be by resolution of the adopting Employer’s governing body, a copy of which shall be filed with the Company.

10.2 Administration. As a condition to participating in the Plan, each adopting Employer shall be deemed to have authorized the Committee and the Administrator (if different from the Committee) to act for it in all matters arising under or with respect to the Plan and shall comply with such other terms and conditions as may be imposed by the Administrator.

10.3 Company as Agent. Each adopting Employer hereby irrevocably grants the Company full and exclusive power to exercise, enforce or waive any right which such Employer might otherwise have under the terms of the Plan, and each adopting Employer irrevocably appoints the Company as its agent for such purpose.

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10.4 Termination. If authorized by the Company, each adopting Employer may, upon written notice to the Company, cease to participate in the Plan with respect to its Employees by resolution of its governing body.

ARTICLE XI

TRUST

11.1 Trust. A Trust has been established under the Plan by the execution of a separate trust agreement entitled the First Midwest Bancorp, Inc. Nonqualified Stock Option – Gain Deferral Trust with one or more trustees. The Trust is intended to be maintained as a “grantor trust”, under section 677 of the Code, for which the Company is the grantor. The assets of the Trust will be held, invested and disposed of by the trustee, in accordance with the terms of the Trust, for the exclusive purpose of providing Plan benefits for the Participants. Notwithstanding any provision of the Plan or the Trust to the contrary, the assets of each Trust shall at all times be subject to the claims of the grantor’s general creditors in the event of the grantor’s insolvency or bankruptcy.

11.2 Contributions and Expense. The Company, in its sole discretion, and from time to time, may make contributions to the Trust. All benefits under the Plan and expenses chargeable to the Plan, to the extent not paid directly by the Company, shall be paid from the Trust.

11.3 Trustee Duties. The powers, duties and responsibilities of the trustee shall be as set forth in the Trust agreement and nothing contained in the Plan, either expressly or by implication, shall impose any additional powers or duties responsibilities upon the trustee.

11.4 Voting Rights. Each Participant (or, in the event of his death, his beneficiary) shall have the right to direct the Trustee as to the manner in which whole and partial shares of Stock allocated to his Account as of the record date are to be voted on each matter brought before an annual or special stockholders’ meeting. Upon timely receipt of such directions, the Trustee shall on each such matter vote as directed the number of shares (including fractional shares) of Stock allocated to such Participant’s Account, and the Trustee shall have no discretion in such matter. The directions received by the Trustee from Participants shall be held by the Trustee in confidence and shall not be divulged or released to any person, including officers or employees of any Employer. The Trustee shall vote allocated shares for which it has not received direction in the same proportion as directed shares are voted, and shall have no discretion in such matter. Additionally, in the event a tender offer is extended with respect to the Stock, each Participant shall have the identical rights to direct the voting of the shares allocated to his Account as detailed in the preceding sentences of this Section 11.4.

11.5 Reversion to the Company. The Company shall not have any beneficial interest in the Trust and no part of the Trust shall ever revert or be repaid to the Company prior to the payment of all Plan benefits to Participants, except with respect to amounts allocable to forfeited benefits (including without limitation, any amounts forfeited on account of a termination “for cause”) and as otherwise reasonably determined by the Committee not to be necessary to pay benefits to Participants.

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* * * * *

IN WITNESS WHEREOF, the Company has caused this restated Plan to be executed by its duly authorized officer effective as of the 1st day of January, 2003.

ATTEST/WITNESS:	FIRST MIDWEST BANCORP, INC.
/s/  BARBARA E. BRIICK	/s/  JOHN M. O’MEARA
Date: February 19, 2003	Date: February 19, 2003

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EX-10.5

Exhibit 10.5

[LOGO] First Midwest Bancorp, Inc.

Amended and Restated

Deferred Compensation Plan

for Nonemployee Directors

Effective January 1, 2003

*****

PLAN DOCUMENT

TABLE OF CONTENTS

SECTION 1	ESTABLISHMENT AND PURPOSE	1
1.1	Establishment	1
1.2	Purpose	1
1.3	Coordination with Nonqualified Retirement Plan	1
SECTION 2	DEFINITIONS	1
2.1	Definitions	1
2.2	Gender and Number	2
SECTION 3	ELIGIBILITY AND PARTICIPATION	2
3.1	Eligibility	2
3.2	Participation	2
SECTION 4	ELECTION TO DEFER	2
4.1	Deferral Election	2
4.2	Deferral Period	2
4.3	Manner of Payment Election	3
4.4	Deferral Payment	3
4.5	Payment Upon Death	3
4.6	Growth Additions	3
4.7	Selection of Beneficiary	3
SECTION 5	DEFERRED ACCOUNTS	3
5.1	Participant Accounts	3
5.2	Growth Additions	4
5.3	Charges Against Accounts	4
5.4	Contractual Obligation	4
5.5	Unsecured Interest	4
SECTION 6	SHORT-TERM PAYOUT; FINANCIAL EMERGENCY; WITHDRAWAL ELECTION	4

6.1	Short-Term Payout	4
6.2	Withdrawal Payout/Suspension for Unforeseeable Financial Emergencies	4
6.3	Withdrawal Election	4
SECTION 7	FORFEITURE	5
7.1	Forfeiture	5
SECTION 8	BENEFICIARY DESIGNATION	5
8.1	Beneficiary Designation	5
8.2	Change of Beneficiary	5
SECTION 9	NONTRANSFERABILITY	5
9.1	Nontransferability	5
SECTION 10	ADMINISTRATION	5
10.1	Administration	5
10.2	Finality of Determination	5
10.3	Expenses	5
SECTION 11	AMENDMENT AND TERMINATION	5
11.1	Amendment and Termination	5
SECTION 12	TRUST	6
12.1	Nonqualified Retirement Trust	6
SECTION 13	SUCCESSORS	6
13.1	Successors and Assignees	6
SECTION 14	SUBSIDIARIES	6
14.1	Subsidiaries	6

FIRST MIDWEST BANCORP, INC.

DEFERRED COMPENSATION PLAN FOR NONEMPLOYEE DIRECTORS

(As Amended and Restated Effective as of January 1, 2003)

SECTION 1 ESTABLISHMENT AND PURPOSE.

1.1 Establishment. First Midwest Bancorp, Inc., a Delaware Corporation, hereby restates its “FIRST MIDWEST BANCORP, INC. DEFERRED COMPENSATION PLAN FOR NONEMPLOYEE DIRECTORS” (hereinafter called the “Plan”).

1.2 Purpose. The purpose of this Plan is to provide a means whereby a nonemployee member of the Board of Directors of the Company may defer, to some future period, all or one-half of the fees payable to the Director for services as a Director. The Plan is intended as a means of maximizing the effectiveness and flexibility of the Company’s compensation arrangements for Directors and an aid in attracting and retaining individual of outstanding abilities for service as Directors.

1.3 Coordination with Nonqualified Retirement Plan. It is intended that except to the extent provided otherwise herein, the provisions of this Plan relating to the time and manner of making elections, crediting and debiting accounts, and the payment thereof shall coordinate with and be governed by the applicable provisions of the Company’s Nonqualified Retirement Plan (the “Nonqualified Retirement Plan”), as amended from time to time. Such provisions of the Nonqualified Retirement Plan shall be applicable to this Plan as if set forth in this Plan in full.

SECTION 2 DEFINITIONS.

2.1 Definitions. Whenever used hereinafter, the following terms shall have the meaning set forth below:

(a) “Board” means the Board of Directors of the Company.

(b) “Committee” means any Committee of the Board of Directors of the Company.

(c) “Company” means First Midwest Bancorp, Inc., a Delaware Corporation.

(d) “Director” means a member of the Board of Directors of First Midwest Bancorp, Inc. and/or a number of the Board of Directors of First Midwest Bank.

(e) “Director Fees” or “Fees” means any Board or Committee retainer, attendance, consulting or other fees for services earned while a nonemployee Director. “Directors Fees” or “Fees” shall also mean retainer, attendance,

consulting or other fees for services earned in connection with service on the board of directors of any subsidiary of the Company.

(f) “Year” means the fiscal year of the Company ending December 31.

2.2 Gender and Number. Except when otherwise indicated by the context, any masculine terminology, when used in the Plan, shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural.

SECTION 3 ELIGIBILITY AND PARTICIPATION.

3.1 Eligibility. Any Director who is not an employee of the Company or any of its subsidiaries on the date the Fees to be deferred are earned shall be eligible to particpate in the Plan. Any director who is an employee of the Company or all of its subsidiaries, shall become an eligible Director as of the first day upon which he ceases to be an employee of the Company and all it subsidiaries.

3.2 Participation. An eligible Director may become a Participant in the Plan by making an election pursuant to Subsection hereof. In the event a Participant no longer meets the requirements for participation in this Plan, he shall become an inactive Participant, retaining all the rights described under this Plan, except the right to make any further deferrals, until the time that he again becomes an active Participant.

SECTION 4 ELECTION TO DEFER.

4.1 Deferral Election. Each eligible Director may elect, by written notice of an Election Form, to defer payment of all or one-half of the Director Fees payable to the Director during the Year following the date of the election for future services as a Director; provided, however, that an eligible Director may, within 30 days of the date he becomes an eligible Director, make an election which relates to Director Fees otherwise payable to him during the Year when made, provided such Fees relate to future services. Such election will be filed with the Secretary of the Company or such other person designated by the Company and continue in force with respect to subsequent Years, until timely terminated or modified by the Director in writing with respect to Fees that relate to services to be performed and are payable in the future. no modification shall affect prior deferrals.

4.2 Deferral Period. If the Participant defers any amounts pursuant to Section 4.1, the Participant shall select the deferral period and the payment period to begin subsequent to one of the following dates:

(a) The date a Director ceases to be a Director, or

(b) The date specified by the Director.

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If timely elected by the Director, pursuant to Section 4.1 above, such payment commencement date may be delayed for up to five (5) years from the applicable date described in (a) or (b) above.

4.3 Manner of Payment Election. If a Participant defers any amounts pursuant to Section 4.1, the Participant also shall elect the manner in which the deferred amount will be paid. The Participant shall choose to have payment made either in a lump sum or in a specified number of approximately equal annual or quarterly installments over a period not to exceed fifteen years. The Participant may make and may revoke in writing his election with respect to the manner of payment (and, so long as he is a Director, the commencement thereof) at any time not later than the earlier of (a) December 31 prior to the date such payment is to commence or (b) the date which is six months (or such shorter period as the Board of Directors may approve) prior to the date such payment is to commence; provided, however, that an election in effect upon the expiration of such election period shall be irrevocable. Notwithstanding the foregoing, if the deferred amounts and growth additions credited to the Director at the time payments are to commence is less than $25,000, then the entire amount shall be paid in a single lump sum.

4.4 Deferral Payment. The first installment (or the single payment if the Director has so elected) shall be paid on the first day of each calendar quarter or year, as the case may be, following the commencement date applicable under Section 4.1 above, until the entire amount credited to the Director’s account shall have been paid.

4.5 Payment Upon Death. Notwithstanding the election made in Section 4.1, if a Director should die before any or full payment of all amounts, the balance in his deferred account, together with growth additions computed to date of payout, shall be paid to the Director’s estate or to a beneficiary or beneficiaries designated in writing by the Director. The amount payable shall be paid in a lump sum or quarterly or annual installments as elected by the Director. Notwithstanding the foregoing, if the deferred amounts and growth additions credited to the Director at the time payments are to commence is less than $25,000, then the entire amount shall be paid in a single lump sum.

