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, 2008

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.)

One Pierce Place, Suite 1500

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:

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

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

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

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

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 a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Large accelerated filer [X] Accelerated filer [    ] Non-accelerated filer [    ].

Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Exchange Act). Yes [    ] No [X].

The aggregate market value of the registrant’s outstanding voting common stock held by non-affiliates on June 30, 2008, determined using a per share closing price on that date of $18.65, as quoted on The Nasdaq Stock Market, was $825,612,542.

At February 26, 2009 there were 48,630,531 shares of common stock, $.01 par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant’s Proxy Statement for the 2009 Annual Stockholders’ Meeting - Part III

FORM 10-K

TABLE OF CONTENTS

		Page
Part I.
ITEM 1.	Business	5
ITEM 1A.	Risk Factors	15
ITEM 1B.	Unresolved Staff Comments	27
ITEM 2.	Properties	27
ITEM 3.	Legal Proceedings	28
ITEM 4.	Submission of Matters to a Vote of Security Holders	28
Part II
ITEM 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	28
ITEM 6.	Selected Financial Data	31
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
ITEM 7A.	Quantitative and Qualitative Disclosures about Market Risk	70
ITEM 8.	Financial Statements and Supplementary Data	73
ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	124
ITEM 9A.	Controls and Procedures	124
ITEM 9B.	Other Information	126
Part III
ITEM 10.	Directors, Executive Officers, and Corporate Governance	126
ITEM 11.	Executive Compensation	127
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	127
ITEM 13.	Certain Relationships and Related Transactions and Director Independence	127
ITEM 14.	Principal Accountant Fees and Services	127
Part IV
ITEM 15.	Exhibits and Financial Statement Schedules	127

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First Midwest Bancorp, Inc. is a bank holding Company headquartered in the Chicago suburb of Itasca, Illinois with operations throughout the greater Chicago metropolitan area as well as central and western Illinois. Our principal subsidiary is First Midwest Bank, which provides a broad range of commercial and retail banking services to consumer, commercial and industrial, and public or governmental customers. We are committed to meeting the financial needs of the people and businesses in the communities where we live and work by providing customized banking solutions, quality products, and innovative services that truly fulfill those financial needs.

AVAILABLE INFORMATION

We file annual, quarterly, and current reports; proxy statements; and other information with the Securities and Exchange Commission (“SEC”), and we make this information available free of charge on or through the investor relations section of our web site at www.firstmidwest.com/aboutinvestor_overview.asp. The following documents are also posted on our web site or are available in print upon the request of any stockholder to our Corporate Secretary:

— Certificate of Incorporation

— Company By-laws

— Charters for our Audit, Compensation, and Nominating and Corporate Governance Committees

— Related Person Transaction Policies and Procedures

— Corporate Governance Guidelines

— Code of Ethics and Standards of Conduct (the “Code”), which governs our directors, officers, and employees

— Code of Ethics for Senior Financial Officers.

Within the time period required by the SEC and the Nasdaq Stock Market, we will post on our web site any amendment to the Code and any waiver applicable to any executive officer, director, or senior financial officer (as defined in the Code). In addition, our web site includes information concerning purchases and sales of our securities by our executive officers and directors, as well as any disclosure relating to certain non-GAAP financial measures (as defined in the SEC’s Regulation G) that we may make public orally, telephonically, by webcast, by broadcast, or by similar means from time to time.

Our Corporate Secretary can be contacted by writing to First Midwest Bancorp, Inc., One Pierce Place, Itasca, Illinois 60143, Attn: Corporate Secretary. The Company’s Investor Relations Department can be contacted by telephone at (630) 875-7533 or by e-mail at investor.relations@firstmidwest.com.

CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES

LITIGATION REFORM ACT OF 1995

We include or incorporate by reference in this Annual Report on Form 10-K, and from time to time our management may make, statements that may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not historical facts, but instead represent only management’s beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside our control. Although we believe the expectations reflected in any forward-looking statements are reasonable, it is possible that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in such statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” and the negative of these terms and other comparable terminology. We caution you not to place undue reliance on forward-looking statements, which speak only as of the date of this report, or when made.

Forward-looking statements are subject to known and unknown risks, uncertainties, and assumptions and may include projections relating to our future financial performance including our growth strategies and anticipated

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trends in our business. For a detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements, you should refer to Items 1A and 7 of this Annual Report on Form 10-K, including the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Results of Operations,” as well as our subsequent periodic and current reports filed with the SEC. These risks and uncertainties are not exhaustive, however. Other sections of this report describe additional factors that could adversely impact our business and financial performance.

Since mid-2007, and particularly during the second half of 2008, the financial services industry and the securities markets generally have been materially and adversely affected by significant declines in the values of nearly all asset classes and by a serious lack of liquidity. The global markets have been characterized by substantially increased volatility and short-selling and an overall loss of investor confidence, initially in financial institutions, but more recently in companies in a number of other industries and in the broader markets. Such instability has brought a new level of risk to financial institutions in addition to the risks normally associated with competition and free market economies. The Company has attempted to list those risks elsewhere in this report and consider them as it makes disclosures regarding forward-looking statements. Nevertheless, given the uncertain economic times, new risks and uncertainties may emerge very quickly and unpredictably, and it is not possible to predict all risks and uncertainties. We cannot assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We are under no duty to update any of these forward-looking statements after the date of this report to conform our prior statements to actual results or revised expectations, and we do not intend to do so.

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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 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 $8.5 billion as of December 31, 2008 and is headquartered in the Chicago suburb of Itasca, Illinois.

History

The Company is the product of the consolidation of over 26 affiliated banks in 1983, followed by several significant acquisitions, including the purchase of SparBank, Incorporated, a $449 million institution in 1997, Heritage Financial Services, Inc., a $1.4 billion institution in 1998, CoVest Bancshares, a $645.6 million institution in 2003, and Bank Calumet, Inc., a $1.4 billion institution in 2006. The Company continues to explore opportunities to acquire banking institutions and discussions related to possible acquisitions may occur at any time. The Company cannot predict whether, or on what terms, communications will result in further acquisitions. As a matter of policy, the Company generally does not comment on any dialogue or possible acquisitions until a definitive acquisition agreement has been signed.

Subsidiaries

First Midwest operates two wholly owned subsidiaries: First Midwest Bank (the “Bank”), employing 1,794 full-time equivalent employees at December 31, 2008, and First Midwest Insurance Company. Substantially all of the Company’s operations are conducted through the Bank. At December 31, 2008, the Bank had $8.5 billion in total assets, $5.8 billion in total deposits, and 98 banking offices primarily in suburban metropolitan Chicago.

The Bank operates the following wholly owned subsidiaries:

— FMB Investment Corporation is a Delaware corporation established in 1998 that manages investment securities, principally state and municipal obligations, and provides corporate management services to its wholly owned subsidiary, FMB Investment Trust, a Maryland business trust, also established in 1998. FMB Investment Trust manages many of the real estate loans originated by the Bank. FMB Investment Trust has elected to be taxed as a Real Estate Investment Trust for federal income tax purposes.

— Calumet Investment Corporation is a Delaware corporation that manages investment securities, principally state and municipal obligations, and provides corporate management services to its wholly owned subsidiary, Calumet Investments Ltd., a Bermuda corporation. Calumet Investments Ltd. manages investment securities and is largely inactive.

— First Midwest Investments, Inc. and Bank Calumet Financial Services, Inc. are largely inactive.

First Midwest Insurance Company operates as a reinsurer of credit life, accident, and health insurance sold through the Bank, primarily in conjunction with its consumer lending operations, and is largely inactive.

The Company has responsibility for the overall conduct, direction, and performance of its subsidiaries. The Company provides various services to its subsidiaries, establishes Company-wide policies and procedures, and provides other resources as needed, including capital.

Market Area

First Midwest’s largest service area is the suburban Chicago metropolitan market, which includes the counties surrounding Cook County, Illinois. This area extends from the cities of Zion and Waukegan, Illinois down into

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northwest Indiana, including the cities of Crown Point and St. John, Indiana. The Company’s other service areas consist of a central Illinois market, which includes the cities of Champaign, Danville, and Galesburg, and an Iowa, or “Quad-Cities” market, which includes the cities of Davenport, Bettendorf, Moline, and East Moline. These service areas include a mixture of urban, suburban, and rural markets. First Midwest’s business of attracting deposits and making loans is primarily conducted within its service areas and may be affected by significant changes in their economies. These service areas contain a diversified mix of industry groups, including manufacturing, health care, pharmaceutical, higher education, wholesale and retail trade, service, and agricultural.

The Chicago metropolitan area currently ranks 3rd in the nation with respect to total businesses, 3rd in total population, 11th in average household income, and 8th in median income producing assets.

Competition

The banking and financial services industry in the Chicago metropolitan area is highly competitive, and the Company expects it to remain so in the future. Generally, the Bank competes for banking customers and deposits with other local, regional, and internet banks and savings and loan associations; personal loan and finance companies and credit unions; and mutual funds and investment brokers. The Company faces intense competition from local and out of state institutions within its service areas, and it expects to face increasing competition from on-line banking and financial institutions seeking to attract customers by providing access to services and products that mirror the services and products offered by traditional brick-and-mortar institutions.

Competition is based on a number of factors including interest rates charged on loans and paid on deposits; the ability to attract new deposits; the scope and type of banking and financial services offered; the hours during which business can be conducted; the location of bank branches and ATMs; the availability, ease of use, and range of banking services on the internet; the availability of related services; and a variety of additional services such as investment management, fiduciary, and brokerage services.

In providing investment advisory services, the Bank also competes with retail and discount stockbrokers, investment advisors, mutual funds, insurance companies, and other financial institutions for investment management clients. Competition is generally based on the variety of products and services offered to clients and the performance of funds under management and comes from financial service providers both within and outside of the geographic areas in which the Bank maintains offices.

The Company faces intense competition in attracting and retaining qualified employees. Its ability to continue to compete effectively will depend upon its ability to attract new employees and retain and motivate existing employees.

Our Business

First Midwest offers a variety of traditional financial products and services that are designed to meet the financial needs of the customers and communities it serves. For over 60 years, First Midwest has been in the basic business of community banking, namely attracting deposits and making loans, as well as providing wealth management, investment, and retirement plan services. The Company does not engage in any sub-prime or speculative lending, nor does it engage in non-commercial banking activities such as investment banking services or loan securitizations.

First Midwest differentiates itself from other commercial banks and financial institutions by the way it systematically assesses a customer’s specific financial needs, sells products and services to meet those needs, and provides the customer with high quality service. The Company believes this approach and its knowledge of and commitment to the communities in which it is located are the most important aspects in retaining and expanding its customer base.

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Deposit and Retail Services

First Midwest offers a full range of deposit services that are typically available in most commercial banks and financial institutions, including checking accounts, NOW accounts, money market accounts, savings accounts, and time deposits of various types, ranging from shorter-term to longer-term certificates of deposit. The transaction accounts and time deposits are tailored to our primary service area at competitive rates. The Company also offers certain retirement account services, including IRAs.

Lending Activities

First Midwest originates commercial and industrial, agricultural, commercial real estate, and consumer loans. Substantially all of the Company’s borrowers are residents of First Midwest’s principal markets. The Company’s largest category of lending is commercial real estate (including residential land and development loans), followed by commercial and industrial. Generally, real estate loans are secured by the land and any improvements to, or developments on, the land. Generally, loan-to-value ratios for unimproved and developed land at time of issuance historically have been 65% and 75%, respectively. Given current market conditions, these ratios have been lowered to 50% and 65%, respectively. The Company’s consumer loans consist primarily of home equity loans and lines of credit. For detailed information regarding the Company’s loan portfolio, see the “Loan Portfolio and Credit Quality” section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this Form 10-K.

First Midwest Sources of Funds

First Midwest’s ability to maintain affordable funding sources allows the Company to meet the credit needs of its customers and the communities it serves. Deposits are a relatively stable form of funding, and they are the primary source of the Company’s funds for lending and other investment purposes. Core deposits funded approximately 40% of the Company’s assets at the end of 2008, with a net loan-to-deposit ratio of 96%. Consumer and commercial deposits come from the Company’s primary service areas through a broad selection of deposit products. By maintaining core deposits, the Company both controls its funding costs and builds client relationships.

In addition to deposits, the Company obtains funds from the amortization, repayment, and prepayment of loans, the sale or maturity of investment securities; advances from the Federal Home Loan Bank, brokered repurchase agreements and certificates of deposits, federal funds purchased, and federal term auction facilities; cash flows generated by operations; and proceeds from sale of the Company’s common and preferred stock. For detailed information regarding the Company’s funding sources, see the “Funding and Liquidity Management” section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this Form 10-K.

First Midwest Investment Activities

First Midwest maintains a sizeable securities portfolio in order to provide the Company with financial stability, asset diversification, income, and collateral for borrowing. The Company administers this securities portfolio in accordance with an investment policy that has been approved and adopted by the board of directors of the Bank. The Company’s Asset Liability Committee (“ALCO”) implements the investment policy based on the established guidelines within the written policy.

The basic objectives of First Midwest’s investment activities are, among other things, to enhance the profitability of the Company by keeping its investable funds fully employed, provide adequate regulatory and operational liquidity, minimize and/or adjust the interest rate risk position of the Company, minimize the Company’s exposure to credit risk, and provide collateral for pledging requirements. For detailed information regarding the Company’s securities portfolio, see the “Investment Portfolio Management” section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this Form 10-K.

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Participation in Government Economic Recovery Programs

In response to the recent financial market crisis, the United States government, specifically the U.S. Department of the Treasury (“Treasury”), the Board of Governors of the Federal Reserve System (“Federal Reserve”), and the Federal Deposit Insurance Corporation (“FDIC”), working in cooperation with foreign governments and other central banks, has taken a variety of extraordinary measures designed to restore confidence in the financial markets and to strengthen financial institutions, including measures available under the Emergency Economic Stabilization Act of 2008 (“EESA”), which was enacted by the U.S. Congress in October of 2008. These measures include capital injections, guarantees of bank liabilities, and the potential acquisition of illiquid assets from banks. Below are summaries of certain federal economic recovery programs, including programs in which First Midwest participates:

— Increase in FDIC Deposit Insurance. The EESA increases the maximum deposit insurance amount up to $250,000 until December 31, 2009 and removes the statutory limits on the FDIC’s ability to borrow from the Treasury during this period. The Company held no such investment in either the Federal National Mortgage Association or Federal Home Loan Mortgage Corporation.

— Capital Purchase Program. Under the EESA, the Treasury may take a range of actions to provide liquidity to the U.S. financial markets, including the direct purchase of equity of financial institutions through the Treasury’s Capital Purchase Plan (“CPP”). The Company elected to participate in the CPP, and on December 5, 2008, First Midwest issued to the Treasury, in exchange for aggregate consideration of $193.0 million, (1) 193,000 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series B, liquidation preference of $1,000 per share (“Preferred Shares”); and (2) a ten-year warrant (“Warrant”) to purchase up to 1,305,230 shares of the Company’s common stock, par value $0.01 per share (“Common Stock”) at an exercise price, subject to anti-dilution adjustments, of $22.18 per share. Cumulative dividends on the Preferred Shares will accrue on the liquidation preference at a rate of 5% per annum for the first five years and at a rate of 9% per annum thereafter. The securities were sold in a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. The Preferred Shares generally are nonvoting and qualify as Tier 1 capital.

The letter agreement between the Treasury and the Company, dated December 5, 2008, including the securities purchase agreement concerning the issuance and sale of the Preferred Shares (the “Purchase Agreement”), grants the holders of the Preferred Shares, the Warrant, and First Midwest common stock to be issued under the Warrant certain registration rights and imposes restrictions on dividends and stock repurchases. In addition, in the event that the Company fails to declare and pay full dividends (or declare and set aside a sum sufficient for payment thereof) on the Preferred Shares, the Purchase Agreement will impose restrictions on the Company’s ability to declare or pay dividends or distributions on, or repurchase, redeem, or otherwise acquire for consideration, shares of its junior stock. For a detailed description of these restrictions, see Item 1A, “Risk Factors,” elsewhere in this report. In addition, the Purchase Agreement subjects the Company to the executive compensation limitations as set forth in Section 111(b) of the EESA.

— Temporary Liquidity Guarantee Program (“TLGP”). Under the TLGP, the FDIC will temporarily provide a 100% guarantee of the deposits in non-interest-bearing transaction deposit accounts in participating financial institutions. The Company participates in this program. Consequently, all funds held in non-interest-bearing transaction accounts (demand deposit accounts), Interest on Lawyers Trust Accounts (IOLTAs), and low-interest NOW accounts (defined as NOW accounts with interest rates no higher than 0.50%) with the Bank are covered under this program.

The TLGP also provides a three-year 100% guarantee of any newly issued senior unsecured debt that could be issued by the Company on or before June 30, 2009 (including promissory notes, commercial paper, inter-bank funding, and any unsecured portion of secured debt). The amount of potential Company debt that could be covered by this guarantee may not exceed 125% of the Company’s debt that was both outstanding as of September 30, 2008 and scheduled to mature before June 30, 2009. All fees associated with this guarantee are waived for the first 30 days of coverage. After the first 30 days, an annualized fee equal to 75 basis points multiplied by the amount of debt issued under this program is imposed.

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— Temporary Guarantee Program for Money Market Funds. Under the Temporary Guarantee Program for Money Market Funds, the Treasury will guarantee the share price of any publicly offered eligible money market mutual fund, both retail and institutional, that applies for and pays a fee to participate in the program. The temporary guarantee applies to all money market mutual funds that are regulated under Rule2a-7 of the Investment Company Act of 1940, are publicly offered, are registered with the SEC, and maintain a stable share price of $1. This includes both taxable and non-taxable funds. While the program protects the shares of all money market fund investors as of September 19, 2008, each money market fund makes the decision to sign up for the program. Company vendors have advised the Company that the funds in which balances from sweep accounts have been invested are enrolled in this program.

— Purchase of Troubled Assets. The EESA authorizes the Treasury to purchase up to $700 billion in troubled assets from financial institutions under the Treasury’s Troubled Assets Relief Program (“TARP”). “Troubled assets” include residential or commercial mortgages and related instruments originated prior to March 14, 2008 and any other financial instrument that the Secretary of the Treasury determines, after consultation with the Chairman of the Federal Reserve, the purchase of which is necessary to promote financial stability. If the Secretary exercises authority under TARP, the EESA directs the Secretary to establish a program to guarantee troubled assets originated or issued prior to March 14, 2008. The Treasury currently has not initiated any purchases under this program. If, and when, they do, the Company may or may not be eligible to participate in this program.

In addition to the government programs and legislation listed above, additional programs and legislation intended to address the current economic environment and financial crisis may be proposed or passed in the future. In this event, we could become subject to new rules and regulations or participate in additional government programs.

For example, on February 10, 2009, the Treasury Secretary introduced the framework for its Financial Stability Plan (“FSP”). As proposed, this plan may impose restrictions on financial institutions or mandate their participation in certain programs designed to strengthen the financial system or provide aid to homeowners and small businesses. In addition, on February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009, a $787 billion stimulus bill for the purpose of stabilizing and stimulating the economy, which imposes restrictions on CPP participants including the Company. Certain of these restrictions are discussed in greater detail under the heading, “Supervision and Regulation - Executive Compensation Limitations.”

First Midwest cannot predict whether or when the FSP or any other new government programs or legislation will be adopted. First Midwest also cannot predict whether the FSP will be adopted in its current proposed form or in a different form.

Supervision and Regulation

The Company and its subsidiaries are subject to regulation and supervision by various governmental regulatory authorities including the Board of Governors of the Federal Reserve System (the “Federal Reserve”), the Federal Deposit Insurance Corporation (the “FDIC”), the Illinois Department of Financial and Professional Regulation (the “IDFPR”), and the Arizona Department of Insurance. Financial institutions and their holding companies are extensively regulated under federal and state law.

Federal and state laws and regulations generally applicable to financial institutions, such as the Company and its subsidiaries, regulate, among other things, the scope of business, investments, reserves against deposits, capital levels, 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 deposit insurance fund (“DIF”) and the depositors, rather than the stockholders, of a financial institution.

The following references to material statutes and regulations affecting the Company and its subsidiaries are brief summaries thereof and are qualified in their entirety by reference to such statutes and regulations. Any change in

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applicable law or regulations may have a material effect on the business or operations of the Company and its subsidiaries. The operations of the Company may also be affected by changes in the policies of various regulatory authorities. The Company cannot accurately predict the nature or the extent of the effects that any such changes would have on its business and earnings.

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

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

The acquisition of 5% or more of the voting shares of any bank or bank holding company generally requires the prior approval of the Federal Reserve and is subject to applicable federal and state law, including the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (“Riegle-Neal”) for interstate transactions. The Federal Reserve evaluates acquisition applications based on, among other things, competitive factors, supervisory factors, adequacy of financial and managerial resources, and banking and community needs considerations.

The Act also prohibits, with certain exceptions, a bank holding company from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any “nonbanking” company unless the nonbanking activities are found by the Federal Reserve to be “so closely related to banking . . . as to be a proper incident thereto.” Under current regulations of the Federal Reserve, a bank holding company and its nonbank subsidiaries are permitted, among other activities, to engage in such banking-related business ventures as consumer finance, equipment leasing, data processing, mortgage banking, financial and investment advice, and securities brokerage services. 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 of any class of voting stock. 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. Under the Federal Reserve Act, banks and their affiliates are subject to certain requirements and restrictions when dealing with each other (affiliate transactions including transactions with their bank holding company). The Company is also subject to the provisions of the Illinois Bank Holding Company Act.

Interstate Banking

Bank holding companies are permitted to acquire banks and bank holding companies in any state and to be acquired, subject to the requirements of Riegle-Neal and, in some cases, applicable state law.

Under Riegle-Neal, adequately capitalized and managed bank holding companies may be permitted by the Federal Reserve 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 is prohibited from approving an application for acquisition if the applicant controls more than 10% 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 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

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applicant, following consummation of an acquisition, would control 30% 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 or waive 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.

Interstate branching under Riegle-Neal 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), compliance with federal and state antitrust laws, and compliance with applicable state consumer protection 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.

Riegle-Neal allowed each state the opportunity to “opt out,” thereby prohibiting interstate branching within that state. Of the three states in which the Bank is located (Illinois, Indiana, and Iowa), none of them has adopted legislation to “opt out” of the interstate merger provisions. Furthermore, pursuant to Riegle-Neal, a bank is 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, or, if the state allows acquisition of branches, subject to applicable state requirements. Illinois law allows de novo banking with other states that allow Illinois banks to branch de novo in those states.

Illinois Banking Law

The Illinois Banking Act (“IBA”) governs the activities of the Bank, an Illinois banking corporation. The IBA defines the powers and permissible activities of an Illinois state-chartered bank, prescribes corporate governance standards, imposes approval requirements on mergers of state banks, prescribes lending limits, and provides for the examination of state banks by the IDFPR. The Banking on Illinois Act (“BIA”) became effective in mid-1999 and amended the IBA to provide a wide range of new activities allowed for Illinois state-chartered banks, including 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 “wild card” provision that authorizes Illinois state-chartered banks to offer virtually any product or service that any bank or thrift may offer anywhere in the country, subject to restrictions imposed on those other banks and thrifts, certain safety and soundness considerations, and prior notification to the IDFPR and the FDIC.

Federal Reserve Act

The Bank is subject to Sections 23A and 23B of the Federal Reserve Act, which restrict or impose requirements on financial transactions between federally insured depository institutions and affiliated companies. The statute limits credit transactions between a bank and its affiliates, prescribes terms and conditions for bank affiliate transactions deemed to be consistent with safe and sound banking practices, requires arms-length transactions between affiliates, and restricts the types of collateral security permitted in connection with a bank’s extension of credit to affiliates. Section 22(h) of the Federal Reserve Act limits how much and on what terms a bank may lend to its insiders and insiders of its affiliates, including executive officers and directors.

Other Regulation

The Bank is subject to a variety of federal and state laws and regulations governing its operations. For example, deposit activities are subject to such acts as the Federal Truth in Savings Act and the Illinois Consumer Deposit

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Account Act. Electronic banking activities are subject to federal law, including the Electronic Funds Transfer Act, and state laws. Trust activities of the Bank are subject to the Illinois Corporate Fiduciaries Act. Loans made by the Bank are subject to applicable provisions of the Illinois Interest Act, the Federal Truth in Lending Act, and the Illinois Financial Services Development Act.

The Bank is also subject to a variety of other laws and regulations concerning equal credit opportunity, fair lending, customer privacy, identity theft, fair credit reporting, and community reinvestment. The Bank currently holds an “outstanding” rating for community reinvestment activity, the highest available.

As an Illinois banking corporation controlled by a bank holding company, the Bank is subject to the rules regarding change of control in the Act and the Federal Deposit Insurance Act and is also subject to the rules regarding change in control of Illinois banks contained in the IBA and the Illinois Bank Holding Company Act.

Gramm-Leach-Bliley Act of 1999 (“GLB Act”)

The GLB Act allows 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 comprehensive array of financial products and services. The GLB Act defines a financial holding company (“FHC”), which is regulated by the Federal Reserve. Functional regulation of the FHC’s subsidiaries is conducted by their primary functional regulators. Pursuant to the GLB Act, bank holding companies, foreign banks, and their subsidiary depository institutions electing to qualify as an FHC must be “well managed,” “well capitalized,” and rated at least satisfactory under the Community Reinvestment Act in order to engage in new financial activities.

An FHC may engage in securities and insurance activities and other activities that are deemed financial in nature or incidental to a financial activity under the GLB Act, such as merchant banking activities. While aware of the flexibility of the FHC statute, the Company has, for the time being, decided not to become an FHC. The activities of bank holding companies that are not FHCs will continue to be regulated by, and limited to, activities permissible under the Act.

The GLB Act also prohibits a financial institution from disclosing non-public personal information about a consumer to unaffiliated third parties unless the institution satisfies various disclosure requirements and the consumer has not elected to opt out of the information sharing. Under the GLB Act, a financial institution must provide its customers with a notice of its privacy policies and practices. The Federal Reserve, the FDIC, and other financial regulatory agencies have issued regulations implementing notice requirements and restrictions on a financial institution’s ability to disclose non-public personal information about consumers to unaffiliated third parties.

The Bank is also subject to certain federal and state laws that limit the use and distribution of non-public personal information to subsidiaries, affiliates, and unaffiliated entities.

Bank Secrecy Act and USA Patriot Act

In 1970, Congress enacted the Currency and Foreign Transactions Reporting Act, commonly known as the Bank Secrecy Act (the “BSA”). The BSA requires financial institutions to maintain records of certain customers and currency transactions and to report certain domestic and foreign currency transactions, which may have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings. Under this law, financial institutions are required to develop a BSA compliance program.

In 2001, the President signed into law comprehensive anti-terrorism legislation known as the USA Patriot Act. Title III of the USA Patriot Act requires financial institutions, including the Company and the Bank, to help prevent and detect international money laundering and the financing of terrorism and prosecute those involved in such activities. The Department of the Treasury has adopted additional requirements to further implement Title III.

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

The 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.

In addition, banks must have procedures in place to verify the identity of the persons with whom they deal.

Capital Guidelines

The Federal Reserve and the other federal bank regulators have established risk-based capital guidelines to provide a framework for assessing the adequacy of the capital of national and state banks, thrifts, and their 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 (as defined in the regulations). In addition to the risk-based capital requirements, the Federal Reserve and the FDIC require banking institutions to maintain a minimum leveraged-capital ratio to supplement the risk-based capital guidelines. The Company and the Bank are “well capitalized” by these standards, the highest applicable ratings.

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 law, the Bank is permitted to declare and pay dividends in amounts up to the amount of its accumulated net profits, provided that it retains in its surplus at least one-tenth of its net profits since the date of the declaration of its most recent dividend until those additions to surplus, in the aggregate, equal the paid-in capital of the Bank. The Bank may not, while it continues its banking business, pay dividends in excess of its net profits then on hand (after deductions for losses and bad debts). In addition, the Bank is limited in the amount of dividends it can pay under the Federal Reserve Act and Regulation H. For example, dividends cannot be paid that would constitute a withdrawal of capital; dividends cannot be declared or paid if they exceed a bank’s undivided profits; and a bank may not declare or pay a dividend greater than current year net income plus retained net income of the prior two years without Federal Reserve approval.

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 IDFPR is authorized to determine, under certain circumstances relating to the financial condition of a bank or bank holding company, that the payment of dividends by the Company would be an unsafe or unsound practice and to prohibit payment thereof. The Federal Reserve has taken the position that dividends that would create pressure or undermine the safety and soundness of the subsidiary bank are inappropriate.

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FDIC Insurance Premiums

The Bank’s deposits are insured through the DIF, which is 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 DIF.

The FDIC’s deposit insurance premiums are assessed through a risk-based system under which all insured depository institutions are placed into one of four categories and assessed insurance premiums on deposits based on their level of capital and supervisory evaluation. For 2009, the Bank will pay premium assessments on its DIF-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 quarter of 2009 were set at $0.0114 per $100 of insured deposits for DIF-assessable deposits. These rates may be adjusted quarterly to reflect changes in assessment basis for the DIF.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) implemented a broad range of corporate governance and accounting measures to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies, and to protect investors by improving the accuracy and reliability of disclosures under federal securities laws. The Company is subject to Sarbanes-Oxley because it is required to file periodic reports with the SEC under the Securities and Exchange Act of 1934. Among other things, Sarbanes-Oxley and/or its implementing regulations have established new membership requirements and additional responsibilities for the Company’s audit committee, imposed restrictions on the relationship between the Company and its outside auditors (including restrictions on the types of non-audit services our auditors may provide to us), imposed additional responsibilities for external financial statements on our chief executive officer and chief financial officer, expanded the disclosure requirements for corporate insiders, required management to evaluate the Company’s disclosure controls and procedures and our internal control over financial reporting, and required auditors to issue a report on the Company’s internal control over financial reporting. The Nasdaq Stock Market has imposed a number of new corporate governance requirements as well.

Executive Compensation Limitations

Incident to its participation in the CPP, the Company is subject to the executive compensation limitations contained in Section 111(b) of the EESA. These limitations apply to the Company’s senior executive officers (“SEOs”), which include the Company’s principal executive officer, the principal financial officer, and the three most highly compensated executive officers. These limitations include: (1) the recovery of any bonus or incentive compensation paid to any SEO if the financial criteria it was based on was later proven to be materially inaccurate; (2) a prohibition on the Company making “golden parachute payments” (as defined by IRS Section 280(G)) to any SEO; (3) a prohibition on compensation that encourages any SEO to take unnecessary and excessive risks that threaten the value of the Company; and (4) a limit on deductible compensation under Section 162(m) of the Internal Revenue Code for each SEO at $500,000 annually, rather than $1 million.

In addition, the Company’s Compensation Committee must certify that it has: (1) within 90 days after the CPP purchase reviewed the SEO incentive and bonus compensation programs for unnecessary and excessive risks; and (2) met at least annually with the senior risk officers to review the relationship between the institution’s risk management policies and the SEO incentive compensation arrangements.

In addition to the EESA’s executive compensation limitations, on February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (the “ARRA”), a $787 billion stimulus bill for the purpose of stabilizing and stimulating the economy. The ARRA imposes certain new executive compensation and corporate expenditure limits on all current and future TARP CPP participants including the Company. These limits include:

— Prohibition on certain bonus, retention, incentive compensation, and golden parachute payments for certain senior employees.

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— Required adoption of a policy on excessive or luxury expenditures.

— Mandated “say on pay” shareholder vote on the compensation of executives.

— Requirement of an annual certification by the CEO and CFO of the Company’s compliance with the ARRA restrictions.

The AARA also empowers the Treasury Secretary with the authority to review bonus, retention, and other compensation paid to senior executive officers that have received the TARP assistance to determine if the compensation was inconsistent with the purposes of the ARRA or TARP, or otherwise contrary to the public interest and, if so, seek to negotiate reimbursements. The provision of the ARRA will apply to the Company until it has redeemed the securities sold to the Treasury under the CPP. (See the section captioned “Participation in Government Economic Recovery Programs – Capital Purchase Program” in Part I, Item 1 of this Form 10-K.) Under the ARRA such redemption is now permitted without penalty and without the need to raise new capital (as was required under the terms of the original TARP CPP), subject to the Treasury’s consultation with the recipient’s appropriate regulatory agency.

Future Legislation

Various legislation is currently being considered by Congress. This legislation may change banking statutes and the Company’s operating environment in substantial and unpredictable ways and may increase reporting requirements and governance. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities, or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. The Company cannot predict whether any potential legislation will be enacted and, if enacted, the effect that it, or any implementing regulations, would have on its business, results of operations, or financial condition.

ITEM 1A.    RISK FACTORS

The material risks and uncertainties that management believes affect the Company are described below. Before making an investment decision with respect to any of the Company’s securities, you should carefully consider the risks and uncertainties as described below together with all of the information included herein. The risks and uncertainties described below are not the only risks and uncertainties the Company faces. Additional risks and uncertainties not presently known or that are currently deemed immaterial also may have a material adverse effect on the Company’s results of operations and financial condition. If any of the following risks actually occur, the Company’s results of operations and financial condition could suffer, possibly materially. In that event, the trading price of the Company’s common stock or other securities could decline. The risks discussed below also include forward-looking statements, and actual results may differ substantially from those discussed or implied in these forward-looking statements.

Risks Related to the Company’s Business

The Company’s Business May Be Adversely Affected by Conditions in the Financial Markets and Economic Conditions Generally

Since December 2007, the United States has been in a downward cycle. Prolonged and significant weakness has adversely impacted all aspects of the economy. Business activity across a wide range of industries and regions is greatly reduced, and local governments and many businesses are experiencing serious difficulty due to the lack of consumer spending and the lack of liquidity in the credit markets. In addition, unemployment has increased significantly and continues to grow.

Since mid-2007, and particularly during the second half of 2008, the financial services industry and the securities markets generally were materially and adversely affected by significant declines in the values of nearly all asset classes and by a serious lack of liquidity. This was initially triggered by declines in home prices and the values of

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sub-prime mortgages but spread to all mortgage and real estate asset classes, leveraged bank loans, and nearly all other asset classes, including equities. The global markets have been characterized by substantially increased volatility and short-selling and an overall loss of investor confidence, initially in financial institutions, but more recently in companies in a number of other industries and in the broader markets.

Market conditions have also led to the failure or merger of a number of prominent financial institutions. Financial institution failures or near-failures have resulted in further losses as a consequence of defaults on securities issued by them and defaults under contracts entered into with such entities as counterparties. Furthermore, declining asset values, defaults on mortgages and consumer loans, the lack of market and investor confidence, and other factors have all combined to cause rating agencies to lower credit ratings and to otherwise increase the cost and decrease the availability of liquidity, despite very significant declines in Federal Reserve borrowing rates and other government actions. Some banks and other lenders have suffered significant losses and have become reluctant to lend, even on a secured basis, due to the increased risk of default and the impact of declining asset values on the value of collateral. The foregoing has significantly weakened the strength and the liquidity of some financial institutions worldwide. In 2008, the U.S. government, the Federal Reserve, and other regulators have taken numerous steps to increase liquidity and to restore investor confidence, including investing approximately $200 billion in the equity of other banking organizations. In spite of this, asset values have continued to decline, and access to liquidity continues to be very limited.

The Company’s financial performance generally is highly dependent upon the business environment in the suburban metropolitan Chicago market and the United States as a whole. In particular, this environment impacts the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans. A favorable business environment is generally characterized by economic growth, efficient capital markets, low inflation, high business and investor confidence, strong business earnings, and other factors. Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity, or investor or business confidence; limitations on the availability or increases in the cost of credit and capital; increases in inflation or interest rates; natural disasters; or a combination of these or other factors.

Overall, during 2008, the business environment has been adverse for many households and businesses in the United States and worldwide. The business environment in the markets in which the Company operates has been adversely affected and continues to deteriorate. It is expected that the business environment in the suburban Chicago metropolitan market, the United States, and worldwide will continue to deteriorate for the foreseeable future. There can be no assurance that these conditions will improve in the near term. Such conditions could have a material adverse effect on the credit quality of the Company’s loans, and therefore, its financial condition and results of operations.

The Company Is Subject To Interest Rate Risk

The Company’s earnings and cash flows are largely dependent upon its net interest income. Net interest income is the difference between interest income earned on interest-earning assets such as loans and securities and interest expense paid on interest-bearing liabilities such as deposits and borrowed funds. Interest rates are highly sensitive to many factors that are beyond the Company’s control, including general economic conditions and policies of various governmental and regulatory agencies, in particular, the Board of Governors of the Federal Reserve System. Changes in monetary policy, including changes in interest rates, could influence the amount of interest the Company receives on loans and securities and the amount of interest it pays on deposits and borrowings. Such changes could also affect (i) the Company’s ability to originate loans and obtain deposits, (ii) the fair value of the Company’s financial assets and liabilities, and (iii) the average duration of the Company’s securities portfolio. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, the Company’s net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.

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Although management believes it has implemented effective asset and liability management strategies to reduce the potential effects of changes in interest rates on the Company’s results of operations, any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on the Company’s financial condition and results of operations. See the section captioned “Net Interest Income” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” located elsewhere in this report for further discussion related to the Company’s management of interest rate risk.