4.6 Growth Additions. A growth increment shall be applied to deferred amounts in accordance with the provisions stated in Section 5.2 hereof.

4.7 Selection of Beneficiary. At the time of deferral, the Participant shall designate a beneficiary or beneficiaries in accordance with the provisions stated in Section 8.1.

SECTION 5 DEFERRED ACCOUNTS.

5.1 Participant Accounts. The Company shall establish and maintain a bookkeeping account for each deferral made by a Participant. This account shall be credited as of the date of the deferral with the amount deferred.

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5.2 Growth Additions. The Company shall provide the opportunity for growth additions to be earned on any deferred amounts in a Participant’s account, including remaining balances in an account during payout. The amount and timing of the crediting of growth additions shall be made in the same manner as is done under the Crediting/Debiting of Account Balances and Measurement Funds provisions of Nonqualified Retirement Plan.

5.3 Charges Against Accounts. There shall be charged against each Participant’s account any payments made to the Participant or to his beneficiary in accordance with Sections 4.4, 4.5, and 6.1 hereof.

5.4 Contractual Obligation. It is intended that the Company is under a contractual obligation to make payments from a Participant’s account when due. However, this Plan shall not be funded in any respect. Payment of account balances shall be made out of the general funds of the Company as determined by the Human Resource Committee.

5.5 Unsecured Interest. No Participant or beneficiary shall have any interest whatsoever in any specific asset of the Company. To the extent that any person acquires a right to receive payments under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Company.

SECTION 6 SHORT-TERM PAYOUT; FINANCIAL EMERGENCY; WITHDRAWAL ELECTION.

6.1 Short-Term Payout. In connection with an election to defer with respect to a Year, a Director may irrevocably elect to receive a future Short-Term Payout with respect to such amount. The election and payment of such Short-Term Payout amount shall be made in the same manner applicable to Short Term Payouts under the Nonqualified Retirement Plan.

6.2 Withdrawal Payout/Suspension for Unforeseeable Financial Emergencies. If a Director experiences an Unforeseeable Financial Emergency, the Director may petition the Board to suspend any deferral election then in place and/or receive a full or partial payout from the Plan. The determination of whether the Director has experienced an Unforeseeable Financial Emergency and the actions taken with respect thereto shall be made by the Board in the same manner as applicable to Unforeseeable Financial Emergencies under the Nonqualified Retirement Plan.

6.3 Withdrawal Election. A Director (or, after a Director’s death, his or her beneficiary) may elect, at any time, to withdraw all of his or her amounts credited under the Plan, calculated as if the date for commencement of payments had occurred as of the day of the election, less a withdrawal penalty equal to 10% of such amount. The timing and manner of any such election and payment of such withdrawal shall be made in the same manner as applicable to similar withdrawals under the Nonqualified Retirement Plan.

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SECTION 7 FORFEITURE.

7.1 Forfeiture. Amounts deferred or payable under this Plan are not forfeitable under any circumstances.

SECTION 8 BENEFICIARY DESIGNATION.

8.1 Beneficiary Designation. A Participant shall designate a beneficiary or beneficiaries who, upon his death, are to receive the distributions that otherwise would have been paid to him. All designations shall be in writing and shall be effective only if and then delivered to the Secretary of the Company during the lifetime of the Participant. If a Participant designates a beneficiary without providing in the designation that the beneficiary must be living at the time of such distribution, the designation shall vest in the beneficiary all of the distributions whether payable before or after the beneficiary’s death, and any distributions remaining upon the beneficiary’s death shall be made to the beneficiary’s estate.

8.2 Change of Beneficiary. A Participant may, from time to time during his lifetime, change his beneficiary or beneficiaries by a written instrument delivered to the Secretary of the Company. In the event a Participant shall not designate a beneficiary or beneficiaries as aforesaid, or if for any reason such designation shall be ineffective, in whole or in part, the distribution that otherwise would have been paid to such Participant shall be paid to his estate and, in such event, the term “beneficiary” shall include his estate.

SECTION 9 NONTRANSFERABILITY.

9.1 Nontransferability. The Director shall have no right to sell, gift, transfer, assign, or hypothecate the right to receive such payments in any manner whatsoever.

SECTION 10 ADMINISTRATION.

10.1 Administration. This Plan shall be administered by the Board. The Board may, from time to time, establish rules for the administration of this Plan and may broadly delegate administrative responsibility hereunder to officers of the Company.

10.2 Finality of Determination. The determination of the Board as to any disputed questions arising under this Plan, including questions or construction and interpretation, shall be final, binding, and conclusive upon all persons.

10.3 Expenses. The expenses of administering the Plan shall be borne by the Company.

SECTION 11 AMENDMENT AND TERMINATION.

11.1 Amendment and Termination. The Company expects to continue the Plan indefinitely, but since future conditions affecting the Company cannot be anticipated or foreseen, the Company must necessarily and does hereby reserve the right to amend,

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modify, or terminate the Plan at any time by action of its Board of Directors, including, but not limited to, by amendment of those provisions of the Nonqualified Retirement Plan which are applicable hereto as if set forth herein in their entirety. Notwithstanding the foregoing, the provisions, restrictions and limitations applicable to the Company’s ability to amend, modify or terminate the Nonqualified Retirement Plan as set forth in the Nonqualified Retirement Plan shall apply to this Plan.

SECTION 12 TRUST.

12.1 Nonqualified Retirement Trust. The Company has established a grantor trust (the “Trust”) in connection with the Nonqualified Retirement Plan for the purpose of assisting the Company in the administration and payment of amounts under the Nonqualified Retirement Plan and this Plan. The Company shall at least annually transfer over to the Nonqualified Retirement Trust such assets as the Company determines, in its sole discretion, are necessary to provide, on a present value basis, for its future liabilities created with respect to this Plan. The provisions of this Plan shall govern the right of a Director (or, after the Director’s death, his or her beneficiaries) to receive distributions pursuant to the Plan. The provisions of the Trust shall govern the rights of the Company, directors, beneficiaries and creditors of the Company to the assets transferred to the Trust. The Company shall at all times remain liable to carry out its obligations under the Plan.

SECTION 13 SUCCESSORS.

13.1 Successors and Assignees. The provisions of this Plan shall be binding upon and inure to the benefit of the Company and its successors and its assigns and the director and the director’s beneficiaries. The Company shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all of the business assets of the Company, expressly and unconditionally to assume and agree to perform the obligations of the Company under this Plan, in the same manner and to the same extends that the Company would be required to perform if no such successor or assignee had taken place. In addition, the Company shall require the ultimate parent entity or any successor or assignee corporations or entities to expressly guaranty the prompt performance by such successor or assignee.

SECTION 14 SUBSIDIARIES.

14.1 Subsidiaries. If a Participant defers any amounts pursuant to Section 4.1 which are Fees earned with respect to service as a member of the board of directors of a subsidiary of the Company, then the provisions of this Plan relating to the establishment of a Deferred Account and the crediting and payment of amounts with respect thereto shall apply to such subsidiary as if the subsidiary was the Company hereunder. Notwithstanding the foregoing, the Plan shall be administered and may be amended and/or terminated by the Board.

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IN WITNESS WHEREOF, the Company has caused this restated Plan to be executed by its duly authorized officer effective as of the 1^st day of January, 2003.

ATTEST/WITNESS:	FIRST MIDWEST BANCORP, INC.
/s/    STEVEN H. SHAPIRO	By:	/s/    JOHN M. O’MEARA
Corporate Secretary		President and Chief Executive Officer
Date: February 19, 2003		Date: February 19, 2003

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EX-10.6

Exhibit 10.6

First Midwest Bancorp, Inc.

Nonqualified Retirement Plan

Master Plan Document

Amended and Restated

effective January 1, 2003

TABLE OF CONTENTS

		Page
Article 1	Definitions	1
Article 2	Selection, Enrollment, Eligibility	7
2.1	Selection by Committee	7
2.2	Enrollment Requirements	7
2.3	Eligibility; Commencement of Participation	7
2.4	Termination of Participation and/or Deferrals	7
Article 3	Deferral Commitments/Company Matching/Crediting/Taxes	8
3.1	Minimum Deferrals	8
3.2	Maximum Deferral	8
3.3	Election to Defer; Effect of Election Form	8
3.4	Withholding of Annual Deferral Amounts	9
3.5	Annual Company Contribution Amount	9
3.6	Annual Company Matching Amount	9
3.7	Annual Profit Sharing Restoration Amount	9
3.8	Annual Pension Restoration Amount	10
3.9	Investment of Trust Assets	10
3.10	Vesting	10
3.11	Crediting/Debiting of Account Balances	11
3.12	FICA and Other Taxes	13
Article 4	Short-Term Payout; Unforeseeable Financial Emergencies; Withdrawal Election	14
4.1	Short-Term Payout	14
4.2	Other Benefits Take Precedence Over Short-Term	14
4.3	Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies	14
4.4	Withdrawal Election	14
Article 5	Termination Benefit	15
5.1	Termination Benefit	15
5.2	Payment of Termination Benefit	15
5.3	Death Prior to Completion of Termination Benefit	16
Article 6	Pre-Termination Survivor Benefit	16
6.1	Pre-Termination Survivor Benefit	16
6.2	Payment of Pre-Termination Survivor Benefit	16
Article 7	[Intentionally Omitted]	16
Article 8	Disability Waiver and Benefit	16
8.1	Disability Waiver	16
8.2	Continued Eligibility; Disability Benefit	17
Article 9	Beneficiary Designation	17

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TABLE OF CONTENTS

(continued)

		Page
9.1	Beneficiary	17
9.2	Beneficiary Designation	17
9.3	Acknowledgment	17
9.4	No Beneficiary Designation	17
9.5	Doubt as to Beneficiary	18
9.6	Discharge of Obligations	18
Article 10	Leave of Absence	18
10.1	Paid Leave of Absence	18
10.2	Unpaid Leave of Absence	18
Article 11	Termination, Amendment or Modification	18
11.1	Termination	18
11.2	Amendment	19
11.3	Effect of Change in Control	19
11.4	Plan Agreement	19
11.5	Effect of Payment	20
Article 12	Administration	20
12.1	Committee Duties	20
12.2	Agents	20
12.3	Indemnity of Committee	20
12.4	Employer Information	20
Article 13	Other Benefits and Agreements	20
13.1	Coordination with Other Benefits	20
Article 14	Claims Procedures	21
14.1	Presentation of Claim	21
14.2	Notification of Decision	21
14.3	Review of a Denied Claim	21
14.4	Decision on Review	22
14.5	Legal Action	22
Article 15	Trust	22
15.1	Establishment of the Trust	22
15.2	Interrelationship of the Plan and the Trust	22
15.3	Distributions From the Trust	22
Article 16	Miscellaneous	22
16.1	Status of Plan	22
16.2	Unsecured General Creditor	23
16.3	Employer’s Liability	23
16.4	Nonassignability	23

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TABLE OF CONTENTS

(continued)

		Page
16.5	Not a Contract of Employment	23
16.6	Furnishing Information	23
16.7	Terms	23
16.8	Captions	23
16.9	Governing Law	24
16.10	Notice	24
16.11	Successors	24
16.12	Spouse’s Interest	24
16.13	Validity	24
16.14	Incompetent	24
16.15	Court Order	25
16.16	Distribution in the Event of Taxation	25
16.17	Insurance	25
16.18	Legal Fees To Enforce Rights After Change in Control	25

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FIRST MIDWEST BANCORP, INC.