The Company Is Subject To Lending Risk

There are inherent risks associated with the Company’s lending activities. These risks include the impact of changes in interest rates and changes in the economic conditions in the markets where the Company operates as well as those across the United States. Increases in interest rates and/or continuing weakening economic conditions could adversely impact the ability of borrowers to repay outstanding loans or the value of the collateral securing those loans. Continuing economic weakness on real estate and related markets could further increase the Company’s lending risk as it relates to its commercial real estate loan portfolio and the value of the underlying collateral. The Company is also subject to various laws and regulations that affect its lending activities. Failure to comply with applicable laws and regulations could subject the Company to regulatory enforcement action that could result in the assessment of significant civil monetary penalties against the Company.

As of December 31, 2008, 86.1% of the Company’s loan portfolio consisted of commercial and industrial and commercial real estate loans. These types of loans are generally viewed as having more risk of default than consumer loans. These types of loans are also typically larger. Because the Company’s loan portfolio contains a significant number of commercial and industrial and commercial real estate loans with relatively large balances, the deterioration of one or a few of these loans could cause a significant increase in non-performing loans. An increase in non-performing loans could result in a net loss of earnings from these loans, an increase in the provision for loan losses, and an increase in loan charge-offs, all of which could have a material adverse effect on the Company’s financial condition and results of operations. See the section captioned “Loans” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” located elsewhere in this report for further discussion related to commercial and industrial and commercial real estate loans.

The Company’s Reserve For Loan Losses May Be Insufficient

The Company maintains a reserve for loan losses, which is a reserve established through a provision for probable loan losses charged to expense, that represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans. The reserve, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The level of the reserve reflects management’s continuing evaluation of industry concentrations; specific credit risks; loan loss experience; current loan portfolio quality; present economic, political, and regulatory conditions; and unidentified losses inherent in the current loan portfolio. The determination of the appropriate level of the reserve for loan losses inherently involves a high degree of subjectivity and requires the Company to make estimates of significant credit risks and future trends, all of which may undergo material changes. Continuing deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans, and other factors, both within and outside of the Company’s control, may require an increase in the reserve for loan losses. In addition, bank regulatory agencies periodically review the Company’s reserve for loan losses and may require an increase in the provision for loan losses or the recognition of further loan charge-offs, based on judgments different from those of management. In addition, if charge-offs in future periods exceed the reserve for loan losses, the Company will need additional provisions to increase the reserve for loan losses. Any increases in the reserve for loan losses will result in a decrease in net income and capital and may have a material adverse effect on the Company’s financial condition and results of operations. See the section captioned “Reserve for Loan Losses” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” located elsewhere in this report for further discussion related to the Company’s process for determining the appropriate level of the reserve for loan losses.

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The Company’s Estimate of Fair Values for Its Investments May Not Be Realizable If It Were to Sell These Securities Today

As of December 31, 2008, 99.9% of the Company’s investment securities were carried at fair value. Accounting standards required the Company to categorize these according to fair value valuation hierarchy. Ninety-seven percent of these were categorized in level 2 of the valuation hierarchy (meaning that their fair value was determined by quoted prices for similar assets or other observable inputs). The remaining were categorized as level 3 (meaning that their fair value was determined by inputs that are unobservable in the market and therefore require a greater degree of management judgment). The determination of fair value for securities categorized in level 3 involves significant judgment due to the complexity of factors contributing to the valuation, many of which are not readily observable in the market. The current market disruptions make valuation even more difficult and subjective.

The Company has historically placed a high level of reliance on information obtained from third-party sources to measure fair values. For certain of its securities, the Company uses a structured credit valuation firm to perform cash flow projections using various historical and market inputs. For other securities, third-party sources also use assumptions, judgments, and estimates in determining securities values, and different third parties use different methodologies or provide different prices for similar securities. In addition, the nature of the business of the third party source that is valuing the securities at any given time could impact the valuation of the securities. Consequently, the ultimate sales price for any of these securities could vary significantly from the recorded fair value at December 31, 2008, especially if the security is sold during a period of illiquidity or market disruption or as part of a large block of securities under a forced transaction.

Turmoil in the Financial Markets Could Result in Lower Fair Values for the Company’s Investment Securities

Major disruptions in the capital markets experienced in the past year have adversely affected investor demand for all classes of securities and resulted in volatility in the fair values of the Company’s investment securities. Significant prolonged reduced investor demand could manifest itself in lower fair values for these securities and may result in recognition of an other-than-temporary impairment. Such impairment could have a material adverse effect on the Company’s financial condition and results of operations.

The Company Is Subject To Environmental Liability Risk Associated With Lending Activities

A significant portion of the Company’s loan portfolio is secured by real property. During the ordinary course of business, the Company may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, the Company may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require the Company to incur substantial expenses and could materially reduce the affected property’s value or limit the Company’s ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase the Company’s exposure to environmental liability. Although the Company has policies and procedures to perform an environmental review before initiating any foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on the Company’s financial condition and results of operations.

The Company’s Profitability Depends Significantly On Economic Conditions in the Suburban Metropolitan Chicago Market

Unlike larger national or other regional banks that are more geographically diversified, the Company’s success depends to a large degree on the general economic conditions of the suburban Chicago metropolitan area and, to

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a lesser extent, other central and western markets in Illinois and contiguous states. The economic conditions in these areas have a significant impact on the demand for the Company’s products and services, the ability of the Company’s customers to repay loans, the value of the collateral securing loans, and the stability of the Company’s deposit funding sources. Although the suburban metropolitan Chicago economy is diversified, it has experienced a decline and is expected to continue to decline for some period. A significant decline in general economic conditions, whether caused by recession, inflation, unemployment, changes in securities markets, acts of terrorism, outbreak of hostilities or other international or domestic occurrences, or other factors could impact these local economic conditions and, in turn, have a material adverse effect on the Company’s financial condition and results of operations.

The Company’s Investment in Bank Owned Life Insurance May Decline in Value

The Company currently has bank owned life insurance contracts with a cash surrender value (“CSV”) of $198.5 million. A majority of these contracts are separate account contracts. Such contracts are supported by underlying investments whose fair values are subject to volatility in the market. The Company has limited its risk of loss in value of the securities by putting in place stable value contracts that provide protection from a decline in fair value down to 80% of the CSV of the insurance policies. To the extent fair values on individual contracts fall below 80%, the CSV of specific contracts may be reduced or the underlying assets transferred to short-duration investments, resulting in lower earnings. Given the decline in the market during 2008, the Company transferred certain assets underlying specific separate contracts to money market accounts. Currently, the fair value for all contracts exceeds 80%, but continued turmoil in the market could result in declines that could have a material adverse effect on the Company’s financial condition and results of operations.

The Company May Be Adversely Affected By the Soundness Of Other Financial Institutions

Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. The Company has exposure to many different industries and counterparties and routinely executes transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks, and other institutional clients. Many of these transactions expose the Company to credit risk in the event of a default by a counterparty or client. In addition, the Company’s credit risk may be exacerbated when the collateral held by the Company cannot be realized upon liquidation or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due the Company. Any such losses could have a material adverse effect on the Company’s financial condition and results of operations.

The Company Operates In A Highly Competitive Industry and Market Area

The Company faces substantial competition in all areas of its operations from a variety of different competitors, many of which are larger and may have more financial resources. Such competitors primarily include national, regional, and community banks within the markets where the Company operates. The Company also faces competition from many other types of financial institutions, including, without limitation, savings and loans, credit unions, finance companies, brokerage firms, insurance companies, factoring companies, and other financial intermediaries. The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes, further illiquidity in the credit markets, and continued consolidation. Banks, securities firms, and insurance companies can merge under the umbrella of a financial holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance, and merchant banking. Also, technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic funds transfer and automatic payment systems. Many of the Company’s competitors have fewer regulatory constraints and may have lower cost structures. Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than the Company can.

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The Company’s ability to compete successfully depends on a number of factors, including:

— Developing, maintaining, and building long-term customer relationships;

— Expanding the Company’s market position;

— Offering products and services at prices and with the features that meet customers’ needs and demands;

— Introducing new products and services;

— Maintaining a satisfactory level of customer service;

— Anticipating and adjusting to changes in industry and general economic trends.

Failure to perform in any of these areas could significantly weaken the Company’s competitive position, which could adversely affect the Company’s growth and profitability. This, in turn, could have a material adverse effect on the Company’s financial condition and results of operations.

New Lines of Business or New Products and Services May Subject the Company to Additional Risks

From time to time, the Company may implement new lines of business or offer new products or services within existing lines of business. There can be substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or new products or services, the Company may invest significant time and resources. Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved, and price and profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. Furthermore, any new line of business and/or new product or service could have a significant impact on the effectiveness of the Company’s system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on the Company’s business, financial condition, and results of operations.

The Company Is Subject To Extensive Government Regulation and Supervision

The Company and the Bank are subject to extensive federal and state regulations and supervision. Banking regulations are primarily intended to protect depositors’ funds, FDIC funds, and the banking system as a whole, not security holders. These regulations affect the Company’s lending practices, capital structure, investment practices, dividend policy, and growth, among other things. Congress and federal regulatory agencies continually review banking laws, regulations, and policies for possible changes. It is likely that there will be significant changes to the banking and financial institutions regulatory regimes in the near future in light of the recent performance of and government intervention in the financial services sector. Changes to statutes, regulations, or regulatory policies, including changes in the interpretation or implementation of those policies, could affect the Company in substantial and unpredictable ways. Such changes could subject the Company to additional costs, limit the types of financial services and products the Company may offer, and/or increase the ability of non-banks to offer competing financial services and products, among other things. Failure to comply with laws, regulations, or policies could result in sanctions by regulatory agencies, civil monetary penalties, and/or damage to the Company’s reputation, which could have a material adverse effect on the Company’s business, financial condition, and results of operations. While the Company has policies and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur. See the section captioned “Supervision and Regulation” in Item 1, “Business,” and Note 19 of “Notes to Consolidated Financial Statements” included in Item 8, “Financial Statements and Supplementary Data,” which are located elsewhere in this report.

Recent Legislative and Regulatory Actions Taken to Stabilize the U.S. Banking System and Additional Actions Being Considered May Not Succeed Or May Disadvantage the Company

In response to the recent financial market crisis, the United States government, specifically the Treasury, Federal Reserve, and FDIC, working in cooperation with foreign governments and other central banks, has taken a

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variety of extraordinary measures designed to restore confidence in the financial markets and to strengthen financial institutions, including measures available under the EESA. The EESA followed, and has been followed by, numerous actions by the Federal Reserve, U.S. Congress, Treasury, FDIC, SEC, and others to address the current liquidity and credit crisis that has followed the sub-prime meltdown that commenced in 2007. These measures include homeowner relief that encourages loan restructuring and modification; the establishment of significant liquidity and credit facilities for financial institutions and investment banks; the lowering of the federal funds rate; emergency action against short selling practices; a temporary guaranty program for money market funds; the establishment of a commercial paper funding facility to provide back-stop liquidity to commercial paper issuers; and coordinated international efforts to address illiquidity and other weaknesses in the banking sector. The purpose of these legislative and regulatory actions is to stabilize the U.S. banking system. However, there can be no assurance as to the actual impact the EESA will have on the financial markets, including the extreme levels of volatility and limited credit availability currently being experienced by some institutions, and they may not have their desired effects. If the volatility in the markets continues and economic conditions fail to improve or worsen, the Company’s business, financial condition, and results of operations could be materially and adversely affected.

The Treasury is currently developing additional programs to further alleviate the ongoing financial crisis. There can be no assurance that the Company will be able to participate in future programs. If the Company is unable to participate, it may have a material adverse effect on the Company’s financial condition and results of operations.

The Company’s Information Systems May Experience an Interruption or Breach in Security

The Company relies heavily on communications and information systems to conduct its business. Any failure, interruption, or breach in security of these systems could result in failures or disruptions in the Company’s customer relationship management, general ledger, deposit, loan, or other systems. The Company has policies and procedures expressly designed to prevent or limit the effect of a failure, interruption, or security breach of its systems. However, there can be no assurance that any such failures, interruptions, or security breaches will not occur or, if they do occur, that the impact will not be substantial. The occurrence of any failures, interruptions, or security breaches of the Company’s systems could damage the Company’s reputation, result in a loss of customer business, subject the Company to additional regulatory scrutiny, or expose the Company to civil litigation and possible financial liability, any of which could have a material adverse effect on the Company’s financial condition and results of operations.

The Company Is Dependent Upon Outside Third Parties for Processing and Handling of Company Records and Data

The Company relies on software developed by third party vendors to process various Company transactions. In some cases, the Company has contracted with third parties to run its proprietary software on behalf of the Company. These systems include, but are not limited to, general ledger, payroll, employee benefits, trust record keeping, loan processing, merchant processing, and securities portfolio management. While the Company performs a review of controls instituted by the vendor over these programs in accordance with industry standards and performs its own testing of user controls, the Company must rely on the continued maintenance of these controls by the outside party, including safeguards over the security of customer data. In addition, the Company maintains backups of key processing output daily in the event of a failure on the part of any of these systems. Nonetheless, the Company may incur a temporary disruption in its ability to conduct its business or process its transactions, or incur damage to its reputation if the third party vendor fails to adequately maintain internal controls or institute necessary changes to systems. Such disruption or breach of security may have a material adverse effect on the Company’s financial condition and results of operations.

The Company Continually Encounters Technological Change

The banking and financial services industry continually undergoes technological changes, with frequent introductions of new technology-driven products and services. In addition to serving customers better, the

21

effective use of technology increases efficiency and enables financial institutions to reduce costs. The Company’s future success will depend, in part, on its ability to address the needs of its customers by using technology to provide products and services that enhance customer convenience and that create additional efficiencies in the Company’s operations. Many of the Company’s competitors have greater resources to invest in technological improvements, and the Company may not effectively implement new technology-driven products and services or do so as quickly, which could reduce its ability to effectively compete. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse effect on the Company’s business and, in turn, its financial condition and results of operations.

The Company Is Subject to Claims and Litigation Pertaining to Fiduciary Responsibility

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

Consumers and Businesses May Decide Not to Use Banks to Complete Their Financial Transactions

Technology and other changes are allowing parties to complete financial transactions that historically have involved banks at one or both ends of the transaction. For example, consumers can now pay bills and transfer funds directly without banks. This could result in the loss of fee income as well as the loss of customer deposits and income generated from those deposits and could have a material adverse effect on the Company’s financial condition and results of operations.

The Company’s Controls and Procedures May Fail or Be Circumvented

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

Financial Services Companies Depend Upon the Accuracy and Completeness of Information About Customers and Counterparties

In deciding whether to extend credit or enter into other transactions, the Company may rely on information furnished by or on behalf of customers and counterparties, including financial statements, credit reports and other financial information. The Company may also rely on representations of those customers, counterparties or other third parties, such as independent auditors, as to the accuracy and completeness of that information. Reliance on inaccurate or misleading financial statements, credit reports or other financial information could have a material adverse effect on the Company’s business and, in turn, the Company’s financial condition and results of operations.

The Company and Its Subsidiaries Are Subject to Examinations and Challenges by Taxing Authorities

In the normal course of business, the Company and its subsidiaries are routinely subjected to examinations and challenges from federal and state taxing authorities regarding the amount of taxes due in connection with

22

investments made and the businesses in which it has engaged. Federal and state taxing authorities have recently become increasingly aggressive in challenging tax positions taken by financial institutions, including positions that have been taken by the Company. These tax positions may relate to tax compliance, sales and use, franchise, gross receipts, payroll, property, or income tax issues, including tax base, apportionment, and tax planning. The challenges made by taxing authorities may result in adjustments to the timing or amount of taxable income or deductions or the allocation of income among tax jurisdictions. If any such challenges are not resolved in the Company’s favor, they could have a material adverse effect on the Company’s financial condition and results of operations.

The Company and Its Subsidiaries Are Subject to Changes in Federal and State Tax Laws and Changes in Interpretation of Existing Laws

The Company’s financial performance is impacted by federal and state tax laws. Given the current economic environment, new presidential administration, and ongoing state budgetary pressures, the enactment of new federal or state tax legislation may occur. The enactment of such legislation, or changes in the interpretation of existing law, including provisions impacting tax rates, apportionment, consolidation or combination, income, expenses, and credits, may have a material adverse effect on the Company’s financial condition and results of operations.

The Company and Its Subsidiaries Are Subject to Changes in Accounting Principles, Policies, or Guidelines

The Company’s financial performance is impacted by accounting principles, policies, and guidelines. Changes in these are continuously occurring, and given the current economic environment, more drastic changes may occur. The implementation of such changes could have a material adverse effect on the Company’s financial condition and results of operations.

The Company May Not Be Able to Attract and Retain Skilled People

The Company’s success depends, in large part, on its ability to attract and retain key people. Competition for the best people in most activities the Company engages in can be intense, and the Company may not be able to hire people or retain them.

Participation in the CPP could also affect the Company’s ability to attract and retain key people. Due to the Company’s participation in the CPP, the Company is subject to executive compensation limitations, which may not apply to other financial institutions.

The unexpected loss of services of one or more of the Company’s key personnel could have a material adverse impact on the Company’s business because of their skills, knowledge of the Company’s market, years of industry experience, and the difficulty of promptly finding qualified replacement personnel.

The Company Is a Bank Holding Company and Its Sources of Funds Are Limited

The Company is a bank holding company, and its operations are primarily conducted by the Bank, which is subject to significant federal and state regulation. Cash available to pay dividends to stockholders of the Company is derived primarily from dividends received from the Bank. The Company’s ability to receive dividends or loans from its subsidiaries is restricted. Dividend payments by the Bank to the Company in the future will require generation of future earnings by the Bank and could require regulatory approval if the proposed dividend is in excess of prescribed guidelines. Further, the Company’s right to participate in the assets of the Bank upon its liquidation, reorganization, or otherwise will be subject to the claims of the Bank’s creditors, including depositors, which will take priority except to the extent the Company may be a creditor with a recognized claim. As of December 31, 2008, the Company’s subsidiaries had deposits and other liabilities of $7.6 billion.

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The Company Could Experience an Unexpected Inability to Obtain Needed Liquidity

Liquidity measures the ability to meet current and future cash flow needs as they become due. The liquidity of a financial institution reflects its ability to meet loan requests, to accommodate possible outflows in deposits, and to take advantage of interest rate market opportunities. The ability of a financial institution to meet its current financial obligations is a function of its balance sheet structure, its ability to liquidate assets, and its access to alternative sources of funds. The Company seeks to ensure its funding needs are met by maintaining a level of liquidity through asset/liability management. If the Company becomes unable to obtain funds when needed, it could have a material adverse effect on the Company’s business and, in turn, the Company’s financial condition and results of operations.

Severe Weather, Natural Disasters, Acts of War or Terrorism and Other External Events Could Significantly Impact the Company’s Business

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

Future Acquisitions May Disrupt the Company’s Business and Dilute Stockholder Value

In addition to generating internal growth, in the past the Company has strategically acquired banks or branches of other banks. The Company may consider future acquisitions to supplement internal growth opportunities. Acquiring other banks or branches involves potential risks, including:

— Exposure to unknown or contingent liabilities of acquired banks;

— Exposure to asset quality issues of acquired banks;

— Disruption of the Company’s business;

— Loss of key employees and customers of acquired banks;

— Short-term decrease in profitability;

— Diversion of management’s time and attention;

— Issues arising during transition and integration; and

— Dilution in the ownership percentage of holdings of the Company’s common stock.

The Company from time to time may evaluate merger and acquisition opportunities and conduct due diligence activities related to possible transactions with other financial institutions and financial services companies. As a result, merger or acquisition discussions and, in some cases, negotiations may take place and future mergers or acquisitions involving cash, debt or equity securities may occur at any time. Acquisitions typically involve the payment of a premium over book and market values, and therefore, some dilution of the Company’s tangible book value and net income per common share may occur in connection with any future transaction. Furthermore, failure to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits from an acquisition could have a material adverse effect on the Company’s financial condition and results of operations.

Competition for Acquisition Candidates Is Intense

Competition for acquisitions is intense. Numerous potential acquirors compete with the Company for acquisition candidates. The Company may not be able to successfully identify and acquire suitable targets, which could slow the Company’s growth rate.

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Decline In the Company’s Stock Price Below Tangible Book Value Could Require a Write-down of Some Portion or All of the Company’s Goodwill

If the Company’s stock price declines and remains below its tangible book value for an extended period of time, the Company could be required to write off all or a portion of its goodwill, which represents the value in excess of the Company’s tangible book value. Such write off would reduce earnings in the period in which it is recorded. The Company’s stock price is subject to market conditions that can be impacted by forces outside of the control of management, such as a perceived weakness in financial institutions in general, and may not be a direct result of the Company’s performance. A write-down of goodwill could have a material adverse effect on the Company’s results of operations.

Future Growth or Operating Results May Require the Company to Raise Additional Capital But that Capital May Not Be Available or It May Be Dilutive

The Company is required by federal and state regulatory authorities to maintain adequate levels of capital to support its operations. To the extent the Company’s future operating results erode capital or the Company elects to expand through loan growth or acquisition it may be required to raise capital.

The Company’s ability to raise capital will depend on conditions in the capital markets, which are outside of its control, and on the Company’s financial performance. Accordingly, the Company cannot be assured of its ability to raise capital when needed or on favorable terms. If the Company cannot raise additional capital when needed, it will be subject to increased regulatory supervision and the imposition of restrictions on its growth and business. These could negatively impact the Company’s ability to operate or further expand its operations through acquisitions or the establishment of additional branches and may result in increases in operating expenses and reductions in revenues that could have a material adverse effect on its financial condition and results of operations.

Any Reduction in the Company’s Credit Ratings Could Increase Its Financing Costs

Various rating agencies publish credit ratings for the Company’s debt obligations, based on their evaluations of a number of factors, some of which relate to Company performance and some which relate to general industry conditions. Management routinely communicates with each rating agency and anticipates the rating agencies will closely monitor the Company’s performance and update their ratings from time to time during the year.

The Company cannot give any assurance that its current credit ratings will remain in effect for any given period of time or that a rating will not be lowered or withdrawn entirely by a rating agency if, in its judgment, circumstances in the future so warrant. Downgrades in the Company’s credit ratings may adversely affect its borrowing costs and its ability to borrow or raise capital, and may adversely affect the Company’s reputation. The Company currently is rated “BBB+” by Standard & Poor’s Ratings Group, a division of The McGraw-Hill Companies, Inc., “A3” by Moody’s Investors Service, Inc., and “BBB+” by Fitch, Inc.

Risks Associated With the Company’s Common Stock

The Company’s Stock Price Can Be Volatile

Stock price volatility may make it more difficult for you to resell your common stock when you want and at prices you find attractive. The Company’s stock price can fluctuate significantly in response to a variety of factors including:

— Actual or anticipated variations in quarterly results of operations;

— Recommendations by securities analysts;

— Operating and stock price performance of other companies that investors deem comparable to the Company;

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— News reports relating to trends, concerns, and other issues in the financial services industry;

— Perceptions in the marketplace regarding the Company and/or its competitors;

— New technology used or services offered by competitors;

— Significant acquisitions or business combinations, strategic partnerships, joint venture, or capital commitments by or involving the Company or its competitors;

— Failure to integrate acquisitions or realize anticipated benefits from acquisitions;

— Changes in government regulations;

— Geopolitical conditions such as acts or threats of terrorism or military conflicts.

General market fluctuations, industry factors, and general economic and political conditions and events, such as economic slowdowns or recessions, interest rate changes, or credit loss trends, could also cause the Company’s stock price to decrease regardless of operating results.

The Trading Volume In the Company’s Common Stock Is Less Than That Of Other Larger Financial Services Institutions

Although the Company’s common stock is listed for trading on the Nasdaq Stock Market Exchange, the trading volume in its common stock is less than that of other, larger financial services companies. A public trading market having the desired characteristics of depth, liquidity, and orderliness depends on the presence in the marketplace of willing buyers and sellers of the Company’s common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which the Company has no control. Given the lower trading volume of the Company’s common stock, significant sales of the Company’s common stock, or the expectation of these sales could cause the Company’s common stock price to fall.

An Investment In the Company’s Common Stock Is Not An Insured Deposit

The Company’s common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any other deposit insurance fund, or by any other public or private entity. Investment in the Company’s common stock is inherently risky for the reasons described in this “Risk Factors” section and elsewhere in this report and is subject to the same market forces that affect the price of common stock in any company. As a result, if you acquire the Company’s common stock, you could lose some or all of your investment.

The Company’s Restated Certificate of Incorporation, Amended and Restated By-Laws, and Amended and Restated Rights Agreement As Well As Certain Banking Laws May Have An Anti-Takeover Effect

Provisions of the Company’s Restated Certificate of Incorporation and Amended and Restated By-laws, federal banking laws, including regulatory approval requirements, and the Company’s Amended and Restated Rights Plan could make it more difficult for a third party to acquire the Company, even if doing so would be perceived to be beneficial by the Company’s stockholders. The combination of these provisions effectively inhibits a non-negotiated merger or other business combination, which, in turn, could adversely affect the market price of the Company’s common stock.

The Company May Issue Additional Securities, Which Could Dilute the Ownership Percentage of Holders of the Company’s Common Stock

The Company may issue additional securities to raise additional capital or finance acquisitions or upon the exercise or conversion of outstanding options, and, if it does, the ownership percentage of holders of the Company’s common stock could be diluted.

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The Company’s Participation in the CPP May Adversely Affect the Value of its Common Stock and the Rights of its Common Stockholders

The rights of the holders of the Company’s common stock may be adversely affected by the Company’s participation in the CPP. For example:

— Prior to the earlier of December 5, 2011 and the date on which all of the Preferred Shares have been redeemed by the Company or transferred by Treasury to third parties, the Company may not, without the consent of Treasury, subject to limited exceptions, redeem, repurchase, or otherwise acquire shares of the Company’s common stock or preferred stock.

— The Company may not pay dividends on its common stock unless it has fully paid all required dividends on the Preferred Shares. Although the Company fully expects to be able to pay all required dividends on the Preferred Shares, there is no guarantee that it will be able to do so.

— As long as the Treasury owns the securities purchased from the Company under the CPP, the Company may not, without the prior consent of the Treasury, increase the quarterly dividends it pays on its common stock above $0.31 per share.

— The Preferred Shares will receive preferential treatment in the event of liquidation, dissolution, or winding up of the Company.

— The ownership interest of the existing holders of the Company’s common stock will be diluted to the extent the warrant the Company issued to Treasury in conjunction with the sale to Treasury of the Preferred Shares is exercised.

In addition, terms of the Preferred Shares require that quarterly dividends be paid on the Preferred Shares at the rate of 5% per annum for the first five years and 9% per annum thereafter until the stock is redeemed by First Midwest. The payments of these dividends will decrease the excess cash the Company otherwise has available to pay dividends on its common stock and to use for general corporate purposes, including working capital.

The Company has not established a minimum dividend payment level, and it cannot assure you of its ability to pay dividends in future.

The Company has not established a minimum dividend payment level, and the amount of its dividend may fluctuate. All dividends will be made at the discretion of the Company’s Board of Directors and will depend upon the Company’s earnings, financial condition, and such other factors as the Board of Directors may deem relevant from time to time. The Company’s Board of Directors may change its dividend policy in the future.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

None.

ITEM 2.    PROPERTIES

The executive offices of the Company, the Bank, and certain subsidiary operational facilities are located in a 16-story office building in Itasca, Illinois. The Company and the Bank currently occupy 60,933 square feet of that building, which is leased from an unaffiliated third party.

As of December 31, 2008, the Bank operated through 97 bank branches, one operational facility, and one dedicated lending office. Of these, 25 are leased and the remaining 74 are owned and not subject to any material liens. The banking offices are largely located in various communities throughout northern Illinois and northwestern Indiana, primarily the Chicago metropolitan suburban area. At certain Bank locations, excess space is leased to third parties. The Bank also owns 129 automated teller machines (“ATMs”), some of which are housed at banking locations and some of which are independently located. In addition, the Company owns other real property that, when considered individually or in the aggregate, is not material to the Company’s financial position.

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The Company believes its facilities in the aggregate are suitable and adequate to operate its banking business. Additional information with respect to premises and equipment is presented in Note 6 of “Notes to Consolidated Financial Statements” in Item 8 of this Form 10-K.

ITEM 3.    LEGAL PROCEEDINGS

There are certain legal proceedings pending against the Company and its subsidiaries in the ordinary course of business at December 31, 2008. Based on presently available information, the Company believes that any liabilities arising from these proceedings would not have a material adverse effect on the consolidated financial condition of the Company.

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

There were no items submitted to a vote of stockholders during the fourth quarter of 2008.

PART II

ITEM 5.    MARKET FOR THE REGISTRANT’S COMMON EQUITY,

RELATED STOCKHOLDER MATTERS, AND

ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s common stock is traded under the symbol “FMBI” in the Nasdaq Global Select market tier of The Nasdaq Stock Market. As of December 31, 2008, there were approximately 11,500 stockholders. The following table sets forth the closing common stock price, dividends declared per share, and book value per share during each quarter of 2008 and 2007.

	2008								2007
	Fourth		Third		Second		First		Fourth		Third		Second		First
Market price of common stock
High	$	28.97	$	40.09	$	29.36	$	31.98	$	36.50	$	36.62	$	38.17	$	39.31
Low	$	13.65	$	13.56	$	18.65	$	24.38	$	29.67	$	31.87	$	34.82	$	36.00
Quarter-end	$	19.97	$	24.24	$	18.65	$	27.77	$	30.60	$	34.16	$	35.51	$	36.75
Cash dividends declared per share	$	0.225	$	0.310	$	0.310	$	0.310	$	0.310	$	0.295	$	0.295	$	0.295
Dividend yield at quarter-end (1)		4.51%		5.12%		6.65%		4.47%		4.05%		3.45%		3.32%		3.21%
Book value per common share at quarter-end	$	14.72	$	14.80	$	14.90	$	15.20	$	14.94	$	14.94	$	14.97	$	15.16

⁽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 “Supervision and Regulation - Dividends” section under Item 1 of this Form 10-K. A discussion of the Company’s 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” in Item 7 of this Form 10-K.

Equity Compensation Plans

The following table sets forth information, as of December 31, 2008, 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.

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	Equity Compensation Plan Information
Equity Compensation Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants, and rights (a)	Weighted-average exercise price 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)
Approved by security holders (1)	2,816,437	$	31.53	790,212
Not approved by security holders (2)	5,055		17.86	-
Total	2,821,492	$	31.51	790,212

⁽¹⁾ Includes all outstanding options and awards under the Omnibus Stock and Incentive Plan and the Non-Employee Directors’ Stock Option Plan (the “Plans”). Additional information and details about the Plans are also disclosed in Notes 1 and 18 of “Notes to Consolidated Financial Statements” in Item 8 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 (the “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 Internal Revenue 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, with similar investment alternatives as those 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 5,055 shares set forth in the table above, all amounts credited under the Plan are paid in cash.

Stock Performance Graph

The graph below illustrates, over a five-year period, the cumulative total return (defined as stock price appreciation or depreciation and dividends) to stockholders from the common stock against a broad-market total return equity index and a published industry total return equity index. The broad-market total return equity index used in this comparison is the Standard & Poor’s 500 Stock Index (the “S&P 500”), and the published industry total return equity index used in this comparison is the Standard & Poor’s SmallCap 600 Banks Index (“S&P SmallCap 600 Banks”).

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Comparison of Five-Year Cumulative Total Return Among

First Midwest, the S&P 500, and the S&P SmallCap 600 Banks ⁽¹⁾

	2003	2004	2005	2006	2007	2008
First Midwest	100.00	114.81	114.15	129.78	106.32	72.90
S&P 500	100.00	110.88	116.33	134.70	142.10	89.53
S&P SmallCap 600 Banks	100.00	123.41	113.90	125.43	86.05	65.04

⁽¹⁾ Assumes $100 invested on December 31, 2003 in First Midwest’s Common Stock, the S&P 500, and the S&P SmallCap 600 Banks with the reinvestment of all related dividends.

To the extent this Form 10-K is incorporated by reference into any other filing by the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, the foregoing “Stock Performance Graph” will not be deemed incorporated, unless specifically provided otherwise in such filing and shall not otherwise be deemed filed under such Acts.

Issuer Purchases of Equity Securities

The following table summarizes purchases made by the Company or on its behalf, or by any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of its common stock during the quarter ended December 31, 2008 pursuant to a repurchase program approved by the Company’s Board of Directors on November 27, 2007. Up to 2.5 million shares of the Company’s common stock may be repurchased, and the total remaining authorization under the program was 2,494,747 shares as of December 31, 2008. The repurchase program has no set expiration or termination date. Any repurchases are subject to limitations imposed as part of the CPP program under the EESA described elsewhere in this report.

Issuer Purchases of Equity Securities

	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plan or Programs
October 1 - October 31, 2008	-	$	-	-	2,494,747
November 1 - November 30, 2008	129		25.13	-	2,494,747
December 1 - December 31, 2008	-		-	-	2,494,747
Total	129	$	25.13	-

⁽¹⁾ Consists of shares acquired pursuant to the Company’s share-based compensation plans. Under the terms of these plans, the Company accepts shares of common stock from option holders if they elect to surrender previously-owned shares upon exercise to cover the exercise price of the stock options or, in the case of restricted shares of common stock, the withholding of shares to satisfy tax withholding obligations associated with the vesting of restricted shares.

For further details regarding the Company’s stock repurchase programs, refer to the section titled “Management of Capital” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of this Form 10-K.

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ITEM 6.    SELECTED FINANCIAL DATA

Consolidated financial information reflecting a summary of the operating results and financial condition of the Company for each of the five years in the period ended December 31, 2008 is presented in the following table. 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 the Company’s financial condition and operating results is presented in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of this Form 10-K.

	Years ended December 31,
	2008			2007			2006			2005			2004
Operating Results (Amounts in thousands)
Interest income	$	409,207		$	476,961		$	476,409		$	366,700		$	315,342
Interest expense		162,610			236,832			224,550			130,850			86,478
Net interest income		246,597			240,129			251,859			235,850			228,864
Noninterest income		89,618			111,054			99,014			77,927			73,812
Write-down of bank-owned life insurance included in noninterest income (1)		10,360			-			-			-			-
Noninterest expense		(194,305	)		(199,137	)		(192,615	)		(165,703	)		(163,338	)
Pre-tax earnings, excluding provision for loan losses and market-related losses (2)		152,270			152,046			158,258			148,074			139,338
Provision for loan losses		(70,254	)		(7,233	)		(10,229	)		(8,930	)		(12,923	)
Gains (losses) on securities sales, net		8,903			(746	)		4,269			(3,315	)		13,622
Securities impairment losses		(44,514	)		(50,055	)		-			-			(5,400	)
Write-down of bank-owned life insurance		(10,360	)		-			-			-			-
Losses on early extinguishment of debt		-			-			-			-			(2,653	)
Income tax benefit (expense)		13,291			(13,853	)		(35,052	)		(34,452	)		(32,848	)
Net income		49,336			80,159			117,246			101,377			99,136
Preferred dividends		(712	)		-			-			-			-
Net income applicable to common shares	$	48,624		$	80,159		$	117,246		$	101,377		$	99,136
Weighted-average common shares outstanding		48,462			49,295			49,102			45,567			46,469
Weighted-average diluted common shares outstanding		48,565			49,622			49,469			45,893			46,860
Per Share Data
Basic earnings per common share	$	1.00		$	1.63		$	2.39		$	2.22		$	2.13
Diluted earnings per common share		1.00			1.62			2.37			2.21			2.12
Common dividends declared		1.155			1.195			1.120			1.015			0.900
Book value at year end		14.72			14.94			15.01			11.99			11.55
Market price at year end		19.97			30.60			38.68			35.06			36.29
Performance Ratios
Return on average common equity		6.48%			10.69%			16.87%			18.83%			18.68%
Return on average assets		0.59%			0.99%			1.42%			1.44%			1.45%
Net interest margin - tax-equivalent		3.61%			3.58%			3.67%			3.87%			3.91%
Dividend payout ratio		115.50%			73.77%			47.26%			45.93%			42.45%

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Balance Sheet Highlights (Dollar amounts in thousands)	As of December 31,
	2008		2007		2006		2005		2004
Total assets	$	8,528,341	$	8,091,518	$	8,441,526	$	7,210,151	$	6,863,381
Loans		5,360,063		4,963,672		5,008,944		4,306,191		4,135,278
Deposits		5,585,754		5,778,861		6,167,216		5,147,832		4,905,378
Subordinated debt		232,409		230,082		228,674		130,092		129,294
Long-term portion of Federal Home Loan Bank advances		736		136,064		14,660		13,519		36,743
Stockholders’ equity		908,279		723,975		751,014		544,068		532,038
Financial Ratios
Reserve for loan losses as a percent of loans		1.75%		1.25%		1.25%		1.31%		1.37%
Tier 1 capital to risk-weighted assets		11.60%		9.03%		9.56%		10.72%		10.45%
Total capital to risk-weighted assets		14.36%		11.58%		12.16%		11.76%		11.52%
Tier 1 leverage to average assets		9.41%		7.46%		7.29%		8.16%		8.16%
Tangible common equity to tangible assets		5.23%		5.58%		5.62%		6.30%		6.43%

⁽¹⁾ For a further discussion of this write-down and the Company’s investment in bank owned life insurance, see the section titled “Investment in Bank Owned Life Insurance” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Note 1 of “Notes to Consolidated Financial Statements” in Item 8 of this Form 10-K.

⁽²⁾ The company’s accounting and reporting policies conform to U.S. generally accepted accounting principles (“GAAP”) and general practice within the banking industry. As a supplement to GAAP, the Company has provided this non-GAAP performance result. The Company believes that this non-GAAP financial measure is useful because it allows investors to assess the Company’s operating performance. Although this non-GAAP financial measure is intended to enhance investors’ understanding of the Company’s business and performance, this non-GAAP financial measure should not be considered an alternative to GAAP.