NONQUALIFIED RETIREMENT PLAN

Amended and Restated

Effective January 1, 2003

Purpose

The purpose of this Plan is to provide specified benefits to a select group of management and highly compensated Employees who contribute materially to the continued growth, development and future business success of First Midwest Bancorp, Inc., a Delaware corporation, and its subsidiaries, if any, that sponsor this Plan. This Plan shall be unfunded for tax purposes and for purposes of Title I of ERISA.

ARTICLE 1

Definitions

For purposes of this Plan, unless otherwise clearly apparent from the context, the following phrases or terms shall have the following indicated meanings:

1.1 “Account Balance” shall mean, with respect to a Participant, a credit on the records of the Employer equal to the sum of (i) the Deferral Account balance, (ii) the vested Company Contribution Account balance, (iii) the vested Company Matching Account balance, (iv) the vested Profit Sharing Restoration Account balance and (v) the vested Pension Restoration Account balance. The Account Balance, and each other specified account balance, shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant, or his or her designated Beneficiary, pursuant to this Plan.

1.2 “Actuarial Equivalent” shall mean an actuarial equivalent single sum value determined in the same manner as such Actuarial Equivalent single sum value would be determined under the Pension Plan.

1.3 “Annual Bonus” shall mean any compensation, in addition to Base Annual Salary relating to services performed during any calendar year, whether or not paid in such calendar year or included on the Federal Income Tax Form W-2 for such calendar year, payable to a Participant as an Employee under any Employer’s annual bonus and cash incentive plans, excluding stock options.

1.4 “Annual Company Contribution Amount” shall mean, for any one Plan Year, the amount determined in accordance with Section 3.5.

1.5 “Annual Company Matching Amount” for any one Plan Year shall be the amount determined in accordance with Section 3.6.

1.6 “Annual Deferral Amount” shall mean that portion of a Participant’s Base Annual Salary and Annual Bonus that a Participant elects to have, and is deferred, in accordance with Article 3, for any one Plan Year. In the event of a Participant’s Disability (if deferrals cease in accordance with Section 8.1), death or a Termination of Employment prior to the end of a Plan

Year, such year’s Annual Deferral Amount shall be the actual amount withheld prior to such event.

1.7 “Annual Pension Restoration Amount” for any one Plan Year shall be the amount determined in accordance with Section 3.8.

1.8 “Annual Profit Sharing Restoration Amount” for any one Plan Year shall be the amount determined in accordance with Section 3.7.

1.9 “Base Annual Salary” shall mean the annual cash compensation relating to services performed during any calendar year, whether or not paid in such calendar year or included on the Federal Income Tax Form W-2 for such calendar year, excluding bonuses, commissions, overtime, fringe benefits, stock options, relocation expenses, incentive payments, non-monetary awards, directors’ fees and other fees, automobile and other allowances paid to a Participant for employment services rendered (whether or not such allowances are included in the Employee’s gross income). Base Annual Salary shall be calculated before reduction for compensation voluntarily deferred or contributed by the Participant pursuant to all qualified or non-qualified plans of any Employer and shall be calculated to include amounts not otherwise included in the Participant’s gross income under Code Sections 125, 402(e)(3), 402(h), or 403(b) pursuant to plans established by any Employer; provided, however, that all such amounts will be included in compensation only to the extent that, had there been no such plan, the amount would have been payable in cash to the Employee.

1.10 “Beneficiary” shall mean one or more persons, trusts, estates or other entities, designated in accordance with Article 9, that are entitled to receive benefits under this Plan upon the death of a Participant.

1.11 “Beneficiary Designation Form” shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to designate one or more Beneficiaries.

1.12 “Board” shall mean the board of directors of the Company.

1.13 “Change in Control” shall mean any of the following events:

(a) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Act of 1934, as amended, other than (i) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a subsidiary, or (ii) a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 10% or more of the total voting power of the then outstanding shares of capital stock of the Company entitled to vote generally in the election of directors (the “Voting Stock”); provided, however, that the following shall not constitute a Change in Control: (A) such person becomes the beneficial owner of 10% or more of the Voting Stock as the result of the acquisition of such stock directly from the Company, or (B) such person becomes the beneficial owner of 10% or more of the Voting Stock as a result of the decrease in the number of outstanding shares caused by the repurchase of shares by the Company; provided, further, that in the event a person

2

described in clause (A) or (B) shall thereafter increase (other than in circumstances described in clause (A) or (B)) beneficial ownership of stock representing more than 1% of the Voting Stock, such person shall then be deemed to be a beneficial owner of 10% or more of the Voting Stock for purposes of this paragraph (a), provided that such person continues to beneficially own 10% or more of the Voting Stock after such subsequent increase in beneficial ownership, or

(b) During any period of two consecutive years, individuals, who at the beginning of such period, constitute the Board of Directors of the Company, and any new director, whose election by the Board of Directors or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (?) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved (the “Incumbent Directors”), cease for any reason to constitute a majority thereof, or

(c) The stockholders of the Company approve, or if such approval is not necessary or required, the consummation of, a reorganization, merger or consolidation, the sale or other disposition of all or substantially all of the assets, or a similar transaction or series of transactions involving the Company (a “Business Combination”) in each case, unless (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Voting Stock immediately prior to such Business Combination beneficially, own, directly or indirectly, more than 50% of the total voting power represented by the voting securities entitled to vote generally in the election of directors of the Company or the corporation resulting from the Business Combination (including, without limitation, a corporation which as a result of the Business Combination owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries), in substantially the same proportions as their ownership, immediately prior to the Business Combination of the Voting Stock of the Company, and (2) at least a majority of the members of the board of directors of the Company or such corporation resulting from the Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or action of the Incumbent Board, providing for such Business Combination, or

(d) The stockholders of the Company approve a plan of complete liquidation or dissolution of the Company.

1.14 “Claimant” shall have the meaning set forth in Section 14.1.

1.15 “Code” shall mean the Internal Revenue Code of 1986, as it may be amended from time to time.

1.16 “Committee” shall mean the committee described in Article 12.

1.17 “Company” shall mean First Midwest Bancorp, Inc., a Delaware corporation, and any successor to all or substantially all of the Company’s assets or business.

1.18 “Company Contribution Account” shall mean (i) the sum of the Participant’s Annual Company Contribution Amounts, plus (ii) amounts credited in accordance with all the applicable crediting provisions of this Plan that relate to the Participant’s Company Contribution

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Account, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Participant’s Company Contribution Account.

1.19 “Company Matching Account” shall mean (i) the sum of all of a Participant’s Annual Company Matching Amounts, plus (ii) amounts credited in accordance with all the applicable crediting provisions of this Plan that relate to the Participant’s Company Matching Account, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Participant’s Company Matching Account.

1.20 “Deduction Limitation” shall mean the following described limitation on a benefit that may otherwise be distributable pursuant to the provisions of this Plan. Except as otherwise provided, this limitation shall be applied to all distributions that are “subject to the Deduction Limitation” under this Plan. If an Employer determines in good faith prior to a Change in Control that there is a reasonable likelihood that any compensation paid to a Participant for a taxable year of the Employer would not be deductible by the Employer solely by reason of the limitation under Code Section 162(m), then to the extent deemed necessary by the Employer to ensure that the entire amount of any distribution to the Participant pursuant to this Plan prior to the Change in Control is deductible, the Employer may defer all or any portion of a distribution under this Plan. Any amounts deferred pursuant to this limitation shall continue to be credited/debited with additional amounts in accordance with Section 3.11 below, even if such amount is being paid out in installments. The amounts so deferred and amounts credited thereon shall be distributed to the Participant or his or her Beneficiary (in the event of the Participant’s death) at the earliest possible date, as determined by the Employer in good faith, on which the deductibility of compensation paid or payable to the Participant for the taxable year of the Employer during which the distribution is made will not be limited by Section 162(m), or if earlier, the effective date of a Change in Control. Notwithstanding anything to the contrary in this Plan, the Deduction Limitation shall not apply to any distributions made after a Change in Control.

1.21 “Deferral Account” shall mean (i) the sum of all of a Participant’s Annual Deferral Amounts, plus (ii) amounts credited in accordance with all the applicable crediting provisions of this Plan that relate to the Participant’s Deferral Account, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to his or her Deferral Account.

1.22 “Disability” shall mean a period of disability during which a Participant qualifies for permanent disability benefits under the Participant’s Employer’s long-term disability plan, or, if a Participant does not participate in such a plan, a period of disability during which the Participant would have qualified for permanent disability benefits under such a plan had the Participant been a participant in such a plan, as determined in the sole discretion of the Committee. If the Participant’s Employer does not sponsor such a plan, or discontinues to sponsor such a plan, Disability shall be determined by the Committee in its sole discretion.

1.23 “Disability Benefit” shall mean the benefit set forth in Article 8.

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1.24 “Election Form” shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to make an election under the Plan.

1.25 “Employee” shall mean a person who is an employee of any Employer.

1.26 “Employer(s)” shall mean the Company and/or any of its subsidiaries (now in existence or hereafter formed or acquired) that have been selected by the Board to participate in the Plan and have adopted the Plan as a sponsor.

1.27 “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as it may be amended from time to time.

1.28 “401(k) Plan” shall be that certain First Midwest Bancorp, Inc. Savings and Profit Sharing Plan, as it may from time to time be amended.

1.29 “Participant” shall mean any Employee (i) who is selected to participate in the Plan, (ii) who elects to participate in the Plan, (iii) who signs a Plan Agreement, an Election Form and a Beneficiary Designation Form, (iv) whose signed Plan Agreement, Election Form and Beneficiary Designation Form are accepted by the Committee, (v) who commences participation in the Plan, and (vi) whose Plan Agreement has not terminated. A spouse or former spouse of a Participant shall not be treated as a Participant in the Plan or have an account balance under the Plan, even if he or she has an interest in the Participant’s benefits under the Plan as a result of applicable law or property settlements resulting from legal separation or divorce.

1.30 “Pension Plan” shall be that certain First Midwest Bancorp, Inc. Consolidated Pension Plan, as it may from time to time be amended.

1.31 “Pension Restoration Account” shall mean (i) the sum of all of a Participant’s Annual Pension Restoration Amounts, plus (ii) amounts credited in accordance with all the applicable crediting provisions of this Plan that relate to the Participant’s Pension Restoration Account, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Participant’s Pension Restoration Account.

1.32 “Plan Agreement” shall mean a written agreement, as may be amended from time to time, which is entered into by and between an Employer and a Participant. Each Plan Agreement executed by a Participant and the Participant’s Employer shall provide for the entire benefit to which such Participant is entitled under the Plan; should there be more than one Plan Agreement, the Plan Agreement bearing the latest date of acceptance by the Employer shall supersede all previous Plan Agreements in their entirety and shall govern such entitlement. The terms of any Plan Agreement may be different for any Participant, and any Plan Agreement may provide additional benefits not set forth in the Plan or limit the benefits otherwise provided under the Plan; provided, however, that any such additional benefits or benefit limitations must be agreed to by both the Employer and the Participant.

1.33 “Plan Year” shall mean a period beginning on January 1 of each calendar year and continuing through December 31 of such calendar year.

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1.34 “Plan” shall mean the Company’s Nonqualified Retirement Plan, which shall be evidenced by this instrument and by each Plan Agreement, as they may from time to time be amended.

1.35 “Pre-Termination Survivor Benefit” shall mean the benefit set forth in Article 6.

1.36 “Profit Sharing Restoration Account” shall mean (i) the sum of all of a Participant’s Annual Profit Sharing Restoration Amounts, plus (ii) amounts credited in accordance with all the applicable crediting provisions of this Plan that relate to the Participant’s Profit Sharing Restoration Account, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Participant’s Profit Sharing Restoration Account.

1.37 “Qualified Plan Limits” shall mean the limitations imposed under Code Section 401(a)(17), Code Section 401(k)(3), Code Section 402(g) and/or Code Section 415, as the context so requires.

1.38 “Quarterly or Annual Installment Method” shall be a quarterly or annual installment payment over the number of quarters or years selected by the Participant in accordance with this Plan, calculated as follows: The Account Balance of the Participant shall be calculated as of the close of business on the last business day of a quarter. The quarterly or annual installment to be paid shall be calculated by multiplying this balance by a fraction, the numerator of which is one, and the denominator of which is the remaining number of quarterly payments due the Participant. By way of example, if the Participant elects a 40 quarter Quarterly or Annual Installment Method, the first payment shall be 1/40 of the Account Balance, calculated as described in this definition. The following quarter, the payment shall be 1/39 of the Account Balance, calculated as described in this definition. If the Participant had elected 10 annual installments, then the first payment shall be 1/10 of the Account Balance and the subsequent installment would be 1/9 of the Account Balance at the end of the fourth quarter following the quarter with respect to which the first payment was determined. Each quarterly or annual installment shall be paid on or as soon as practicable after the last business day of the applicable quarter, but in no event more than 30 days after such date.

1.39 “Retirement” means termination of employment on or after age 65 or on or after 55 with 15 years of service credited under the Pension Plan.

1.40 “Short-Term Payout” shall mean the payout set forth in Section 4.1.

1.41 “Stock” means the common stock, $.01 par value per share, of the Company. In the event of a change in the Stock by reason of a Stock dividend or split, recapitalization, merger, consolidation, combination, exchange of shares, or similar corporate change, the Stock shall be appropriately adjusted by the Committee.

1.42 “Termination Benefit” shall mean the benefit set forth in Article 5.

1.43 “Termination of Employment” or “Termination” shall mean the severing of employment with all Employers, voluntarily or involuntarily, for any reason other than Disability, death or an authorized leave of absence.

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1.44 “Trust” shall mean one or more trusts established pursuant to that certain First Midwest Bancorp, Inc. Nonqualified Retirement Plan Grantor Trust Agreement, dated as of May 13, 1994, as amended from time to time, between the Company and Harris Bank Barrington, N.A.

1.45 “Unforeseeable Financial Emergency” shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant that would result in severe financial hardship to the Participant resulting from (i) a sudden and unexpected illness or accident of the Participant or a dependent of the Participant, (ii) a loss of the Participant’s property due to casualty, or (iii) such other extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant for which distribution is necessary to preserve the value of the benefits of this Plan to the Participant, all as determined in the sole discretion of the Committee.

ARTICLE 2

Selection, Enrollment, Eligibility

2.1 Selection by Committee. Participation in the Plan shall be limited to a select group of management and highly compensated Employees of the Employers, as determined by the Committee in its sole discretion. From that group, the Committee shall select, in its sole discretion, Employees to participate in the Plan.

2.2 Enrollment Requirements. As a condition to participation, each selected Employee shall complete, execute and return to the Committee a Plan Agreement, an Election Form and a Beneficiary Designation Form, all within 30 days after he or she is selected to participate in the Plan. In addition, the Committee shall establish from time to time such other enrollment requirements as it determines in its sole discretion are necessary.

2.3 Eligibility; Commencement of Participation. Provided an Employee selected to participate in the Plan has met all enrollment requirements set forth in this Plan and required by the Committee, including returning all required documents to the Committee within the specified time period, that Employee shall commence participation in the Plan on the first day of the month following the month in which the Employee completes all enrollment requirements. If an Employee fails to meet all such requirements within the period required, in accordance with Section 2.2, that Employee shall not be eligible to participate in the Plan until the first day of the Plan Year following the delivery to and acceptance by the Committee of the required documents.

2.4 Termination of Participation and/or Deferrals. If the Committee determines in good faith that a Participant no longer qualifies as a member of a select group of management or highly compensated employees, as membership in such group is determined in accordance with Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, the Committee shall have the right, in its sole discretion, to (i) terminate any deferral election the Participant has made for the remainder of the Plan Year in which the Participant’s membership status changes, (ii) prevent the Participant from making future deferral elections and/or (iii) immediately distribute the Participant’s then Account Balance as a Termination Benefit and terminate the Participant’s participation in the Plan.

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ARTICLE 3

Deferral Commitments/Company Matching/Crediting/Taxes

3.1 Minimum Deferrals.

(a) Base Annual Salary and Annual Bonus. For each Plan Year, commencing with the 1998 Plan Year, a Participant may elect to defer, as his or her Annual Deferral Amount, Base Annual Salary and Annual Bonus in the following combined minimum amount:

Deferral	Minimum Amount
Base Annual Salary	$	0
Annual Bonus	$	0
Combined Minimum	$	2,500

If an election is made for less than the combined minimum, or if no election is made, the amount deferred shall be zero.

(b) Short Plan Year. Notwithstanding the foregoing, if a Participant first becomes a Participant after the first day of a Plan Year, the minimum deferral shall be an amount equal to the minimum set forth above, multiplied by a fraction, the numerator of which is the number of complete months remaining in the Plan Year and the denominator of which is 12.

3.2 Maximum Deferral.

(a) Base Annual Salary and Annual Bonus. For each Plan Year, commencing with the 1998 plan year, a Participant may elect to defer, as his or her Annual Deferral Amount, Base Annual Salary and Annual Bonus up to the following maximum percentages for each deferral elected:

Deferral	Maximum Amount
Base Annual Salary	75	%
Annual Bonus	100	%

Notwithstanding the foregoing, if a Participant first becomes a Participant after the first day of a Plan Year, the maximum Annual Deferral Amount shall be limited to the amount of compensation not yet earned by the Participant as of the date the Participant submits a Plan Agreement and Election Form to the Committee for acceptance.

3.3 Election to Defer; Effect of Election Form.

(a) First Plan Year. In connection with a Participant’s commencement of participation in the Plan, the Participant shall make an irrevocable deferral election for the Plan Year in which the Participant commences participation in the Plan, along with such other elections as the Committee deems necessary or desirable under the Plan. For these elections to

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be valid, the Election Form must be completed and signed by the Participant, timely delivered to the Committee (in accordance with Section 2.2 above) and accepted by the Committee.

(b) Subsequent Plan Years. For each succeeding Plan Year, an irrevocable deferral election for that Plan Year, and such other elections as the Committee deems necessary or desirable under the Plan, shall be made by timely delivering to the Committee, in accordance with its rules and procedures, before the end of the Plan Year preceding the Plan Year for which the election is made, a new Election Form. In the absence of the timely delivery of such a new Election Form, the Election Form in effect at the end of a Plan Year shall constitute the Participant’s irrevocable deferral election for the succeeding Plan Year.

3.4 Withholding of Annual Deferral Amounts. For each Plan Year, the Base Annual Salary portion of the Annual Deferral Amount shall be withheld from each regularly scheduled Base Annual Salary payroll in equal amounts, as adjusted from time to time for increases and decreases in Base Annual Salary. The Annual Bonus portion of the Annual Deferral Amount shall be withheld at the time the Annual Bonus is or otherwise would be paid to the Participant, whether or not this occurs during the Plan Year itself.

3.5 Annual Company Contribution Amount. For each Plan Year, an Employer, in its sole discretion, may, but is not required to, credit any amount it desires to any Participant’s Company Contribution Account under this Plan, which amount shall be for that Participant the Annual Company Contribution Amount for that Plan Year. The amount so credited to a Participant may be smaller or larger than the amount credited to any other Participant, and the amount credited to any Participant for a Plan Year may be zero, even though one or more other Participants receive an Annual Company Contribution Amount for that Plan Year. The Annual Company Contribution Amount, if any, shall be credited as of the last day of the Plan Year. If a Participant is not employed by an Employer as of the last day of a Plan Year other than by reason of his or her death while employed, the Annual Company Contribution Amount for that Plan Year shall be zero.

3.6 Annual Company Matching Amount. Provided the Participant has elected to defer an Annual Deferral Amount for the Plan Year, the Participant’s Annual Company Matching Amount for any Plan Year shall be equal to 2% of the Participant’s Base Annual Salary, reduced by the amount of any matching contributions made to the 401(k) Plan on his or her behalf for the plan year of the 401(k) Plan that corresponds to the Plan Year. The Annual Company Matching Amount shall be credited on a quarterly basis during the Plan Year in the same manner as the matching contribution under the 401(k) Plan. If a Participant is not employed by an Employer as of the last day of a calendar quarter during the Plan Year other than by reason of his or her Retirement, Disability or death, the Annual Company Matching Amount attributable to such quarter and the remainder of such Plan Year shall be zero. In the event of death, a Participant shall be credited with the Annual Company Matching Amount attributable to the quarter of the Plan Year in which he or she dies.

3.7 Annual Profit Sharing Restoration Amount. A Participant’s Annual Profit Sharing Amount for any Plan Year shall be an amount, determined by the Company, equal to the amount of profit sharing and matching benefits which would have been credited to the Participant under the 401(k) Plan during the corresponding plan year of the 401(k) Plan, but for

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the Qualified Plan Limits and the Participant’s participation in this Plan. If recommended by the Company’s retirement and benefit plans administrative committee and approved by the Committee in connection with the Participant’s commencement of employment with the Company, the Participant’s Annual Profit Sharing Restoration Amount shall also include an amount, determined by the Company, equal to the amount of profit sharing and matching benefits which would have been credited to the Participant under the 401(k) Plan for the period of the Participant’s employment with the Company prior to the date the Participant first becomes eligible to participate in the 401(k) Plan. If a Participant is not employed by an Employer as of the last day of a Plan Year other than by reason of his or her Retirement, Disability or death, the Annual Profit Sharing Amount for such Plan Year shall be zero. In the event of Retirement, Disability or death, a Participant shall be credited with the Annual Profit Sharing Amount for the Plan Year in which he or she dies.

3.8 Annual Pension Restoration Amount. A Participant’s Annual Pension Restoration Amount for any Plan Year shall be an amount, determined on a Actuarial Equivalent basis by the Company, equal to (a) the amount by which the Actuarial Equivalent value of the Participant’s accrued benefit under the Pension Plan determined as of the last day of the Plan Year (i) as if the Participant’s termination of employment occurred on the last day of the Plan Year, or, in the case of a Participant whose employment terminated for any reason during the Plan Year, such earlier date of termination, (ii) without giving effect to the Qualified Plan Limits and the Participant’s deferral elections under this Plan, and (iii) if recommended by the Company’s retirement and benefit plans administrative committee and approved by the Committee in connection with the Participant’s commencement of employment with the Company, by crediting of the period of employment prior to the date the Participant first became eligible to participate in the Pension Plan as benefit service, exceeds (b) the sum of (i) the Actuarial Equivalent value as of the last day of the Plan Year of the Participant’s accrued benefit under the Pension Plan (including as part of such accrued benefit any amounts previously distributed to the Participant under the Pension Plan), plus (ii) the Actuarial Equivalent value of the Annual Pension Restoration Amounts credited to the Participant’s Pension Restoration Account or paid to the Participant with respect to prior Plan Years.

3.9 Investment of Trust Assets. The Trustee of the Trust shall be authorized, upon written instructions received from the Committee or investment manager appointed by the Committee, to invest and reinvest the assets of the Trust in accordance with the applicable Trust Agreement.

3.10 Vesting.

(a) A Participant shall at all times be 100% vested in his or her Deferral Account.

(b) Except as otherwise provided in the Plan Agreement or other written agreement between the Company and the Participant, a Participant shall be 100% vested in his or her Company Contribution Account.