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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 our Consolidated Statements of Income for the years 2006 through 2008 and Consolidated Statements of Financial Condition as of December 31, 2007 and 2008. When we use the terms “First Midwest,” the “Company,” “we,” “us,” and “our,” we mean First Midwest Bancorp, Inc., a Delaware Corporation, and its consolidated subsidiaries. When we use the term the “Bank,” we are referring to our wholly owned banking subsidiary, First Midwest Bank. The discussion is designed to provide stockholders with a comprehensive review of the operating results and financial condition 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 2008 is included herein in the section titled “Fourth Quarter 2008 vs. 2007.” The review provides an analysis of the quarterly earnings performance for the fourth quarter of 2008 compared to the same period in 2007.

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.

PERFORMANCE OVERVIEW

General Overview

Our banking network provides a full range of business and retail banking and trust and advisory services through 97 banking branches, one operational facility, and one dedicated lending office primarily in suburban metropolitan Chicago. The primary sources of our revenue are net interest income and fees from financial services provided to customers. Business volumes tend to be influenced by overall economic factors including market interest rates, business spending, consumer confidence, and competitive conditions within the marketplace.

2008 Compared with 2007

Our net income was $49.3 million for 2008 compared to $80.2 million for 2007 and earnings of $1.00 per diluted common share for 2008, as compared to $1.62 per diluted common share for 2007. Return on average assets was 0.59% for 2008 compared to 0.99% for 2007. Return on average common equity was 6.48% for 2008 compared to 10.69% for 2007.

Performance for 2008 was adversely impacted by higher loan loss provisions and securities-related losses, stemming from continued economic weakness, which were partially offset by the recognition of certain nonrecurring tax benefits. Income before taxes totaled $36.0 million for 2008, as compared to $94.0 million for 2007, with the difference largely due to higher provision for loan losses. Provision for loan losses for 2008 was $70.3 million as contrasted to $7.2 million in 2007, with the increase primarily due to deterioration in the Company’s residential land and development portfolio. For a discussion of the Company’s loan portfolio and credit quality, see the section titled “Loan Portfolio and Credit Quality” elsewhere in this report. In addition, we recognized net securities impairment losses of $44.5 million in 2008 compared to $50.1 million in 2007. For a discussion of net securities losses, see the section titled “Investment Portfolio Management.” Excluding the provision for loan losses and market-related losses, income before taxes for both 2008 and 2007 was $152 million.

Average core transactional deposits for 2008 were $3.6 billion, relatively unchanged from 2007. The Company’s ability to fund its lending activity predominantly with core customer deposits provides a long-term competitive advantage given the volatility in the cost and availability of wholesale funds.

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Outstanding loans totaled $5.4 billion as of December 31, 2008, an increase of 8.0% from December 31, 2007, with the increase due primarily to growth in the commercial real estate and commercial and industrial loan categories.

Non-accrual loans at December 31, 2008 were $127.8 million, or 2.38% of total loans, compared to $18.5 million, or 0.37% of total loans, at December 31, 2007, with residential land and development loans accounting for $97.1 million of the total. Loans 90 days past due and still accruing totaled $37.0 million, an increase of $15.9 million from the prior year, and foreclosed real estate totaled $24.4 million, an increase of $18.3 million from the prior year.

In response to the impact of continuing economic weakness on real estate and related markets, we increased our reserve for loan losses to $93.9 million as of December 31, 2008, up $32.1 million from December 31, 2007. The reserve for loan losses represented 1.75% of total loans outstanding at December 31, 2008 compared to 1.25% at December 31, 2007. Provision for losses for 2008 totaled $70.3 million and exceeded net charge-offs by $32.1 million.

Net interest margin for 2008 was 3.61% for 2008 compared to 3.58% for 2007 as the Company was able to more than offset declines in asset yields with reductions in its cost of funds.

Fee-based revenues, which comprise the majority of noninterest income, were $95.1 million for full year 2008, down 3.8% from 2007. Excluding certain services the Company discontinued in late 2007 from both years, fee-based revenues declined 1% from 2007, due primarily to lower trust revenue and lower retail sales of investment products.

Noninterest expense for 2008 declined 2.4% from 2007 due primarily to a reduction in salary and benefit costs. Over the past two years the Company has reduced its staffing by 4.4%, or 83 full-time equivalents.

The Company recognized significant federal and state tax benefits due to favorable court rulings and results of examinations related to prior years. These benefits, coupled with the increase in tax-exempt income as a percent of total income in 2008, resulted in a net tax benefit for 2008 of $13.3 million.

2007 Compared with 2006

Net income for 2007 was $80.2 million, which included a $32.5 million after-tax charge to earnings associated with an impairment of the Company’s asset-backed collateralized debt securities portfolio. This compared to net income of $117.2 million for 2006. Our earnings per diluted common share was $1.62 for 2007 compared to $2.37 per diluted common share for 2006. The impairment charge reduced 2007 diluted earnings per share by $0.65. Return on average equity was 10.7% for 2007 and 16.9% for 2006. Return on average assets was 0.99% for 2007 and 1.42% for 2006. For additional discussion regarding the impairment charge, refer to the section titled “Investment Portfolio Management.”

Our securities portfolio declined $301.5 million in 2007. During the first quarter of 2007, we took advantage of the inverted yield curve to sell certain long-term securities at a gain and used the proceeds to reduce our short-term borrowings. When the capital markets began to charge premiums for access to funding in the third quarter, we again responded by selling securities and used the proceeds to reduce our short-term borrowings.

Our total loans outstanding declined $45.3 million from December 31, 2006 to December 31, 2007. The decline reflects the combined impact of the payoff of loan participations purchased as part of a 2006 bank acquisition, rapid prepayment of multi-family loan portfolios during the first half of 2007, and the continued paydown of our indirect auto loan portfolio.

Total average deposits were $5.9 billion for both 2007 and 2006. Declines in average time deposits were substantially offset by increases in average transaction deposits. Average transaction deposits increased $72.0 million from 2006, primarily due to growth in savings deposits.

34

Charge-offs as a percentage of average loans were 0.16% in 2007 compared to 0.21% in 2006. As of December 31, 2007, the reserve for loan losses stood at 1.25% of total loans, unchanged from December 31, 2006 and was 330% of non-performing loans.

Net interest income for 2007 declined $11.7 million from 2006, and net interest margin declined 0.09% from 2006 to 3.58%. This reflected narrowing credit spreads resulting from increased competition, a flat to inverted yield curve for much of 2007, and a short-term mismatch between the repricing of interest-earning assets and our funding sources, as the Federal Reserve lowered its targeted discount rate by 1.0% during the last four months of 2007.

Noninterest income, excluding securities gains and losses, increased 12.2% in 2007 compared to 2006. Fee-based revenues, which comprise the majority of noninterest income, increased 12.0%. While increases occurred in most fee categories, the growth for 2007 was primarily due to increases in service charges on deposit accounts, card-based fees, and trust and investment advisory fees.

Noninterest expense was well controlled as reflected by year-over-year growth of 3.4%. Noninterest expense for 2007 included a severance charge of $621,000 related to certain staff reductions initiated in the fourth quarter and a $299,000 charge related to our share of claims from litigation brought by others against VISA, Inc.

In the third quarter of 2007, the State of Illinois passed tax legislation that, in the short term, provided certain tax benefits that we recognized in the second half of 2007. The benefits increased net income by $2.9 million in 2007.

Management’s Outlook

Performance for 2008 reflected strong operating performance offset by increased credit- related costs stemming from prolonged and significant weakness in the economy, particularly in the residential housing markets. Over the course of 2008, we worked to prepare ourselves for the demands of this environment by increasing our loan loss reserves, adding to our capital through the issuance of preferred securities and reducing our dividend, as well as expanding our credit remediation resources and reducing our operating costs.

As we enter 2009, continuing weakness in the economy and the residential housing market is expected to further strain all loan portfolio categories, but particularly those supported by real estate. Response by the federal government in the form of both legislative action and stimulus designed to stabilize the economy have been substantial and unprecedented and continue to evolve.

In such an environment, it our belief that our strong core operating performance, coupled with a solid capital base, leaves us positioned to better navigate the uncertainty of the times, meet the needs of our clients and communities, and benefit from future recovery in the market place. In addition, similar to 2008, our focus will remain on tight control of our operating costs and proactive management of our balance sheet as well as all aspects of our capital plans.

EARNINGS PERFORMANCE

Net Interest Income

Net interest income equals the difference between interest income plus fees earned on interest-earning assets and interest expense incurred on interest-bearing liabilities. The level of interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities impact net interest income. Net interest margin represents net interest income as a percentage of total average interest-earning assets. The accounting policies underlying the recognition of interest income on loans, securities, and other interest-earning assets are presented in Note 1 of “Notes to Consolidated Financial Statements” in Item 8 of this Form 10-K.

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Our accounting and reporting policies conform to U.S. generally accepted accounting principles (“GAAP”) and general practice within the banking industry. For purposes of this discussion, both net interest income and net interest 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 interest-earning assets. Although we believe that these non-GAAP financial measures enhance investors’ understanding of our business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP. The effect of such adjustment is presented in the following table.

Table 1

Effect of Tax-Equivalent Adjustment

(Dollar amounts in thousands)

	Years Ended December 31,						% Change
	2008		2007		2006		2008-2007	2007-2006
Net interest income (GAAP)	$	246,597	$	240,129	$	251,859	2.7	(4.7)
Tax-equivalent adjustment		22,225		20,906		23,551	6.3	(11.2)
Tax-equivalent net interest income	$	268,822	$	261,035	$	275,410	3.0	(5.2)

Table 2 summarizes changes in our average interest-earning assets and interest-bearing liabilities over the last three years as well as interest income and interest expense related to each category of assets and funding sources and the average interest rates earned and paid on each. The table also shows the trend in net interest margin on a quarterly basis for 2008 and 2007, including the tax-equivalent yields on interest-earning assets and rates paid on interest-bearing liabilities. Table 3 details increases in income and expense for each of the major categories of interest-earning assets and analyzes the extent to which such variances are attributable to volume and rate changes. Interest income and yields are presented on a tax-equivalent basis assuming a federal income tax rate of 35%, which includes the tax-equivalent adjustment as presented in Table 1 above.

Net interest margin for 2008 was 3.61% compared to 3.58% for 2007. The net interest margins for both years, as well as the increase from 2007, reflect our strong core deposit base and our ability to effectively manage our cost of funds.

From 2007 to 2008, the yield received on our average interest-earning assets declined 102 basis points while our cost of funds declined 126 basis points. With approximately one-half of our loan portfolio tied to floating indices, the 400 basis-point decline in the Federal Reserve’s federal funds rate during 2008 caused a decline of 151 basis points in average loan yields from 2007. The increase in non-accrual loans from 2007 to 2008 also negatively impacted the yield by six basis points. This negative impact was offset by a shift from time deposits to less expensive wholesale borrowings, including federal term auction facilities, a widening of loan spreads, and expanded earnings spreads on our predominately fixed-rate investment portfolio as interest rates fell.

We continue to use multiple interest rate scenarios to rigorously assess the direction and magnitude of changes in interest rates and their impact on net interest income. A description and analysis of our market risk and interest rate sensitivity profile and management policies is included in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of this Form 10-K.

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Table 2

Net Interest Income and Margin Analysis

(Dollar amounts in thousands)

	2008						2007						2006
	Average Balance			Interest		Yield/ Rate (%)	Average Balance			Interest		Yield/ Rate (%)	Average Balance			Interest		Yield/ Rate (%)
Assets:
Interest-bearing deposits with banks	$	3,399		$	52	1.53	$	7,550		$	383	5.07	$	5,804		$	252	4.34
Federal funds sold and securities purchased under agreements to resell		14,672			166	1.13		3,011			173	5.75		1,067			71	6.65
Mortgages held for sale		37			3	8.11		2,940			171	5.82		4,021			238	5.92
Securities:
Trading - taxable		17,202			289	1.68		17,006			360	2.12		-			-	-
Available-for-sale - taxable		1,171,264			61,844	5.28		1,268,389			66,788	5.27		1,456,220			73,600	5.05
Available-for-sale - nontaxable (1)		936,933			57,344	6.12		906,905			54,755	6.04		998,727			63,112	6.32
Held-to-maturity - taxable		7,670			341	4.45		9,450			422	4.47		9,848			429	4.36
Held-to-maturity - nontaxable (1)		84,718			5,879	6.94		88,099			6,159	6.99		91,046			6,231	6.84
Total securities		2,217,787			125,697	5.67		2,289,849			128,484	5.61		2,555,841			143,372	5.61
Federal Home Loan Bank and Federal Reserve Bank stock		54,767			1,318	2.41		54,774			2,034	3.71		59,056			2,363	4.00
Loans (1)(2):
Commercial and industrial		1,435,525			85,319	5.94		1,379,007			104,968	7.61		1,353,337			99,495	7.35
Agricultural		176,378			8,822	5.00		166,647			11,721	7.03		143,865			9,970	6.93
Commercial real estate		2,775,847			165,121	5.95		2,592,170			192,003	7.41		2,442,731			179,777	7.36
Consumer		547,965			31,771	5.80		596,885			44,978	7.54		702,269			50,820	7.24
Real estate - 1-4 family		214,164			13,163	6.15		208,770			12,952	6.20		227,158			13,602	5.99
Total loans		5,149,879			304,196	5.91		4,943,479			366,622	7.42		4,869,360			353,664	7.26
Total interest-earning assets (1)(2)		7,440,541			431,432	5.80		7,301,603			497,867	6.82		7,495,149			499,960	6.67
Cash and due from banks		136,547						152,057						165,324
Reserve for loan losses		(66,378	)					(62,227	)					(61,184	)
Other assets		714,730						699,900						656,475
Total assets	$	8,225,440					$	8,091,333					$	8,255,764
Liabilities and Stockholders’ Equity:
Savings deposits	$	792,524			7,148	0.90	$	754,009			11,844	1.57	$	653,321			5,116	0.78
NOW accounts		935,429			9,637	1.03		900,956			14,536	1.61		924,539			13,102	1.42
Money market deposits		787,218			13,220	1.68		859,864			28,469	3.31		867,775			27,418	3.16
Total interest-bearing transactional deposits		2,515,171			30,005	1.19		2,514,829			54,849	2.18		2,445,635			45,636	1.87
Time deposits		2,172,379			80,617	3.71		2,319,902			111,418	4.80		2,429,902			102,482	4.22
Total interest-bearing deposits		4,687,550			110,622	2.36		4,834,731			166,267	3.44		4,875,537			148,118	3.04
Borrowed funds		1,438,908			37,192	2.58		1,131,700			55,540	4.91		1,339,826			62,974	4.70
Subordinated debt		231,961			14,796	6.38		227,756			15,025	6.60		206,449			13,458	6.52
Total interest-bearing liabilities		6,358,419			162,610	2.56		6,194,187			236,832	3.82		6,421,812			224,550	3.50
Demand deposits		1,043,972						1,055,251						1,052,413
Other liabilities		58,318						91,784						86,519
Stockholders’ equity		764,731						750,111						695,020
Total liabilities and stockholders’ equity	$	8,225,440					$	8,091,333					$	8,255,764
Net interest income/margin (1)				$	268,822	3.61				$	261,035	3.58				$	275,410	3.67

Quarterly Net Interest Margin Trend

	2008				2007
	Fourth	Third	Second	First	Fourth	Third	Second	First
Yield on interest-earning assets	5.43%	5.69%	5.81%	6.29%	6.67%	6.91%	6.86%	6.83%
Rates paid on interest-bearing liabilities	2.03%	2.40%	2.61%	3.23%	3.71%	3.86%	3.84%	3.88%
Net interest margin (1)	3.71%	3.63%	3.58%	3.53%	3.53%	3.63%	3.61%	3.53%

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

⁽²⁾ Loans on a non-accrual basis for the recognition of interest income totaled $127.8 million as of December 31, 2008, $18.4 million as of December 31, 2007, and $16.2 million as of December 31, 2006 and are included in loans for purposes of this analysis.

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Table 3

Changes in Net Interest Income Applicable to Volumes and Interest Rates ⁽¹⁾

(Dollar amounts in thousands)

	2008 compared to 2007									2007 compared to 2006
	Volume			Rate			Total			Volume			Rate			Total
Interest-bearing deposits with banks	$	(146	)	$	(185	)	$	(331	)	$	84		$	47		$	131
Federal funds sold and securities purchased under agreements to resell		(9	)		2			(7	)		111			(9	)		102
Mortgages held for sale		(278	)		110			(168	)		(63	)		(4	)		(67	)
Securities:
Trading - taxable		4			(75	)		(71	)		360			-			360
Available-for-sale - taxable		(5,129	)		185			(4,944	)		(9,979	)		3,167			(6,812	)
Available-for-sale - nontaxable (2)		1,831			758			2,589			(5,628	)		(2,729	)		(8,357	)
Held-to-maturity - taxable		(79	)		(2	)		(81	)		(20	)		13			(7	)
Held-to-maturity - nontaxable (2)		(235	)		(45	)		(280	)		(214	)		142			(72	)
Total securities		(3,608	)		821			(2,787	)		(15,481	)		593			(14,888	)
Federal Home Loan Bank and Federal Reserve Bank stock		-			(716	)		(716	)		(165	)		(164	)		(329	)
Loans (2):
Commercial and industrial		4,519			(24,168	)		(19,649	)		1,910			3,563			5,473
Agricultural		734			(3,633	)		(2,899	)		1,600			151			1,751
Commercial real estate		15,111			(41,993	)		(26,882	)		11,480			746			12,226
Consumer		(3,463	)		(9,744	)		(13,207	)		(8,061	)		2,219			(5,842	)
Real estate - 1-4 family		330			(119	)		211			(1,173	)		523			(650	)
Total loans		17,231			(79,657	)		(62,426	)		5,756			7,202			12,958
Total interest income (2)		13,190			(79,625	)		(66,435	)		(9,758	)		7,665			(2,093	)
Savings deposits		640			(5,336	)		(4,696	)		893			5,835			6,728
NOW accounts		580			(5,479	)		(4,899	)		(324	)		1,758			1,434
Money market deposits		(2,232	)		(13,017	)		(15,249	)		(247	)		1,298			1,051
Total interest-bearing transactional deposits		(1,012	)		(23,832	)		(24,844	)		322			8,891			9,213
Time deposits		(6,733	)		(24,068	)		(30,801	)		(4,327	)		13,263			8,936
Total interest-bearing deposits		(7,745	)		(47,900	)		(55,645	)		(4,005	)		22,154			18,149
Borrowed funds		24,673			(43,021	)		(18,348	)		(10,386	)		2,952			(7,434	)
Subordinated debt		288			(517	)		(229	)		1,404			163			1,567
Total interest expense		17,216			(91,438	)		(74,222	)		(12,987	)		25,269			12,282
Net interest income (2)	$	(4,026	)	$	11,813		$	7,787		$	3,229		$	(17,604	)	$	(14,375	)

⁽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 income tax rate of 35%.

As shown in Table 3, 2008 tax-equivalent net interest income increased $7.8 million compared to 2007 following a decline of $14.4 million from 2006 to 2007. This was the result of a decrease in interest expense more than offsetting a decrease in interest income.

As shown in Table 3, tax equivalent interest income declined $66.4 million for 2008 compared to 2007. The increase in interest-earning assets increased interest income by $13.2 million, while a decline in the average rate

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earned on interest-earning assets reduced interest income by $79.6 million. Interest expense for 2008 declined $74.2 million compared to 2007. The increase in interest-bearing liabilities increased interest expense by $17.2 million, but the shift from time deposits to less expensive wholesale borrowing, coupled with an overall decrease in the average rate paid on interest-bearing liabilities reduced interest expense by $91.4 million.

In late 2006 and early 2007, we took advantage of the inverted yield curve to sell long-term securities at a gain and used the proceeds to pay down short-term borrowings. During that same period, we experienced payoffs of loan participations purchased as part of a 2006 bank acquisition and rapid prepayment of multi-family loan portfolios. These events accounted for the decline in average interest-earning assets and the resulting $9.8 million decline in interest income. This decline was offset by an increase in the average yield earned on interest-earning assets that generated $7.7 million of additional interest income. Conversely, the decline in interest-bearing liabilities reduced interest expense by $13.0 million but was more than offset by a $25.3 million increase attributable to higher interest rates paid on interest-bearing liabilities.

If interest rates remain at current levels, the Company’s net interest margin performance in 2009 will depend, to a large extent, on its ability to maintain transactional deposits, reduce the cost of time deposits, and access other funding sources and my be adversely impacted by the level of loans placed on non-accrual.

Noninterest Income

Table 4

Noninterest Income Analysis

(Dollar amounts in thousands)

	Years ended December 31,								% Change
	2008			2007			2006		2008-2007		2007-2006
Service charges on deposit accounts	$	44,987		$	45,015		$	40,036	(0.1	)	12.4
Trust and investment advisory fees		15,130			15,701			14,269	(3.6	)	10.0
Other service charges, commissions, and fees		18,846			22,183			20,135	(15.0	)	10.2
Card-based fees (1)		16,143			15,925			13,777	1.4		15.6
Subtotal fee-based revenues		95,106			98,824			88,217	(3.8	)	12.0
Bank owned life insurance (“BOLI”) (2)		(2,369	)		8,033			7,616	(129.5	)	5.5
Other (3)		2,819			3,078			2,619	(8.4	)	17.5
Subtotal operating revenues		95,556			109,935			98,452	(13.1	)	11.7
Trading (losses) gains, net (4)		(5,938	)		1,119			562	(630.7	)	99.1
Gains (losses) on securities sales, net		8,903			(746	)		4,269	(1,293.4	)	(117.5	)
Securities impairment losses		(44,514	)		(50,055	)		-	(11.1	)	-
Total noninterest income	$	54,007		$	60,253		$	103,283	(10.4	)	(41.7	)

⁽¹⁾ Card-based fees consist of debit and credit card interchange fees charged for processing signature-based transactions as well as various fees charged on both customer and non-customer automated teller machine (“ATM”) and point-of-sale transactions processed through the ATM and point-of-sale networks.

⁽²⁾ BOLI income represents benefit payments received and the change in cash surrender value (“CSV”) of the policies, net of any premiums paid. The change in CSV is attributable to earnings or losses credited to the policies, based on investments made by the insurer. For a further discussion of our investment in BOLI, see the section “Investment in Bank Owned Life Insurance” and Note 1 of “Notes to Consolidated Financial Statements” in Item 8 of this Form 10-K.

⁽³⁾ Other income consists of various items including safe deposit box rentals and gains on the sales of various assets.

⁽⁴⁾ Trading (losses) gains result from the change in fair value of trading securities. Such change is substantially offset by an adjustment to salaries and benefits expense. Our trading securities represent diversified investment securities held in a grantor trust under deferred compensation arrangements in which plan participants may direct amounts earned to be invested in securities other than Company stock.

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Noninterest income totaled $54.0 million in 2008 compared to $60.3 million in 2007 and $103.3 million in 2006. We recognized net securities impairment losses of $44.5 million in 2008 and $50.1 million in 2007. For a discussion of net securities losses, see the section titled “Investment Portfolio Management.”

Fee-based revenues, which comprise the majority of operating revenues, were $95.1 million for full year 2008, down 3.8% from 2007. In fourth quarter 2007, we ceased originating traditional residential mortgages, and in first quarter 2008, we began to maintain cashier check balances in-house rather than outsource the service in exchange for a fee. If both were excluded from the 2007 amount, fee-based revenues for 2008 would have declined 1.0% from 2007, primarily due to lower trust revenue and retail sales of investment products.

Other service charges, commissions, and fees declined 15.0% for 2008 compared to 2007 due to ceasing origination of traditional residential mortgages and formerly outsourced cashier check balances. Further contributing to the decrease were declines in commissions received from the sale of third-party annuity and investment products of $517,000 from 2007 to 2008.

Despite strong trust sales, trust and investment advisory fees for 2008 declined 3.6% from 2007, reflecting the decline in equity values of the assets under management.

Card-based fees increased 1.4% for 2008 from 2007, with most of the increase related to higher usage.

2008 was the first year in which we reported a loss on BOLI. In 2008, we received $2.7 million of death benefit payments compared to $877,000 in 2007. However, this was more than offset by a decrease in the CSV of the underlying policies. See the section titled “Investment in Bank Owned Life Insurance” for a discussion of our investment in BOLI.

In 2007, as compared to 2006, we generated double-digit growth in each major category of fee-based revenues. Service charges on deposit accounts increased $5.0 million in 2007 compared to 2006 primarily as a result of a $4.5 million increase in fees received on items drawn on customer accounts with insufficient funds (“NSF fees”). Trust and investment advisory fees increased 10.0% due primarily to a $325.2 million, or 9.6%, increase in average assets under management. Other service charges, commissions, and fees increased 10.2% in 2007 compared to 2006 due to a $1.3 million increase in merchant fees and a $1.2 million increase in commissions received from the sale of third party annuity and investment products. Card-based fees for 2007 increased 15.6% from 2006, with most of the increase in debit card income related to both higher usage and higher rates. The increase in other income for 2007 compared to 2006 resulted primarily from $620,000 in favorable legal settlements and a $558,000 increase in income realized as a result of a rise in fair value of trading securities related to deferred compensation plans.

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Noninterest Expense

Table 5

Noninterest Expense Analysis

(Dollar amounts in thousands)

	Years ended December 31,						% Change
	2008		2007		2006		2008-2007		2007-2006
Compensation expense:
Salaries and wages	$	77,074	$	85,707	$	80,087	(10.1	)	7.0
Retirement and other employee benefits		22,836		25,891		26,114	(11.8	)	(0.9	)
Total compensation expense		99,910		111,598		106,201	(10.5	)	5.1
Net occupancy expense		23,378		22,054		20,153	6.0		9.4
Equipment expense		9,956		10,540		10,227	(5.5	)	3.1
Technology and related costs		7,429		7,084		6,584	4.9		7.6
Professional services		10,898		9,034		9,009	20.6		0.3
Advertising and promotions		6,491		6,293		7,845	3.1		(19.8	)
Merchant card expense		6,985		6,830		5,800	2.3		17.8
Foreclosed real estate expense, net		3,409		972		843	250.7		15.3
Other expenses		25,849		24,732		25,953	4.5		(4.7	)
Total noninterest expense	$	194,305	$	199,137	$	192,615	(2.4	)	3.4
Average full-time equivalent (“FTE”) employees		1,824		1,881		1,856
Efficiency ratio		53.5%		52.5%		50.5%

Operating expenses continue to be well controlled as reflected by our efficiency ratio of 53.5% for 2008. The efficiency ratio expresses noninterest expense as a percentage of tax-equivalent net interest income plus total fees and other income. Noninterest expense was $194.3 million for 2008, down 2.4% from 2007. The decline was primarily due to reductions in salaries and benefits costs.

Salaries and wages decreased in 2008 compared to 2007. In late 2007 and continuing into 2008, we initiated targeted staff reductions, primarily in the support and administrative areas. Full time employees have declined over this period by 4.4%, or 83 full-time equivalents. These reductions, coupled with a $7.3 million decline in the obligation due to participants under deferred compensation plans, more than offset annual general merit increases and an increase in share-based compensation expense.

The increase in occupancy expense from 2007 to 2008 resulted from typical increases in real estate taxes, repairs and maintenance, utilities, and depreciation. The $345,000 increase in technology expense from 2007 to 2008 was due to standard contractual increases.

The increase in professional services was due primarily to a short-term contract with an outside consultant for revenue and process enhancement services.

Foreclosed real estate expense increased by 250.7% as foreclosed real estate held by the Company increased from $6.1 million at December 31, 2007 to $24.4 million at December 31, 2008. Such expenses consist of insurance, real estate taxes, and other costs to maintain the properties.

Noninterest expense increased $6.5 million, or 3.4%, for 2007 compared to 2006 due, in part, to the full year operation of 30 branches and related staffing costs in the Northwest Indiana market acquired in the first quarter of 2006 as part of the acquisition of Bank Calumet, Inc. Likewise, in second quarter 2006, we began recognizing

41

the results of operations from the Bank Calumet acquisition, including $3.0 million of integration and other costs incurred as part of the acquisition and integration of that bank. These costs are included in the advertising and promotions and other expense categories.

Salaries and wages increased $5.6 million, or 7.0%, in 2007 compared to 2006 primarily as a result of annual general merit increases, the addition of staffing costs referred to above in the Northwest Indiana market, and a $686,000 increase in share-based compensation expense. In addition, we recorded a $621,000 charge for severance-related costs stemming from a workforce reduction implemented in December 2007. Retirement and other employee benefits declined 0.9% in 2007 compared to 2006 due to $1.8 million lower pension expense resulting from plan amendments that reduced the growth of future benefits and ceased new enrollments. This was partially offset by a $1.2 million increase in employee insurance costs. Merchant card expense increased 17.8% in 2007 as a direct result of the increase in merchant card revenue included in card-based fees. Advertising and promotions decreased 19.8% and other expenses decreased 4.1% in 2007 compared to 2006 largely due to higher costs recorded in 2006 in connection with the 2006 bank acquisition.

Income Taxes

Our 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 2006 through 2008 are detailed in Table 6.

Table 6

Income Tax Expense Analysis

(Dollar amounts in thousands)

	Years ended December 31,
	2008			2007			2006
Income before income tax (benefit) expense	$	36,045		$	94,012		$	152,298
Income tax (benefit) expense	$	(13,291	)	$	13,853		$	35,052
Effective income tax rate		(36.9%	)		14.7%			23.0%
Federal effective income tax rate		(6.5%	)		16.2%			22.9%
State effective income tax rate, net of federal tax effect		(30.4%	)		(1.5%	)		0.1%

The federal effective income tax rate and changes in that rate are greatly influenced by the amount of tax-exempt income derived from investment securities. The state effective income tax rate and changes in that rate are dependent upon Illinois, Indiana, and Iowa income tax rules relating to consolidated/combined reporting, sourcing of income and expense, and the amount of tax-exempt income derived from loans and investment securities.

The decreases in income tax expense, and related effective income tax rate from 2006 to 2007 and from 2007 to 2008 were primarily attributable to increases in tax-exempt income as a percent of total pre-tax income and adjustments to state income taxes further explained below. For further details regarding our effective income tax rate, refer to Note 15 in “Notes to Consolidated Financial Statements” in Item 8 of this Form 10-K.

In 2008, as a result of a favorable court decision and certain developments in pending tax audits, we increased the amount of benefit recognized with respect to certain previously identified uncertain tax positions under Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, Accounting for Income Taxes (“FIN 48”). The increase in recognized tax benefit resulted in a $4.1 million reduction in income tax expense in 2008.

In 2007, as a result of certain tax legislation, we reversed the valuation allowance previously recorded with respect to Illinois net operating loss carryforwards and increased the value of certain deferred state tax assets. These adjustments resulted in a $2.9 million reduction in income tax expense in 2007.

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In addition, in 2008, we continued to record deferred state tax assets on Illinois net operating losses generated in the current year.

The State of Illinois has enacted legislation that significantly changes the income sourcing rules relating to financial organizations. To date, the State has not issued regulations or other clarifying guidance. We have considered, to the extent possible, the impact of the legislation and potential opportunities under the new rules. Based on our assessment to date, our state effective income tax rate, net of federal tax effect, is expected to be in the range of 1% to 3% in 2009.

FINANCIAL CONDITION

INVESTMENT PORTFOLIO MANAGEMENT

We manage our investment portfolio to maximize the return on invested funds within acceptable risk guidelines, to meet pledging and liquidity requirements, and to adjust balance sheet interest rate sensitivity to insulate net interest income against the impact of changes in interest rates.

We adjust the size and composition of our securities portfolio according to a number of factors, including expected loan growth, anticipated changes in collateralized public funds on account, the interest rate environment, and the related value of various segments of the securities markets. The following provides a valuation summary of our investment portfolio.

Table 7 Investment Portfolio Valuation Summary

(Dollar amounts in thousands)

	As of December 31, 2008					As of December 31, 2007					As of December 31, 2006
	Fair Value		Amortized Cost		% of Total	Fair Value		Amortized Cost		% of Total	Fair Value		Amortized Cost		% of Total
Available-for-Sale
U.S. Treasury securities	$	1,041	$	1,039	0.1	$	1,028	$	1,027	-	$	3,015	$	3,017	0.1
U.S. Agency securities		-		-	-		42,492		41,895	1.9		66,959		66,796	2.7
Collateralized mortgage obligations		698,839		694,285	30.1		534,800		534,688	24.5		745,327		756,890	30.4
Other mortgage-backed securities		518,265		504,918	21.9		420,320		417,532	19.1		403,772		407,198	16.3
State and municipal securities		906,747		907,036	39.4		966,835		961,638	44.0		1,012,116		1,007,761	40.5
Collateralized debt obligations		42,086		60,406	2.6		81,630		95,584	4.4		133,446		132,789	5.3
Other securities		49,208		51,820	2.2		32,941		35,295	1.6		23,153		24,381	1.0
Total available-for-sale		2,216,186		2,219,504	96.3		2,080,046		2,087,659	95.5		2,387,788		2,398,832	96.3
Held-to-Maturity
State and municipal securities		84,592		84,306	3.7		97,931		97,671	4.5		91,602		91,380	3.7
Total securities	$	2,300,778	$	2,303,810	100.0	$	2,177,977	$	2,185,330	100.0	$	2,479,390	$	2,490,212	100.0

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	As of December 31, 2008			As of December 31, 2007
	Effective Duration (1)	Average Life (2)	Yield to Maturity	Effective Duration (1)	Average Life (2)	Yield to Maturity
Available-for-Sale
U.S. Treasury securities	1.35%	1.50	0.89%	1.35%	1.50	4.10%
U.S. Agency securities	-	-	-	0.73%	0.80	5.43%
Collateralized mortgage obligations	1.25%	1.80	5.25%	2.44%	2.51	5.05%
Other mortgage-backed securities	1.75%	1.95	5.52%	3.73%	4.81	5.64%
State and municipal securities	5.26%	7.61	6.15%	5.04%	7.84	6.20%
Collateralized debt obligations	0.25%	5.84	3.26%	0.25%	6.79	10.27%
Other securities	6.03%	12.61	5.06%	0.09%	10.00	1.79%
Total available-for-sale	3.07%	4.51	5.62%	3.76%	5.66	5.78%
Held-to-Maturity
State and municipal securities	N/M	9.26	7.10%	N/M	8.06	7.18%
Total securities	3.07%	4.69	5.67%	3.76%	5.76	5.84%

⁽¹⁾ The effective duration of the securities portfolio represents the estimated percentage change in the fair value of the securities portfolio given a 100 basis point change up or down in the level of interest rates. This measure is used as a gauge of the portfolio’s price volatility at a single point in time and is not intended to be a precise predictor of future fair values, as such values will be influenced by a number of factors.

⁽²⁾ Average life is presented in years and represents the weighted-average time to receive all future cash flows, using the dollar amount of principal paydowns, including estimated principal paydowns, as the weighting factor.

N/M Since duration is a measure of price volatility and we have no intention of selling these securities, this measure is not meaningful.

Securities that we have 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. Trading securities are carried at fair value, with unrealized gains and losses recorded in other noninterest income. All other securities are classified as securities available-for-sale and are carried at fair value. Unrealized gains and losses on the securities available-for-sale represent the difference between the aggregate cost and fair value of the portfolio and are reported, on an after-tax basis, as a separate component of stockholders’ equity in accumulated other comprehensive income. This balance sheet component will fluctuate as current market interest rates and conditions change, thereby affecting the aggregate fair value of the portfolio.

Investments in state and local municipalities comprised 40.9% of the total available-for-sale securities portfolio. This type of security has historically experienced very low default rates and provided a predictable cash flow since it generally is not subject to significant prepayment. Ninety-eight percent of our portfolio in this category carries third-party bond insurance or other credit enhancement. The majority are general obligations of state and local political subdivisions.

We recognized non-cash impairment charges totaling $44.5 million in 2008. Of these impairment charges, $10.1 million related to six asset-backed collateralized debt obligations (“CDOs”). The Company had previously recognized a $50.1 million impairment during 2007 regarding these assets. The fair value of these specific asset-backed CDOs was zero at December 31, 2008. Of the remaining 2008 non-cash impairment charge of $34.5 million, $24.8 million related to three trust-preferred CDOs with an aggregate cost of $38.9 million. These securities continue to meet all scheduled debt service requirements. The Company also recorded a $9.7 million non-cash impairment charge related to two whole loan mortgage-backed securities with a combined par value of $16.6 million and a single Sallie Mae debt issuance with a par value of $10.0 million. The two whole loan mortgage-backed securities are included with “Collateralized mortgage obligations” in Table 7 above and the Sallie Mae debt issuance is included in “Other securities.”

After recognizing these impairments, our remaining CDOs consist of seven trust-preferred pooled debt securities with an amortized cost of $60.4 million and a fair value of $42.1 million as of December 31, 2008. Our

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investments in trust-preferred CDOs are debt securities supported by the credit of the underlying banks and insurance companies. The unrealized loss on these securities as of December 31, 2008 of $18.3 million reflects the difference between amortized cost and fair value for the four CDOs that the Company determined were not other-than-temporarily impaired. Based on our cash flow modeling of these investments, we currently project no further change in our net cash flows from these seven CDOs and we have both the intent and ability to hold them until maturity or recovery. Our estimation of cash flows for these investments and resulting fair values were based upon our own cash flow modeling in accordance with SFAS No. 157, Fair Value Measurements, as described in Note 22 of “Notes to Consolidated Financial Statements.”