(c) A Participant shall be 100% vested in his or her Company Matching Account.

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(d) A Participant shall be vested in his or her Profit Sharing Restoration Account in accordance with the vesting schedule for Company profit sharing and matching contributions set forth in the 401(k) Plan.

(e) A Participant shall be vested in his or her Pension Restoration Account in accordance with the vesting schedule for retirement benefits set forth in the Pension Plan.

(f) Notwithstanding anything to the contrary contained in this Section 3.10, in the event of a Change in Control, a Participant’s Company Contribution Account, Company Matching Account, Profit Sharing Restoration Account and Pension Restoration Account shall immediately become 100% vested (if it is not already vested in accordance with the above vesting schedules).

3.11 Crediting/Debiting of Account Balances. In accordance with, and subject to, the rules and procedures that are established from time to time by the Committee, in its sole discretion, amounts shall be credited or debited to a Participant’s Account Balance in accordance with the following rules:

(a) Election of Investment Funds. Subject to Section 3.11(f) below, a Participant, in connection with his or her initial deferral election in accordance with Section 3.3(a) above, shall elect, on the Election Form, one or more Investment Fund(s) (as described in Section 3.11(c) below) to be used to determine the additional amounts to be credited to his or her Account Balance for the first calendar quarter or portion thereof in which the Participant commences participation in the Plan and continuing thereafter for each subsequent calendar quarter in which the Participant participates in the Plan, unless changed in accordance with the next sentence. Subject to Section 3.11(f) below, commencing with the first calendar quarter that follows the Participant’s commencement of participation in the Plan and continuing thereafter for each subsequent calendar quarter in which the Participant participates in the Plan, no later than the next to last business day of the calendar quarter, the Participant may (but is not required to) elect, by submitting an Election Form to the Committee that is accepted by the Committee, to add or delete one or more Investment Fund(s) to be used to determine the additional amounts to be credited to his or her Account Balance, or to change the portion of his or her Account Balance allocated to each previously or newly elected Investment Fund. If an election is made in accordance with the previous sentence, it shall apply to the next calendar quarter and continue thereafter for each subsequent calendar quarter in which the Participant participates in the Plan, unless changed in accordance with the previous sentence.

(b) Proportionate Allocation. In making any election described in Section 3.11(a) above, the Participant shall specify on the Election Form, in increments of one percentage point (1%), the percentage of his or her Account Balance to be allocated to a Investment Fund (as if the Participant was making an investment in that Investment Fund with that portion of his or her Account Balance).

(c) Investment Funds. The Participant may elect one or more Investment funds, based on such funds as are designated from time to time by Committee (the “Investment Funds”), including a Investment Fund deemed invested in Stock (the “Stock Investment Fund”).

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As necessary, the Committee may, in its sole discretion, discontinue, substitute or add a Investment Fund. Each such action will take effect as of the first day of the calendar quarter that follows by thirty (30) days the day on which the Committee gives Participants advance written notice of such change.

(d) Crediting or Debiting Method. The performance of each elected Investment Fund (either positive or negative) will be determined by the Committee, in its reasonable discretion, based on the performance of the Investment Funds themselves. A Participant’s Account Balance shall be credited or debited on a daily basis based on the performance of each Investment Fund selected by the Participant, as determined by the Committee in its sole discretion, as though (i) a Participant’s Account Balance were invested in the Investment Fund(s) selected by the Participant, in the percentages applicable to such calendar quarter, as of the close of business on the first business day of such calendar quarter, at the closing price on such date; (ii) the portion of the Annual Deferral Amount that was actually deferred during any calendar quarter were invested in the Investment Fund(s) selected by the Participant, in the percentages applicable to such calendar quarter, no later than the close of business on the first business day after the day on which such amounts are actually deferred from the Participant’s Base Annual Salary through reductions in his or her payroll, at the closing price on such date; and (iii) any distribution made to a Participant that decreases such Participant’s Account Balance ceased being invested in the Investment Fund(s), in the percentages applicable to such calendar quarter, no earlier than one business day prior to the distribution, at the closing price on such date. In furtherance of the foregoing, for purposes of crediting dividends attributable to the Stock Investment Fund, dividends shall be credited as of the record date thereof. The Participant’s Annual Company Contribution Amount, Annual Company Matching Amount, Annual Profit Sharing Restoration Amount and Annual Pension Restoration Amount shall be credited to his or her Company Contribution Account, Company Matching Account, Profit Sharing Restoration Account and/or Pension Restoration Account, as the case may be, as of the last day of the Plan Year to which they relate. Despite the foregoing, to the extent the Deferral and other amounts described in this Article 3 are paid into the Trust and the Trust assets are invested from time to time to reflect the elections made by Participants pursuant to Section 3.11(a) above, then each Participant’s Account Balance shall be debited or credited on the basis of the actual investment gains or losses of the Trust in lieu of crediting of the gains or losses in accordance with clauses (i), (ii) and (iii) above.

(e) No Actual Investment. Notwithstanding any other provision of this Plan that may be interpreted to the contrary, the Investment Funds are to be used for Investment purposes only, and a Participant’s election of any such Investment Fund, the allocation to his or her Account Balance thereto, the calculation of additional amounts and the crediting or debiting of such amounts to a Participant’s Account Balance shall not be considered or construed in any manner as an actual investment of his or her Account Balance in any such Investment Fund. In the event that the Company or the Trustee (as that term is defined in the Trust), in its own discretion, decides to invest funds in any or all of the Investment Funds, no Participant shall have any rights in or to such investments themselves. Without limiting the foregoing, a Participant’s Account Balance shall at all times be a bookkeeping entry only and shall not represent any investment made on his or her behalf by the Company or the Trust; the Participant shall at all times remain an unsecured creditor of the Company.

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(f) Stock Investment Fund – Frozen. As of the September 30, 1998, the portion of each Participant’s Account Balance deemed invested in the Stock Investment Fund shall be referred to herein as the Stock Investment Fund – Frozen and be subject to the provisions of this Section 3.11(f). The portion of the Account Balance allocated to the Stock Investment Fund – Frozen shall, for so long as amounts deemed invested in such Fund are deemed invested in Stock, be subject to crediting and debiting solely on the basis of the investment performance of the Stock in which such portion of the Account Balance is deemed invested, including any dividends attributable thereto. No other amounts may be allocated to the Stock Investment Fund – Frozen, nor may any portion of the Account Balance deemed invested in the Stock Investment Fund – Frozen be allocated by the Participant (or Beneficiary) to any other Investment Fund. The distribution of any amount deemed invested in the Stock Investment Fund – Frozen shall be distributed in shares of Stock only; provided, however, that cash shall be distributed in lieu of any fractional share.

(g) Stock Investment Fund – Active. Effective October 1, 1998, allocation of any portion of the Account Balance by a Participant (or Beneficiary) for deemed investment in the Stock Investment Fund shall be referred to herein as allocated to the Stock Investment Fund – Active and be subject to the limitations of this Section 3.11(g). Allocations of the Account Balance to the Stock Investment Fund – Active shall be limited such that no amount, other than that attributable to reinvested dividends, may be allocated to the Stock Investment Fund – Active if such allocation will cause the number of shares of Stock deemed represented by the Account Balance allocated to the Stock Investment Fund – Active to exceed 1,875. Amounts allocated to the Stock Investment Fund – Active may be allocated to other Investment Funds. Distribution of any portion of the Account Balance then deemed invested in the Stock Investment Fund – Active shall be distributed only in cash; provided, however that Committee may extend to Participants the right to receive such amounts in shares of Stock, provided such right is extended as an award under the Company’s Omnibus Stock and Incentive Plan, as amended and restated, effective as of February 19, 2003.

3.12 FICA and Other Taxes.

(a) Deferral Account. For each Plan Year in which an Annual Deferral Amount is being withheld from a Participant, the Participant’s Employer(s) shall withhold from that portion of the Participant’s Base Annual Salary and Bonus that is not being deferred, in a manner determined by the Employer(s), the Participant’s share of FICA and other employment taxes on such Annual Deferral Amount. If necessary, the Committee may reduce the Annual Deferral Amount in order to comply with this Section 3.12.

(b) Company Matching Account, Company Contribution Account, Profit Sharing Restoration Account and Pension Restoration Account. When a participant becomes vested in a portion of his or her Company Contribution Account, Company Matching Account, Profit Sharing Restoration Account and/or Pension Restoration Account, the Participant’s Employer(s) shall withhold from the Participant’s Base Annual Salary and/or Annual Bonus that is not deferred, in a manner determined by the Employer(s), the Participant’s share of FICA and other employment taxes on such amount. If necessary, the Committee may reduce the vested portion of the Company Contribution Account, Participant’s Company

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Matching Account, Profit Sharing Restoration Account and/or Pension Restoration Account in order to comply with this Section 3.12.

(c) Distributions. The Participant’s Employer(s), or the trustee of the Trust, shall withhold from any payments made to a Participant under this Plan all federal, state and local income, employment and other taxes required to be withheld by the Employer(s), or the trustee of the Trust, in connection with such payments, in amounts and in a manner to be determined in the sole discretion of the Employer(s) and the trustee of the Trust.

ARTICLE 4

Short-Term Payout; Unforeseeable Financial Emergencies; Withdrawal Election

4.1 Short-Term Payout. In connection with each election to defer an Annual Deferral Amount, a Participant may irrevocably elect to receive a future “Short-Term Payout” from the Plan with respect to such Annual Deferral Amount. Subject to the Deduction Limitation, the Short-Term Payout shall be a lump sum payment in an amount that is equal to the Annual Deferral Amount plus amounts credited or debited in the manner provided in Section 3.11 above on that amount, determined at the time that the Short-Term Payout becomes payable (rather than the date of a Termination of Employment). Subject to the Deduction Limitation and the other terms and conditions of this Plan, each Short-Term Payout elected shall be paid out during a 60-day period commencing immediately after the last day of any Plan Year designated by the Participant that is at least three Plan Years after the Plan Year in which the Annual Deferral Amount is actually deferred. By way of example, if a three year Short-Term Payout is elected for Annual Deferral Amounts that are deferred in the Plan Year commencing January 1, 2000, the three year Short-Term Payout would become payable during a 60-day period commencing January 1, 2004.

4.2 Other Benefits Take Precedence Over Short-Term. Should an event occur that triggers a benefit under Article 5, 6 or 8, any Annual Deferral Amount, plus amounts credited or debited thereon, that is subject to a Short-Term Payout election under Section 4.1 shall not be paid in accordance with Section 4.1 but shall be paid in accordance with the other applicable Article.

4.3 Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies. If the Participant experiences an Unforeseeable Financial Emergency, the Participant may petition the Committee to (i) suspend any deferrals required to be made by a Participant and/or (ii) receive a partial or full payout from the Plan. The payout shall not exceed the lesser of the Participant’s Account Balance, calculated as if such Participant were receiving a Termination Benefit, or the amount reasonably needed to satisfy the Unforeseeable Financial Emergency. If, subject to the sole discretion of the Committee, the petition for a suspension and/or payout is approved, suspension shall take effect upon the date of approval and any payout shall be made within 60 days of the date of approval. The payment of any amount under this Section 4.3 shall be subject to the Deduction Limitation.