Other available-for-sale securities include a single Sallie Mae debt security, corporate bonds, and other miscellaneous equity securities.

As of December 31, 2008, the carrying value of the available-for-sale securities portfolio totaled $2.22 billion compared with $2.08 billion as of December 31, 2007 and $2.39 billion at December 31, 2006. Although there was a $136.1 million, or 6.5%, increase from December 31, 2007 to December 31, 2008, the average balance of the securities portfolio declined by $67.1 million year-over-year. The increase, which occurred in December 2008, reflected the temporary investment of the proceeds from the sale of $193.0 million of preferred stock to the U.S. Treasury as part of the previously discussed CPP program.

During first quarter 2008 we took advantage of market conditions and the slope of the interest rate yield curve to sell $221.1 million of securities, primarily collateralized mortgage obligations and other mortgage-backed securities, at a gain of $5.9 million. We reinvested the majority of the proceeds back into similar investments and the remainder into higher-yielding debt securities, effectively replacing the yield with this new combination of securities.

As of December 31, 2008, gross unrealized gains in the securities available-for-sale portfolio totaled $33.9 million, and gross unrealized losses totaled $37.2 million, resulting in a net unrealized loss of $3.3 million. The unrealized loss on securities in an unrealized loss position for greater than 12 months totaled $28.8 million, all of which represented securities issued or guaranteed by U.S. Government-sponsored agencies or securities with investment grade credit ratings. We do not believe any individual unrealized loss as of December 31, 2008 represented an other-than-temporary impairment. We continue to have both the intent and ability to hold the securities with unrealized losses for a period of time necessary to recover the amortized cost, or to maturity.

The effective duration of the available-for-sale portfolio decreased to 3.07% as of December 31, 2008 from 3.76% as of December 31, 2007. The decline in effective duration from December 31, 2007 to December 31, 2008 was the result of the decline in interest rates during the year.

The $307.9 million decrease from December 31, 2006 to December 31, 2007 primarily resulted from using a portion of the proceeds from sales and maturities of securities to reduce higher-costing funding sources rather than reinvesting them in similar securities. During the last quarter of 2006 and the first half of 2007, we believed the market overvalued tax-exempt securities in relationship to their treasury benchmark. In fourth quarter 2006, we sold $49.8 million of tax-exempt securities with a tax-equivalent yield of 7.4% for a net realized gain of $3.3 million. In the first half of 2007, we again sold tax-exempt securities at a gain of $4.4 million. The $147.7 million of securities sold carried a tax-equivalent yield of 6.2%. During third quarter 2007, the turmoil in the capital markets resulted in premiums being charged in some sectors for access to funding. Responding to this condition, we sold $187.9 million of agency-guaranteed securities with an average yield of 3.9% for a loss of $5.2 million. We used the proceeds to reduce our overnight and other short-dated borrowings, which were at rates of 5.25% and higher.

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Table 8

Repricing Distribution and Portfolio Yields

(Dollar amounts in thousands)

	As of December 31, 2008
	One Year or Less			One Year to Five Years			Five Years to Ten Years			After 10 years
	Amortized Cost		Yield to Maturity	Amortized Cost		Yield to Maturity	Amortized Cost		Yield to Maturity	Amortized Cost		Yield to Maturity
Available-for-Sale
U.S. Treasury securities (1)	$	1,039	0.89%	$	-	-	$	-	-	$	-	-
Collateralized mortgage obligations (2)		155,918	5.10%		350,493	5.14%		159,393	5.58%		28,481	5.65%
Other mortgage-backed securities (2)		65,065	5.55%		215,042	5.55%		134,355	5.50%		90,456	5.46%
State and municipal securities (3)		18,121	6.61%		154,593	6.29%		319,311	6.07%		415,011	6.16%
Collateralized debt obligations		60,406	3.26%		-	-		-	-		-	-
Other securities (4)		6,311	6.91%		1,829	5.35%		22,674	6.21%		21,006	3.22%
Total available-for-sale		306,860	4.95%		721,957	5.51%		635,733	5.83%		554,954	5.91%
Held-to-Maturity
State and municipal securities (3)		10,926	8.08%		23,072	7.11%		16,227	6.65%		34,081	6.97%
Total securities	$	317,786	5.05%	$	745,029	5.56%	$	651,960	5.85%	$	589,035	5.97%

⁽¹⁾ Yields on U.S. Treasury securities are reflected on a tax-equivalent basis, assuming a state income tax rate of 7.3%.

⁽²⁾ The repricing distributions and yields to maturity of mortgage-backed securities are based on estimated future cash flows and prepayments. Actual repricings and yields of the securities may differ from those reflected in the table depending upon actual interest rates and prepayment speeds.

⁽³⁾ Yields on state and municipal securities are reflected on a tax-equivalent basis, assuming a federal income tax rate of 35%. The maturity date of state and municipal bonds is based on contractual maturity, unless the bond, based on current market prices, is deemed to have a high probability that the call will be exercised, in which case the call date is used as the maturity date.

⁽⁴⁾ Yields on other securities are reflected on a tax-equivalent basis, assuming a federal income tax rate of 35%. The maturity of FHLB and FRB stocks is based on management’s judgment of repricing characteristics or final maturity. The maturity date of other securities is based on contractual maturity or repricing characteristics.

LOAN PORTFOLIO AND CREDIT QUALITY

Our principal source of revenue arises from lending activities, primarily composed of interest income and, to a lesser extent, from loan origination and commitment fees (net of related costs). The accounting policies underlying the recording of loans in the Consolidated Statements of Financial Condition and the recognition and/or deferral of interest income and fees (net of costs) arising from lending activities are included in Note 1 of “Notes to Consolidated Financial Statements” in Item 8 of this Form 10-K.

Portfolio Composition

Our loan portfolio is comprised of both corporate and consumer loans, with corporate loans representing 86.1% of total loans outstanding. The corporate loan component represents commercial and industrial, agricultural, commercial real estate, and real estate construction lending categories. Consistent with our emphasis on relationship banking, the majority of our loans are made to our core, multi-relationship customers. The customers usually maintain deposit relationships and utilize other Company banking services, such as cash management or trust services.

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We seek to balance our corporate loan portfolio among loan categories as well as by industry segment, subject to internal policy limits and as influenced by market and economic conditions and maintain a diversified portfolio of both corporate and consumer loans to minimize our exposure to any particular industry or any segment of the economy. We do not offer any sub-prime products, and we seek to limit our exposure to any single borrower. Although our legal lending limit is $186.5 million, the largest loan balance to a single borrower at December 31, 2008 was $33.4 million, and only 45 borrowers had aggregate outstanding loan balances in excess of $10 million.

In terms of overall commitments to extend credit, our largest exposure to a single borrower as of December 31, 2008 was $47.3 million. We also have exposure of $49.6 million to a group of related companies comprising a single relationship. We had only 31 credits in the portfolio where total commitments to a single borrower relationship exceeded $20.0 million as of December 31, 2008.

In 2004, we elected to exit the indirect installment auto loan business. This portfolio continues to pay down. In 2005, we sold our consumer credit card portfolio.

Table 9

Loan Portfolio

(Dollar amounts in thousands)

	As of December 31,
	2008		% of Total	2007			% of Total	2006		% of Total	2005		% of Total	2004		% of Total
Commercial and industrial	$	1,490,101	27.8	$	1,347,481		27.1	$	1,413,263	28.2	$	1,161,660	27.0	$	1,146,168	27.7
Agricultural		142,635	2.7		181,358		3.7		158,305	3.2		131,689	3.1		107,059	2.6
Commercial real estate:
Office, retail, and industrial		1,127,689	21.0		942,065		19.0		895,666	17.9		744,814	17.3		657,169	15.9
Residential land and development		509,059	9.5		505,194		10.2		451,186	9.0		319,842	7.4		290,723	7.0
Multi-family		237,646	4.4		178,602		3.6		278,009	5.5		311,340	7.2		278,902	6.8
Other commercial real estate		1,106,952	20.7		1,024,490		20.6		945,275	18.9		766,299	17.8		694,309	16.8
Total commercial real estate		2,981,346	55.6		2,650,351		53.4		2,570,136	51.3		2,142,295	49.7		1,921,103	46.5
Subtotal - corporate loans		4,614,082	86.1		4,179,190		84.2		4,141,704	82.7		3,435,644	79.8		3,174,330	76.8
Direct installment		58,135	1.1		65,660		1.3		78,049	1.5		65,449	1.5		71,986	1.7
Home equity		477,105	8.9		464,981		9.4		495,079	9.9		504,593	11.7		504,705	12.2
Indirect installment		12,544	0.2		33,100		0.7		78,648	1.6		157,219	3.7		291,745	7.1
Real estate - 1-4 family		198,197	3.7		220,741		4.4		215,464	4.3		143,286	3.3		92,512	2.2
Subtotal - consumer loans		745,981	13.9		784,482		15.8		867,240	17.3		870,547	20.2		960,948	23.2
Total	$	5,360,063	100.0	$	4,963,672		100.0	$	5,008,944	100.0	$	4,306,191	100.0	$	4,135,278	100.0
Growth vs. prior year-end		8.0%			(0.9%	)			16.3%			4.1%			1.9%
Consumer loans excluding indirect installment	$	733,437		$	751,382			$	788,592		$	713,328		$	669,203
Total loans excluding indirect installment	$	5,347,519		$	4,930,572			$	4,930,296		$	4,148,972		$	3,843,533

Outstanding loans totaled $5.4 billion as of December 31, 2008, an increase of 8.0% from December 31, 2007. The increase since December 31, 2007 was led by growth in commercial real estate, specifically office, retail, and industrial, and commercial and industrial lending. The decline in consumer loans was primarily due to continued run-off of indirect loans and the paydown in traditional home mortgages.

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The decline in our total loans outstanding from December 31, 2006 to December 31, 2007 reflected the combined impact of the payoff of loan participations, rapid prepayment of multi-family loan portfolios, which occurred primarily in the first half of 2007, and the continued paydown of our indirect auto loan portfolio. As of the same dates, corporate loans remained relatively unchanged at $4.2 billion.

The $702.8 million increase in total loans outstanding from December 31, 2005 to December 31, 2006 was largely due to the acquisition of Bank Calumet during 2006.

Loan Origination/Risk Management

We have certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and modifies these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies, and non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions.

Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business. Underwriting standards are designed to promote relationship banking rather than transactional banking. As part of the underwriting process, we examine current and projected cash flows to determine the ability of the borrower to repay his obligation as agreed. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of the borrower, however, may not be as expected, and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and usually incorporate a personal guarantee. However, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent upon the ability of the borrower to collect amounts due from its customers.

Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans, in addition to those standards and processes specific to real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans is generally largely dependent upon the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. As detailed in the discussion of real estate loans below, the properties securing our commercial real estate portfolio are diverse in terms of type and geographic location within the greater suburban Chicago metropolitan market and contiguous markets. Management monitors and evaluates commercial real estate loans based on collateral, geography, and risk grade criteria. We also utilize third-party experts to provide insight and guidance about economic conditions and trends affecting the residential real estate market within the greater suburban Chicago metropolitan area and contiguous markets. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans. Owner-occupied loans are generally considered to have less risk. At December 31, 2008, approximately one-fourth of the outstanding principal balance of our commercial real estate loans were secured by owner-occupied properties.

With respect to loans to developers and builders that are secured by non-owner occupied properties, we generally require the borrower to have had a proven record of success. Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates, and financial analysis of the developers and property owners. Construction loans are generally based upon estimates of costs and value associated with the completed project. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent upon the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed

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property, or an interim loan commitment until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, demand and supply of alternative housing, the availability of long-term financing, and changes in general economic conditions.

We originate consumer loans utilizing a computer-based credit scoring analysis to supplement the underwriting process. To monitor and manage consumer loan risk, policies and procedures are developed and modified, as needed. This activity, coupled with relatively small loan amounts that are spread across many individual borrowers, minimizes risk. Underwriting standards for home equity loans are heavily influenced by statutory requirements, which include, but are not limited to strict loan-to-value management, key affordability ratios, risk-based pricing strategies, risk-based collection remedies, and documentation requirements.

Commercial and Industrial Loans

Commercial and industrial loans represent 27.8% of all loans and increased $142.6 million, or 10.6%, from $1.35 billion at December 31, 2007 to $1.49 billion at December 31, 2008. Our commercial and industrial loans are a diverse group of loans to small, medium, and large businesses. The purpose of these loans varies from supporting seasonal working capital needs to term financing of equipment. While some short-term loans may be made on an unsecured basis, most are secured by the assets being financed with collateral margins that are consistent with our loan policy guidelines and have guarantees.

Commercial Real Estate Loans

Commercial real estate loans represent 55.6% of all loans and totaled $2.98 billion at December 31, 2008, an increase of $331.0 million, or 12.5%, from December 31, 2007. The following table summarizes our commercial real estate portfolio by product type and presents the diversity within the portfolio.

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Table 10

Commercial Real Estate Loan Detail by Product Type

(Dollar amounts in thousands)

	As of December 31,
	2008			2007			2006
	Amount		% of Total	Amount		% of Total	Amount		% of Total
Office, retail, and industrial
Office	$	373,242	33.1	$	301,641	32.0	$	272,960	30.5
Retail		313,286	27.8		247,726	26.3		243,754	27.2
Industrial		441,161	39.1		392,698	41.7		378,952	42.3
Total office, retail, and industrial	$	1,127,689	100.0	$	942,065	100.0	$	895,666	100.0
Residential land and development
Structures	$	185,929	36.5	$	213,392	42.2	$	237,903	52.7
Land		323,130	63.5		291,802	57.8		213,283	47.3
Total residential and land development	$	509,059	100.0	$	505,194	100.0	$	451,186	100.0
Multi-family	$	237,646	100.0	$	178,602	100.0	$	278,009	100.0
Other commercial real estate
Commercial land	$	280,120	25.3	$	236,373	23.1	$	227,252	24.0
1-4 family investors		193,227	17.5		170,879	16.7		144,507	15.3
Service stations and truck stops		146,891	13.3		81,835	8.0		67,436	7.1
Warehouses and storage		85,276	7.7		63,355	6.2		43,138	4.6
Hotels		79,186	7.2		63,566	6.2		64,207	6.8
Restaurants		48,106	4.3		43,250	4.2		50,177	5.3
Medical		42,269	3.8		14,142	1.4		13,142	1.4
Automobile dealers		38,505	3.5		29,599	2.9		19,834	2.1
Mobile home parks		36,790	3.3		22,106	2.1		29,828	3.2
Recreational		14,515	1.3		15,542	1.5		21,324	2.3
Religious		11,224	1.0		11,124	1.1		11,783	1.2
Other (1)		130,843	11.8		272,719	26.6		252,647	26.7
Total other commercial real estate	$	1,106,952	100.0		1,024,490	100.0		945,275	100.0

⁽¹⁾ Certain loans presented here as of December 31, 2007 and 2006 were subsequently redistributed to more appropriate categories as of December 31, 2008.

Commercial real estate loans consist of (i) loans for industrial buildings, office buildings, and retail shopping centers; (ii) residential land and development loans primarily for single-family and multi-family residential projects that are substantially all located in the suburban Chicago metropolitan market and contiguous area; and (iii) loans for various types of other commercial properties, such as land for future commercial development, multi-unit residential mortgages, and hotels.

Consumer Loans

As of December 31, 2008, consumer loans represented 13.9% of total outstanding loans compared to 15.8% as of December 31, 2007 and 17.3% as of December 31, 2006. The home equity category, consisting mainly of revolving lines of credit secured by junior liens on owner-occupied real estate, totaled $477.1 million and represented 64.0% of the consumer portfolio. Consumer mortgages totaled $198.2 million and represented 26.6% of the consumer portfolio. Loan-to-value ratios for these credits generally range from 50% to 80%.

There are different methods of calculating credit scores. FICO, the most widely known type of credit score, is a credit score developed by Fair Isaac Corporation. It is used by many mortgage lenders that use a risk-based

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system to determine the probability that a borrower may default on financial obligations to the mortgage lender. FICO scores range from 300 to 850. Home equity loans have been recently rescored and carry an average FICO credit score of 733 and a median score of 767, with approximately 90% carrying a score of 650 or above. Real estate 1-4 family loans have also recently been rescored and carry an average FICO credit score of 718 and a median score of 747, with approximately 80% carrying a score of 650 or above.

The decline in consumer loans as a percentage of total loans over the past five years is largely due to the run-off of indirect consumer loans, which we elected to cease originating in 2004.

Consumer loan balances as of December 31, 2007, excluding indirect installment lending, decreased $37.2 million, or 4.7% compared to December 31, 2006, due to a decline in home equity originations.

Excluding indirect installment lending, consumer loan balances increased $75.3 million, or 10.6%, from December 31, 2005 to December 31, 2006, primarily due to $277.9 million acquired through a 2006 bank acquisition, partially offset by the securitization in third quarter 2006 of $106.0 million of 1-4 family residential mortgages and a reduction in direct installment and home equity loans.

Maturity and Interest Rate Sensitivity of Corporate Loans

Table 11 summarizes the maturity distribution of our corporate loan portfolio as of December 31, 2008 as well as the interest rate sensitivity of loans in these categories that have maturities in excess of one year.

Table 11

Maturities and Sensitivities of Corporate Loans to Changes in Interest Rates

(Dollar amounts in thousands)

	As of December 31, 2008
	Due in 1 year or less		Due after 1 year through 5 years		Due after 5 years		Total
Commercial, industrial, and agricultural	$	980,620	$	541,431	$	110,685	$	1,632,736
Commercial real estate		1,136,905		1,647,860		196,581		2,981,346
Total	$	2,117,525	$	2,189,291	$	307,266	$	4,614,082
Loans maturing after one year:
Predetermined (fixed) interest rates			$	1,767,706	$	226,012
Floating interest rates				421,585		81,254
Total			$	2,189,291	$	307,266

Non-Performing Assets and Potential Problem Loans

Generally loans are placed on non-accrual status if principal or interest payments become 90 days past due and/or management deems the collectibility of the principal and/or interest to be in question. Loans to customers whose financial condition has deteriorated are considered for non-accrual status whether or not the loan is 90 days or more past due. For consumer loans, losses are automatically recognized and recorded when the loan reaches 120 days past due.

Once interest accruals are discontinued, accrued but uncollected interest is charged to current year operations. Subsequent receipts on non-accrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured. Classification of a loan as non-accrual does not preclude the ultimate collection of loan principal or interest.

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Restructured loans are loans on which, due to deterioration in the borrower’s financial condition, the original terms have been modified in favor of the borrower or either principal or interest has been forgiven. Given the deterioration in the economy, especially as it relates to real estate values, we are proactively working with our borrowers to restructure loans where possible and expect the number and amount of restructured loans to increase significantly in 2009.

Foreclosed assets represent property acquired as the result of borrower defaults on loans. Foreclosed assets are recorded at estimated fair value, less estimated selling costs at time of foreclosure. Write-downs occurring at foreclosure are charged against the allowance for loan losses. On an ongoing basis, the book values of these properties are adjusted based upon new appraisals and/or market indications. Write-downs are recorded for subsequent declines in value and are included in other noninterest expense along with other expenses related to maintaining the properties. We are actively marketing properties acquired through foreclosure. Given current economic conditions and the uncertainty regarding the real estate market, the time involved to sell these properties may extend resulting in higher levels of other real estate owned and associated maintenance costs in 2009.

90 days past due loans are loans for which principal or interest payments become 90 days past due but that still accrue interest since they are loans that are well secured and in the process of collection.

The following table breaks down our loan portfolio between performing and non-performing status.

Table 12

Loan Portfolio by Performing/Non-Performing Status

(Dollar amounts in thousands)

					Past Due
	Total Loans		Current		30-89 Days Past Due		90 Days Past Due		Non-accrual		Restructured
Commercial and industrial	$	1,490,101	$	1,428,778	$	36,820	$	6,818	$	15,586	$	2,099
Agricultural		142,635		138,336		2,548		1,751		-		-
Commercial real estate:
Office, retail, and industrial		1,127,689		1,098,151		23,419		3,214		2,533		372
Residential land and development		509,059		384,006		19,504		8,489		97,060		-
Multi-family		237,646		228,500		4,406		1,881		1,387		1,472
Other commercial real estate		1,106,952		1,074,945		15,352		6,586		6,926		3,143
Total commercial real estate		2,981,346		2,785,602		62,681		20,170		107,906		4,987
Total corporate loans		4,614,082		4,352,716		102,049		28,739		123,492		7,086
Direct installment		58,135		54,412		2,700		956		67		-
Home equity		477,105		463,317		6,471		3,944		3,254		119
Indirect installment		12,544		11,792		577		77		98		-
Real estate - 1-4 family		198,197		189,509		4,409		3,283		857		139
Total consumer loans		745,981		719,030		14,157		8,260		4,276		258
Total loans	$	5,360,063	$	5,071,746	$	116,206	$	36,999	$	127,768	$	7,344

The table on the following page provides a comparison of our non-performing assets and past due loans for the past five years.

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Table 13

Non-performing Assets and Past Due Loans

(Dollar amounts in thousands)

	Years ended December 31,
	2008		2007		2006		2005		2004
Non-accrual loans:
Commercial and industrial	$	15,586	$	9,128	$	8,803	$	9,092	$	11,267
Agricultural		-		349		-		-		-
Office, retail, and industrial		2,533		552		-		155		869
Residential land and development		97,060		107		720		559		4,159
Multi-family		1,387		3,480		1,918		-		-
Other commercial real estate		6,926		1,452		1,263		216		905
Consumer		3,419		2,796		2,092		1,420		1,416
Real estate - 1-4 family		857		583		1,413		548		581
Total non-accrual loans	$	127,768	$	18,447	$	16,209	$	11,990	$	19,197
Restructured loans	$	7,344	$	7,391	$	-	$	-	$	-
Foreclosed real estate (“OREO”)	$	24,368	$	6,053	$	2,727	$	2,878	$	3,736
90 days past due loans (still accruing interest):
Commercial and industrial	$	6,818	$	2,693	$	2,652	$	2,692	$	187
Agricultural		1,751		-		-		-		-
Office, retail, and industrial		3,214		2,062		-		813		-
Residential land and development		8,489		9,270		4,708		3,603		-
Multi-family		1,881		916		1,382		-		-
Other commercial real estate		6,586		1,452		882		252		634
Consumer		4,977		2,903		1,775		1,200		1,304
Real estate - 1-4 family		3,283		1,853		1,411		398		533
Total 90 days past due loans	$	36,999	$	21,149	$	12,810	$	8,958	$	2,658
30-89 days past due loans (still accruing interest):
Commercial and industrial	$	36,820	$	19,184	$	32,324	$	21,766	$	21,944
Agricultural		2,548		-		524		-		211
Office, retail, and industrial		23,419		20,299		12,423		-		-
Residential land and development		19,504		18,235		6,091		1,221		46
Multi-family		4,406		8,054		9,181		-		3,750
Other commercial real estate		15,352		21,340		13,706		15,874		4,662
Consumer		9,748		9,509		9,084		8,658		9,794
Real estate - 1-4 family		4,409		4,199		5,235		2,895		1,962
Total 30-89 days past due loans	$	116,206	$	100,820	$	88,568	$	50,414	$	42,369
Non-accrual loans to total loans		2.38%		0.37%		0.32%		0.28%		0.46%
Non-accrual loans plus 90 days past due loans to total loans		3.07%		0.80%		0.58%		0.49%		0.53%
Non-accrual loans to total assets		1.50%		0.23%		0.19%		0.17%		0.28%
Reserve for loan losses as a percent of non-accrual loans		73%		335%		385%		470%		295%

	Amount
The effect of non-accrual loans on interest income for 2008 is presented below:
Interest which would have been included at the normal contract rates	$	8,374
Less: Interest included in income during the year		4,854
Interest income not recognized in the financial statements	$	3,520

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Non-accrual loans at December 31, 2008 increased $109.3 million from December 31, 2007, due primarily to an increase of $97.0 million in non-accrual residential land and development loans. As shown in Table 14, the non-accrual residential land and development total of $97.1 million is comprised of 20 relationships, with 9 accounting for 68.6% of the total and reflects the deterioration of economic conditions and, specifically, the impact of slowing market conditions on residential developers. The balances remaining for each loan are supported by recent appraisals on the underlying collateral.

The increase in non-accrual commercial and industrial loans is primarily related to three commercial credits totaling $7.4 million. The increase in non-accrual other commercial real estate loans is primarily related to two credits totaling $3.9 million.

Loans past due 90 days and still accruing totaled $37.0 million as of December 31, 2008, up $15.9 million from December 31, 2007. The increase in the 90 days past due loans from December 31, 2007 was due primarily to commercial and industrial and other commercial real estate loans.

Foreclosed real estate was $24.4 million as of December 31, 2008 as compared to $6.1 million as of December 31, 2007, with 61.7% of the December 31, 2008 balance representing collateral underlying foreclosed residential developments. All properties are recorded at estimated net realizable values and are being aggressively marketed.

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Table 14

Non-accrual Loans by Dollar Amount and Category

(Dollar amounts in thousands)

	Stratification
	$5.0 Million or More		$3.0 Million to $4.9 Million		$1.5 Million to $2.9 Million		Under $1.5 Million		Total
As of December 31, 2008
Amount
Commercial and industrial	$	-	$	-	$	7,573	$	8,013	$	15,586
Agricultural		-		-		-		-		-
Office, retail, and industrial		-		-		-		2,533		2,533
Residential land and development		66,558		15,937		12,481		2,084		97,060
Multi-family		-		-		-		1,387		1,387
Other commercial real estate		-		-		3,877		3,049		6,926
Consumer		-		-		-		3,419		3,419
Real estate - 1-4 family		-		-		-		857		857
Total non-accrual loans	$	66,558	$	15,937	$	23,931	$	21,342	$	127,768
Number of Borrowers
Commercial and industrial		-		-		3		45		48
Agricultural		-		-		-		-		-
Office, retail, and industrial		-		-		-		5		5
Residential land and development		9		4		5		2		20
Multi-family		-		-		-		3		3
Other commercial real estate		-		-		2		7		9
Consumer		-		-		-		77		77
Real estate - 1-4 family		-		-		-		9		9
Total non-accrual loans		9		4		10		148		171
As of December 31, 2007
Amount
Commercial and industrial	$	-	$	-	$	1,981	$	7,147	$	9,128
Agricultural		-		-		-		349		349
Office, retail, and industrial		-		-		-		552		552
Residential land and development		-		-		-		107		107
Multi-family		-		-		1,737		1,743		3,480
Other commercial real estate		-		-		-		1,452		1,452
Consumer		-		-		-		2,796		2,796
Real estate - 1-4 family		-		-		-		583		583
Total non-accrual loans	$	-	$	-	$	3,718	$	14,729	$	18,447
Number of Borrowers
Commercial and industrial		-		-		1		53		54
Agricultural		-		-		-		1		1
Office, retail, and industrial		-		-		-		1		1
Residential land and development		-		-		-		1		1
Multi-family		-		-		1		2		3
Other commercial real estate		-		-		-		9		9
Consumer		-		-		-		92		92
Real estate - 1-4 family		-		-		-		9		9
Total non-accrual loans		-		-		2		168		170

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Table 15

90-Day Past Due Loans by Dollar Amount and Category

(Dollar amounts in thousands)

	Stratification
	$5.0 Million or More		$3.0 Million to $4.9 Million		$1.5 Million to $2.9 Million		Under $1.5 Million		Total
As of December 31, 2008
Amount
Commercial and industrial	$	-	$	-	$	-	$	6,818	$	6,818
Agricultural		-		-		1,751		-		1,751
Office, retail, and industrial		-		-		-		3,214		3,214
Residential land and development		-		-		5,356		3,133		8,489
Multi-family		-		-		-		1,881		1,881
Other commercial real estate		-		3,013		1,625		1,948		6,586
Consumer		-		-		-		4,977		4,977
Real estate - 1-4 family		-		-		-		3,283		3,283
Total 90 days past due loans	$	-	$	3,013	$	8,732	$	25,254	$	36,999
Number of Borrowers
Commercial and industrial		-		-		-		46		46
Agricultural		-		-		1		-		1
Office, retail, and industrial		-		-		-		7		7
Residential land and development		-		-		3		7		10
Multi-family		-		-		-		5		5
Other commercial real estate		-		1		1		11		13
Consumer		-		-		-		138		138
Real estate - 1-4 family		-		-		-		37		37
Total 90 days past due loans		-		1		5		251		257
As of December 31, 2007
Amount
Commercial and industrial	$	-	$	-	$	-	$	2,693	$	2,693
Agricultural		-		-		-		-		-
Office, retail, and industrial		-		-		1,706		356		2,062
Residential land and development		-		3,603		4,725		942		9,270
Multi-family		-		-		-		916		916
Other commercial real estate		-		-		-		1,452		1,452
Consumer		-		-		-		2,903		2,903
Real estate - 1-4 family		-		-		-		1,853		1,853
Total 90 days past due loans	$	-	$	3,603	$	6,431	$	11,115	$	21,149
Number of Borrowers
Commercial and industrial		-		-		-		29		29
Agricultural		-		-		-		-		-
Office, retail, and industrial		-		-		1		1		2
Residential land and development		-		1		2		3		6
Multi-family		-		-		-		2		2
Other commercial real estate		-		-		-		6		6
Consumer		-		-		-		126		126
Real estate - 1-4 family		-		-		-		27		27
Total 90 days past due loans		-		1		3		194		198

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Potential problem loans consist of loans that are performing in accordance with contractual terms but for which management has concerns about the ability of an obligor to continue to comply with repayment terms because of the obligor’s potential operating or financial difficulties. Management monitors these loans closely and reviews their performance on a regular basis.

As of December 31, 2008, $105.6 million, or 20.7%, of the residential land and development loan portfolio was either classified as non-accrual or 90 days past due. Of the remaining $403.5 million, there are eight loans totaling $19.5 million that are 30 – 89 days past due. Substantially all of these loans are believed to be adequately secured by underlying collateral based upon recent appraisals. Depending upon future sales and market conditions, the remaining portfolio could come under stress resulting in higher levels of delinquent and/or non-accrual loans.

In future quarters, the migration of problem loans from performing to non-performing may accelerate in all loan categories, depending upon future economic conditions.

In anticipation of future economic weakness, we have substantially realigned our credit remediation staffing to proactively deal with potential credit issues.

Our disclosure with respect to impaired loans is contained in Note 5 of “Notes to Consolidated Financial Statements” in Item 8 of this Form 10-K.

Reserve for Loan Losses

The reserve for loan losses is a reserve established through a provision for probable loan losses charged to expense, which represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans. The reserve, in the judgment of management, is necessary to provide for estimated loan losses and risks inherent in the loan portfolio. The reserve for loan losses consists of three components: (i) specific reserves established for expected losses on individual loans for which the recorded investment in the loan exceeds the value of the loan; (ii) reserves based on historical loan loss experience for each loan category; and (iii) reserves based on general, current economic conditions as well as specific economic factors believed to be relevant to the markets in which we operate. Management evaluates the sufficiency of the reserve for loan losses based on the combined total of the specific, historical loss, and general components. Management believes that the reserve for loan losses of $93.9 million is adequate to absorb credit losses inherent in the loan portfolio as of December 31, 2008.

Portions of the reserve may be allocated for specific credits. However, the entire reserve is available for any credit that, in management’s judgment, should be charged off. While management utilizes its best judgment and information available, the ultimate adequacy of the reserve is dependent upon a variety of factors beyond the Company’s control, including the performance of the Company’s loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.

The accounting policies underlying the establishment and maintenance of the reserve for loan losses through provisions charged to operating expense are discussed in Note 1 of “Notes to Consolidated Financial Statements” in Item 8 of this Form 10-K.

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Table 16

Reserve for Loan Losses and

Summary of Loan Loss Experience

(Dollar amounts in thousands)

	Years ended December 31,
	2008			2007			2006			2005			2004
Change in reserve for loan losses:
Balance at beginning of year	$	61,800		$	62,370		$	56,393		$	56,718		$	56,404
Loans charged-off:
Commercial and industrial		(14,557	)		(6,424	)		(6,939	)		(4,762	)		(7,741	)
Agricultural		(42	)		(15	)		-			-			(18	)
Office, retail, and industrial		(852	)		-			-			(543	)		(5	)
Residential land and development		(15,780	)		(231	)		-			-			(355	)
Multi-family		(1,801	)		(491	)		(1,069	)		-			(14	)
Other commercial real estate		(1,253	)		(161	)		(348	)		(629	)		(1,524	)
Consumer		(5,476	)		(2,599	)		(3,791	)		(4,931	)		(5,311	)
Real estate - 1-4 family		(576	)		(145	)		(156	)		(96	)		(113	)
Total loans charged-off		(40,337	)		(10,066	)		(12,303	)		(10,961	)		(15,081	)
Recoveries on loans previously charged-off:
Commercial and industrial		1,531			1,499			1,147			569			699
Agricultural		4			5			9			-			2
Office, retail, and industrial		120			-			-			-			5
Residential land and development		-			-			-			-			-
Multi-family		5			1			19			-			-
Other commercial real estate		5			195			4			5			168
Consumer		487			563			919			1,132			1,593
Real estate - 1-4 family		-			-			18			-			5
Total recoveries on loans previously charged-off		2,152			2,263			2,116			1,706			2,472
Net loans charged-off		(38,185	)		(7,803	)		(10,187	)		(9,255	)		(12,609	)
Provisions charged to operating expense		70,254			7,233			10,229			8,930			12,923
Reserve of acquired bank		-			-			5,935			-			-
Balance at end of year	$	93,869		$	61,800		$	62,370		$	56,393		$	56,718
Allocation of reserve for loan losses by loan category at December 31:
Commercial and industrial	$	20,968		$	25,916		$	27,908		$	21,532		$	22,065
Agricultural		1,221			1,464			1,024			1,162			1,353
Commercial real estate:
Office, retail, and industrial		22,048			(1	)		(1	)		(1	)		(1	)
Residential land and development		32,910			(1	)		(1	)		(1	)		(1	)
Multi-family		2,680			(1	)		(1	)		(1	)		(1	)
Other commercial real estate		7,927			(1	)		(1	)		(1	)		(1	)
Total commercial real estate		65,565			29,404			26,489			24,340			23,267
Consumer		5,456			4,626			6,411			8,799			9,653
Real estate -1-4 family		659			390			538			560			380
Total	$	93,869		$	61,800		$	62,370		$	56,393		$	56,718
Reserve as a percent of loans at year-end		1.75%			1.25%			1.25%			1.31%			1.37%
Ratio of net loans charged-off to average loans outstanding for the period
		0.74%			0.16%			0.21%			0.22%			0.30%

⁽¹⁾ Prior to 2008, we allocated our reserve for commercial real estate losses to the general category of commercial real estate.

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In response to the impact of continuing economic weakness on real estate and related markets, we increased our reserve for loan losses to $93.9 million as of December 31, 2008, up $32.1 million from December 31, 2007. The reserve for loan losses represented 1.75% of total loans outstanding at December 31, 2008 compared to 1.25% at December 31, 2007. Provision for losses for 2008 totaled $70.3 million and exceeded net charge-offs by $32.1 million, while 2008 net charge-offs totaled $38.2 million compared to $7.8 million in 2007. The majority of the year-over-year increase is due to charge-offs of residential land and development loans. In 2008, we charged-off $15.8 million related to residential land and development, with five loans accounting for substantially the entire amount, and $14.6 million related to numerous commercial and industrial loans.

Gross charge-offs increased in 2008 to $40.3 million, following a decrease in 2007 as compared to 2006. The 2008 increase was across all categories, with the largest increase in the residential land and development category. The 2007 decrease included decreases in consumer, commercial and industrial, and commercial real estate charge-offs partially offset by an increase in real estate construction charge-offs. In 2006, increases in commercial and industrial and commercial real estate charge-offs were partially offset by a decline in consumer charge-offs.

In 2008, we more than doubled the reserve for loan losses allocated to commercial real estate loans, increasing it from $29.4 million as of December 31, 2007 to $65.6 million as of December 31, 2008. The 2008 increase was the direct result of the impact of continuing economic weakness on real estate and related markets.

In 2007, we reduced the reserve for loan losses allocated to commercial and industrial loans compared to December 31, 2006 due to the decline in commercial and industrial loans outstanding. In addition, we decreased the reserve for loan losses allocated to consumer loans as a result of lower consumer charge-offs and a decline in consumer loans outstanding and increased the reserve for loan losses allocated to commercial real estate loans due to an increase in the portfolio.

In 2006, we increased the reserve for loan losses compared to December 31, 2005 primarily due to higher loans outstanding, particularly in the commercial and industrial and commercial real estate categories. The decrease in the reserve for loan losses allocated to real estate construction loans resulted from a decrease in large construction loans outstanding as of December 31, 2006 compared to December 31, 2005. The decrease in the reserve for loan losses allocated to consumer loans resulted from a lower level of loans outstanding as well as a reduction in allocation based on historical loss experience.

INVESTMENT IN BANK OWNED LIFE INSURANCE

We purchase life insurance policies on the lives of certain directors and officers and are the sole owner and beneficiary of the policies. We invest in these policies, known as BOLI, to provide an efficient form of funding for long-term retirement and other employee benefit costs. Therefore, our BOLI policies are intended to be long-term investments to provide funding for long-term liabilities. We record these BOLI policies as a separate line item in the Consolidated Statements of Financial Condition at each policy’s respective cash surrender value (“CSV”), with changes recorded in noninterest income in the Consolidated Statements of Income.

As of December 31, 2008, the cash surrender value of BOLI assets totaled $198.5 million, down $5.0 million from December 31, 2007. The decline stemmed from fourth quarter losses in certain underlying investment funds and actions taken by management to reposition the funds in shorter duration assets to mitigate future reinvestment risk.

Of our total BOLI portfolio as of December 31, 2008, 23.5% is in general account life insurance distributed between 10 insurance carriers, all of whom carry investment grade ratings. This general account life insurance typically includes a feature guaranteeing minimum returns. The remaining 76.5% is in separate account life insurance, which is managed by third party investment advisors under pre-determined investment guidelines. Stable value protection is a feature available with respect to separate account life insurance policies that is

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designed to protect, within limits, a policy’s cash surrender value from market fluctuations on underlying investments. Our entire separate account portfolio has stable value protection, purchased from a highly rated financial institution. To the extent fair values on individual contracts fall below 80%, the CSV of the specific contracts may be reduced or the underlying assets transferred to short-duration investments, resulting in lower earnings.

During fourth quarter 2008, the fair value of investments underlying a separate account with a CSV of $114.8 million declined below the 80% stable value limit. The Company transferred the underlying investments to a short-duration, lower yielding money market account and recognized a charge against income for $2.9 million. In order to obtain the flexibility to invest these assets in the future into higher yielding investments, the Company reduced its cash surrender value by an additional $7.5 million at December 31, 2008, so that the fair value of the investments was 86.6%. Prior to the transfer, these assets were invested in longer duration, investment-grade securities, the performance of which had been negatively impacted by continued market volatility and risk aversion. Future declines in fair value below current levels could require additional contributions and negatively impact BOLI income. Remaining separate account holdings reflect fair market values ranging from 83% to 99%.

Given the continued negative market performance and rapid decline in interest rates, BOLI income in subsequent quarters is expected to be minimal. The Company is currently reviewing options to alter the mix of underlying separate account holdings, which could further influence income performance.

FUNDING AND LIQUIDITY MANAGEMENT

Our approach to liquidity management is to obtain funding sources at a minimum cost to meet fluctuating deposit, withdrawal, and loan demand needs. Our 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’s Board of Directors. The compliance plan includes an analysis that measures projected needs to purchase and sell funds. The analysis incorporates a set of projected balance sheet assumptions that are updated at least quarterly. Based on these assumptions, we determine our total cash liquidity on hand and excess collateral capacity from pledging, unused federal funds purchased lines, and other unused borrowing capacity such as FHLB advances, resulting in a calculation of our total liquidity capacity. Our total policy-directed liquidity requirement is to have funding sources available to cover 37.5% of non-collateralized, non-FDIC insured, non-maturity deposits. Based on our projections as of December 31, 2008, we expect to have liquidity capacity in excess of policy guidelines for the forward twelve-month period.

The liquidity needs of First Midwest Bancorp, Inc. on an unconsolidated basis (“Parent Company”) consist primarily of operating expenses and dividend payments to our stockholders. The primary source of liquidity for the Parent Company is dividends from subsidiaries. The Parent Company had $132.5 million in junior subordinated debentures related to trust preferred securities and $99.9 million in other subordinated debt outstanding. At December 31, 2008, the Parent Company did not have any unused short-term credit facilities available to fund cash flows. As of December 31, 2008, the Parent Company also had the ability to enhance its liquidity position by raising capital or incurring debt. The Parent Company had cash and equivalent short-term investments of $209.2 million as of such date.

Total deposits and borrowed funds as of December 31, 2008 are summarized in Notes 9 and 10 of the “Notes to Consolidated Financial Statements” in Item 8 of this Form 10-K. The following table provides a comparison of average funding sources over the last three years. We believe that average balances, rather than period-end balances, are more meaningful in analyzing funding sources because of the inherent fluctuations that may occur on a monthly basis within most funding categories.

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Table 17

Funding Sources - Average Balances

(Dollar amounts in thousands)

	Years Ended December 31,									% Change
	2008		% of Total	2007		% of Total	2006		% of Total	2008-2007		2007-2006
Demand deposits	$	1,043,972	14.1	$	1,055,251	14.6	$	1,052,413	14.1	(1.1	)	0.3
Savings deposits		792,524	10.7		754,009	10.4		653,321	8.7	5.1		15.4
NOW accounts		935,429	12.7		900,956	12.4		924,539	12.4	3.8		(2.6	)
Money market accounts		787,218	10.6		859,864	11.9		867,775	11.6	(8.4	)	(0.9	)
Transactional deposits		3,559,143	48.1		3,570,080	49.3		3,498,048	46.8	(0.3	)	2.1
Time deposits		2,095,088	28.3		2,161,664	29.8		2,049,202	27.4	(3.1	)	5.5
Brokered deposits		77,291	1.0		158,238	2.2		380,700	5.1	(51.2	)	(58.4	)
Total time deposits		2,172,379	29.3		2,319,902	32.0		2,429,902	32.5	(6.4	)	(4.5	)
Total deposits		5,731,522	77.4		5,889,982	81.3		5,927,950	79.3	(2.7	)	(0.6	)
Securities sold under agreements to repurchase		430,074	5.8		420,903	5.8		461,638	6.2	2.2		(8.8	)
Federal funds purchased and other borrowed funds		1,008,834	13.7		710,797	9.8		878,188	11.7	41.9		(19.1	)
Total borrowed funds		1,438,908	19.5		1,131,700	15.6		1,339,826	17.9	27.1		(15.5	)
Subordinated debt		231,961	3.1		227,756	3.1		206,449	2.8	1.8		10.3
Total funding sources	$	7,402,391	100.0	$	7,249,438	100.0	$	7,474,225	100.0	2.1		(3.0	)

Total average funding sources for 2008 increased 2.1%, or $153.0 million, with the increase in short term borrowed funds of $307.2 million partially offset by decreases in more expensive, longer term time deposits. Total average deposits for 2008 were $5.7 billion, compared to $5.9 billion for 2007, a decline of 2.7%. Most of the decline in deposits was in time deposits, including brokered time deposits. Transactional deposits were down 0.3% from 2007 due to slightly lower retail deposits stemming from competitive pricing in our market and general economic conditions.

Securities sold under agreements to repurchase and federal funds purchased generally mature within 1 to 90 days from the transaction date. Other borrowed funds consist of term auction facilities issued by the Federal Reserve Bank that mature within 90 days.

Total average funding sources for 2007 decreased $224.8 million from 2006. The decline was primarily due to a planned reduction in higher-costing brokered deposits and borrowed funds. Total average deposits for 2007 were $5.9 billion, a decrease of 0.6% compared to 2006. Declines in average time deposits were mostly offset by increases in average transaction deposits. Average transaction deposits increased $72.0 million from 2006, primarily due to growth in savings deposits.

Total average borrowed funds for 2007 decreased $208.1 million from 2006, with decreases in all major categories. As discussed in the section titled “Investment Portfolio Management,” proceeds from sales and maturities of securities were used to reduce higher-costing funding sources rather than reinvesting them in similar securities.

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Public balances, denoting the funds held on account for municipalities and other public entities, are included as a part of our total funding sources. Public balances represent an important customer segment for us and reflects our community-based roots. We enter into specific agreements with public customers to pledge collateral, primarily securities, in support of the balances on account. Because the average customer tenure with us is approximately 14 years, they provide us with a more reliable, lower cost, short-term funding source than what is available through other wholesale alternatives. These relationships also provide numerous cross-sell and business referral opportunities.

In 2008, we had average public funds on account totaling $776.9 million, of which 76.0% were collateralized primarily with securities and, to a lesser extent, mortgage loans. Of this total, $725.4 million was held in deposit accounts, predominately NOW accounts, with the remainder representing securities sold under agreement to repurchase. This contrasts to average balances maintained of $784.8 million in 2007 and $734.0 million in 2006. Year-to-year changes in balances are influenced by the tax collection activities of the various municipalities, which are heavily dependent upon real estate values, as well as the general level of interest rates. The size of our securities portfolio is influenced, in part, by the size of our public customer base. For additional discussion of the securities portfolio, refer to the section titled “Investment Portfolio Management.”

Table 18

Borrowed Funds

(Dollar amounts in thousands)

	2008			2007			2006
	Amount		Rate (%)	Amount		Rate (%)	Amount		Rate (%)
At year-end:
Securities sold under agreements to repurchase	$	457,598	1.86	$	364,164	4.03	$	477,908	4.78
Federal funds purchased		280,000	0.12		301,000	3.62		134,700	5.20
Federal Home Loan Bank advances		310,736	2.68		599,064	4.69		569,660	5.22
Federal term auction facilities		650,000	0.44		-	-		-	-
Total borrowed funds	$	1,698,334	1.18	$	1,264,228	4.25	$	1,182,268	5.04
Average for the year:
Securities sold under agreements to repurchase	$	430,074	2.34	$	420,903	4.55	$	461,638	4.37
Federal funds purchased		289,439	1.97		141,663	5.16		280,305	5.02
Federal Home Loan Bank advances		563,984	3.31		569,134	5.11		594,496	4.80
Federal term auction facilities		155,411	1.78		-	-		-	-
Other borrowed funds		-	-		-	-		3,387	5.45
Total borrowed funds	$	1,438,908	2.58	$	1,131,700	4.91	$	1,339,826	4.70
Maximum month-end balance:
Securities sold under agreements to repurchase	$	643,015		$	567,174		$	618,006
Federal funds purchased		535,000			301,000			411,000
Federal Home Loan Bank advances		647,737			639,647			954,970
Federal term auction facilities		650,000			-			-
Other borrowed funds		-			-			31,409
Weighted-average maturity of FHLB advances		5.4 months			7.4 months			0.6 months

Average borrowed funds totaled $1.4 billion, increasing $307.2 million, or 27.1%, from 2007 to 2008 following a 15.5% decrease from 2007 to 2006. We make extensive, interchangeable use of repurchase agreements, FHLB

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advances, federal funds purchased, and federal term auction facilities to supplement deposits and leverage the interest yields produced through our securities portfolio. For example, during 2008, more costly FHLB advances and brokered time deposits were replaced by increases in cheaper federal funds purchased and federal term auction facilities.

CONTRACTUAL OBLIGATIONS, COMMITMENTS, OFF-BALANCE SHEET RISK, AND CONTINGENT LIABILITIES

Through our normal course of operations, we have entered into certain contractual obligations and other commitments. Such obligations generally relate to the funding of operations through deposits or debt issuances, as well as leases for premises and equipment. As a financial services provider, we routinely enter into commitments to extend credit. While contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process as all comparable loans we make.

The following table presents our significant fixed and determinable contractual obligations and significant commitments as of December 31, 2008. Further discussion of the nature of each obligation is included in the referenced note of “Notes to the Consolidated Financial Statements” in Item 8 of this Form 10-K.

Table 19

Contractual Obligations, Commitments, Contingencies, and Off-Balance Sheet Items

(Dollar amounts in thousands)

		Payments Due In
	Note Reference	Less Than One Year		One to Three Years		Three to Five Years		Over Five Years		Total
Deposits without a stated maturity	8	$	3,457,954	$	-	$	-	$	-	$	3,457,954
Time deposits	8		1,885,132		207,141		35,007		520		2,127,800
Borrowed funds	9		1,550,085		61,693		86,556		-		1,698,334
Subordinated debt	10		-		-		-		232,409		232,409
Operating leases	6		2,832		5,435		5,088		5,031		18,386
Pension liability	16		444		3,609		5,051		20,727		29,831
Change-in-control obligation for a 2006 bank acquisition	-		174		-		-		-		174
Uncertain tax positions liability	15										4,449
Commitments to extend credit:
Home equity lines	20										293,221
All other commitments	20										1,230,061
Letters of credit:
Standby	20										145,522
Commercial	20										490

MANAGEMENT OF CAPITAL

Capital Measurements

A strong capital structure is crucial in maintaining investor confidence, accessing capital markets, and enabling the Company to take advantage of future profitable growth opportunities. Our Capital Policy requires that the Company and the Bank maintain capital ratios in excess of the minimum regulatory guidelines. It serves as an internal discipline in analyzing business risks and internal growth opportunities and sets targeted levels of return

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on equity. Under regulatory capital adequacy guidelines, the Company and the Bank are subject to various capital requirements set and administered by the federal banking agencies. These requirements specify minimum capital ratios, defined as Tier 1 and Total capital as a percentage of assets and off-balance sheet items that have been weighted according to broad risk categories and a leverage ratio calculated as Tier 1 capital as a percentage of adjusted average assets. We have managed our capital ratios for both the Company and the Bank to consistently maintain such measurements in excess of the Federal Reserve Board (“FRB”) minimum levels considered to be “well capitalized,” which is the highest capital category established.

The following table presents our consolidated measures of capital as of the dates presented and the capital guidelines established by the FRB to be categorized as “well capitalized.” All regulatory mandated ratios for characterization as “well capitalized” were significantly exceeded as of December 31, 2008 and improved versus December 31, 2007.

Table 20

Capital Measurements

	December 31,		Regulatory Minimum For “Well Capitalized”		Excess Over Required Minimums at 12/31/08
	2008	2007
Regulatory capital ratios:
Total capital to risk-weighted assets	14.36%	11.58%	10.00%		$	288,497
Tier 1 capital to risk-weighted assets	11.60%	9.03%	6.00%			370,196
Tier 1 leverage to average assets	9.41%	7.46%	5.00%			359,425
Tangible common equity ratios:
Tangible common equity to tangible assets	5.23%	5.58%		(1)
Tangible common equity, excluding other comprehensive loss, to tangible assets	5.45%	5.73%		(1)
Tangible common equity to risk-weighted assets	6.53%	6.87%		(1)

⁽¹⁾ Ratio is not subject to formal FRB regulatory guidance. Tangible common equity equals total common equity less goodwill, and other intangible assets, and tangible assets equals total assets less goodwill and other intangible assets.

Issuance of Preferred Shares

On December 5, 2008, we received $193.0 million from the sale of preferred shares to the U.S. Treasury as part of its Capital Purchase Plan (“CPP”). In connection with the CPP, we issued to the U.S. Treasury a total of 193,000 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series B, at an initial fixed dividend rate of 5% with a $1,000 per share liquidation preference, and a warrant to purchase up to 1,305,230 shares of the Company’s common stock at an exercise price of $22.18 per share. Both the preferred shares and the warrant are accounted for as components of our regulatory Tier 1 capital as of December 31, 2008. Preferred share proceeds received were temporarily invested in government sponsored mortgage-backed securities pending future deployment.

For further details of the regulatory capital requirements and ratios as of December 31, 2008 and 2007, for the Company and the Bank, see Note 19 of “Notes to Consolidated Financial Statements” in Item 8 of this Form 10-K.

Stock Repurchase Programs

In order to participate in the CPP program, the Company agreed to restrictions imposed by the U.S. Treasury limiting the repurchase of the Company’s common stock. For a detailed description of these restrictions, see Item 1A. “Risk Factors” elsewhere in this report.

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Prior to participation in the CPP program, the Company purchased 4,756 shares of its common stock at a weighted average cost of $28.87 per share during 2008 and 1,767,135 shares of its common stock at a weighted average cost of $34.93 per share during 2007.

Shares repurchased are held as treasury stock and are available for issuance in conjunction with our Dividend Reinvestment Plan, qualified and nonqualified retirement plans, share-based compensation plans, and other general corporate purposes. We reissued 183,168 treasury shares in 2008 and 199,871 treasury shares in 2007 to fund such plans.

Dividends

Our Board of Directors periodically reviews our dividend payout ratio to ensure that it is consistent with internal capital guidelines, industry standards, and peer group practices.

Responsive to the environment at the time, on December 10, 2008, our Board of Directors announced a reduction in our quarterly common stock dividend from $0.310 per share to $0.225 per share. This reduction equates to approximately $16 million in retained capital over the course of a year.

The dividend payout ratio, which represents the percentage of dividends declared to stockholders to earnings per share, was 115.5% for 2008 and 73.8% for 2007. The dividend payout ratio has averaged approximately 65.0% for the past five years.

Since we elected to participate in the Capital Purchase Program, our ability to increase quarterly common stock dividends above $0.310 per share will be subject to the applicable restrictions of this program for three years following the sale of the preferred stock.

Given current conditions, the Board of Directors continues to evaluate all aspects of our capital plan each quarter.

QUARTERLY REVIEW

Table 21

Quarterly Earnings Performance ⁽¹⁾

(Dollar amounts in thousands, except per share data)

	2008												2007
	Fourth			Third			Second			First			Fourth			Third			Second		First
Interest income	$	97,933		$	101,486		$	101,313		$	108,475		$	114,611		$	120,090		$	120,671		121,589
Interest expense		32,920			38,728			40,987			49,975			56,513			59,393			59,707		61,219
Net interest income		65,013			62,758			60,326			58,500			58,098			60,697			60,964		60,370
Provision for loan losses		42,385			13,029			5,780			9,060			2,042			470			1,761		2,960
Noninterest income		12,086			25,440			27,041			25,051			27,576			28,560			29,662		25,256
Gains (losses) on securities sales, net		262			48			1,344			7,249			14			(5,165	)		961		3,444
Securities impairment losses		(34,477	)		(1,794	)		(5,962	)		(2,281	)		(50,055	)		-			-		-
Noninterest expense		46,581			48,436			49,945			49,343			50,264			49,981			50,737		48,155
Income before income tax (benefit) expense		(46,082	)		24,987			27,024			30,116			(16,673	)		33,641			39,089		37,955
Income tax (benefit) expense		(19,192	)		796			27			5,078			(11,255	)		6,404			9,778		8,926
Net (loss) income		(26,890	)		24,191			26,997			25,038			(5,418	)		27,237			29,311		29,029
Preferred dividends		(712	)		-			-			-			-			-			-		-
Net (loss) income applicable to common shares	$	(27,602	)	$	24,191		$	26,997		$	25,038		$	(5,418	)	$	27,237		$	29,311	$	29,029
Basic earnings per common share	$	(0.57	)	$	0.05		$	0.56		$	0.52		$	(0.11	)	$	0.55		$	0.59		0.58
Diluted earnings per common share	$	(0.57	)	$	0.05		$	0.56		$	0.52		$	(0.11	)	$	0.55		$	0.59		0.58
Return on average common equity		(13.89%	)		13.09%			14.57%			13.75%			(2.91%	)		14.57%			15.47%		15.48%
Return on average assets		(1.31%	)		1.16%			1.33%			1.25%			(0.27%	)		1.35%			1.44%		1.42%
Net interest margin – tax-equivalent		3.71%			3.63%			3.58%			3.53%			3.53%			3.63%			3.61%		3.53%

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

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FOURTH QUARTER 2008 vs. 2007

Our net loss was $26.9 million for fourth quarter 2008. This compares to a net loss of $5.4 million for fourth quarter 2007. We reported a loss of $0.57 per diluted common share for fourth quarter 2008 compared to a loss of $0.11 per diluted common share for fourth quarter 2007. Return on average assets was a negative 1.31% for fourth quarter 2008 compared to a negative 0.27% for fourth quarter 2007. Return on average common equity was a negative 13.89% for fourth quarter 2008 compared to a negative 2.91% for fourth quarter 2007. Performance for the quarter was adversely impacted by higher loan loss provisions and securities-related losses, stemming from continued economic weakness.

Net loss before taxes totaled $46.1 million for fourth quarter 2008 compared to $16.7 million for fourth quarter 2007, with the difference largely due to higher provision for loan losses. Provision for loan losses for fourth quarter 2008 was $42.4 million as contrasted to $2.0 million in fourth quarter 2007. Excluding the provision for loan losses and market-related losses, income before taxes would have been $40.9 million for fourth quarter 2008 and $35.4 million for fourth quarter 2007.

Total loans as of December 31, 2008 were $5.4 billion, up 2.6% compared to September 30, 2008. Total average deposits for fourth quarter 2008 were $5.6 billion, compared to $5.8 billion for third quarter 2008 with the decline reflecting slightly lower retail deposits stemming from competitive pricing in our market and general economic conditions.

We improved our tax equivalent net interest margin from the preceding quarter and from fourth quarter 2007. Tax equivalent net interest margin was 3.71% for fourth quarter 2008 compared to 3.63% for third quarter 2008 and 3.53% for fourth quarter 2007. For fourth quarter 2008 compared to fourth quarter 2007, the yield received on our average earning interest-assets declined 124 basis points while our cost of funds declined 168 basis points.

Fee-based revenues were $23.0 million for fourth quarter 2008, down 9.1% from fourth quarter 2007, primarily due to lower trust revenue and retail sales of investment products.

Operating expenses continue to be well controlled. Noninterest expense was $46.6 million for fourth quarter 2008, down 7.3% from fourth quarter 2007. The declines were primarily due to reductions in salaries and benefits costs. In 2007 and continuing into 2008, we initiated targeted staff reductions, primarily in support and administrative areas. Full time employees have declined over this period by 4.4%, or 83 full-time equivalents.

Non-accrual loans at December 31, 2008 were $127.8 million, or 2.38% of total loans, with residential land and development non-accruals accounting for $97.1 million of the total. The increase in non-accrual loans from September 30, 2008 of $74.5 million stems primarily from the impact of slowing market conditions on five residential developers.

As of December 31, 2008, loans 90 days past due and still accruing totaled $37.0 million, unchanged from September 30, 2008 and up $15.9 million from December 31, 2007. All such loans are believed to be adequately collateralized and in the process of collection.

Foreclosed real estate was $24.4 million as of December 31, 2008 as compared to $23.7 million as of September 30, 2008 and $6.1 million as of December 31, 2007, with 61.7% of the December 31, 2008 balance representing collateral underlying foreclosed residential developments.

In response to the impact of continuing economic weakness on real estate and related markets, we increased our reserve for loan losses to $93.9 million as of December 31, 2008, up $24.1 million from September 30, 2008 and $32.1 million from December 31, 2007. The reserve for loan losses represented 1.75% of total loans outstanding at December 31, 2008, compared to 1.25% at December 31, 2007 and 1.34% at September 30, 2008. Provision for loan losses for fourth quarter 2008 was $42.4 million.

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During fourth quarter 2008, net charge-offs totaled $18.3 million as compared to $9.3 million in third quarter 2008. The majority of the increase is due to charge-offs of residential land and development loans. In fourth quarter 2008, we charged-off $9.2 million related to residential construction, with four loans accounting for substantially the entire amount, and $5.6 million related to commercial and industrial loans, with the majority due to two individual loans.

Non-cash impairment charges totaling $34.5 million were recorded in fourth quarter 2008. Of such charges, $24.8 million related to three trust-preferred collateralized debt obligations (“CDOs”) with an aggregate cost of $38.9 million. The remaining $9.7 million of non-cash impairment charges related to two whole loan mortgage-backed securities with a combined par value of $16.6 million and a single Sallie Mae debt issuance with a par value of $10.0 million. These non-cash charges largely reflect the illiquidity and market risks existent generally.

CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements are prepared in accordance with GAAP and are consistent with predominant practices in the financial services industry. Critical accounting policies are those policies that management believes are the most important to our financial position and results of operations. Application of critical accounting policies requires management to make estimates, assumptions, and judgments based on information available as of the date of the financial statements that affect the amounts reported in the financial statements and accompanying notes. Future changes in information may affect these estimates, assumptions, and judgments, which, in turn, may affect amounts reported in the financial statements.

We have numerous accounting policies, of which the most significant are presented in Note 1 of “Notes to Consolidated Financial Statements” in Item 8 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 our accounting policies with respect to the reserve for loan losses, evaluation of impairment of securities, and income taxes are the accounting areas requiring subjective or complex judgments that are most important to our financial position and results of operations, and, as such, are considered to be critical accounting policies, as discussed below.

Reserve for Loan Losses

Determination of the reserve for loan losses 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. Credit exposures deemed to be uncollectible are charged-off against the reserve, while recoveries of amounts previously charged-off are credited to the reserve. Additions to the reserve for loan losses are charged to operating expense through the provision for loan losses. The amount charged to operating expense in any given year is dependent upon a number of factors including historic loan growth and changes in the composition of the loan portfolio, net charge-off levels, and our assessment of the reserve for loan losses. For a full discussion of our methodology of assessing the adequacy of the reserve for loan losses, see Note 1 of “Notes to Consolidated Financial Statements” in Item 8 of this Form 10-K.

Evaluation of Securities for Impairment

Securities that we have 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. Trading securities are carried at fair value, with unrealized gains and losses recorded in other noninterest income. All other securities are classified as securities available-for-sale and are carried at fair value.

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The fair values of securities are based on quoted prices obtained from third party pricing services or dealer market participants where a ready market for such securities exists. Where such a market does not exist, as for our collateralized trust-preferred debt obligations (“TRUPs”), we have estimated fair value using our own cash flow model. This model was created by a structured credit valuation firm with our assistance. It uses independently verifiable historical data, as well as current information from the market, such as equity volatility, to calculate the probability of default by any of the entities comprising the underlying collateral pool and the ensuing cash flows to our particular tranche for each TRUP. The model uses assumptions that are subject to management’s judgment and which can significantly impact the resulting fair values. We believe the model uses reasonable assumptions to estimate fair values where no market exists for these investments. Unrealized gains and losses on securities available-for-sale are reported, on an after-tax basis, as a separate component of stockholders’ equity in accumulated other comprehensive income. Interest income is reported net of amortization of premium and accretion of discount.

Realized securities gains or losses are reported in securities gains (losses), net in the Consolidated Statements of Income. The cost of securities sold is based on the specific identification method. On a quarterly basis, we make an assessment to determine whether there have been any events or circumstances to indicate that a security for which there is an unrealized loss is impaired on an other-than-temporary basis. The Company considers many factors including the severity and duration of the impairment; whether anticipated cash flows have been adversely affected, the intent and ability of the Company to hold the security for a period of time sufficient for a recovery in value; recent events specific to the issuer or industry; and for debt securities, external credit ratings and recent downgrades. The term other-than-temporary is not intended to indicate that the decline is permanent. It indicates that the prospects for near-term recovery are not necessarily favorable or that there is a lack of evidence to support fair values greater than or equal to the carrying value of the investment. Securities for which there is an unrealized loss that is deemed to be other than temporary are written down to fair value with the write-down recorded as a realized loss and included in securities gains (losses), net. For additional discussion on securities, see Notes 1 and 3 of “Notes to Consolidated Financial Statements” in Item 8 of this Form 10-K.

Income Taxes

We determine our income tax expense 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. These permanent differences result in an effective tax rate, which differs from the federal statutory rate. In addition, we recognize deferred tax assets and liabilities, recorded in the Consolidated Statements of Financial Condition, based on management’s judgments and estimates regarding timing differences in the recognition of income and expenses for financial statement and income tax purposes.

We 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 or carryforward to taxable income in prior or future years, the future reversal of existing taxable temporary differences, future taxable income, and the possible application of future tax planning strategies. We have established a valuation allowance of $1.7 million for certain state net operating loss carryforwards that are not expected to be fully realized. Management believes that it is more likely than not that the other deferred tax assets included in the accompanying Consolidated Statements of Financial Condition will be fully realized. We have determined that no valuation allowance is required for any other deferred tax assets as of December 31, 2008, although there is no guarantee that those assets will be recognizable in future periods. For additional discussion of income taxes, see Notes 1 and 15 of “Notes to Consolidated Financial Statements” in Item 8 of this Form 10-K.

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FORWARD-LOOKING STATEMENTS

The following is a statement under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”): We and our representatives may, from time to time, make written or oral statements that are intended to qualify as “forward-looking” statements under the PSLRA and provide information other than historical information, including statements contained in this Form 10-K, our other filings with the Securities and Exchange Commission, or in communications to our stockholders. These statements involve known and unknown risks, uncertainties, and other factors that may cause actual results to be materially different from any results, levels of activity, performance, or achievements expressed or implied by any forward-looking statement. These factors include, among other things, the factors listed below.

In some cases, we have identified forward-looking statements by such words or phrases as “will likely result,” “is confident that,” “remains optimistic about,” “expects,” “should,” “could,” “seeks,” “may,” “will continue to,” “believes,” “anticipates,” “predicts,” “forecasts,” “estimates,” “projects,” “potential,” “intends,” or similar expressions identifying forward-looking statements within the meaning of the PSLRA, 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 our outlook for the Company based on currently available information. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only at the date made.

In connection with the safe harbor provisions of the PSLRA, we are hereby identifying important factors that could affect our financial performance and could cause our actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any forward-looking statements.

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

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

— Asset/liability matching risks and liquidity risks;

— Fluctuations in the value of our investment securities;

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

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

— The failure of assumptions underlying the establishment of the reserve for loan losses and estimation of values of collateral and various financial assets and liabilities;

— Credit risks and risks from concentrations (by geographic area and by industry) within our loan portfolio;

— 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 our markets or elsewhere providing similar services;

— 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;

— Changes in general economic or industry conditions, nationally or in the communities in which we conduct business;

— Volatility of rate sensitive deposits;

— Our ability to adapt successfully to technological changes to compete effectively in the marketplace;

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

— Our ability to successfully pursue acquisition and expansion strategies and integrate any acquired companies;

— The impact of liabilities arising from legal or administrative proceedings, enforcement of bank regulations, and enactment or application of securities regulations;

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

— Changes in federal and state tax laws or interpretations, including changes affecting tax rates, income not subject to tax under existing law and interpretations, income sourcing, or consolidation/combination rules;

— Changes in accounting principles, policies, or guidelines affecting the businesses we conduct;

— Acts of war or terrorism; and

— Other economic, competitive, governmental, regulatory, and technological factors affecting our operations, products, services, and prices.

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

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

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The disclosures set forth in this item are qualified by Item 1A. Risk Factors and the section captioned “Forward-Looking Statements” included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this report, and other cautionary statements set forth elsewhere in this report.

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 our primary market risk and is the result of repricing, basis, and option risk. Repricing risk represents timing mismatches in our ability to alter contractual rates earned on interest-earning assets or paid on interest-bearing liabilities in response to changes in 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 between the rate earned on a loan or investment and the rate paid to fund that investment. 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 interest rates and could have an adverse impact on our margin performance.

We seek to achieve consistent growth in net interest income and net income while managing volatility that arises from shifts in interest rates. The Bank’s Asset and Liability Management Committee (“ALCO”) oversees financial risk management by developing programs to measure and manage interest rate risks within authorized limits set by the Bank’s Board of Directors. ALCO also approves the Bank’s asset/liability management policies, oversees the formulation and implementation of strategies to improve balance sheet positioning and earnings, and reviews the Bank’s interest rate sensitivity position. Management uses net interest income and economic value of equity simulation modeling tools to analyze and capture short-term and long-term interest rate exposures.

Net Interest Income Sensitivity

The analysis of net interest income sensitivities assesses the magnitude of changes in net interest income resulting from changes in interest rates over a 12-month horizon using multiple rate scenarios. These scenarios include, but are not limited to, a “most likely” forecast, a flat to inverted or unchanged rate environment, a gradual increase and decrease of 200 basis points that occur in equal steps over a six-month time horizon, and immediate increases and decreases of 200 and 300 basis points.

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This simulation analysis is based on actual cash flows and repricing characteristics for balance sheet 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. This simulation analysis includes management’s projections for activity levels in each of the product lines we offer. The analysis also incorporates assumptions based on the historical behavior of deposit rates and balances in relation to interest rates. Because these assumptions are inherently uncertain, the simulation analysis cannot definitively measure net interest income or predict the impact of the fluctuation in interest rates on net interest income. Actual results may differ from simulated results due to timing, magnitude, and frequency of interest rate changes as well as changes in market conditions and management strategies.

We monitor and manage interest rate risk within approved policy limits. Our current interest rate risk policy limits are determined by measuring the change in net interest income over a 12-month horizon assuming a 200 basis point gradual increase and decrease in all interest rates compared to net interest income in an unchanging interest rate environment. 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. As of December 31, 2008, the percent change expected assuming a gradual decrease in interest rates was outside of policy. However, given the current market conditions as of December 31, 2008, the Bank’s Board of Directors temporarily authorized operations outside of policy limits.

Analysis of Net Interest Income Sensitivity

(Dollar amounts in thousands)

	Gradual Change in Rates (1)						Immediate Change in Rates
	-200			+200			-200			+200			-300 (2)		+300
December 31, 2008:
Dollar change	$	(28,797	)	$	(21,942	)	$	(43,001	)	$	(24,416	)	$	N/M	$	(30,604	)
Percent change		-10.4%			-7.9%			-15.5%			-8.8%			N/M		-11.0%
December 31, 2007:
Dollar change	$	5,587		$	(14,594	)	$	5,928		$	(18,088	)		1,559	$	(24,369	)
Percent change		+2.2%			-5.8%			+2.3%			-7.1%			+0.6%		-9.6%

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

⁽²⁾ N/M - Due to the low level of interest rates as of December 31, 2008, in management’s judgment, an assumed 300 basis point drop in interest rates was deemed not meaningful in the existent interest rate environment.

At December 31, 2008, our interest rate sensitivity profile, assuming a gradual upward change in interest rates, reflected a slightly greater negative exposure to rising interest rates in comparison to December 31, 2007. Conversely, in a falling interest rate environment, our exposure reflected a negative position as of December 31, 2008 in comparison to a positive position as of December 31, 2007. The change in earnings risk to rising interest rates is the result of a reduction in the duration of borrowed funds and an increase in the amount of short-term funding. These short-term liabilities increase the sensitivity of interest expense to rising interest rates, which create a greater benefit in a lower interest rate environment. This benefit is mitigated, however, by a lack of repricing potential on all liabilities due to the extremely low level of market interest rates. Market rates, specifically the federal funds target rate and the prime rate, have declined 400 basis points from December 31, 2007 to December 31, 2008.

Economic Value of Equity

In addition to the simulation analysis, management uses an economic value of equity sensitivity technique to understand the risk in both shorter- and longer-term positions and to study the impact of longer-term cash flows on earnings and capital. In determining the economic value of equity, we discount present values of expected cash flows on all assets, liabilities, and off-balance sheet contracts under different interest rate scenarios. The

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discounted present value of all cash flows represents our economic value of equity. Economic value of equity does not represent the true fair value of asset, liability, or derivative positions because certain factors are not considered, such as credit risk, liquidity risk, and the impact of future changes to the balance sheet. Our 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%.

Analysis of Economic Value of Equity

(Dollar amounts in thousands)

	Immediate Change in Rates
	-200			+200
December 31, 2008:
Dollar change	$	(89,123	)	$	(54,136	)
Percent change		-6.8%			-4.1%
December 31, 2007:
Dollar change	$	(40,870	)	$	(89,164	)
Percent change		-3.2%			-7.1%

As of December 31, 2008, the estimated sensitivity of the economic value of equity to changes in interest rates reflected more negative exposure to lower interest rates and less negative exposure to higher interest rates compared to that existing at December 31, 2007. As of December 31, 2007, the negative exposure to falling interest rates is shown net of the positive impact of reducing the interest rates paid on transaction account balances. As of December 31, 2008, transaction account balances already reflect significant interest rate reductions, so there is limited potential for further reductions in those rates. Therefore, since asset yields can continue to decline while any decline in liabilities is limited, there is an increased exposure to falling interest rates as of December 31, 2008 compared to December 31, 2007. Reduced exposure to rising interest rates is primarily due to the benefit that is recaptured on long-term debt as interest rates rise from the low levels that exist currently.

Interest Rate Derivatives

As part of our approach to controlling the interest rate risk within our balance sheet, we have used 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 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 Financial Condition and Income of the Company are described in Notes 1 and 11 of “Notes to Consolidated Financial Statements” in Item 8 of this Form 10-K.

We had total interest rate swaps in place with an aggregate notional amount of $20.0 million at December 31, 2008 and $48.0 million at December 31, 2007, hedging various balance sheet categories. The specific terms of the interest rate swaps outstanding as of December 31, 2008 and 2007 are discussed in Note 11 of “Notes to Consolidated Financial Statements” in Item 8 of this Form 10-K.

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Management’s Responsibility for Financial Statements

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 U.S. generally accepted accounting principles.

Ernst & Young LLP, an independent registered public accounting firm, has audited these consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) and has expressed its unqualified opinion on these financial statements.

The Audit Committee of the Board of Directors, which oversees the Company’s financial reporting process on behalf of the Board of Directors, is composed entirely of independent directors (as defined by the listing standards of Nasdaq). The Audit Committee meets periodically with management, the independent accountants, and the internal auditors to review matters relating to the Company’s financial statements, compliance with legal and regulatory requirements relating to financial reporting and disclosure, annual financial statement audit, engagement of independent accountants, internal audit function, and system of internal controls. The internal auditors and the independent accountants periodically meet alone with the Audit Committee and have access to the Audit Committee at any time.