4.4 Withdrawal Election. A Participant (or, after a Participant’s death, his or her Beneficiary) may elect, at any time, to withdraw all of his or her Account Balance, calculated as if there had occurred a Termination of Employment as of the day of the election, less a

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withdrawal penalty equal to 10% of such amount (the net amount shall be referred to as the “Withdrawal Amount”). This election can be made at any time, before or after Disability, death or Termination of Employment, and whether or not the Participant (or Beneficiary) is in the process of being paid pursuant to an installment payment schedule. If made before Disability or death, a Participant’s Withdrawal Amount shall be his or her Account Balance calculated as if there had occurred a Termination of Employment as of the day of the election. No partial withdrawals of the Withdrawal Amount shall be allowed. The Participant (or his or her Beneficiary) shall make this election by giving the Committee advance written notice of the election in a form determined from time to time by the Committee. The Participant (or his or her Beneficiary) shall be paid the Withdrawal Amount within 60 days of his or her election. Once the Withdrawal Amount is paid, the Participant’s right to voluntarily defer compensation into the Plan shall terminate and the Participant shall not be eligible to make any voluntary deferral elections for the remainder of the Plan Year of the Withdrawal Election and the next Plan Year. The payment of the Withdrawal Amount shall be subject to the Deduction Limitation.

ARTICLE 5

Termination Benefit

5.1 Termination Benefit. Subject to the Deduction Limitation, a Participant who Experiences a Termination of Employment shall receive, as a Termination Benefit, his or her Account Balance.

5.2 Payment of Termination Benefit. A Participant, in connection with his or her commencement of participation in the Plan, shall elect on an Election Form to receive the Termination Benefit in a lump sum or pursuant to an Quarterly or Annual Installment Method of up to 60 quarters or 15 years. The Participant may annually change his or her election to an allowable alternative payout period by submitting a new Election Form to the Committee, provided that any such Election Form is applicable to a Termination date which occurs in a subsequent calendar year and at least six months (or such shorter period as the Committee may approve) after the date the new Election Form is accepted by the Committee in its sole discretion; provided, however, such advance filing period shall not apply to a new Election Form submitted prior to a Change in Control which is applicable to a Termination date which occurs on or after the date of the Change in Control. The Election Form most recently accepted by the Committee shall govern the payout of the Termination Benefit. If a Participant does not make any election with respect to the payment of the Termination Benefit, then such benefit shall be payable in five annual payments under the Quarterly or Annual Installment Method. The lump sum payment shall be made, or installment payments shall commence, no later than 30 days after the last day of the calendar quarter in which the Participant experiences the Termination of Employment; provided, however, the Participant may elect to have the Termination Benefit payment commencement date delayed for up to five (5) years from the Termination date by submitting an Election Form to that effect which is accepted by the Committee at least six months (or such shorter period as the Committee may approve) prior to the Termination date. Despite the foregoing, if the Participant’s Account Balance is less than $25,000 at the time of Termination, payment of the Account Balance shall be made in a lump sum no later than 30 days after the last day of the calendar quarter in which the Participant experiences the Termination. Any payment made shall be subject to the Deduction Limitation.

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5.3 Death Prior to Completion of Termination Benefit. If a Participant dies after experiencing the Termination of Employment but before the Termination Benefit is paid in full, the Participant’s unpaid Termination Benefit payments shall continue and shall be paid to the Participant’s Beneficiary (a) over the remaining number of quarters and in the same amounts as that benefit would have been paid to the Participant had the Participant survived, or (b) in a lump sum, if requested by the Beneficiary and allowed in the sole discretion of the Committee, that is equal to the Participant’s unpaid remaining Account Balance.

ARTICLE 6

Pre-Termination Survivor Benefit

6.1 Pre-Termination Survivor Benefit. Subject to the Deduction Limitation, the Participant’s Beneficiary shall receive a Pre-Termination Survivor Benefit equal to the Participant’s Account Balance if the Participant dies before he or she experiences a Termination of Employment or suffers a Disability.

6.2 Payment of Pre-Termination Survivor Benefit. A Participant, in connection with his or her commencement of participation in the Plan, shall elect on an Election Form whether the Pre-Termination Survivor Benefit shall be received by his or her Beneficiary in a lump sum or pursuant to an Quarterly or Annual Installment Method of up to 60 quarters or 15 years. The Participant may annually change this election to an allowable alternative payout period by submitting a new Election Form to the Committee, which form must be accepted by the Committee in its sole discretion. The Election Form most recently accepted by the Committee prior to the Participant’s death shall govern the payout of the Participant’s Pre-Termination Survivor Benefit. If a Participant does not make any election with respect to the payment of the Pre-Termination Survivor Benefit, then such benefit shall be paid in a lump sum. Despite the foregoing, if the Participant’s Account Balance at the time of his or her death is less than $25,000, payment of the Pre-Termination Survivor Benefit shall be made in a lump sum. The lump sum payment shall be made, or installment payments shall commence, no later than 30 days after the last day of the calendar quarter in which the Committee is provided with proof that is satisfactory to the Committee of the Participant’s death. Any payment made shall be subject to the Deduction Limitation.

ARTICLE 7

[Intentionally Omitted]

ARTICLE 8

Disability Waiver and Benefit

8.1 Disability Waiver.

(a) Waiver of Deferral. A Participant who is determined by the Committee to be suffering from a Disability shall be excused from fulfilling that portion of the Annual Deferral Amount commitment that would otherwise have been withheld from a Participant’s Base Annual Salary and Annual Bonus for the Plan Year during which the Participant first suffers a Disability. During the period of Disability, the Participant shall not be allowed to make

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any additional deferral elections, but will continue to be considered a Participant for all other purposes of this Plan.

(a) Return to Work. If a Participant returns to employment with an Employer after a Disability ceases, the Participant may elect to defer an Annual Deferral Amount for the Plan Year following his or her return to employment or service and for every Plan Year thereafter while a Participant in the Plan; provided such deferral elections are otherwise allowed and an Election Form is delivered to and accepted by the Committee for each such election in accordance with Section 3.3 above.

8.2 Continued Eligibility; Disability Benefit. A Participant suffering a Disability shall, for benefit purposes under this Plan, continue to be considered to be employed and shall be eligible for the benefits provided for in Articles 4, 5, 6 or 8 in accordance with the provisions of those Articles. Notwithstanding the above, the Committee shall have the right to, in its sole and absolute discretion and for purposes of this Plan only, deem the Participant to have experienced a Termination of Employment, at any time after such Participant is determined to be suffering a Disability, in which case the Participant shall receive a Disability Benefit equal to his or her Account Balance at the time of the Committee’s determination. The Disability Benefit shall be paid in a lump sum within 60 days of the Committee’s exercise of such right. Any payment made shall be subject to the Deduction Limitation.

ARTICLE 9

Beneficiary Designation

9.1 Beneficiary. Each Participant shall have the right, at any time, to designate his or her Beneficiary(ies) (both primary as well as contingent) to receive any benefits payable under the Plan to a beneficiary upon the death of a Participant. The Beneficiary designated under this Plan may be the same as or different from the Beneficiary designation under any other plan of an Employer in which the Participant participates.

9.2 Beneficiary Designation. A Participant shall designate his or her Beneficiary by completing and signing the Beneficiary Designation Form, and returning it to the Committee or its designated agent. A Participant shall have the right to change a Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Committee’s rules and procedures, as in effect from time to time. Upon the acceptance by the Committee of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be canceled. The Committee shall be entitled to rely on the last Beneficiary Designation Form filed by the Participant and accepted by the Committee prior to his or her death.

9.3 Acknowledgment. No designation or change in designation of a Beneficiary shall be effective until received and acknowledged in writing by the Committee or its designated agent.

9.4 No Beneficiary Designation. If a Participant fails to designate a Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above or, if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant’s benefits, then the Participant’s designated Beneficiary shall be deemed to be his or her surviving spouse. If the

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Participant has no surviving spouse, the benefits remaining under the Plan to be paid to a Beneficiary shall be payable to the executor or personal representative of the Participant’s estate.

9.5 Doubt as to Beneficiary. If the Committee has any doubt as to the proper Beneficiary to receive payments pursuant to this Plan, the Committee shall have the right, exercisable in its discretion, to cause the Participant’s Employer to withhold such payments until this matter is resolved to the Committee’s satisfaction.

9.6 Discharge of Obligations. The payment of benefits under the Plan to a Beneficiary shall fully and completely discharge all Employers and the Committee from all further obligations under this Plan with respect to the Participant, and that Participant’s Plan Agreement shall terminate upon such full payment of benefits.

ARTICLE 10

Leave of Absence

10.1 Paid Leave of Absence. If a Participant is authorized by the Participant’s Employer for any reason to take a paid leave of absence from the employment of the Employer, the Participant shall continue to be considered employed by the Employer and the Annual Deferral Amount shall continue to be withheld during such paid leave of absence in accordance with Section 3.3.

10.2 Unpaid Leave of Absence. If a Participant is authorized by the Participant’s Employer for any reason to take an unpaid leave of absence from the employment of the Employer, the Participant shall continue to be considered employed by the Employer and the Participant shall be excused from making deferrals until the earlier of the date the leave of absence expires or the Participant returns to a paid employment status. Upon such expiration or return, deferrals shall resume for the remaining portion of the Plan Year in which the expiration or return occurs, based on the deferral election, if any, made for that Plan Year. If no election was made for that Plan Year, no deferral shall be withheld.

ARTICLE 11

Termination, Amendment or Modification

11.1 Termination. Although each Employer anticipates that it will continue the Plan for an indefinite period of time, there is no guarantee that any Employer will continue the Plan or will not terminate the Plan at any time in the future. Accordingly, each Employer reserves the right to discontinue its sponsorship of the Plan and/or to terminate the Plan at any time with respect to any or all of its participating Employees, by action of its board of directors. Upon the termination of the Plan with respect to any Employer, the Plan Agreements of the affected Participants who are employed by that Employer shall terminate and their Account Balances, determined as if they had experienced a Termination of Employment on the date of Plan termination, shall be paid to the Participants as follows: Prior to a Change in Control, if the Plan is terminated with respect to all of its Participants, an Employer shall have the right, in its sole discretion, and notwithstanding any elections made by the Participant, to pay such benefits in a lump sum or pursuant to Quarterly or Annual Installment Method of up to 60 quarters or 15 years, with amounts credited and debited during the installment period as provided herein. Prior

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to a Change in Control, if the Plan is terminated with respect to less than all of its Participants, an Employer shall be required to pay such benefits in a lump sum. The termination of the Plan shall not adversely affect any Participant or Beneficiary who has become entitled to the payment of any benefits under the Plan as of the date of termination; provided however, that the Employer shall have the right to accelerate installment payments without a premium or prepayment penalty by paying the Account Balance in a lump sum or pursuant to a Quarterly or Annual Installment Method using fewer quarters or years (provided that the present value of all payments that will have been received by a Participant at any given point of time under the different payment schedule shall equal or exceed the present value of all payments that would have been received at that point in time under the original payment schedule). After a Change in Control, the effect of termination of the Plan shall be governed by Section 11.3 below.

11.2 Amendment. Subject to Section 11.3 below relating to amendments made after a Change in Control, any Employer may, at any time, amend or modify the Plan in whole or in part with respect to that Employer by the action of its board of directors; provided, however, that: (i) no amendment or modification shall be effective to decrease or restrict the value of a Participant’s Account Balance in existence at the time the amendment or modification is made, calculated as if the Participant had experienced a Termination of Employment as of the effective date of the amendment or modification; and (ii) no amendment or modification of this Section 11.2 or Section 12.2 of the Plan shall be effective. Such amendment or modification of the Plan shall not affect any Participant or Beneficiary who has become entitled to the payment of benefits under the Plan as of the date of the amendment or modification; provided, however, that the Employer shall have the right to accelerate installment payments by paying the Account Balance in a lump sum or pursuant to an Quarterly or Annual Installment Method using fewer quarters or years (provided that the present value of all payments that will have been received by a Participant at any given point of time under the different payment schedule shall equal or exceed the present value of all payments that would have been received at that point in time under the original payment schedule).