/s/ MICHAEL L. SCUDDER	/s/ PAUL F. CLEMENS
Michael L. Scudder President and Chief Executive Officer	Paul F. Clemens Executive Vice President and Chief Financial Officer

February 27, 2009

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

First Midwest Bancorp, Inc.:

We have audited the accompanying consolidated statements of financial condition of First Midwest Bancorp, Inc., and subsidiaries as of December 31, 2008 and 2007, 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, 2008. 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 the standards of the Public Company Accounting Oversight Board (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, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of First Midwest Bancorp, Inc. and subsidiaries at December 31, 2008 and 2007, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), First Midwest Bancorp, Inc.’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2009, expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

Chicago, Illinois

February 27, 2009

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FIRST MIDWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Amounts in thousands)

	December 31,
	2008			2007
Assets
Cash and due from banks	$	106,082		$	193,792
Federal funds sold and other short-term investments		8,226			1,045
Mortgages held for sale		-			394
Trading account securities		12,358			18,352
Securities available-for-sale, at fair value		2,216,186			2,080,046
Securities held-to-maturity, at amortized cost (fair value 2008 - $84,592; 2007 - $97,931)		84,306			97,671
Federal Home Loan Bank and Federal Reserve Bank stock, at cost		54,767			54,767
Loans		5,360,063			4,963,672
Reserve for loan losses		(93,869	)		(61,800	)
Net loans		5,266,194			4,901,872
Foreclosed real estate		24,368			6,053
Premises, furniture, and equipment		120,035			125,828
Accrued interest receivable		43,247			48,971
Investment in bank owned life insurance		198,533			203,535
Goodwill		262,886			262,195
Other intangible assets		21,662			26,040
Other assets		109,491			70,957
Total assets	$	8,528,341		$	8,091,518
Liabilities
Demand deposits	$	1,040,763		$	1,064,684
Savings deposits		747,079			798,361
NOW accounts		915,691			889,760
Money market deposits		754,421			829,226
Time deposits		2,127,800			2,196,830
Total deposits		5,585,754			5,778,861
Borrowed funds		1,698,334			1,264,228
Subordinated debt		232,409			230,082
Accrued interest payable		10,550			16,843
Payable for securities purchased		17,537			-
Other liabilities		75,478			77,529
Total liabilities		7,620,062			7,367,543
Stockholders’ Equity
Preferred stock, no par value; authorized 1,000 shares; issued and outstanding: 2008 - 193 shares, 2007 - no shares		189,617			-
Common stock, $0.01 par value; authorized 100,000 shares; issued 61,326 shares outstanding: 2008 - 48,630 shares, 2007 - 48,453 shares		613			613
Additional paid-in capital		210,698			207,851
Retained earnings		837,390			844,972
Accumulated other comprehensive loss, net of tax		(18,042	)		(11,727	)
Treasury stock, at cost: 2008 - 12,696 shares; 2007 - 12,873 shares		(311,997	)		(317,734	)
Total stockholders’ equity		908,279			723,975
Total liabilities and stockholders’ equity	$	8,528,341		$	8,091,518

See accompanying notes to consolidated financial statements.

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FIRST MIDWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except per share data)

	Years ended December 31,
	2008			2007			2006
Interest Income
Loans	$	302,931		$	365,370		$	352,939
Securities:
Available-for-sale - taxable		61,844			66,788			73,600
Available-for-sale - nontaxable		38,250			36,972			42,219
Held-to-maturity - taxable		341			422			429
Held-to-maturity - nontaxable		4,013			4,288			4,298
Total interest on securities		104,448			108,470			120,546
Federal Home Loan Bank and Federal Reserve Bank stock		1,318			2,034			2,363
Federal funds sold and other short-term investments		510			1,087			561
Total interest income		409,207			476,961			476,409
Interest Expense
Savings deposits		7,148			11,844			5,116
NOW accounts		9,637			14,536			13,102
Money market deposits		13,220			28,469			27,418
Time deposits		80,617			111,418			102,482
Borrowed funds		37,192			55,540			62,974
Subordinated debt		14,796			15,025			13,458
Total interest expense		162,610			236,832			224,550
Net interest income		246,597			240,129			251,859
Provision for loan losses		70,254			7,233			10,229
Net interest income after provision for loan losses		176,343			232,896			241,630
Noninterest Income
Service charges on deposit accounts		44,987			45,015			40,036
Trust and investment advisory fees		15,130			15,701			14,269
Other service charges, commissions, and fees		21,665			25,261			22,754
Card-based fees		16,143			15,925			13,777
Bank owned life insurance (loss) income		(2,369	)		8,033			7,616
Trading (losses) gains, net		(5,938	)		1,119			562
Securities (losses) gains, net		(35,611	)		(50,801	)		4,269
Total noninterest income		54,007			60,253			103,283
Noninterest Expense
Salaries and wages		77,074			85,707			80,087
Retirement and other employee benefits		22,836			25,891			26,114
Net occupancy expense		23,378			22,054			20,153
Equipment expense		9,956			10,540			10,227
Technology and related costs		7,429			7,084			6,584
Professional services		10,898			9,034			9,009
Advertising and promotions		6,491			6,293			7,845
Merchant card expense		6,985			6,830			5,800
Other expenses		29,258			25,704			26,796
Total noninterest expense		194,305			199,137			192,615
Income before income tax expense		36,045			94,012			152,298
Income tax (benefit) expense		(13,291	)		13,853			35,052
Net income		49,336			80,159			117,246
Preferred dividends		(712	)		-			-
Net income applicable to common shares	$	48,624		$	80,159		$	117,246
Per Common Share Data
Basic earnings per common share	$	1.00		$	1.63		$	2.39
Diluted earnings per common share	$	1.00		$	1.62		$	2.37
Weighted-average common shares outstanding		48,462			49,295			49,102
Weighted-average diluted common shares outstanding		48,565			49,622			49,469

See accompanying notes to consolidated financial statements.

76

FIRST MIDWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Amounts in thousands, except per share data)

	Common Shares Out- Standing		Preferred Stock		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Compre- hensive (Loss) Income			Treasury Stock			Total
Balance at January 1, 2006	45,387		$	-	$	569	$	60,760		$	762,575		$	(8,284	)	$	(271,552	)	$	544,068
Comprehensive Income:
Net income	-			-		-		-			117,246			-			-			117,246
Other comprehensive income	-			-		-		-			-			1,551			-			1,551
Total comprehensive income																				118,797
Adjustment to initially apply SFAS No. 158	-			-		-		-			-			(8,555	)		-			(8,555	)
Common dividends declared ($1.120 per common share)	-					-		-			(56,034	)		-			-			(56,034	)
Issuance of common stock	4,399			-		44		143,579			-			-						143,623
Purchase of treasury stock	(24	)		-		-		-			-			-			(844	)		(844	)
Share-based compensation expense	-			-		-		3,029			-			-			-			3,029
Exercise of stock options and restricted stock activity	261			-		-		(2,621	)		-			-			9,267			6,646
Treasury stock issued to (purchased for) benefit plans	2			-		-		85			-			-			(13	)		72
Other	-			-		-		212			-			-			-			212
Balance at December 31, 2006	50,025			-		613		205,044			823,787			(15,288	)		(263,142	)		751,014
Cumulative effect for change in accounting for purchase of life insurance policies	-			-		-		-			(209	)								(209	)
Adjusted balance at January 1, 2007	50,025			-		613		205,044			823,578			(15,288	)		(263,142	)		750,805
Comprehensive Income:
Net income	-			-		-		-			80,159			-			-			80,159
Other comprehensive income	-			-		-		-			-			3,561			-			3,561
Total comprehensive income																				83,720
Common dividends declared ($1.195 per common share)	-			-		-		-			(58,765	)		-			-			(58,765	)
Purchase of treasury stock	(1,767	)		-		-		-			-			-			(61,733	)		(61,733	)
Share-based compensation expense	-			-		-		3,803			-			-			-			3,803
Exercise of stock options and restricted stock activity	199			-		-		(1,001	)		-			-			7,284			6,283
Treasury stock (purchased for) issued to benefit plans	(4	)		-		-		5			-			-			(143	)		(138	)
Balance at December 31, 2007	48,453			-		613		207,851			844,972			(11,727	)		(317,734	)		723,975
Comprehensive Income:
Net income	-			-		-		-			49,336			-			-			49,336
Other comprehensive (loss)	-			-		-		-			-			(6,315	)		-			(6,315	)
Total comprehensive income																				43,021
Common dividends declared ($1.115 per common share)	-			-		-		-			(56,206	)		-			-			(56,206	)
Preferred dividends declared ($3.472 per preferred share)	-			42		-		-			(712	)		-			-			(670	)
Issuance of preferred stock	-			189,575		-		3,425			-			-			-			193,000
Purchase of treasury stock	(4	)		-		-		-			-			-			(138	)		(138	)
Share-based compensation expense	-			-		-		3,771			-			-			-			3,771
Exercise of stock options and restricted stock activity	184			-		-		(4,217	)		-			-			5,795			1,578
Treasury stock (purchased for) issued to benefit plans	(3	)		-		-		(132	)		-			-			80			(52	)
Balance at December 31, 2008	48,630		$	189,617	$	613	$	210,698		$	837,390		$	(18,042	)	$	(311,997	)	$	908,279

See accompanying notes to consolidated financial statements.

77

FIRST MIDWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar amounts in thousands)

	Years ended December 31,
	2008			2007			2006
Operating Activities
Net income	$	49,336		$	80,159		$	117,246
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		70,254			7,233			10,229
Depreciation of premises, furniture, and equipment		11,445			11,741			10,995
Net accretion of discount on securities		(1,436	)		(1,520	)		(4,186	)
Net losses (gains) on securities		35,611			50,801			(4,269	)
Net losses (gains) on sales of other real estate owned		305			(514	)		(276	)
Net gains on sales of premises, furniture, and equipment		(125	)		(340	)		(309	)
Bank owned life insurance loss (income)		2,369			(8,033	)		(7,616	)
Net pension cost		2,402			3,814			5,477
Share-based compensation expense		4,545			4,271			3,585
Tax benefit related to share-based compensation		1,370			1,201			1,112
Net (increase) decrease in deferred income taxes		(13,248	)		(28,221	)		5,459
Net amortization of other intangibles		4,377			4,423			4,038
Originations and purchases of mortgage loans held for sale		(850	)		(99,219	)		(127,029	)
Proceeds from sales of mortgage loans held for sale		1,244			103,585			126,570
Net decrease (increase) in trading account securities		5,994			(2,474	)		(2,811	)
Net decrease (increase) in accrued interest receivable		5,724			5,044			(5,800	)
Net (decrease) increase in accrued interest payable		(6,293	)		(3,586	)		5,788
Net (increase) decrease in other assets		(35,310	)		10,772			3,765
Net increase (decrease) in other liabilities		18,007			(17,674	)		(27,826	)
Net cash provided by operating activities		155,721			121,463			114,142
Investing Activities
Securities available-for-sale:
Proceeds from maturities, repayments, and calls		291,048			287,426			463,735
Proceeds from sales		226,575			334,892			327,952
Purchases		(683,729	)		(360,434	)		(519,883	)
Securities held-to-maturity:
Proceeds from maturities, repayments, and calls		43,497			49,177			68,432
Purchases		(30,046	)		(55,341	)		(67,984	)
Net (increase) decrease in loans		(461,918	)		28,538			(144,043	)
Proceeds from claims on bank owned life insurance		2,633			887			718
Purchases of bank owned life insurance		-			-			(15,000	)
Proceeds from sales of other real estate owned		7,446			5,420			4,889
Proceeds from sales of premises, furniture, and equipment		718			1,036			1,059
Purchases of premises, furniture, and equipment		(6,245	)		(11,588	)		(18,807	)
Acquisitions, net of cash acquired		-			-			(220,967	)
Net cash (used in) provided by investing activities		(610,021	)		280,013			(119,899	)
Financing Activities
Net (decrease) increase in deposit accounts		(193,107	)		(388,355	)		79,403
Net increase (decrease) in borrowed funds		434,106			81,960			(211,860	)
Proceeds from the issuance of subordinated debt		-			-			99,887
Proceeds from the issuance of preferred stock		193,000			-			-
Proceeds from the issuance of common stock		-			-			143,623
Purchases of treasury stock		(138	)		(61,733	)		(844	)
Cash dividends paid		(60,298	)		(58,499	)		(53,757	)
Exercise of stock options and restricted stock activity		245			4,721			4,610
Excess tax (expense) benefit related to share-based compensation		(37	)		361			924
Net cash provided by (used in) financing activities		373,771			(421,545	)		61,986
Net (decrease) increase in cash and cash equivalents		(80,529	)		(20,069	)		56,229
Cash and cash equivalents at beginning of year		194,837			214,906			158,677
Cash and cash equivalents at end of year	$	114,308		$	194,837		$	214,906

See accompanying notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations - First Midwest Bancorp, Inc. (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. The Company is headquartered in Itasca, Illinois and has operations primarily located in Northern Illinois, principally in the suburban metropolitan Chicago area. The Company operates two wholly owned subsidiaries (the “Subsidiaries”): First Midwest Bank (the “Bank”) and First Midwest Insurance Company, which is largely inactive. The Company 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 and its subsidiaries after elimination of all significant intercompany accounts and transactions. Assets held in a fiduciary or agency capacity are not assets of the subsidiaries 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, management has defined cash and cash equivalents to include cash and due from banks, federal funds sold, and other short-term investments. The Company uses the accrual basis of accounting for financial reporting purposes.

Use of Estimates - The accounting and reporting policies of the Company and its subsidiaries conform to U.S. generally accepted accounting principles (“U.S. GAAP”) and general practice within the banking industry. The preparation of consolidated financial statements in conformity with U.S. GAAP 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 adhered to in the preparation of the consolidated financial statements.

Business Combinations - Business combinations are accounted for under the purchase method of accounting. Under the purchase method, net assets of the business acquired are recorded at their estimated fair value as of the date of acquisition, with any excess of the cost of the acquisition over the fair value of the net tangible and identifiable intangible assets acquired recorded as goodwill. Results of operations of the acquired business are included in the Consolidated Statements of Income from the effective date of acquisition.

Securities - Securities are classified as held-to-maturity, available-for-sale, or trading at the time of purchase. Securities classified as held-to-maturity, which management has the positive intent and ability to hold to maturity, are stated at cost and adjusted for amortization of premiums and accretion of discounts.

Trading securities held by the Company represent diversified investment securities held in a grantor trust (“rabbi trust”) under deferred compensation arrangements in which plan participants may direct amounts earned to be invested in securities other than Company stock. Pursuant to Emerging Issues Task Force Issue No. 97-14, Accounting for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi Trust and Invested, the accounts of the rabbi trust are consolidated with the accounts of the Company in its financial statements. Trading securities are reported at fair value, with unrealized gains and losses included in noninterest income. The corresponding deferred compensation obligation is also reported at fair value, with unrealized gains and losses recognized as a component of compensation expense. Other than the securities held in the rabbi trust, the Company does not carry securities for trading purposes.

All other securities are classified as available-for-sale. Available-for-sale securities are carried at fair value with unrealized gains and losses, net of related deferred income taxes, recorded in stockholders’ equity as a separate component of other comprehensive income.

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The historical cost of debt securities is adjusted for amortization of premiums and accretion of discounts over the estimated life of the security, using the effective interest method. In determining the estimated life of a mortgage-backed security, certain judgments are required as to the timing and amount of future principal prepayments. These judgments are made based on the actual performance of the underlying security and the general market consensus regarding changes in mortgage interest rates and underlying prepayment estimates. Amortization of premium and accretion of discount are included in interest income from the related security.

Purchases and sales of securities are recognized on a trade date basis. Realized securities gains or losses are reported in securities gains (losses), net in the Consolidated Statements of Income. The cost of securities sold is based on the specific identification method. On a quarterly basis, the Company makes an assessment to determine whether there have been any events or circumstances to indicate that a security for which there is an unrealized loss is impaired on an other-than-temporary basis. The Company considers many factors including the severity and duration of the impairment; the intent and ability of the Company to hold the security for a period of time sufficient for a recovery in value; recent events specific to the issuer or industry; and for debt securities, external credit ratings and recent downgrades. Securities for which there is an unrealized loss that is deemed to be other-than-temporary are written down to fair value with the write-down recorded as a realized loss and included in securities gains (losses), net.

Loans - Loans are carried at the principal amount outstanding, including certain net deferred loan origination fees. Residential real estate mortgage loans held for sale are carried at the lower of aggregate cost or fair value. Interest income on loans is accrued based on principal amounts outstanding. Loan and lease origination fees, fees for commitments that are expected to be exercised, 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. Fees related to standby letters of credit, whose ultimate exercise is remote, are amortized into fee income over the estimated life of the commitment. Other credit-related fees are recognized as fee income when earned.

Non-accrual loans - Generally, commercial loans and loans secured by real estate (including impaired loans) are designated as non-accrual: (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 non-accrual status. When a loan is placed on non-accrual 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. Non-accrual 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 loans secured by real estate are generally charged-off when deemed uncollectible. A loss is recorded at that time if the net realizable value can be quantified and it is less than the associated principal and interest. Consumer loans are subject to mandatory charge-off at a specified delinquency date and are usually not classified as non-accrual 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.

Impaired Loans - A loan is considered impaired when, based on current information and events, 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. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the value of the underlying collateral. The Company evaluates the collectibility of both principal and interest when assessing the need for loss accrual. All loans subject to evaluation and considered to be impaired are included in non-performing assets.

Restructured Loans - In cases where a borrower experiences financial difficulties and the Company makes certain concessionary modifications to contractual terms, the loan is classified as a restructured loan. Loans

80

restructured at a rate equal to or greater than that of a new loan with comparable risk at the time the contract is modified may be excluded from restructured loans in the calendar years subsequent to the restructuring if they are in compliance with modified terms. Generally, a non-accrual loan that is restructured remains on non-accrual until such time that repayment of the remaining principal and interest is not in doubt, and the borrower has a period of satisfactory repayment performance.

90-Day Past Due Loans - 90 days past due loans are loans for which principal or interest payments become 90 days past due but that still accrue interest since they are loans that are well secured and in the process of collection.

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. The reserve takes into consideration such factors as changes in the nature, volume, size and current risk characteristics of the loan portfolio, an assessment of individual problem loans, actual and anticipated loss experience, current economic conditions that affect the borrower’s ability to pay 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. Credit exposures deemed to be uncollectible are charged-off against the reserve, while recoveries of amounts previously charged-off are credited to the reserve. Additions to the reserve for loan losses are charged to operating expense through the provision for loan losses. The amount charged to operating expense in any given year is dependent upon a number of factors including historic 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 on the methodology discussed below.

The reserve for loan losses consists of three components calculated based on estimations performed pursuant to the requirements of the Financial Accounting Standards Board (“FASB”) Statement No. 5, Accounting for Contingencies, and FASB Statements Nos. 114 and 118, Accounting by Creditors for Impairment of a Loan (“SFAS Nos. 114 and 118”). The reserve for loan losses consists of: (i) specific reserves established for expected losses on individual loans for which the recorded investment in the loan exceeds the value of the loan; (ii) reserves based on historical loan loss experience for each loan category; and (iii) reserves based on general, current economic conditions as well as specific economic factors believed to be relevant to 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 exceeding 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 non-accrual and restructured loans exclusive of smaller homogeneous loans such as home equity, installment, and 1-4 family residential loans. Impairment is measured by estimating the fair value of the loan based on the present value of expected future cash flows, discounted at the loan’s initial effective interest rate or the fair value of the underlying collateral less costs to sell, if repayment of the loan is collateral-dependent. If the estimated fair value of the loan is less than the recorded book value, a valuation reserve is established as a component of the reserve for loan losses.

The component of the reserve for loan losses based on historical loan loss experience 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 final component of the reserve for loan losses reflects management’s general estimate of probable inherent, but undetected, losses within the portfolio. The general component of the reserve for loan losses is determined based on the Company’s assessment of economic conditions such as levels of unemployment and bankruptcy

81

trends. The Company also assesses other risk factors such as changes in the characteristics of the loan portfolio, underwriting policies, and delinquency and charge-off trends. The general reserve is determined by applying estimated loss factors to the credit exposures from outstanding loans 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, this component includes a portion that explicitly accounts for the inherent imprecision in loan loss migration models. Because the general component of the reserve considers risk factors that may not have manifested themselves in the Company’s historical loss experience, it involves a high degree of judgment in its determination.

Foreclosed Real Estate - Foreclosed real estate includes properties acquired in partial or total satisfaction of certain loans. 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 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.

Depreciable Assets - 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, typically 3 to 15 years but longer under limited circumstances; and furniture and equipment, 3 to 10 years. Gains on dispositions are included in other income, and losses on dispositions are included in other expense on the Consolidated Statements of Income. Maintenance and repairs are charged to operating expenses as incurred, while improvements that extend the useful life of assets are capitalized and depreciated over the estimated remaining life.

Long-lived depreciable assets are evaluated periodically for impairment when events or changes in circumstances indicate the carrying amount may not be recoverable. Impairment exists when the expected undiscounted future cash flows of a long-lived asset are less than its carrying value. In that event, the Company recognizes a loss for the difference between the carrying amount and the estimated fair value of the asset based on a quoted market price, if applicable, or a discounted cash flow analysis. Impairment losses are recorded in other noninterest expense on the Consolidated Statements of Income.

Bank Owned Life Insurance (“BOLI”) - BOLI represents life insurance policies on the lives of certain Company officers and directors for which the Company is the sole beneficiary. These policies are recorded as an asset on the Consolidated Statements of Financial Condition at their cash surrender value, or the amount that could be realized currently. The change in cash surrender value and insurance proceeds received are recorded as BOLI (loss) income on the Consolidated Statements of Income in noninterest 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. Other intangible assets represent purchased assets that also lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset, or liability. Goodwill is tested at least annually for impairment using the market capitalization valuation method, or more often if events or circumstances indicate that there may be impairment. Identified intangible assets that have a finite useful life are amortized over that life in a manner that reflects the estimated decline in the economic value of the identified intangible asset. Identified intangible assets that have a finite useful life are periodically reviewed to determine whether there have been any events or circumstances to indicate that the recorded amount is not recoverable from projected undiscounted net operating cash flows. If the projected undiscounted net operating cash

82

flows are less than the carrying amount, a loss is recognized to reduce the carrying amount to fair value, and, when appropriate, the amortization period is also reduced. Unamortized intangible assets associated with disposed assets are included in the determination of gain or loss on the sale of the disposed assets. All of the Company’s other intangible assets have finite lives and are amortized over varying periods not exceeding 11.8 years.

Trust Assets and Assets Under Management - Assets held in fiduciary or agency capacity for customers are not included in the consolidated financial statements as they are not assets of the Company or its subsidiaries. Fee income is recognized on an accrual basis for financial reporting purposes and is included as a component of noninterest income.

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

Derivative Financial Instruments - In the ordinary course of business, the Company enters into derivative transactions as part of its overall interest rate risk management strategy to minimize significant unplanned fluctuations in earnings and cash flows caused by interest rate volatility. All derivative instruments are recorded at fair value as either other assets or other liabilities. Subsequent changes in a derivative’s fair value are recognized in earnings unless specific hedge accounting criteria are met.

On the date the Company enters into a derivative contract, it designates the derivative instrument as either a fair value hedge, cash flow hedge, or as a freestanding derivative instrument. Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the 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. The Company formally documents all relationships between hedging instruments and hedged items as well as its risk management objective and strategy for undertaking each hedge transaction.

For effective derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in current earnings during the period of the change in fair values. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income. The unrealized gain or loss is reclassified into earnings in the same period or periods during which the hedged transaction affects earnings (for example, when a hedged item is terminated or redesignated). For all hedge relationships, derivative gains and losses not effective in hedging the change in fair value or expected cash flows of the hedged item are recognized immediately in current earnings during the period of change.

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 a derivative instrument designated as a hedge is terminated or ceases to be highly effective, hedge accounting is discontinued prospectively and the gain or loss is amortized to earnings. For fair value hedges, the gain or loss is amortized over the remaining life of the hedged asset or liability. For cash flow hedges, the gain or loss is amortized over the same period(s) that the forecasted hedged transactions impact earnings. If the hedged item is disposed of, or the forecasted transaction is no longer probable, any fair value adjustments are included in the gain or loss from the disposition of the hedged item. In the case of a forecasted transaction that is no longer probable, the gain or loss is included in earnings immediately.

Income Taxes - The Company files income tax returns in the U.S. federal jurisdiction and in Illinois, Indiana, and Iowa. First Midwest Insurance Company files a separate federal corporate income tax return. The provision for income taxes is based on income in the financial statements, rather than amounts reported on the Company’s income tax return.

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Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. A valuation allowance is established for any deferred tax asset for which recovery or settlement is unlikely. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date.

Earnings Per Share (“EPS”) - Basic EPS is computed by dividing net income applicable to common shares 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 applicable to common shares 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 Financial 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 charged or credited to additional paid-in capital.

Share-Based Compensation - The Company accounts for share-based compensation in accordance with the provisions of FASB Statement No. 123 (revised 2004), Share-Based Payment, (“SFAS No. 123R”) using the modified prospective transition method. Under this transition method, compensation cost is recognized in the financial statements beginning January 1, 2006, based on the requirements of SFAS No. 123R for all share-based payments granted after that date and based on the requirements of SFAS No. 123 for all unvested awards granted prior to 2006. Share-based compensation expense is included in “salaries and wages” in the Consolidated Statements of Income.

For additional details on the Company’s share-based compensation plans, refer to Note 17, “Share-Based Compensation.”

Comprehensive Income - Comprehensive income is the total of reported net income and all other revenues, expenses, gains, and losses that bypass reported net income under U.S. GAAP. The Company includes the following items, net of tax, in other comprehensive income in the Consolidated Statements of Changes in Stockholders’ Equity: changes in unrealized gains or losses on securities available-for-sale, changes in the fair value of derivatives designated under cash flow hedges, and changes in the funded status of the Company’s pension plan.

Segment Disclosures - Operating segments are components of a business that (i) engages in business activities from which it may earn revenues and incur expenses; (ii) has operating results that are reviewed regularly by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance; and (iii) for which discrete financial information is available. The Company’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, 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.

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2.    RECENT ACCOUNTING PRONOUNCEMENTS

Fair Value Measurements: Effective January 1, 2008, the Company adopted FASB Statement No. 157, Fair Value Measurements (“SFAS No. 157”). Upon adoption, SFAS No. 157 replaced various definitions of fair value in existing accounting literature with a single definition, established a framework for measuring fair value, and required additional disclosures about fair value measurements. SFAS No. 157 applies whenever an entity is measuring fair value under other accounting standards that require or permit fair value measurement. To clarify the application of SFAS No. 157 in inactive markets, on October 10, 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active. Specifically, the FSP addresses the use of broker quotes and pricing services and how an entity’s own input assumptions (such as discount rates used in cash flow projections) should be considered when measuring fair value when relevant observable market data does not exist. While SFAS No. 157 is effective for financial assets and liabilities on January 1, 2008 and for non-financial assets and liabilities on January 1, 2009, the FSP to address fair value measurements for inactive markets was effective on issuance including prior periods for which financial statements had not been issued. The adoption of SFAS No. 157 on January 1, 2008 and the FSP during the third quarter of 2008 did not have a material impact on the Company’s financial position, results of operations, or liquidity. Refer to Note 22, “Estimated Fair Value of Financial Instruments,” for the Company’s fair value measurement disclosures.

Fair Value Option: Effective January 1, 2008, the Company adopted FASB Statement No. 159, The Fair Value Option for Financial Assets and Liabilities (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure certain financial assets and liabilities at fair value that are not currently required to be measured at fair value. The fair value option is applied on an instrument-by-instrument basis, is irrevocable, and can only be applied to an entire instrument and not to specified risks, specified cash flows, or portions of that instrument. Changes in fair value on items for which the fair value option has been elected will be reported in earnings at each subsequent reporting date and upfront fees and costs related to those items will be recognized in earnings as incurred and not deferred. SFAS No. 159 also requires entities to provide additional information that would help users of the financial statements understand how changes in fair values affect current-period earnings. While the Company did not elect the fair value option on the adoption date, it may elect this guidance for financial assets and liabilities in the future as permitted under the statement. Accordingly, the adoption of SFAS No. 159 on January 1, 2008 did not have an impact on the Company’s financial position, results of operations, or liquidity.

Endorsement Split-Dollar Life Insurance Arrangements: Effective January 1, 2008, the Company adopted Emerging Issues Task Force (“EITF”) Issue 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements (“EITF 06-4”). The EITF is limited to the recognition of a liability and related compensation costs for endorsement split-dollar life insurance arrangements that provide a benefit to an employee that extends to postretirement periods. The effect of initially applying the guidance would be accounted for as a cumulative-effect adjustment to beginning retained earnings with the option of retrospective application. As the Company had already followed the provisions of this statement, the adoption of EITF 06-4 on January 1, 2008 did not have an impact on the Company’s financial position, results of operations, or liquidity.

Business Combinations: In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (“SFAS No. 141(R)”). SFAS No. 141(R) will significantly change how entities apply the acquisition method to business combinations. The most significant changes affecting how the Company will account for business combinations under this statement include:

— The acquisition date will be the date the acquirer obtains control.

— All (and only) identifiable assets acquired, liabilities assumed, and noncontrolling interests in the acquiree will be stated at fair value on the acquisition date.

— Assets or liabilities arising from noncontractual contingencies will be measured at their acquisition date fair value only if it is more likely than not that they meet the definition of an asset or liability on the acquisition date.

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— Adjustments subsequently made to the provisional amounts recorded on the acquisition date will be made retroactively during a measurement period not to exceed one year.

— Acquisition-related restructuring costs that do not meet the criteria in SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, will be expensed as incurred.

— Transaction costs will be expensed as incurred except for debt or equity issuance costs, which will be accounted for in accordance with other generally accepted accounting principles.

— Reversals of deferred income tax valuation allowances and income tax contingencies will be recognized in earnings subsequent to the measurement period.

— The reserve for loan losses of an acquiree will not be permitted to be recognized by the acquirer.

In addition, SFAS No. 141(R) will require new and modified disclosures surrounding subsequent changes to acquisition-related contingencies, contingent consideration, noncontrolling interests, acquisition-related transaction costs, fair values, cash flows not expected to be collected for acquired loans, and an enhanced goodwill rollforward. The Company will be required to prospectively apply SFAS No. 141(R) to all business combinations completed on or after January 1, 2009. The effect of these new requirements on the Company’s financial position and results of operations will depend on the volume and terms of acquisitions in 2009 and beyond, but will likely increase the amount and change the timing of recognizing expenses related to acquisition activities.

Derivative Disclosures: In March 2008, the FASB issued SFAS No. 161, Disclosures About Derivative Instruments and Hedging Activities – an amendment of SFAS No. 133 (“SFAS No. 161”), which requires an entity to provide greater transparency about how its derivative and hedging activities affect its financial statements. SFAS No. 161 requires enhanced disclosures about: (i) how and why an entity uses derivative instruments; (ii) how derivative instruments and related hedged items are accounted for under SFAS No. 133; and (iii) how derivative instruments and related hedged items affect an entity’s financial position, results of operations, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. Since SFAS No. 161 affects only disclosures, it will not impact the Company’s financial position or results of operations upon adoption.

Other-Than-Temporary-Impairment: Effective December 31, 2008, the Company adopted EITF 99-20-1, Amendments to the Impairment and Interest Income Guidance of EITF Issue No. 99-20 (“EITF 99-20-1”). The EITF strives to resolve the lack of consistency in the impairment guidance of EITF 99-20, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets, (“EITF 99-20”) and SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, for determining whether an other-than-temporary impairment has occurred. Prior to amendment, EITF 99-20 required the use of market participant assumptions regarding future cash flows without consideration of the probability that all cash flows will be collected. However, SFAS No. 115 does not require exclusive reliance on market participant assumptions regarding future cash flows, permitting management to use reasonable judgment in determining the probability that a holder will be unable to collect all amounts due. The EITF removes the “market participant” concept from EITF 99-20 and requires adverse changes in expected cash flows to be “probable” before recognizing impairment under EITF 99-20. The impairment guidance provided by EITF 99-20-1 did not have a significant impact on the Company’s financial position or results of operations upon adoption.

Transfers of Financial Assets: Effective December 31, 2008, the Company adopted FSP No. FAS 140-4 and FIN 46R-8, Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities, (“FSP FAS 140-4 and FIN 46R-8”). The FSP was issued in advance of the finalization of other proposed amendments to FASB Statements No. 140 and Interpretation No. 46R and requires additional disclosures about transfers of financial assets and about an entity’s involvement with variable interest entities. This FSP is effective for interim and annual reporting periods ending after December 15, 2008. Adoption of this FSP affects disclosures only and therefore has no impact on the Company’s financial position or results of operations.

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Disclosures about Pension Plan Assets: In December 2008, the FASB issued FSP FAS 132R-1, Disclosures about Plan Assets. This FSP requires additional disclosures about plan assets of a defined benefit pension or other postretirement plan. The FSP has two main objectives. First, it requires additional disclosures about major categories of plan assets and concentrations of risk within plan assets. Second, it applies the requirements of SFAS No. 157 to defined benefit plans by requiring disclosure of the inputs and valuation techniques used to measure the fair value of plan assets and the effect of fair value measurements using unobservable inputs on changes in plan assets for the period. The requirements of the FSP are not effective until fiscal years ending after December 15, 2009, and thus will be included in the Company’s financial statements beginning with the financial statements for the year ended December 31, 2009. Adoption of this FSP affects disclosures only and therefore has no impact on the Company’s financial position or results of operations.

3.    SECURITIES

Securities Portfolio

(Dollar amounts in thousands)

	December 31,
	2008									2007
	Amortized Cost		Gross Unrealized					Fair Value		Amortized Cost		Gross Unrealized					Fair Value
			Gains		Losses							Gains		Losses
Securities Available- for-Sale
U.S. Treasury	$	1,039	$	2	$	-		$	1,041	$	1,027	$	2	$	(1	)	$	1,028
U.S. Agency		-		-		-			-		41,895		597		-			42,492
Collateralized mortgage obligations		694,285		7,668		(3,114	)		698,839		534,688		2,333		(2,221	)		534,800
Other mortgage- backed		504,918		13,421		(74	)		518,265		417,532		5,116		(2,328	)		420,320
State and municipal		907,036		12,606		(12,895	)		906,747		961,638		7,728		(2,531	)		966,835
Collateralized debt obligations		60,406		-		(18,320	)		42,086		95,584		-		(13,954	)		81,630
Other		51,820		213		(2,825	)		49,208		35,295		34		(2,388	)		32,941
Total	$	2,219,504	$	33,910	$	(37,228	)	$	2,216,186	$	2,087,659	$	15,810	$	(23,423	)	$	2,080,046
Securities Held- to-Maturity
State and municipal	$	84,306	$	286	$	-		$	84,592	$	97,671	$	260	$	-		$	97,931
Trading Securities								$	12,358								$	18,352

Other available-for-sale securities include corporate bonds and other miscellaneous marketable equity securities.

Trading securities held by the Company represent diversified investment securities held in a grantor trust under deferred compensation arrangements in which plan participants may direct amounts earned to be invested in securities other than Company stock. Net trading (losses) gains, representing changes in the fair value of the portfolio, are included in other noninterest income in the Consolidated Statements of Income and totaled $(5.9) million in 2008, $1.1 million in 2007, and $561,000 in 2006.

The carrying value of securities available-for-sale, securities held-to-maturity, and securities purchased under agreements to resell that were pledged to secure deposits and for other purposes as permitted or required by law totaled $1.7 billion at December 31, 2008 and $1.8 billion at December 31, 2007.

Excluding securities issued or backed by the U.S. Government and its agencies and U.S. Government-sponsored enterprises, there were no investments in securities from one issuer that exceeded 10% of consolidated stockholders’ equity on December 31, 2008 or 2007.

The following table presents the aggregate amount of unrealized losses and the aggregate related fair values of securities with unrealized losses as of December 31, 2008 and 2007.

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Securities In an Unrealized Loss Position

(Dollar amounts in thousands)

	Less Than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
As of December 31, 2008
Collateralized mortgage obligations	$	27,142	$	49	$	39,923	$	3,065	$	67,065	$	3,114
Other mortgage-backed securities		113		1		6,246		73		6,359		74
State and municipal		144,997		5,783		174,141		7,112		319,138		12,895
Collateralized debt obligations		-		-		28,004		18,320		28,004		18,320
Other		23,092		2,586		1,065		239		24,157		2,825
Total	$	195,344	$	8,419	$	249,379	$	28,809	$	444,723	$	37,228
As of December 31, 2007
U.S. Treasury	$	551	$	1	$	-	$	-	$	551	$	1
Collateralized mortgage obligations		38,739		169		242,894		2,052		281,633		2,221
Other mortgage-backed securities		3,598		9		166,164		2,319		169,762		2,328
State and municipal		80,944		779		230,120		1,752		311,064		2,531
Collateralized debt obligations		65,879		12,874		5,670		1,080		71,549		13,954
Other		973		27		7,945		2,361		8,918		2,388
Total	$	190,684	$	13,859	$	652,793	$	9,564	$	843,477	$	23,423

The unrealized losses on the Company’s investment in U.S. Treasury securities, collateralized mortgage obligations, and other mortgage-backed securities were caused by increases in interest rates. These types of investments are either backed by U.S. Government-owned agencies or issued by U.S. Government-sponsored enterprises. Accordingly, the Company believes the credit risk embedded in these securities to be inherently nonexistent. The unrealized losses in the Company’s investment in state and municipal securities all relate to securities with investment grade ratings and were caused not by credit risk, but by interest rate increases.

The unrealized loss on collateralized debt obligations (“CDOs”) as of December 31, 2008 of $18.3 million reflects the market’s temporary negative bias toward structured investment vehicles given the current interest rate and liquidity environment. The Company does not believe this loss is an other-than-temporary impairment. The Company expects no change in its net cash flows from these investments from what was originally anticipated, and the Company has both the intent and ability to hold them until maturity or recovery. The Company’s estimation of cash flows for these investments and resulting fair values were based upon its own cash flow modeling in accordance with SFAS No. 157, as described in Note 22, “Estimated Fair Value of Financial Instruments.”

The unrealized losses in the Company’s investment in other securities consist of unrealized losses on corporate bonds and equity securities and relate to temporary movements in the financial markets.

Management does not believe any individual unrealized loss as of December 31, 2008 represents an other-than-temporary impairment. The declines in fair value on the Company’s securities are not attributable to credit quality, but rather to changes in interest rates and temporary market movements. In addition, the Company has both the intent and ability to hold the securities with unrealized losses for a period of time necessary to recover the amortized cost, or to maturity.

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Remaining Contractual Maturity of Securities

(Dollar amounts in thousands)

	December 31, 2008
	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
One year or less	$	85,511	$	83,721	$	10,926	$	10,963
One year to five years		156,422		153,149		23,072		23,150
Five years to ten years		338,119		331,044		16,227		16,282
After ten years		424,160		415,285		34,081		34,197
Collateralized mortgage obligations		694,285		698,839		-		-
Other mortgage-backed securities		504,918		518,265		-		-
Equity securities		16,089		15,883		-		-
Total	$	2,219,504	$	2,216,186	$	84,306	$	84,592

Securities Gains (Losses)

(Dollar amounts in thousands)

	Years ended December 31,
	2008			2007			2006
Proceeds from sales	$	226,575		$	334,892		$	327,952
Gains (losses) on sales of securities:
Gross realized gains	$	8,906		$	4,619		$	4,774
Gross realized losses		(3	)		(5,365	)		(505	)
Net realized (losses) gains on securities sales		8,903			(746	)		4,269
Non-cash impairment charges		(44,514	)		(50,055	)		-
Net realized (losses) gains	$	(35,611	)	$	(50,801	)	$	4,269
Income tax (benefit) expense on net realized (losses) gains	$	(13,888	)	$	(19,812	)	$	1,666

In fourth quarter 2007, the Company recorded an other-than-temporary (“OTTI”) impairment of $50.1 million related to six asset-backed CDOs with a book value of $60.2 million and a fair value of $10.1 million. During 2008, the Company recorded an additional OTTI charge of the remaining $10.1 million carrying value.

Of the remaining 2008 non-cash impairment charge of $34.5 million, $24.8 million related to three trust-preferred CDOs with an aggregate cost of $38.9 million. These securities continue to meet all scheduled debt service requirements. The Company also recorded a $9.7 million non-cash impairment charge related to two whole loan mortgage-backed securities with a combined par value of $16.6 million and a single Sallie Mae debt issuance with a par value of $10.0 million. The two whole loan mortgage-backed securities are included with collateralized mortgage obligations and the Sallie Mae debt issuance is included in other securities.

For additional details of the securities available-for-sale portfolio and the related impact of unrealized gains (losses) thereon, see Note 14, “Comprehensive Income.”

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4.    LOANS

Loan Portfolio

(Dollar amounts in thousands)

	December 31,
	2008		2007
Commercial and industrial	$	1,490,101	$	1,347,481
Agricultural		142,635		181,358
Real estate - office, retail, and industrial		1,127,689		942,065
Real estate - residential land and development		509,059		505,194
Real estate - multi-family		237,646		178,602
Real estate - other commercial real estate		1,106,952		1,024,490
Consumer		547,784		563,741
Real estate - 1-4 family		198,197		220,741
Total loans	$	5,360,063	$	4,963,672

Total loans reported are net of deferred loan fees of $8.5 million at December 31, 2008 and $8.8 million at December 31, 2007 and include overdrawn demand deposits totaling $7.7 million at December 31, 2008 and $11.0 million at December 31, 2007.

The Company primarily lends to small to mid-sized businesses, commercial real estate customers, and consumers in the market areas in which the Company operates. Within these areas, the Company diversifies its loan portfolio by loan type, industry, and borrower. The Company believes that such diversification reduces its exposure to economic downturns that may occur in different segments of the economy or in different industries.

It is the Company’s policy 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. In the event of borrower default, the Company seeks recovery in compliance with state lending laws and the Company’s lending standards and credit monitoring procedures.

Book Value of Loans Pledged

(Dollar amounts in thousands)

	December 31,
	2008		2007
Loans pledged to secure:
Deposits	$	5,910	$	55,016
Federal Home Loan Bank advances		619,183		701,177
Federal term auction facilities		1,155,626		-
Total	$	1,780,719	$	756,193

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5.    RESERVE FOR LOAN LOSSES AND IMPAIRED LOANS

Reserve For Loan Losses

(Dollar amounts in thousands)

	Years Ended December 31,
	2008			2007			2006
Balance at beginning of year	$	61,800		$	62,370		$	56,393
Loans charged-off		(40,337	)		(10,066	)		(12,303	)
Recoveries of loans previously charged-off		2,152			2,263			2,116
Net loans charged-off		(38,185	)		(7,803	)		(10,187	)
Provision for loan losses		70,254			7,233			10,229
Reserve of acquired bank		-			-			5,935
Balance at end of year	$	93,869		$	61,800		$	62,370

A portion of the Company’s reserve for loan losses is allocated to loans deemed impaired.

Impaired, Non-accrual, and Past Due Loans

(Dollar amounts in thousands)

	December 31,
	2008		2007
Impaired loans:
Impaired loans with valuation reserve required (1)	$	58,439	$	3,470
Impaired loans with no valuation reserve required		72,397		18,989
Total impaired loans	$	130,836	$	22,459
Non-accrual loans:
Impaired loans on non-accrual	$	123,492	$	15,068
Other non-accrual loans (2)		4,276		3,379
Total non-accrual loans	$	127,768	$	18,447
Restructured loans	$	7,344	$	7,391
Loans past due 90 days and still accruing interest	$	36,999	$	21,149

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

⁽²⁾ These loans are not considered for impairment since they are part of a small balance, homogeneous portfolio.

Impaired Loans

(Dollar amounts in thousands)

	Years Ended December 31,
	2008		2007		2006
Valuation reserve related to impaired loans	$	10,177	$	1,757	$	3,594
Average impaired loans	$	46,749	$	14,184	$	12,842
Interest income recognized on impaired loans (1)	$	97	$	313	$	120

⁽¹⁾ Interest income recognized on impaired loans is recorded using the cash basis of accounting.

As of December 31, 2008, the Company had $20.7 million of additional funds committed to be advanced in connection with impaired loans. In January 2009, a number of these commitments were closed, reducing this amount to $10.8 million.

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6.    PREMISES, FURNITURE, AND EQUIPMENT

Premises, Furniture, and Equipment

(Dollar amounts in thousands)

	December 31,
	2008			2007
Land	$	42,818		$	42,749
Premises		131,630			129,397
Furniture and equipment		80,770			81,863
Total cost		255,218			254,009
Accumulated depreciation		(135,183	)		(128,181	)
Net book value	$	120,035		$	125,828

Depreciation expense on premises, furniture, and equipment totaled $11.4 million in 2008, $11.7 million in 2007, and $11.0 million in 2006.

At December 31, 2008, the Company was obligated under certain noncancelable operating leases for premises and equipment, which expire at various dates through the year 2019. 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, 2008, have initial or remaining noncancelable lease terms in excess of one year.

Operating Leases

(Dollar amounts in thousands)

	Total
Year ending December 31,
2009	$	2,832
2010		2,840
2011		2,595
2012		2,536
2013		2,552
2014 and thereafter		5,031
Total minimum lease payments	$	18,386

Rental expense charged to operations amounted to $3.3 million in 2008, $3.4 million in 2007, and $3.2 million in 2006, 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 $479,000 in 2008, $511,000 in 2007, and $473,000 in 2006.

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7.    GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the Carrying Amount of Goodwill

(Dollar amounts in thousands)

	Years Ended December 31,
	2008		2007
Balance at beginning of year	$	262,195	$	262,195
Purchase accounting adjustments		691		-
Balance at end of year	$	262,886	$	262,195

Goodwill is not amortized but is subject to impairment tests on at least an annual basis. The Company’s annual goodwill impairment test was performed as of October 1, 2008, and it was determined no impairment existed as of that date.

Purchase accounting adjustments are the adjustments to the initial goodwill recorded at the time an acquisition is completed. Such adjustments generally consist of adjustments to the assigned fair value of assets acquired and liabilities assumed resulting from the completion of appraisals or other valuations and adjustments to initial estimates recorded for transaction costs or exit liabilities.

The Company has other intangible assets capitalized on its Consolidated Statements of Financial Condition in the form of core deposit premiums. These intangible assets are being amortized over their estimated useful lives, which range from 5.0 years to 11.8 years. The Company reviews intangible assets for possible impairment whenever events or changes in circumstances indicate that carrying amounts may not be recoverable.

Other Intangible Assets

(Dollar amounts in thousands)

	December 31,
	2008			2007
Core deposit intangibles, gross	$	35,731		$	38,300
Accumulated amortization		(14,069	)		(12,260	)
Core deposit intangibles, net	$	21,662		$	26,040
Weighted-average remaining life (in years)		6.7			7.4

Amortization expense totaled $4.4 million in both 2008 and 2007 and $4.0 million in 2006.

Scheduled Amortization of Other Intangible Assets

(Dollar amounts in thousands)

	Total
Year ending December 31,
2009	$	3,913
2010		3,913
2011		3,144
2012		2,533
2013		2,386
2014 and thereafter		5,773
Total	$	21,662

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8.    DEPOSITS

Summary of Deposits

(Dollar amounts in thousands)

	December 31,
	2008		2007
Demand deposits	$	1,040,763	$	1,064,684
Savings deposits		747,079		798,361
NOW accounts		915,691		889,760
Money market deposits		754,421		829,226
Time deposits less than $100,000		1,436,692		1,424,690
Time deposits of $100,000 or more		691,108		772,140
Total deposits	$	5,585,754	$	5,778,861

Scheduled Maturities of Time Deposits

(Dollar amounts in thousands)

	Total
Year ending December 31,
2009	$	1,885,132
2010		171,307
2011		35,834
2012		18,917
2013		16,090
2014 and thereafter		520
Total	$	2,127,800

Maturities of Time Deposits of $100,000 or More

(Dollar amounts in thousands)

	Total
Maturing within 3 months	$	255,472
After 3 but within 6 months		144,800
After 6 but within 12 months		214,673
After 12 months		76,163
Total	$	691,108

9.    BORROWED FUNDS

Summary of Borrowed Funds

(Dollar amounts in thousands)

	December 31,
	2008		2007
Securities sold under agreements to repurchase	$	457,598	$	364,164
Federal funds purchased		280,000		301,000
Federal Home Loan Bank advances		310,736		599,064
Federal term auction facilities		650,000		-
Total borrowed funds	$	1,698,334	$	1,264,228

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Securities sold under agreements to repurchase, federal funds purchased, and federal term auction facilities 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 included as a liability in the Consolidated Statements of Financial Condition. Repurchase agreements are secured by U.S. Treasury and U.S. Agency securities and, if required, are held in third party pledge accounts. The securities underlying the agreements remain in the respective asset accounts. As of December 31, 2008, the Company did not have amounts at risk under repurchase agreements with any individual counterparty or group of counterparties that exceeded 10% of stockholders’ equity.

The Bank is a member of the Federal Home Loan Bank (“FHLB”) and has access to term financing from the FHLB. These advances are secured by qualifying residential and multi-family mortgages, home equity loans, and state and municipal and mortgage-related securities. At December 31, 2008, all advances from the FHLB are fixed rate with interest payable monthly.

Maturity and Rate Schedule for FHLB Advances

(Dollar amounts in thousands)

	December 31, 2008			December 31, 2007
Maturity	Advance Amount		Rate (%)	Advance Amount		Rate (%)
January 2, 2008	$	-	-	$	125,000	4.34
January 14, 2008		-	-		50,000	5.18
February 19, 2008		-	-		30,000	5.20
March 10, 2008		-	-		70,000	4.98
May 28, 2008		-	-		3,000	2.77
August 15, 2008		-	-		100,000	5.05
August 18, 2008		-	-		50,000	4.96
August 18, 2008		-	-		35,000	4.81
January 5, 2009		100,000	0.35		-	-
February 17, 2009		35,000	4.73		35,000	4.73
July 23, 2009		50,000	3.26		-	-
September 8, 2009		25,000	2.42		-	-
November 5, 2009		50,000	4.30		50,000	4.30
December 4, 2009		50,000	3.79		50,000	3.79
June 15, 2010		736	6.05		1,064	6.05
	$	310,736	2.68	$	599,064	4.69

None of the Company’s borrowings have any related compensating balance requirements that restrict the use of Company assets.

The Company had unused short-term credit lines available for use of $1.4 billion as of December 31, 2008 and $1.2 billion as of December 31, 2007. Unused lines as of December 31, 2008 consist of available federal funds lines. The availability of the federal funds lines is subject to the liquidity position of other banks. As of December 31, 2008, the Company also had $216.8 million in funding available through the Federal Reserve Bank Discount Window’s primary credit program, which includes federal term auction facilities.

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10.    SUBORDINATED DEBT

Subordinated Debt

(Dollar amounts in thousands)

	December 31,
	2008		2007
6.95% junior subordinated debentures due in 2033 (1)	$	132,490	$	130,174
5.85% subordinated debt due in 2016 (2)		99,919		99,908
Total subordinated debt	$	232,409	$	230,082

⁽¹⁾ Included in the carrying value are unaccreted discounts of $125,000 as of December 31, 2008 and $130,000 as of December 31, 2007 and a basis adjustment related to fair value hedges of $3.7 million as of December 31, 2008 and $1.4 million as of December 31, 2007. For additional discussion regarding the fair value hedges, refer to Note 11, “Derivative Instruments and Hedging Activities.”

⁽²⁾ Included in the carrying value are unaccreted discounts of $81,000 as of December 31, 2008 and $92,000 as of December 31, 2007.

In 2006, the Company issued $99.9 million of 10-year subordinated notes. The notes were issued at a discount and have a fixed coupon interest rate of 5.85%, per annum, payable semi-annually. The notes are not redeemable prior to maturity and are junior and subordinate to the Company’s senior indebtedness. For regulatory capital purposes, the notes qualify as Tier 2 Capital.

In 2003, the Company formed First Midwest Capital Trust I (“FMCT I”), a statutory business trust, organized for the sole purpose of issuing trust securities and investing the proceeds thereof in junior subordinated debentures of the Company, the sole assets of the trust. The trust preferred securities of the trust represent preferred beneficial interests in the assets of the trust and are subject to mandatory redemption, in whole or in part, upon payment of the junior subordinated debentures held by the trust. The common securities of the trust are wholly owned by the Company. The trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon the Company making payment on the related junior subordinated debentures. The Company’s obligations under the junior subordinated debentures and other relevant trust agreements, in aggregate, constitute a full and unconditional guarantee by the Company of the trust’s obligations under the trust securities issued by the trust. The guarantee covers the distributions and payments on liquidation or redemption of the trust preferred securities, but only to the extent of funds held by the trust.

In accordance with FASB Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46R”), FMCT I qualifies as a variable interest entity for which the Company is not the primary beneficiary and therefore ineligible for consolidation. Accordingly, the trust is not consolidated in the Company’s financial statements. The subordinated debentures issued by the Company to the trust are included in the Company’s Consolidated Statements of Financial Condition as “subordinated debt” with the corresponding interest distributions recorded as interest expense. The common shares issued by the trust are included in other assets in the Company’s Consolidated Statements of Financial Condition.

Common Stock, Preferred Securities, and Related Debentures

(Dollar amounts and number of shares in thousands)

Issuance trust	First Midwest Capital Trust I
Issuance date	November 18, 2003
Common shares issued	3,866
Trust preferred securities issued (1)	125,000
Coupon rate (2)	6.95%
Maturity	December 1, 2033
Principal amount of debentures (3):
As of December 31, 2008	$    132,490
As of December 31, 2007	$    130,174

⁽¹⁾ The trust preferred securities accrue distributions at a rate equal to the interest rate and maturity identical to that of the related debentures. The trust preferred securities will be redeemed upon maturity of the related debentures.

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⁽²⁾ The coupon rate is fixed with distributions payable semi-annually. The Company has the right to defer payment of interest on the debentures at any time or from time to time for a period not exceeding five years provided no extension period may extend beyond the stated maturity of the debentures. During such extension period, distributions on the trust preferred securities will also be deferred, and the Company’s ability to pay dividends on its common stock will be restricted.

⁽³⁾ The Company has the right to redeem its debentures: (i) in whole or in part at any time and (ii) in whole at any time within 90 days after the occurrence of a “Tax Event,” an “Investment Company Act Event,” or a “Regulatory Capital Event,” (as defined in the indenture pursuant to which the debentures were issued), subject to regulatory approval. If the debentures are redeemed before they mature, the redemption price will be the greater of: (a) the principal amount plus any accrued but unpaid interest or (b) the sum of the present values of principal and interest payments from the redemption date to the maturity date discounted at the Adjusted Treasury Rate (as defined in the indenture), plus any accrued but unpaid interest.

11.    DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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. For a detailed discussion of the Company’s accounting policies related to derivative instruments, refer to Note 1, “Summary of Significant Accounting Policies.” The Company usually designates derivative instruments used to manage interest rate risk into 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 as part of a hedge relationship if the derivative instrument has been moved out of a hedge relationship because the hedge was deemed not effective or if operational or cost constraints make it prohibitive to apply hedge accounting.

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 Financial Condition and the risk management strategies for the current and anticipated interest rate environment.

As with any financial instrument, derivative instruments have inherent risks, primarily market and credit risk. Market risk is the adverse effect a change in interest rates, currency, equity prices, or implied volatility has on the value of a financial instrument. Market risk associated with changes in interest rates is managed by establishing and monitoring limits as to the degree of risk that may be undertaken 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 Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of this Form 10-K.

Credit risk occurs when the 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 derivatives, applying uniform credit standards maintained for all activities with credit risk, and collateralizing gains. The Company maintains a policy limiting credit exposure to any one counterparty to not more than 2.5% of stockholders’ equity. In addition, the Company has established 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 above an agreed-upon minimum threshold. On December 31, 2008, these collateral agreements covered 100% of the fair value of the Company’s interest rate swaps outstanding. Net losses with counterparties must be collateralized, at the Company’s discretion, with either cash or U.S. Government and U.S. Government-sponsored agency securities. As of December 31, 2008, the Company pledged cash of $2.7 million to collateralize net losses with counterparties. No other collateral was required to be pledged as of December 31, 2008. No cash or other collateral was required to be pledged as of December 31, 2007.

Derivative contracts are valued using observable market prices, if available, or cash flow projection models acquired from third parties. Pricing models used for valuing derivative instruments are regularly validated by

97

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, 2008 and 2007.

Fair Value Hedges - During 2008 and 2007, the Company hedged the fair value of fixed rate commercial real estate loans through the use of pay fixed, receive variable interest rate swaps. The Company also hedged the fair value of fixed rate, junior subordinated debentures through the use of pay variable, receive fixed interest rate swaps. The Company recognized ineffectiveness on its fair value hedges of $3,000 in 2008 and $12,000 in 2007, which is included in other noninterest income in the Consolidated Statements of Income. No gains or losses were recognized related to components of derivative instruments that were excluded from the assessment of hedge ineffectiveness during 2008 or 2007.

Other Derivative Activities - The Company had no other derivative instruments as of December 31, 2008. As of December 31, 2007, the Company’s derivative portfolio also included derivative instruments not designated in a hedge relationship. Those instruments included commitments to originate and commitments to sell real estate 1-4 family mortgage loans held for sale. The effect of the mortgage loan commitments was not material for any period presented. The Company does not enter into derivative transactions for purely speculative purposes.

Interest Rate Derivatives Portfolio

(Dollar amounts in thousands)

	December 31,
	2008			2007
Fair Value Hedges
Related to junior subordinated fixed rate debt
Notional amount outstanding	$	-		$	37,500
Weighted-average interest rate received		-			6.95%
Weighted-average interest rate paid		-			6.72%
Weighted-average maturity (in years)		-			25.94
Derivative asset fair value	$	-		$	1,661
Method used to assess hedge effectiveness		-			Dollar offset
Method used to calculate ineffectiveness		-			Change in fair value	(2)
Related to fixed rate commercial loans
Notional amount outstanding	$	19,982		$	10,468
Weighted-average interest rate received		3.16%			6.72%
Weighted-average interest rate paid		6.39%			6.83%
Weighted-average maturity (in years)		8.76			8.69
Derivative liability fair value	$	(2,628	)	$	(401	)
Method used to assess hedge effectiveness		Dollar offset or Shortcut	(1)		Shortcut
Method used to calculate ineffectiveness		Change in fair value	(2)		N/A

⁽¹⁾ The Company uses the shortcut method for one of its derivatives and uses the dollar-offset method for all other derivatives.

⁽²⁾ The Company calculated ineffectiveness based on the change in fair value of the hedged item compared with the change in fair value of the hedging instrument.

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12.    MATERIAL TRANSACTION AFFECTING STOCKHOLDERS’ EQUITY

In response to the financial crises affecting the financial markets and the banking system, on October 3, 2008, the President signed into law the Emergency Economic Stabilization Act of 2008 (“EESA”). Among other things, the EESA establishes a $700 billion Troubled Asset Relief Program (“TARP”). Under the TARP, the United States Department of the Treasury (“Treasury”) has authority, among other things, to purchase mortgages, mortgage-backed securities, capital stock, and other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets.

On October 14, 2008, the Treasury announced several initiatives under the TARP intended to help stabilize the banking industry, including a voluntary Capital Purchase Program (“CPP”) designed to encourage qualifying financial institutions to build capital. Under the CPP, the Treasury may purchase up to $250 billion of senior preferred shares from eligible financial institutions on standardized terms with attached warrants to purchase common stock.

On November 6, 2008, the Treasury notified the Company that it had received preliminary approval as of November 2, 2008 to participate in the CPP. Pursuant to the receipt of preliminary approval and execution of the related agreements, on December 5, 2008, the Company received $193.0 million from the sale of preferred shares to the Treasury as part of the CPP.

In exchange for the $193.0 million, the Company issued to the Treasury a total of 193,000 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series B, at an initial fixed dividend rate of 5% with a $1,000 per share liquidation preference and a warrant to purchase up to 1,305,230 shares of the Company’s common stock at an exercise price of $22.18 per share. Both the preferred shares and the warrants are accounted for as components of the Company’s regulatory Tier 1 capital.

The net proceeds were temporarily invested in government sponsored mortgage-backed securities pending future deployment.

Responsive to the environment at the time, on December 10, 2008, the Company’s Board of Directors announced a reduction in its quarterly common stock dividend from $0.310 per share to $0.225 per share. Since the Company elected to participate in the CPP, its ability to increase quarterly common stock dividends above $0.310 per share will be subject to the applicable restrictions of this program for three years following the sale of the preferred stock.

13.    EARNINGS PER COMMON SHARE

Basic and Diluted Earnings Per Common Share

(Amounts in thousands, except per share data)

	Years Ended December 31,
	2008			2007		2006
Net income	$	49,336		$	80,159	$	117,246
Preferred dividends		(670	)		-		-
Accretion on preferred stock		(42	)		-		-
Net income applicable to common shares	$	48,624		$	80,159	$	117,246
Weighted-average common shares outstanding:
Weighted-average common shares outstanding (basic)		48,462			49,295		49,102
Dilutive effect of stock options		53			291		361
Dilutive effect of non-vested restricted stock awards		50			36		6
Weighted-average diluted common shares outstanding		48,565			49,622		49,469
Basic earnings per common share	$	1.00		$	1.63	$	2.39
Diluted earnings per common share	$	1.00		$	1.62	$	2.37

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Stock options and common stock warrants for which the exercise price is greater than the average market price of the Company’s common stock and restricted stock awards for which the number of potential buyback shares is greater than the number of weighted-average shares outstanding are antidilutive and, therefore, not included in the computation of diluted earnings per share. Antidilutive shares excluded from diluted earnings per share totaled 2,631,284 shares for 2008, 823,772 shares for 2007, and 469,721 shares for 2006.

14.    COMPREHENSIVE INCOME

Comprehensive income is the total of reported net income and all other revenues, expenses, gains, and losses that bypass reported net income under U.S. GAAP. The Company includes the following items, net of tax, in other comprehensive income in the Consolidated Statements of Changes in Stockholders’ Equity: changes in unrealized gains or losses on securities available-for-sale, changes in the fair value of derivatives designated under cash flow hedges, and changes in the funded status of the Company’s pension plan.

Components of Other Comprehensive Income

(Dollar amounts in thousands)

	Years Ended December 31,
	2008									2007									2006
	Before Tax			Tax Effect			Net of Tax			Before Tax			Tax Effect			Net of Tax			Before Tax			Tax Effect			Net of Tax
Securities available-for-sale:
Unrealized holding (losses) gains	$	(31,316)		$	(12,210)		$	(19,106)		$	(47,370)		$	(18,469)		$	(28,901)		$	6,390		$	2,489		$	3,901
Less: Reclassification of net (losses) gains included in net income		(35,611	)		(13,888	)		(21,723	)		(50,801	)		(19,812	)		(30,989	)		4,269			1,666			2,603
Net unrealized holding gains (losses)		4,295			1,678			2,617			3,431			1,343			2,088			2,121			823			1,298
Derivatives used in cash flow hedging relationships:
Unrealized holding (losses)		-			-			-			-			-			-			(67	)		(27	)		(40	)
Less: Reclassification of net (losses) included in net income		-			-			-			-			-			-			(481	)		(188	)		(293	)
Net unrealized holding gains		-			-			-			-			-			-			414			161			253
Funded status of pension plan:
Unrealized holding (losses) gains		(14,658	)		(5,726	)		(8,932	)		2,408			935			1,473			-			-			-
Total other comprehensive (loss) income	$	(10,363	)	$	(4,048	)	$	(6,315	)	$	5,839		$	2,278		$	3,561		$	2,535		$	984		$	1,551

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Activity in Accumulated Other Comprehensive (Loss) Income

(Dollar amounts in thousands)

	Years Ended December 31,
	Accumulated Unrealized (Losses) Gains  on Securities Available-for- Sale			Accumulated Unrealized (Losses) Gains on Hedging Activities			Accumulated Unrealized (Losses) Gains on Under-funded Pension Obligation			Total Accumulated Other Comprehensive (Loss) Income
Balance at January 1, 2006	$	(8,031	)	$	(253	)	$	-		$	(8,284	)
2006 other comprehensive income		1,298			253			-			1,551
Adjustment to initially apply SFAS No. 158		-			-			(8,555	)		(8,555	)
Balance at December 31, 2006		(6,733	)		-			(8,555	)		(15,288	)
2007 other comprehensive income		2,088			-			1,473			3,561
Balance at December 31, 2007		(4,645	)		-			(7,082	)		(11,727	)
2008 other comprehensive income (loss)		2,617			-			(8,932	)		(6,315	)
Balance at December 31, 2008	$	(2,028	)	$	-		$	(16,014	)	$	(18,042	)

15. INCOME TAXES

Components of Income Taxes

(Dollar amounts in thousands)

	Years Ended December 31,
	2008			2007			2006
Current tax expense (benefit):
Federal	$	3,429		$	33,771		$	29,774
State		(3,472	)		8,303			(172	)
Total		(43	)		42,074			29,602
Deferred tax (benefit) expense:
Federal		(5,778	)		(17,792	)		4,946
State		(7,470	)		(10,429	)		504
Total		(13,248	)		(28,221	)		5,450
Total income tax (benefit) expense	$	(13,291	)	$	13,853		$	35,052

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.

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Deferred Tax Assets and Liabilities

(Dollar amounts in thousands)

	December 31,
	2008			2007
Deferred tax assets:
Reserve for loan losses	$	32,854		$	21,630
Unrealized losses		21,639			19,851
Equity compensation expense		3,296			2,479
Accrued retirement benefits		-			2,844
State tax benefits		14,033			7,434
Other		4,973			4,308
Total deferred tax assets		76,795			58,546
Deferred tax liabilities:
Purchase accounting adjustments and intangibles		(8,757	)		(8,161	)
Dividends receivable		(3,294	)		(4,480	)
Deferred loan fees		(3,696	)		(3,992	)
Bond discount accretion		(3,745	)		(3,249	)
Accrued retirement benefits		(3,953	)		-
Depreciation		(2,263	)		(2,744	)
Other		(3,268	)		(3,093	)
Total deferred tax liabilities		(28,976	)		(25,719	)
Deferred tax valuation allowance		(1,744	)		-
Net deferred tax assets		46,075			32,827
Tax effect of adjustments related to other comprehensive income		11,528			7,479
Net deferred tax assets including adjustments	$	57,603		$	40,306

Net deferred tax assets are included in other assets in the accompanying Consolidated Statements of Financial Condition.

At December 31, 2008, the Company had Illinois gross net operating loss carryforwards of $185.1 million, which are available to offset future taxable income. These net operating losses will begin to expire in 2015. The Company also had Indiana gross net operating loss carryforwards of $24.8 million, which will begin to expire in 2021.

On December 31, 2008, the Company recorded a valuation allowance of $1.7 million with respect to Indiana net operating loss carryforwards and net deferred tax assets that are not expected to be fully realized. Management believes that it is more likely than not that the other deferred tax assets included in the accompanying Consolidated Statements of Financial Condition will be fully realized.

Components of Effective Tax Rate

	Years Ended December 31,
	2008		2007		2006
Statutory federal income tax rate	35.0%		35.0%		35.0%
Tax-exempt income, net of interest expense disallowance	(39.9%	)	(14.2%	)	(9.7%	)
State income tax, net of federal income tax effect	(30.4%	)	(1.5%	)	0.1%
Other, net	(1.6%	)	(4.6%	)	(2.4%	)
Effective tax rate	(36.9%	)	14.7%		23.0%

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The decrease in effective income tax rate from 2006 to 2007 and from 2007 to 2008 was primarily attributable to an increase in federal and state tax-exempt income as a percent of total pre-tax income. In addition, the decrease in effective income tax rate from 2007 to 2008 was attributable to the recognition of tax benefits as a result of a favorable court decision and certain tax audit developments.

As of December 31, 2008, 2007, and 2006, the Company’s retained earnings included an appropriation for an acquired thrift’s tax bad debt reserves of approximately $2.5 million for which no provision for federal or state income taxes has been made. If, in the future, this portion of retained earnings were distributed as a result of the liquidation of the Company or its subsidiaries, federal and state income taxes would be imposed at the then applicable rates.

Uncertainty in Income Taxes

The Company files income tax returns in the U.S. federal jurisdiction and in Illinois, Indiana, and Iowa. The Company is no longer subject to examinations by U.S. federal, Indiana, or Iowa tax authorities for years prior to 2004 or by Illinois tax authorities for years prior to 2002.

Certain tax audits issued by the State of Illinois (the “State”) in 2007 remain pending. The Company believes that it is reasonably possible that the audits could be favorably resolved in the next 12 months, which would result in a decrease in unrecognized tax benefits in the range of $0 to $4.0 million.

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, Accounting for Income Taxes (“FIN 48”) on January 1, 2007. As a result of the implementation of FIN 48, the Company was not required to recognize any additional liability for unrecognized tax benefits. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

Rollforward of Unrecognized Tax Benefits

(Dollar amounts in thousands)

	Years Ended December 31,
	2008			2007			2006
Balance at beginning of year	$	9,888		$	7,734		$	5,318
Additions for tax positions relating to the current year		1,187			2,253			2,456
Reductions for tax positions relating to prior years		(5,324	)		-			-
Lapse in statute of limitations		-			(99	)		(40	)
Balance at end of year	$	5,751		$	9,888		$	7,734

Included in the balance at December 31, 2008 are $3.9 million of tax positions that would favorably affect the Company’s effective tax rate if recognized in future periods. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense in the Consolidated Statements of Income. The Company recognized interest, net of tax effect, and penalties of ($303,000) in 2008, $497,000 in 2007, and $229,000 in 2006. The Company had accrued interest and penalties, net of tax effect, of $585,000 as of December 31, 2008 and $888,000 as of December 31, 2007. These amounts are not included in the unrecognized tax benefits rollforward presented above.

16.    EMPLOYEE BENEFIT PLANS

Savings and Profit Sharing Plan - The Company has a defined contribution retirement savings plan (the “Plan”), which allows qualified employees, at their option, to make contributions up to 45% of pre-tax base salary (15% for certain highly compensated employees) through salary deductions under Section 401(k) of the Internal Revenue Code. At the employees’ direction, employee contributions are invested among a variety of investment alternatives. For employees who make voluntary contributions to the Plan, the Company contributes

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an amount equal to 2% of the employee’s compensation. The Plan also permits the Company to distribute a discretionary profit-sharing component up to 15% of the employee’s compensation. The Company’s matching contribution vests immediately, while the discretionary component gradually vests over a period of six years based on the employee’s years of service. The cost of providing this plan was $2.8 million in 2008, $4.8 million in 2007, and $4.6 million in 2006. The number of shares of the Company common stock held by the Plan was 1,721,707 at December 31, 2008 and 1,654,199 at December 31, 2007. The fair value of Company shares held by the Plan was $34.4 million at December 31, 2008 and $50.6 million at December 31, 2007. The Plan received dividends from the Company of $2.1 million during 2008 and $2.0 million during 2007.

Pension Plan - The Company sponsors a noncontributory defined benefit retirement plan (the “Pension Plan”) covering a majority of full-time employees that provides for retirement benefits based on years of service and compensation levels of the participants. Effective April 1, 2007, the Pension Plan was amended to eliminate new enrollment of employees. Actuarially determined pension costs are charged to current operations. The Company’s funding policy is to contribute amounts to its plan 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.

Pension Plan’s Cost and Obligations

(Dollar amounts in thousands)

	December 31,
	2008			2007
Accumulated benefit obligation	$	35,121		$	32,439
Change in benefit obligation:
Projected benefit obligation at beginning of year	$	48,530		$	48,162
Service cost		3,123			3,707
Interest cost		3,103			2,927
Actuarial losses (gains)		1,986			(1,686	)
Benefits paid		(4,483	)		(4,580	)
Projected benefit obligation at end of year	$	52,259		$	48,530
Change in plan assets:
Fair value of plan assets at beginning of year	$	44,541		$	40,557
Actual return on plan assets		(8,848	)		3,564
Benefits paid		(4,483	)		(4,580	)
Employer contributions		7,500			5,000
Fair value of plan assets at end of year	$	38,710		$	44,541
Funded Status	$	(13,549	)	$	(3,989	)
Amounts recognized in the consolidated statements of financial condition consist of:
Noncurrent pension liability	$	(13,549	)	$	(3,989	)
Amounts recognized in accumulated other comprehensive income:
Prior service cost	$	15		$	18
Net loss		26,237			11,576
Net amount recognized	$	26,252		$	11,594
Amounts expected to be amortized from other comprehensive income into net periodic benefit cost in the next fiscal year:
Prior service cost	$	3		$	3
Net loss		2,023			639
Net amount expected to be recognized	$	2,026		$	642
Weighted-average assumptions at the end of the year used to determine the actuarial present value of the projected benefit obligation:
Discount rate		6.25%			6.50%
Rate of compensation increase		4.50%			4.50%

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Net Periodic Benefit Pension Expense

(Dollar amounts in thousands)

	Years Ended December 31,
	2008			2007			2006
Components of net periodic benefit cost:
Service cost	$	3,123		$	3,707		$	5,002
Interest cost		3,103			2,927			2,781
Expected return on plan assets		(4,329	)		(3,660	)		(3,468	)
Recognized net actuarial loss		501			837			1,158
Amortization of prior service cost		4			3			4
Net periodic cost		2,402			3,814			5,477
Other changes in plan assets and benefit obligations recognized as a charge to other comprehensive income:
Net loss (gain) for the period		15,163			(1,567	)		-
Amortization of prior service cost		(4	)		(4	)		-
Amortization of net loss		(501	)		(837	)		-
Total		14,658			(2,408	)		-
Total recognized in net periodic pension cost and other comprehensive income	$	17,060		$	1,406		$	5,477
Weighted-average assumptions used to determine the net periodic cost:
Discount rate		6.50%			6.00%			5.75%
Expected return on plan assets		8.50%			8.50%			8.50%
Rate of compensation increase		4.50%			4.50%			4.50%

Pension Plan Asset Allocation

	Target Allocation 2009	Percentage of Plan Assets
		2008	2007
Asset Category:
Equity securities	50-60%	58%	56%
Fixed income	30-48%	35%	41%
Cash equivalents	2-10%	7%	3%
Total		100%	100%

Expected amortization of net actuarial losses - To the extent the cumulative actuarial losses included in accumulated other comprehensive income exceed 10% of the greater of the accumulated benefit obligation or the market-related value of the Pension Plan assets, the Company’s policy for amortizing the Pension Plan’s net actuarial losses into income is to amortize the actuarial losses over the future working life of the Pension Plan participants. Actuarial losses included in other comprehensive income as of December 31, 2008 totaled $26.3 million and represented 74.7% of the accumulated benefit obligation and 67.8% of the fair value of plan assets. The amortization of the net actuarial loss is a component of the net periodic benefit cost. Amortization of the net actuarial losses and prior service cost included in other comprehensive income is not expected to have a material impact on the Company’s future results of operations, financial position, or liquidity.

Determination of expected long-term rate of return - The expected long-term rate of return for the Pension Plan’s total assets is based on the expected return of each of the above categories, weighted based on the median of the target allocation for each class. Equity securities are expected to return 10% to 11% over the long-term, while cash and fixed income is expected to return between 4% and 6%. Based on historical experience, the Company’s Retirement Plans Committee (the “Committee”) expects that the Plan’s asset managers will provide a modest (0.5% - 1% per annum) premium to their respective market benchmark indices.