11.3 Effect of Change in Control. Despite the provisions of Sections 11.1 and 11.2 above, following a Change in Control, the provisions of this Plan or any Participant’s Plan Agreement may not be amended or terminated in any manner with respect to a Participant or Beneficiary if such amendment or termination would have an adverse effect in any way upon the computation or amount of or entitlement to benefits of such Participant or Beneficiary under the Plan as in effect immediately prior to the Change in Control, including, but not limited to, any adverse change in or to the crediting or debiting of amounts to the Account Balances or the time or manner of payment of the Account Balances to any Participant or Beneficiary, unless the Participant or Beneficiary has given written consent to such amendment or termination. An “adverse change” for purposes of this Section 11.3 shall include, but not be limited to, any acceleration of the payment of the Account Balances payable to the Participant or Beneficiary or a change in the composition of the risk and return characteristics represented by the available Investment Funds or the Participant’s or Beneficiary’s ability to allocate his or her Account Balances among such Investment Funds.

11.4 Plan Agreement. Despite the provisions of Sections 11.1 and 11.2 above, if a Participant’s Plan Agreement contains benefits or limitations that are not in this Plan document, the Employer may only amend or terminate such provisions with the consent of the Participant.

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11.5 Effect of Payment. The full payment of the applicable benefit under Articles 4, 5, 6 or 8 of the Plan shall completely discharge all obligations to a Participant and his or her designated Beneficiaries under this Plan and the Participant’s Plan Agreement shall terminate.

ARTICLE 12

Administration

12.1 Committee Duties. Except as otherwise provided in this Article 12, this Plan shall be administered by a Committee which shall consist of the Board, or such committee as the Board shall appoint. Members of the Committee may be Participants under this Plan. The Committee shall also have the discretion and authority to (i) make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan and (ii) decide or resolve any and all questions including interpretations of this Plan, as may arise in connection with the Plan. Any individual serving on the Committee who is a Participant shall not vote or act on any matter relating solely to himself or herself. When making a determination or calculation, the Committee shall be entitled to rely on information furnished by a Participant or the Company.

12.2 Agents. In the administration of this Plan, the Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit (including acting through a duly appointed representative) and may from time to time consult with counsel who may be counsel to any Employer.

12.3 Indemnity of Committee. All Employers shall indemnify and hold harmless the members of the Committee, any Employee to whom the duties of the Committee may be delegated, and the Administrator against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Plan, except in the case of willful misconduct by the Committee, any of its members, any such Employee or the Administrator.

12.4 Employer Information. To enable the Committee and/or Administrator to perform its functions, the Company and each Employer shall supply full and timely information to the Committee and/or Administrator, as the case may be, on all matters relating to the compensation of its Participants, the date and circumstances of the Disability, death or Termination of Employment of its Participants, and such other pertinent information as the Committee or Administrator may reasonably require.

ARTICLE 13

Other Benefits and Agreements

13.1 Coordination with Other Benefits. The benefits provided for a Participant and Participant’s Beneficiary under the Plan are in addition to any other benefits available to such Participant under any other plan or program for employees of the Participant’s Employer. The Plan shall supplement and shall not supersede, modify or amend any other such plan or program except as may otherwise be expressly provided.

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ARTICLE 14

Claims Procedures

14.1 Presentation of Claim. Any Participant or Beneficiary of a deceased Participant (such Participant or Beneficiary being referred to below as a “Claimant”) may deliver to the Committee a written claim for a determination with respect to the amounts distributable to such Claimant from the Plan. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within 60 days after such notice was received by the Claimant. All other claims must be made within 180 days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant.

14.2 Notification of Decision. The Committee shall consider a Claimant’s claim within a reasonable time, and shall notify the Claimant in writing:

(a) that the Claimant’s requested determination has been made, and that the claim has been allowed in full; or

(b) that the Committee has reached a conclusion contrary, in whole or in part, to the Claimant’s requested determination, and such notice must set forth in a manner calculated to be understood by the Claimant:

(i) the specific reason(s) for the denial of the claim, or any part of it;

(ii) specific reference(s) to pertinent provisions of the Plan upon which such denial was based;

(iii) a description of any additional material or information necessary for the Claimant to perfect the claim, and an explanation of why such material or information is necessary; and

(iv) an explanation of the claim review procedure set forth in Section 14.3 below.

14.3 Review of a Denied Claim. Within 60 days after receiving a notice from the Committee that a claim has been denied, in whole or in part, a Claimant (or the Claimant’s duly authorized representative) may file with the Committee a written request for a review of the denial of the claim. Thereafter, but not later than 30 days after the review procedure began, the Claimant (or the Claimant’s duly authorized representative):

(a) may review pertinent documents;

(b) may submit written comments or other documents; and/or

(c) may request a hearing, which the Committee, in its sole discretion, may grant.

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14.4 Decision on Review. The Committee shall render its decision on review promptly, and not later than 60 days after the filing of a written request for review of the denial, unless a hearing is held or other special circumstances require additional time, in which case the Committee’s decision must be rendered within 120 days after such date. Such decision must be written in a manner calculated to be understood by the Claimant, and it must contain:

(a) specific reasons for the decision;

(b) specific reference(s) to the pertinent Plan provisions upon which the decision was based; and

(c) such other matters as the Committee deems relevant.

14.5 Legal Action. A Claimant’s compliance with the foregoing provisions of this Article 14 is a mandatory prerequisite to a Claimant’s right to commence any legal action with respect to any claim for benefits under this Plan.

ARTICLE 15

Trust

15.1 Establishment of the Trust. The Company shall establish the Trust, and each Employer shall at least annually transfer over to the Trust such assets as the Employer determines, in its sole discretion, are necessary to provide, on a present value basis, for its respective future liabilities created with respect to the Annual Deferral Amounts, Annual Company Contribution Amounts, and Company Matching Amounts for such Employer’s Participants for all periods prior to the transfer, as well as any debits and credits to the Participants’ Account Balances for all periods prior to the transfer, taking into consideration the value of the assets in the trust at the time of the transfer.

15.2 Interrelationship of the Plan and the Trust. The provisions of the Plan and the Plan Agreement shall govern the rights of a Participant to receive distributions pursuant to the Plan. The provisions of the Trust shall govern the rights of the Employers, Participants and the creditors of the Employers to the assets transferred to the Trust. Each Employer shall at all times remain liable to carry out its obligations under the Plan.

15.3 Distributions From the Trust. Each Employer’s obligations under the Plan may be satisfied with Trust assets distributed pursuant to the terms of the Trust, and any such distribution shall reduce the Employer’s obligations under this Plan.

ARTICLE 16

Miscellaneous

16.1 Status of Plan. The Plan is intended to be a plan that is not qualified within the meaning of Code Section 401(a) and that “is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employee” within the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1). The Plan shall be administered and interpreted to the extent possible in a manner consistent with that intent.

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16.2 Unsecured General Creditor. Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interests or claims in any property or assets of an Employer. For purposes of the payment of benefits under this Plan, any and all of an Employer’s assets shall be, and remain, the general, unpledged unrestricted assets of the Employer. An Employer’s obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future.

16.3 Employer’s Liability. An Employer’s liability for the payment of benefits shall be defined only by the Plan and the Plan Agreement, as entered into between the Employer and a Participant. An Employer shall have no obligation to a Participant under the Plan except as expressly provided in the Plan and his or her Plan Agreement.

16.4 Nonassignability. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate, alienate or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are expressly declared to be, unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure, attachment, garnishment or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, be transferable by operation of law in the event of a Participant’s or any other person’s bankruptcy or insolvency or be transferable to a spouse as a result of a property settlement or otherwise.

16.5 Not a Contract of Employment. The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between any Employer and the Participant. Such employment is hereby acknowledged to be an “at will” employment relationship that can be terminated at any time for any reason, or no reason, with or without cause, and with or without notice, unless expressly provided in a written employment agreement. Nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of any Employer as an Employee, or to interfere with the right of any Employer to discipline or discharge the Participant at any time.

16.6 Furnishing Information. A Participant or his or her Beneficiary will cooperate with the Committee by furnishing any and all information requested by the Committee and take such other actions as may be requested in order to facilitate the administration of the Plan and the payments of benefits hereunder, including but not limited to taking such physical examinations as the Committee may deem necessary.

16.7 Terms. Whenever any words are used herein in the masculine, they shall be construed as though they were in the feminine in all cases where they would so apply; and whenever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply.

16.8 Captions. The captions of the articles, sections and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions.

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16.9 Governing Law. Subject to ERISA, the provisions of this Plan shall be construed and interpreted according to the internal laws of the State of Illinois without regard to its conflicts of laws principles.

16.10 Notice. Any notice or filing required or permitted to be given to the Committee under this Plan shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, to the address below:

Chief Financial Officer

First Midwest Bancorp, Inc.

Park Boulevard, Suite 405

Itasca, IL 60143-0459

Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification.

Any notice or filing required or permitted to be given to a Participant under this Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Participant.

16.11 Successors. The provisions of this Plan shall bind and inure to the benefit of the Participant’s Employer and its successors and assigns and the Participant and the Participant’s designated Beneficiaries. The Company shall require any successor or assignee to expressly and unconditionally assume and agree to perform or cause to be performed each Employer’s obligations hereunder. In addition, the Company shall require the ultimate parent entity of any successor or assignee to expressly guaranty the prompt performance by such successor or assignee.

16.12 Spouse’s Interest. The interest in the benefits hereunder of a spouse of a Participant who has predeceased the Participant shall automatically pass to the Participant and shall not be transferable by such spouse in any manner, including but not limited to such spouse’s will, nor shall such interest pass under the laws of intestate succession.

16.13 Validity. In case any provision of this Plan shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal or invalid provision had never been inserted herein.

16.14 Incompetent. If the Committee determines in its discretion that a benefit under this Plan is to be paid to a minor, a person declared incompetent or to a person incapable of handling the disposition of that person’s property, the Committee may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or incapable person. The Committee may require proof of minority, incompetence, incapacity or guardianship, as it may deem appropriate prior to distribution of the benefit. Any payment of a benefit shall be a payment for the account of the Participant and the Participant’s Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Plan for such payment amount.

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16.15 Court Order. The Committee is authorized to make any payments directed by court order in any action in which the Plan or the Committee has been named as a party. In addition, if a court determines that a spouse or former spouse of a Participant has an interest in the Participant’s benefits under the Plan in connection with a property settlement or otherwise, the Committee, in its sole discretion, shall have the right, notwithstanding any election made by a Participant, to immediately distribute the spouse’s or former spouse’s interest in the Participant’s benefits under the Plan to that spouse or former spouse.

16.16 Distribution in the Event of Taxation.

(a) In General. If, for any reason, all or any portion of a Participant’s benefits under this Plan becomes taxable to the Participant prior to receipt, a Participant may petition the Committee before a Change in Control, or the trustee of the Trust after a Change in Control, for a distribution of that portion of his or her benefit that has become taxable. Upon the grant of such a petition, which grant shall not be unreasonably withheld (and, after a Change in Control, shall be granted), a Participant’s Employer shall distribute to the Participant immediately available funds in an amount equal to the taxable portion of his or her benefit (which amount shall not exceed a Participant’s unpaid Account Balance under the Plan). If the petition is granted, the tax liability distribution shall be made within 90 days of the date when the Participant’s petition is granted. Such a distribution shall affect and reduce the benefits to be paid under this Plan.

(b) Trust. If the Trust terminates in accordance with its terms and benefits are distributed from the Trust thereunder to a Participant, the Participant’s benefits under this Plan shall be reduced to the extent of such distributions.

16.17 Insurance. The Employers, on their own behalf or on behalf of the trustee of the Trust, and, in their sole discretion, may apply for and procure insurance on the life of the Participant, in such amounts and in such forms as the Trust may choose. The Employers or the trustee of the Trust, as the case may be, shall be the sole owner and beneficiary of any such insurance. The Participant shall have no interest whatsoever in any such policy or policies, and at the request of the Employers shall submit to medical examinations and supply such information and execute such documents as may be required by the insurance company or companies to whom the Employers have applied for insurance.

16.18 Legal Fees To Enforce Rights After Change in Control. In the event of a Change in Control, the Company shall pay all reasonable legal fees, costs and expenses incurred by a Participant or Beneficiary in enforcing any provision of this Plan or as a result of the Company’s or any Employer’s contesting the validity, enforceability or interpretation of this Plan.

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IN WITNESS WHEREOF, the Company has signed this Plan document as of February 19, 2003.

First Midwest Bancorp, Inc. a Delaware corporation
By:	/s/ JOHN M. O’MEARA
Title:	President and Chief Executive Officer

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EX-10.8

Exhibit 10.8

[LOGO] First Midwest First Midwest Bancorp, Inc. 300 Park Boulevard, Suite 405 P.O. Box 459 Itasca, Illinois 60143-9768 (630) 875-7450

February 19, 2003

First_Name Middle_Name Last_Name

Address_Line_1

Address_Line_2

City, State Zip_Code

RE: Letter Agreement – Option_Date

Grant of Nonqualified Stock Options (the “Agreement”)

Dear First_Name:

I am pleased to advise you that on Option_Date (the “Date of Grant”) and pursuant to the First Midwest Bancorp, Inc. Omnibus Stock and Incentive Plan, as Amended (the “Plan”), the Compensation Committee (the “Committee”) of the Board of Directors of First Midwest Bancorp, Inc. (the “Company”) approved a grant to you of a “Nonqualified Stock Option” (the “Option”). The Option provides you with the opportunity to purchase, for Option_Price per share, up to Shares_Granted shares of the Company’s Common Stock.

The Option is subject to the terms and conditions of the Plan, including any Amendments thereto, which are incorporated herein by reference, and to the following provisions:

(1) Exerciseability

Except as otherwise provided in paragraphs (3), (4), (5) and (8) below, the Option shall be exercisable only if you continue in the employment of the Company. The Option will become exercisable as follows: (a) 50% of the Option to purchase the shares indicated above is exercisable on or after Vest_Date_Period_1; b) the remaining 50% of the Option to purchase the shares indicated above is exercisable on Vest_Date_Period_2. In the event of your death or Disability, or in the event of a Change-in-Control, as defined in the Plan, the Option will become fully vested and exercisable as set forth in paragraphs (3) and (4), respectively. The Option expires upon the close of business on Expiration_Date_Period_1 (the “Expiration Date”).

(2) Procedure for Exercise

Subject to the forgoing paragraph (1), you may exercise the Option at any time and from time to time during the term of the Option by:

(a) delivery of written notification of exercise and payment in full:

(i) in cash or its equivalent; or

(ii) by tendering shares of previously-acquired Company stock that have been held by you for at least six (6) months prior to the date of written notification of exercise and having a fair market value at the exercise date (defined as the average of the high and low prices of the Company’s Common Stock quoted on the NASDAQ Stock Market on the date the written notice of exercise is received by the office of the Corporate Controller) equal to all or part of the total Option price; or

Page 2

(iii) by combination of (i) and (ii);

for all Option shares being purchased, plus the amount of any additional federal and state income tax and FICA/Medicare tax required to be withheld by reason of the exercise of the Option, unless you have properly elected, with the Committee’s consent in accordance with Section 15 of the Plan, to deliver previously-owned shares that have been held by you for at least six (6) months prior to the date of written notification of exercise or have Option shares withheld to satisfy such taxes; and

(b) if requested within the specified time set forth in any such request, delivery to the Company of such written representations and undertakings as may, in the opinion of the Company’s counsel, be necessary or desirable to comply with federal and state securities laws.

Also subject to the foregoing paragraph (1), you may exercise the Option by delivery of written notification of exercise and payment in full of the exercise price and applicable taxes in connection with the Nonqualified Stock Option Gain Deferral Plan (the “Gain Deferral Plan”) if at the sole discretion of the Committee you qualify to participate in the Gain Deferral Plan.

Further information regarding procedures for exercising your options can be found in the Plan, the Plan’s “Summary Description” and the document entitled “How to Exercise Your Stock Options”. If you are a first time grant recipient, these documents accompany this Letter Agreement.

(3) Termination of Employment

If your employment with the Company or any of its subsidiaries terminates due to your death or Disability, all vesting exercise restrictions will lapse and the Option will become immediately exercisable in full. If you employment with the Company or any of its subsidiaries terminates prior to the Expiration Date, the Option will continue to be exercisable by you (or in the event of your death, by your beneficiary or your estate’s executor or administrator) to the same degree that the Option was exercisable on your employment termination date (including any acceleration of vesting which may occur in the event of death or Disability), until the first of the following occur:

(a) except as provided in the event of a Change-in-Control, the expiration of 30 days after the date your employment is terminated for any reason other than retirement, death, Disability or discharge for cause;

(b) the expiration of three years following retirement, death or Disability;

(c) the termination date if the termination is for cause; or

(d) the Expiration Date.

(4) Merger, Consolidation or Change-in-Control

In the event of a Change-in-Control as defined in Section 13 of the Plan, all holding period and vesting exercise restrictions will lapse and the Options will become immediately exercisable in full and the 30 day period set forth in paragraph (3) (a) above will be extended to three years.

(5) Limited Transferability

The Option is personal to you and may not be sold, transferred, pledged, assigned or otherwise alienated, other than as provided herein. Your Option shall be exercisable during your lifetime only by you. Notwithstanding the foregoing, you may transfer your Option to:

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(a) your spouse, children or grandchildren (“Immediate Family Members”);

(b) a trust or trusts for the exclusive benefit of such Immediate Family Members, or;

(c) a partnership in which such Immediate Family Members are the only partners,

provided that:

(i) there may be no consideration for any such transfer;

(ii) subsequent transfers of the transferred Option shall be prohibited, except to designated beneficiaries; and

(iii) such transfer is evidenced by documents acceptable to the Company and filed with the Corporate Secretary.

Following transfer, the Option shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of designating a beneficiary with respect thereto, the transferee shall be entitled to designate the beneficiary. The provisions of this Letter Agreement relating to the period of exerciseability and expiration of the Option shall continue to be applied with respect to you and the Option shall be exercisable by the transferee only to the extent, and for the periods, set forth above. Transfer of Common Stock purchased by your transferee upon exercise of the Option may also be subject to the restrictions and limitations described in Paragraph (6) below.

(6) Securities Law Restrictions

You understand and acknowledge that applicable securities laws govern and may restrict your right to offer, sell, or otherwise dispose of any Option shares. The Company registered the Option shares under The Securities Act of 1933.

Executive Officers of the Company subject to Section 16(b) of the Securities Exchange Act of 1934 should consult the Company’s Corporate Secretary prior to purchasing any shares under this Option or selling such shares thereafter.

Additional information regarding these rules can be found in the Plan’s “Summary Description” and the document entitled “How to Exercise Your Stock Options”.

(7) Reload Provisions

As described more fully in Appendix B, “General Information Regarding Reload Stock Options” of the “Summary Description” of the Plan, the Committee has approved the grant of reload stock options upon certain exercises of the Option. Accordingly, a reload stock option will be granted upon any exercise of the Option by you while you are an employee and upon which you tender previously-owned Common Stock (Common Stock which has been held for at least six (6) months) in payment of the exercise price and/or use such shares in satisfaction of the required tax withholding. A Reload Option Letter Agreement will be issued to you to evidence the grant of a reload stock option.

(8) Continuing Participant Agreement

For purposes of this Option, your employment will not be deemed to have terminated, and instead will be deemed to be continuing, during any period during which you are a party to a Continuing Participant Agreement with the Company or any of its subsidiaries; provided such Continuing Participant Agreement was approved by the Committee and the Board of Directors of the Company.

(9) Tax Consequences

Information regarding federal tax consequences of the Option can be found in the Plan’s “Summary Description” and the document entitled “How to Exercise Your Stock Options”. You are strongly encouraged to contact your tax advisor regarding such tax consequences as they relate to you.

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(10) Employment of Successors

Nothing herein confers any right or obligation on you to continue in the employment of the Company or any subsidiary or shall affect in any way your right or the right of the Company or any subsidiary, as the case may be, to terminate your employment at any time. This Agreement shall be binding upon, and inure to the benefit of, any successor or successors of the Company.

(11) Conformity with Plan

The Option is intended to conform in all respects with the Plan. Inconsistencies between this Agreement and the Plan shall be resolved in accordance with the terms of the Plan. By executing and returning the enclosed Confirmation of Acceptance of this Letter Agreement, you agree to be bound by all the terms of the Plan. All definitions stated in the Plan shall be fully applicable to this Letter Agreement.

To confirm your understanding and acceptance of the Option granted to you by this Letter Agreement, please execute and return in the enclosed envelope the following enclosed documents: (a) the “Beneficiary Designation Form” and (b) the Confirmation of Acceptance endorsement of this Letter Agreement. The original copy of this Letter Agreement should be retained for your permanent records.

If you have any questions, please do not hesitate to contact the office of the Corporate Controller of First Midwest Bancorp, Inc. at (630) 875-7459.

Very truly yours,

John M. O’Meara

President and Chief Executive Officer

First Midwest Bancorp, Inc.

JMO:m

EX-21

Exhibit 21 SUBSIDIARIES OF THE REGISTRANT
Subsidiary	State of Jurisdiction of Incorporation
First Midwest Bank	Illinois
First Midwest Insurance Company	Arizona

EX-23

Exhibit 23

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the following documents of our report dated January 21, 2003, with respect to the consolidated financial statements of First Midwest Bancorp, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 2002:

• Registration Statement (Form S-3 No. 33-20439) pertaining to the First Midwest Bancorp, Inc. Dividend Reinvestment and Stock Purchase Plan.

• Registration Statement (Form S-8 No. 33-42980) pertaining to the First Midwest Bancorp, Inc. 1989 Omnibus Stock and Incentive Plan.

• Registration Statement (Form S-8 No. 33-25136) pertaining to the First Midwest Bancorp Savings and Profit Sharing Plan.

• Registration Statement (Form S-8 No. 333-42273) pertaining to the First Midwest Bancorp, Inc. 1989 Omnibus Stock and Incentive Plan.

• Registration Statement (Form S-8 No. 333-63095) pertaining to the First Midwest Bancorp, Inc. Non-employee Director Stock Option Plan.

• Registration Statement (Form S-8 No. 333-50140) pertaining to the First Midwest Bancorp, Inc. Non-employee Director Stock Option Plan.

• Registration Statement (Form S-8 No. 333-63097) pertaining to the First Midwest Bancorp, Inc. Nonqualified Retirement Plan.

• Registration Statement (Form S-8 No. 333-61090) pertaining to the First Midwest Bancorp, Inc. 1989 Omnibus Stock and Incentive Plan.

/s/ ERNST & YOUNG LLP

Chicago, Illinois

March 6, 2003