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Investment policy and strategy - The investment objective of the Plan is to maximize the return on Plan assets over a long time horizon, while meeting the Plan obligations. In establishing its investment policies and asset allocation strategies, the Company considers expected returns and the volatility associated with different strategies. The policy, as established by the Committee, is to provide for growth of capital with a moderate level of volatility by investing assets per the target allocations stated above. The Committee decided to invest in traditional publicly traded securities and not alternative asset classes such as private equity, hedge funds, and real estate. The assets are reallocated as needed by the fund manager to meet the above target allocations, and the investment policy is reviewed on a quarterly basis, under the advisement of a certified investment advisor, to determine if the policy should be changed.

Based on the actuarial assumptions, the Company tentatively expects to make a $3.0 million employer contribution to the Pension Plan in 2009. Estimated future pension benefit payments, which reflect expected future service, for fiscal years 2009 through 2018, are as follows.

Estimated Future Pension Benefit Payments

(Dollar amounts in thousands)

	Total
Year ending December 31,
2009	$	444
2010		854
2011		2,755
2012		2,880
2013		2,171
2014-2018		20,727

17.    SHARE-BASED COMPENSATION

Share-Based Plans

Omnibus Stock and Incentive Plan (the “Omnibus Plan”) - In 1989, the Board of Directors of the Company adopted the Omnibus Plan, which allows for the granting of both incentive and non-statutory (“nonqualified”) stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance units, and performance shares to certain key employees. The total number of shares of the Company’s common stock authorized for awards under the Omnibus Plan, as amended, is 6,431,641 of which 325,000 shares may be granted in restricted stock. As of December 31, 2008, 584,943 stock options and 154,810 restricted stock/unit awards remain available for grant.

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 value of the Company’s common stock on the date the options are granted. The fair value is defined as the average of the high and low stock price on the date of grant. All options have a term of ten years from the date of grant, include reload features, and are non-transferable except to family members, family trusts, or partnerships. Options vest over three years (subject to accelerated vesting in the event of 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 date of grant.

In August 2006, as an enhancement to the current compensation program, the Company’s Board of Directors approved the granting of restricted stock awards and restricted stock units to certain key officers. These awards are restricted to transfer, but are not restricted to dividend payment and voting rights. The awards vest in 50% increments on each of the first two anniversaries of the date of grant provided the officer remains employed by

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the Company during such period (subject to accelerated vesting in the event of change-in-control or upon termination of employment, as set forth in the applicable stock/unit award agreement).

In December 2008, the Company’s Board of Directors approved the granting of a performance-based restricted stock award to one of its key officers. Unlike all other restricted stock awards, this award vests assuming certain performance criteria are met and provided the officer remains employed by the Company during such period.

Nonemployee Directors Stock Option Plan (the “Directors Plan”) - In 1997, the Board of Directors of the Company adopted the Directors Plan, which provides for the granting of nonqualified stock options to nonmanagement Board members of the Company. A maximum of 481,250 shares of common stock are authorized for grant under the Directors Plan with 205,269 shares remaining available for grant as of December 31, 2008. The exercise price of the options is equal to the fair value of the common stock on the date of grant. All options have a term of ten years from the date of grant and become exercisable one year from the date of grant subject to accelerated vesting in the event of retirement, death, disability, or change-in-control, as defined in the Directors Plan.

In 2008, the Company amended the Directors Plan to allow for the granting of restricted stock awards, which were first issued under the Directors Plan in May 2008. The awards are restricted to transfer but are not restricted to dividend payment and voting rights. These awards vest one year from the date of grant subject to accelerated vesting in the event of retirement, death, disability, or change-of-control, as defined in the Directors Plan.

Options or restricted stock awards are granted annually at the first regularly scheduled Board meeting in each calendar year (generally in February). Directors elected during the service year are granted equity awards 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 stockholders of the Company.

Accounting Treatment

Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123R using the modified prospective transition method. Under this transition method, compensation cost is recognized in the financial statements beginning January 1, 2006, based on the requirements of SFAS No. 123R for all share-based payments granted after that date and based on the requirements of SFAS No. 123 for all unvested awards granted prior to 2006. Share-based compensation expense is included in “salaries and wages” in the Consolidated Statements of Income.

Effect of Recording Share-Based Compensation Expense

(Dollar amounts in thousands, except per share data)

	Years ended December 31,
	2008			2007			2006
Stock option expense	$	2,210		$	2,804		$	2,783
Restricted stock/unit award expense		2,335			1,467			802
Total share-based compensation expense		4,545			4,271			3,585
Income tax benefit		1,591			1,495			1,398
Share-based compensation expense, net of tax	$	2,954		$	2,776		$	2,187
Basic earnings per common share	$	0.06		$	0.06		$	0.04
Diluted earnings per common share	$	0.06		$	0.06		$	0.04
Cash flows provided by (used in) operating activities	$	37		$	(361	)	$	(924	)
Cash flows (used in) provided by financing activities	$	(37	)	$	361		$	924

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The preceding table includes the cash flow effects of excess tax benefits on operating and financing cash flows. SFAS No. 123R requires that cash flows resulting from the tax benefits of tax deductions in excess of recognized compensation expense be reported as financing cash flows, rather than as operating cash flows as required under prior accounting rules.

Stock Options

Nonqualified Stock Option Transactions

(Amounts in thousands, except per share data)

	Year Ended December 31, 2008
	Options		Average Exercise Price		Weighted Average Remaining Contractual Term (1)	Aggregate Intrinsic Value (2)
Outstanding at beginning of year	2,663		$	31.79
Granted	323			28.03
Exercised	(65	)		21.19
Forfeited	(36	)		36.66
Expired	(69	)		32.51
Outstanding at end of period	2,816		$	31.53	5.27	$	151
Ending vested and expected to vest	2,816		$	31.53	5.27	$	151
Exercisable at end of period	1,973		$	30.56	3.97	$	151

⁽¹⁾ Represents the average contractual life remaining in years.

⁽²⁾ Aggregate intrinsic value represents the total pretax intrinsic value (i.e., the difference between the Company’s average of the high and low stock price on the last trading day of the year and the option exercise price, multiplied by the number of shares) that would have been received by the option holders if they had exercised their options on December 31, 2008. This amount will fluctuate with changes in the fair value of the Company’s common stock.

Stock Option Valuation Assumptions - In accordance with the provisions of SFAS No. 123R, the Company estimates the fair value of stock options at the date of grant using a Black-Scholes option-pricing model that utilizes the assumptions outlined in the following table.

Stock Option Valuation Assumptions

	Years Ended December 31,
	2008		2007		2006
Expected life of the option (in years)		5.9		5.8		5.7
Expected stock volatility		18%		16%		18%
Risk-free interest rate		3.30%		4.63%		4.56%
Expected dividend yield		3.72%		3.08%		2.92%
Weighted-average fair value of options at their grant date	$	3.57	$	6.03	$	5.95

Expected life is based on historical exercise and termination behavior. Expected stock price volatility is based on historical volatility of the Company’s common stock and correlates with the expected life of the options. The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life of the option. The expected dividend yield represents the three-year historical average of the annual dividend yield as of the date of grant. Management reviews and adjusts the assumptions used to calculate the fair value of an option on a periodic basis to better reflect expected trends.

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Other Stock Option Information

(Dollar amounts in thousands)

	Years Ended December 31,
	2008		2007		2006
Share-based compensation expense	$	2,210	$	2,804	$	2,783
Unrecognized compensation expense	$	1,281	$	2,714	$	2,847
Weighted-average amortization period remaining (in years)		0.8		0.9		1.0
Total intrinsic value of stock options exercised	$	442	$	2,219	$	3,991
Cash received from stock options exercised	$	1,088	$	4,139	$	4,619
Income tax benefit realized from stock options exercised	$	558	$	1,330	$	2,036

In 2008, the Company recognized $105,000 in additional compensation costs as a result of accelerated vesting on 101,149 options held by one grantee. No stock option award modifications were made during 2006, 2007, or 2008.

The Company issues treasury shares to satisfy stock option exercises and restricted stock award releases.

Restricted Stock and Restricted Stock Unit Awards

Restricted Stock/Unit Award Transactions

(Amounts in thousands, except per share data)

	Years Ended December 31,
	2008				2007
Restricted Stock Awards	Number of Shares/Units		Weighted Average Grant Date Fair Value		Number of Shares/Units		Weighted Average Grant Date Fair Value
Nonvested restricted stock awards at beginning of year	39		$	36.42	24		$	36.48
Granted	134			25.41	30			36.40
Vested	(25	)		36.44	(13	)		36.47
Forfeited	(6	)		28.10	(2	)		36.48
Nonvested restricted stock awards at end of year	142		$	26.39	39		$	36.42
Restricted Stock Units
Nonvested restricted stock units at beginning of year	25		$	36.42	14		$	36.48
Granted	35			27.16	18			36.40
Vested	(60	)		24.93	(7	)		36.48
Nonvested restricted stock units at end of year	-		$	-	25		$	36.42

The fair value of restricted stock/unit awards is determined based on the average of the high and low stock price on the date of grant and is recognized as compensation expense over the vesting period.

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Other Restricted Stock Unit/Award Information

(Dollar amounts in thousands)

	Years Ended December 31,
	2008		2007		2006
Share-based compensation expense	$	2,335	$	1,467	$	802
Unrecognized compensation expense	$	2,397	$	684	$	627
Weighted-average amortization period remaining (in years)		1.7		0.8		1.1
Total fair value of vested restricted stock unit/awards, at end of period	$	4,277	$	664	$	-
Cash paid to settle restricted stock unit/awards	$	1,268	$	238	$	-
Income tax benefit realized from vesting/release of restricted stock/unit awards	$	739	$	232	$	-

The restricted stock unit agreements issued under the Omnibus Plan contain a provision under which the restrictions lapse upon the retirement of the grantee, defined as termination of service upon the attainment of age 60 or later. As a result of this provision, if a grantee is 60 years of age or older on the date of grant, all compensation costs are expensed on the date of grant.

In addition, in accordance with the accelerated vesting provision of the Omnibus Plan, upon the termination of service due to death, any unvested award would immediately vest. Accordingly, as of December 31, 2008, there were no remaining restricted stock units and no unrecognized compensation expense, as the remaining 43,705 units were immediately vested and subsequently settled upon termination of service due to the death of the grantee. In 2008, the Company recognized $683,000 in additional compensation costs as a result of accelerated vesting on those restricted stock units. No restricted stock units award modifications were made during 2006, 2007, or 2008.

18.    STOCKHOLDER RIGHTS PLAN

On February 15, 1989, the Board of Directors of the Company adopted a Stockholder Rights Plan. Pursuant to that Plan, the Company declared a dividend, paid March 1, 1989, of one right (“Right”) for each outstanding share of the Company common stock 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 on June 18, 1997 to exclude an acquisition. The Rights Agreement was further amended on December 9, 2008 to clarify certain items. As amended, each right entitles the registered holder to purchase from the Company 1/100 of a share of Series A Preferred Stock for a price of $150, 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 the Company’s outstanding shares of common stock. The Company is entitled to redeem each Right for $0.01, 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 the Company common stock or the expiration date of the Rights. The rights agreement was amended on November 14, 2005 to extend the expiration date to November 15, 2015.

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

19.    REGULATORY AND CAPITAL MATTERS

The Company and its subsidiaries are subject to various regulatory requirements that impose restrictions on cash, loans or advances, and dividends. The Bank is required to maintain reserves against deposits. Reserves are held either in the form of vault cash or non-interest-bearing balances maintained with the Federal Reserve Bank and are based on the average daily balances and statutory reserve ratios prescribed by the type of deposit account. Reserve balances totaling $46.1 million at December 31, 2008 and $58.2 million at December 31, 2007 were maintained in fulfillment of these requirements.

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Under current Federal Reserve regulations, the Bank is limited in the amount it may loan or advance to the Parent Company and its nonbank subsidiaries. Loans or advances to a single subsidiary may not exceed 10% and loans to all subsidiaries may not exceed 20% of the bank’s capital stock and surplus, as defined. Loans from subsidiary banks to nonbank subsidiaries, including the Parent Company, are also required to be collateralized.

The principal source of cash flow for the Company is dividends from the Bank. Various federal and state banking regulations and capital guidelines limit the amount of dividends that may be paid to the Company by the Bank. Future payment of dividends by the subsidiaries is dependent upon individual regulatory capital requirements and levels of profitability. Without prior regulatory approval, the Bank can initiate aggregate dividend payments in 2009 of $36.2 million plus an additional amount equal to its net profits for 2009, as defined by statute, up to the date of any such dividend declaration. Future payment of dividends by the Bank is dependent upon individual regulatory capital requirements and levels of profitability. Since the Company is a legal entity, separate and distinct from its subsidiaries, the dividends of the Company are not subject to such bank regulatory guidelines.

The Company and the Bank are also subject to various capital requirements set up and administered by the federal banking agencies. Under capital adequacy guidelines, the Company 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 regarding components of capital and assets, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company 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 adjusted average assets (as defined). Failure to meet minimum capital requirements could 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, 2008, the Company and the Bank meet all capital adequacy requirements to which they are subject.

The Federal Reserve Board (“FRB”), the primary regulator of the Company and the Bank, establishes minimum capital requirements that must be met by member institutions. As of December 31, 2008, the most recent regulatory notification classified the Bank as “well capitalized” under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes would change the Bank’s classification.

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The following table presents the Company’s and the Bank’s measures of capital as of the dates presented and the capital guidelines established by the FRB to be categorized as adequately capitalized and as “well capitalized.”

Summary of Capital Ratios

(Dollar amounts in thousands)

	First Midwest Actual				Adequately Capitalized				“Well Capitalized” for FDICIA
	Capital		Ratio		Capital		Ratio		Capital		Ratio
As of December 31, 2008:
Total capital (to risk-weighted assets):
First Midwest Bancorp, Inc	$	949,433	14.36	%	$	528,749	8.00	%	$	660,936	10.00	%
First Midwest Bank		746,265	11.34			526,308	8.00			657,885	10.00
Tier 1 capital (to risk-weighted assets):
First Midwest Bancorp, Inc		766,758	11.60			264,374	4.00			396,562	6.00
First Midwest Bank		663,886	10.09			263,154	4.00			394,731	6.00
Tier 1 leverage (to average assets):
First Midwest Bancorp, Inc		766,758	9.41			244,400	3.00			407,333	5.00
First Midwest Bank		663,886	8.19			243,302	3.00			405,503	5.00
As of December 31, 2007:
Total capital (to risk-weighted assets):
First Midwest Bancorp, Inc	$	734,261	11.58	%	$	507,249	8.00	%	$	634,061	10.00	%
First Midwest Bank		656,376	10.43			503,692	8.00			629,615	10.00
Tier 1 capital (to risk-weighted assets):
First Midwest Bancorp, Inc		572,553	9.03			253,625	4.00			380,437	6.00
First Midwest Bank		594,576	9.44			251,846	4.00			377,769	6.00
Tier 1 leverage (to average assets):
First Midwest Bancorp, Inc		572,553	7.46			230,133	3.00			383,555	5.00
First Midwest Bank		594,576	7.79			228,857	3.00			381,428	5.00

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20.    COMMITMENTS, GUARANTEES, AND CONTINGENT LIABILITIES

Credit Extension Commitments and Guarantees

In the normal course of business, the Company enters into a variety of financial instruments with off-balance sheet risk to meet the financing needs of its customers, to reduce its exposure to fluctuations in interest rates, and to conduct lending activities. These instruments principally include commitments to extend credit, standby letters of credit, and commercial letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Statements of Financial Condition.

Contractual or Notional Amounts of Financial Instruments

(Dollar amounts in thousands)

	December 31,
	2008		2007
Commitments to extend credit:
Home equity lines	$	293,221	$	266,582
Credit card lines		12,417		11,486
1-4 family real estate construction		87,050		211,967
Commerical real estate		286,368		213,844
All other commitments		844,226		698,315
Letters of credit:
Standby:
Home equity lines		150		95
1-4 family real estate construction		21,301		24,436
Commerical real estate		35,536		35,944
All other		85,535		67,806
Commercial		490		427
Recourse on assets securitized		9,344		13,252

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 variable interest rates tied to prime rate 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 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 issued through a correspondent bank on behalf of a customer who is involved in an international business activity such as the importing of goods.

In the event of a customer’s nonperformance, the Company’s credit loss exposure is equal to the contractual amount of those commitments. The credit risk is essentially the same as that involved in extending loans to customers and is subject to normal credit policies. The Company 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.

The maximum potential future payments guaranteed by the Company under standby letters of credit arrangements are equal to the contractual amount of the commitment. The unamortized fees associated with the

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Company’s standby letters of credit, which is included in other liabilities in the Consolidated Statements of Financial Condition, totaled $700,000 as of December 31, 2008 and $669,000 as of December 31, 2007. The Company will amortize these amounts into income over the commitment period. As of December 31, 2008, standby letters of credit had a remaining weighted-average term of approximately 12.5 months, with remaining actual lives ranging from less than 1 year to 6.5 years. If a commitment is funded, the Company may seek recourse through the liquidation of the underlying collateral provided including real estate, physical plant and property, marketable securities, or cash.

Pursuant to the securitization of certain 1-4 family mortgage loans in fourth quarter 2004, the Company is obligated by agreement to repurchase at recorded value any non-performing loans, defined as loans past due greater than 90 days. During 2008, the Company repurchased $992,000 of non-performing loans and charged-off $41,000 related to these loans. The aggregate outstanding balance of securitized loans subject to this recourse obligation was $9.3 million as of December 31, 2008 and $13.3 million as of December 31, 2007. Per its agreement, the Company’s recourse obligations will end on November 30, 2011. The carrying value of the Company’s recourse liability, which is included in other liabilities in the Consolidated Statements of Financial Condition, totaled approximately $150,000 as of December 31, 2008 and December 31, 2007.

Legal Proceedings

As of December 31, 2008, there were certain legal proceedings pending against the Company and its subsidiaries in the ordinary course of business. The Company does not believe that liabilities, individually or in the aggregate, arising from these proceedings, if any, would have a material adverse effect on the consolidated financial condition of the Company as of December 31, 2008.

21.    VARIABLE INTEREST ENTITIES

A variable interest entity (“VIE”) is a partnership, limited liability company, trust, or other legal entity that does not have sufficient equity to permit it to finance its activities without additional subordinated financial support from other parties, or whose investors lack one of three characteristics associated with owning a controlling financial interest. Those characteristics are: (i) the direct or indirect ability to make decisions about an entity’s activities through voting rights or similar rights; (ii) the obligation to absorb the expected losses of an entity if they occur; and (iii) the right to receive the expected residual returns of the entity, if they occur.

FIN 46R addresses the consolidation of VIEs. Under FIN 46R, VIEs are consolidated by the party who is exposed to a majority of the VIE’s expected losses and/or residual returns (i.e., the primary beneficiary). The following summarizes the VIEs in which the Company has a significant interest and discusses the accounting treatment applied pursuant to FIN 46R.

The Company owns 100% of the common stock of a business trust that was formed in November 2003 to issue trust preferred securities to third party investors. The trust’s only assets as of December 31, 2008 were the $128.7 million principal balance of the debentures issued by the Company and the related interest receivable of $746,000 that were acquired by the trust using proceeds from the issuance of preferred securities and common stock. The trust meets the definition of a VIE, but the Company is not the primary beneficiary of the trust. Accordingly, the trust is not consolidated in the Company’s financial statements. The subordinated debentures issued by the Company to the trust are included in the Company’s Consolidated Statements of Financial Condition as “Subordinated debt.”

The Company holds interests in three trust preferred capital security issuances. Although these investments may meet the definition of a VIE, the Company is not the primary beneficiary. The Company accounts for its interest in these investments as available-for-sale securities. The Company’s maximum exposure to loss is limited to its investment in these VIEs, which at December 31, 2008 had a total book value of $305,000 and fair value of $172,000.

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The Company has a significant limited partner interest in 12 low-income housing tax credit partnerships and limited liability corporations, which were acquired at various times from 1997 to 2004. These entities meet the definition of a VIE. Since the Company is not the primary beneficiary of the entities, it will continue to account for its interest in these partnerships using the cost method. Exposure to loss as a result of its involvement with these entities is limited to the approximately $5.2 million book basis of the Company’s investment, less $609,000 that the Company is obligated to pay but has not yet funded.

22.    ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company measures, monitors, and discloses certain of its assets and liabilities on a fair value basis. Fair value is used on a recurring basis to account for trading securities, securities available-for-sale, mortgage servicing rights, derivative assets, and derivative liabilities. In addition, fair value is used on a non-recurring basis to apply lower-of-cost-or-market accounting to foreclosed real estate; evaluate assets or liabilities for impairment, including collateral-dependent impaired loans, goodwill, and other intangibles; and for disclosure purposes. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, the Company uses various valuation techniques and input assumptions when estimating fair value, all of which are in accordance with SFAS No. 157.

SFAS No. 157 requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. SFAS No. 157 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value into three broad levels based on the reliability of the input assumptions. The hierarchy gives the highest priority to level 1 measurements and the lowest priority to level 3 measurements. The three levels of the fair value hierarchy are defined as follows:

— Level 1 – Unadjusted quoted prices for identical assets or liabilities traded in active markets.

— Level 2 – Observable inputs other than level 1 prices, such as quoted prices for similar instruments; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

— Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The categorization of where an asset or liability falls within the hierarchy is based on the lowest level of input that is significant to the fair value measurement.

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Assets and Liabilities Measured at Fair Value

The following table provides the hierarchy level and fair value for each major category of assets and liabilities measured at fair value at December 31, 2008.

Fair Value Measurements

(Dollar amounts in thousands)

	December 31, 2008
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets and liabilities measured at fair value on a recurring basis
Assets:
Trading securities	$	12,358	$	-	$	-	$	12,358
Securities available-for-sale (1)		-		2,157,468		58,718		2,216,186
Mortgage servicing rights (2)		-		-		1,461		1,461
Total assets	$	12,358	$	2,157,468	$	60,179	$	2,230,005
Liabilities:
Derivative liabilities (2)	$	-	$	2,628	$	-	$	2,628
Assets measured at fair value on a non-recurring basis
Collateral-dependent impaired loans net of reserve for loan losses (3)	$	-	$	-	$	26,642	$	26,642

⁽¹⁾ Includes other miscellaneous marketable equity securities with an aggregate carrying value totaling $2.9 million that is assumed to approximate fair value.

⁽²⁾ Mortgage servicing rights are included in other assets, and derivative liabilities are included in other liabilities in the Consolidated Statements of Financial Condition.

⁽³⁾ Represents the carrying value of loans for which adjustments are based on the appraised or market-quoted value of the collateral.

Valuation Methodology

The following describes the valuation methodologies used by the Company for assets and liabilities measured at fair value, including the general classification of the assets and liabilities pursuant to the valuation hierarchy.

Trading Securities - Trading securities represent diversified investment securities held in a grantor trust under deferred compensation arrangements in which plan participants may direct amounts earned to be invested in securities other than Company common stock. Trading securities are reported at fair value, with unrealized gains and losses included in noninterest income. The fair value of trading securities is based on quoted market prices in active exchange markets and, therefore, is classified in level 1 of the valuation hierarchy.

Securities Available-for-Sale - Substantially all available-for-sale securities are fixed income instruments that are not quoted on an exchange, but may be traded in active markets. The fair value of these securities is based on quoted market prices obtained from external pricing services or dealer market participants where trading in an active market exists. In obtaining such data from external pricing services, the Company has evaluated the methodologies used to develop the fair values in order to determine whether such valuations are representative of an exit price in the Company’s principal markets. The Company’s principal markets for its securities portfolio are the secondary institutional markets, with an exit price that is predominantly reflective of bid level pricing in those markets. Examples of such securities measured at fair value are U.S. Treasury and Agency securities,

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municipal bonds, collateralized mortgage obligations, and other mortgage-backed securities. These securities are generally classified in level 2 of the valuation hierarchy. In certain cases where there is limited activity or less transparency for inputs to the valuation, securities are classified in level 3 of the valuation hierarchy. For instance, in the valuation of certain collateralized mortgage and debt obligations and high-yield debt securities, the determination of fair value may require benchmarking to similar instruments or analyzing default and recovery rates.

Due to the illiquidity in the secondary market for the Company’s trust-preferred CDOs, especially since the disruption in the credit markets, the Company determined that dealer quotes did not reflect the best estimate of fair value. Therefore the Company, with the assistance of a structured credit valuation firm, developed a valuation model to estimate the value of these securities using discounted cash flows and has classified these investments in level 3 of the valuation hierarchy.

The model has been validated through back testing. It relies on independently verifiable historical balance sheet data, empirical default data, equity volatility, and current market values to estimate the likelihood any entity comprising the collateral underlying the individual CDO will default on its trust-preferred obligation. Using simulation techniques, cash flows are then projected for each entity’s obligation under the CDO and used to estimate the ultimate cash flow to the Company. These cash flows are then modeled and assigned based upon the contractual terms of the CDO, discounted to their present values, and used to derive the estimated fair value of the individual CDO.

The model is dependent upon the following key assumptions based on the Company’s judgment regarding how a market participant would assess these:

— Estimated default rate – Based upon historical data obtained from the Federal Deposit Insurance Corporation (“FDIC”) and outside sources, a target default level was developed as of the measurement date;

— Deferral of cash flows – A deferral of cash flow by any entity within the collateral pool is assumed to be a default;

— Equity volatility – Equity volatility is used to measure market risk over the life of the underlying entity’s obligation based on a 6-year historical equity volatility period.

— Discount rate – The discount rate used for valuing cash flows was derived by the Company by first establishing the implied discount rate at a time when a relatively active market existed for such securities and adjusting it for an estimate of the additional risk premium currently demanded by market participants. At December 31, 2008, the Company used a discount rate based on a 3-month Treasury rate plus 1,000 basis points.

These assumptions have a direct and significant impact on the resulting fair values. For instance, for every 100 basis points change in the discount rate, the total fair value for the seven CDOs changes by approximately $4.0 million

Certain securities available-for-sale are carried at cost, including other miscellaneous marketable equity securities. The carrying value of these cost investments approximates fair value.

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Carrying Value of Level 3 Securities Available-for-Sale

(Dollar amounts in thousands)

	Year Ended December 31, 2008
Balance at beginning of year	$	110,496
Total losses:
Included in earnings (1)		(33,337	)
Included in other comprehensive loss		(4,234	)
Purchases, sales, issuances, and settlements		(3,557	)
Transfers out of Level 3 (2)		(10,650	)
Balance at end of year	$	58,718
Change in unrealized losses in earnings relating to securities still held at the end of period	$	34,844

⁽¹⁾ Included in securities (losses) gains, net in the Consolidated Statements of Income.

⁽²⁾ The transfer out of level 3 represents a single security that was manually priced using broker quotes (a level 3 input) at December 31, 2007, but valued by an external pricing service (a level 2 input) at December 31, 2008.

In the table above, the net losses recognized in earnings for securities available-for-sale represent non-cash impairment charges recognized during 2008 on certain CDOs that were deemed to be other-than-temporarily impaired, net of the gain realized on the sale of an asset-backed CDO previously written down.

Collateral-Dependent Impaired Loans - The carrying value of impaired loans is disclosed in Note 5, “Reserve for Loan Losses and Impaired Loans.” The Company does not record loans at fair value on a recurring basis. However, from time to time, fair value adjustments are recorded on these loans to reflect (1) partial write-downs that are based on the current appraised or market-quoted value of the underlying collateral or (2) the full charge-off of the loan carrying value. In some cases, the properties for which market quotes or appraised values have been obtained are located in areas where comparable sales data is limited, outdated, or unavailable. Accordingly, fair value estimates, including those obtained from real estate brokers or other third-party consultants, for collateral-dependent impaired loans are classified in level 3 of the valuation hierarchy.

In accordance with the provisions of SFAS No. 114, collateral-dependent impaired loans with a carrying value of $46.9 million, less transfers to foreclosed real estate of $6.5 million, were written down to their fair value of $26.6 million, resulting in a provision for loan losses of $13.8 million, which was included in earnings during 2008.

Mortgage Servicing Rights - The Company records its mortgage servicing rights at fair value in accordance with SFAS No. 156, Accounting for Servicing of Financial Assets, an amendment of SFAS No. 140. Mortgage servicing rights do not trade in an active market with readily observable prices. Accordingly, the Company determines the fair value of mortgage servicing rights by estimating the present value of the future cash flows associated with the mortgage loans being serviced. Mortgage servicing rights are included in other assets in the Consolidated Statements of Financial Condition. Key economic assumptions used in measuring the fair value of mortgage servicing rights at December 31, 2008 included a weighted-average prepayment speed of 14.2% and a weighted-average discount rate of 11.5%. While market-based data is used to determine the input assumptions, the Company incorporates its own estimates of assumptions market participants would use in determining the fair value of mortgage servicing rights and classifies them in level 3 of the valuation hierarchy.

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Carrying Value of Mortgage Servicing Rights

(Dollar amounts in thousands)

	Years Ended December 31,
	2008			2007			2006
Balance at beginning of year	$	1,877		$	2,613		$	638
New servicing assets		-			-			1,424
Servicing assets of acquired bank		-			-			884
Total gains (losses) included in earnings (1) :
Due to changes in valuation inputs and assumptions (2)		(90	)		(345	)		-
Other changes in fair value (3)		(326	)		(391	)		-
Amortization		-			-			(333	)
Balance at end of year	$	1,461		$	1,877		$	2,613
Contractual servicing fees earned during the period (1)	$	388		$	475		$	387
Total amount of loans being serviced for the benefit of others at end of year (4)	$	130,684		$	161,642		$	193,882

⁽¹⁾ Included in other service charges, commissions, and fees in the Consolidated Statements of Income.

⁽²⁾ Principally reflects changes in prepayment speed assumptions.

⁽³⁾ Primarily represents changes in expected cash flows over time due to payoffs and paydowns.

⁽⁴⁾ These loans are serviced for and owned by third parties and are not included in the Consolidated Statements of Financial Condition.

Derivative Assets and Derivative Liabilities - The interest rate swaps entered into by the Company are executed in the dealer market and priced based on market quotes obtained from the counterparty that transacted the derivative contract. The market quotes were developed by the counterparty using market observable inputs, which primarily include the London Interbank Offered Rate (“LIBOR”) for swaps. As the fair value estimates for interest rate swaps are primarily based on LIBOR, which is a market observable input, derivatives are classified in level 2 of the valuation hierarchy. For its derivative assets and liabilities, the Company also considers nonperformance risk, including the likelihood of default by itself and its counterparties, when evaluating whether the market quotes from the counterparty are representative of an exit price. The Company has a policy of executing derivative transactions only with counterparties above a certain credit rating. Credit risk is also mitigated through the pledging of collateral when certain thresholds are reached. The likelihood of the Company’s default is considered remote and its credit rating has remained stable over the past recent history. For these reasons, nonperformance risk is considered extremely low and accordingly, any such credit risk adjustments to the Company’s derivative assets and liabilities would be immaterial.

Fair Value Disclosure of Other Assets and Liabilities

U.S. GAAP requires 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 the Company. Examples of non-financial instruments having significant value include the future earnings potential of significant customer relationships and the value of the Company’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 the Company’s financial instruments, which are detailed below. The fair value estimates are made at a discrete point in time based on relevant market information. Because no market exists for a significant portion of these financial instruments, fair value estimates are based on judgments regarding future expected economic

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conditions, 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.

In addition to the valuation methodology explained above for financial instruments recorded at fair value, the following methods and assumptions were used in estimating the fair value of financial instruments that are carried at cost in the Consolidated Statements of Financial Condition.

Short-Term Financial Assets and Liabilities - For financial instruments with a shorter-term or with no stated maturity, prevailing market rates, and limited credit risk, the 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, bank owned life insurance, accrued interest receivable, and accrued interest payable.

Securities Held-to-Maturity - The fair value of securities held-to-maturity 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, and, when applicable, prepayment assumptions were considered based on historical experience and current economic and lending conditions. The discount rate was based on the LIBOR yield curve, with rate adjustments for 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 probable future losses for purposes of the fair value calculation.

Deposit Liabilities - The fair values disclosed for demand deposits, savings deposits, NOW accounts, and money market deposits are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The fair value for fixed-rate time deposits was estimated using present value techniques by discounting the future cash flows based on the LIBOR yield curve, plus or minus the spread associated with current pricing.

Borrowed Funds - The fair value of repurchase agreements and FHLB 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 federal funds purchased, federal term auction facilities, and other borrowed funds approximate their fair value due to their short-term nature.

Subordinated Debt - The fair value of subordinated debt was determined using available market quotes.

Standby Letters of Credit - The fair value of standby letters of credit represent deferred fees arising from the related off-balance sheet financial instruments. These deferred fees approximate the fair value of these instruments and are based on several factors, including the remaining terms of the agreement and the credit standing of the customer.

Commitments - Given the limited interest rate exposure posed by the commitments outstanding at year-end due to their general variable nature, combined 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, the Company has estimated the fair value of commitments outstanding to be immaterial.

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Financial Instruments

(Dollar amounts in thousands)

	December 31,
	2008				2007
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial Assets:
Cash and due from banks	$	106,082	$	106,082	$	193,792	$	193,792
Funds sold and other short-term investments		8,226		8,226		1,045		1,044
Mortgages held for sale		-		-		394		394
Trading account securities		12,358		12,358		18,352		18,352
Securities available-for-sale		2,216,186		2,216,186		2,080,046		2,080,046
Securities held-to-maturity		84,306		84,592		97,671		97,931
Loans, net of reserve for loan losses		5,266,194		5,231,925		4,901,872		4,948,443
Accrued interest receivable		43,247		43,247		48,971		48,971
Investment in bank owned life insurance		198,533		198,533		203,535		203,535
Derivative assets		-		-		1,260		1,260
Financial Liabilities:
Deposits	$	5,585,754	$	5,583,943	$	5,778,861	$	5,784,191
Borrowed funds		1,698,334		1,703,940		1,264,228		1,265,425
Subordinated debt		232,409		171,307		230,082		212,533
Accrued interest payable		10,550		10,550		16,843		16,843
Derivative liabilities		2,628		2,628		-		-
Standby letters of credit		700		700		669		669

23.    SUPPLEMENTARY CASH FLOW INFORMATION

Supplemental Disclosures to the Consolidated Statements of Cash Flows

(Dollar amounts in thousands)

	Years Ended December 31,
	2008		2007		2006
Income taxes paid	$	20,800	$	40,133	$	27,498
Interest paid to depositors and creditors		168,903		240,418		217,314
Non-cash transfers of loans to foreclosed real estate		27,342		8,931		3,650
Dividends declared but unpaid		10,953		15,045		14,779
Non-cash transfer of loans to securities available-for-sale		-		-		105,976

24.    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 its 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 aggregating $2.4 million at December 31, 2008 and $4.8 million at December 31, 2007 were not greater than 5% of stockholders’ equity at December 31, 2008 or 2007, respectively.

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25.    CONDENSED PARENT COMPANY FINANCIAL STATEMENTS

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

Statements of Financial Condition

(Parent Company only)

(Dollar amounts in thousands)

	December 31,
	2008		2007
Assets
Cash and interest-bearing deposits	$	209,195	$	79,699
Investment in and advances to subsidiaries		921,548		861,841
Goodwill		10,358		10,358
Other assets		30,079		43,843
Total assets	$	1,171,180	$	995,741
Liabilities and Stockholders’ Equity
Subordinated debt	$	232,409	$	230,082
Accrued expenses and other liabilities		30,492		41,684
Stockholders’ equity - common		715,949		723,975
Stockholders’ equity - preferred		192,330		-
Total liabilities and stockholders’ equity	$	1,171,180	$	995,741

Statements of Income

(Parent Company only)

(Dollar amounts in thousands)

	Years ended December 31,
	2008			2007			2006
Income
Dividends from subsidiaries	$	-		$	123,520		$	154,660
Interest income		1,330			3,624			2,379
Securities transactions and other		(5,155	)		1,443			1,369
Total income		(3,825	)		128,587			158,408
Expenses
Interest expense		14,969			14,969			13,719
Salaries and employee benefits		1,732			9,122			8,148
Amortization of intangible assets		-			-			372
Other expenses		4,688			3,900			7,085
Total expenses		21,389			27,991			29,324
(Loss) income before income tax benefit and equity in undistributed income of subsidiaries		(25,214	)		100,596			129,084
Income tax benefit		8,916			9,009			9,202
(Loss) income before undistributed income of subsidiaries		(16,298	)		109,605			138,286
Equity in undistributed income of subsidiaries		65,634			(29,446	)		(21,040	)
Net income		49,336			80,159			117,246
Preferred dividends		(712	)		-			-
Net income applicable to common shares	$	48,624		$	80,159		$	117,246

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Statements of Cash Flows

(Parent Company only)

(Dollar amounts in thousands)

	Years ended December 31,
	2008			2007			2006
Operating Activities
Net income	$	49,336		$	80,159		$	117,246
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Equity in undistributed income from subsidiaries		(65,634	)		29,446			21,040
Depreciation of premises, furniture, and equipment		8			10			30
Net losses on sales of fixed assets		2			23			-
Tax benefit related to share-based compensation		1,370			1,201			1,112
Net amortization of other intangibles		-			-			372
Net decrease (increase) in other assets		17,618			(4,353	)		(1,857	)
Net (decrease) increase in other liabilities		(5,961	)		1,935			(970	)
Net cash (used in) provided by operating activities		(3,261	)		108,421			136,973
Investing Activities
Purchases of securities available-for-sale		-			(2,200	)		(1,123	)
Proceeds from sales of securities available-for-sale		-			-			4
Purchase of other assets, net of sales		(15	)		25			(17	)
Acquisition, net of cash acquired		-			-			(306,005	)
Net cash used in investing activities		(15	)		(2,175	)		(307,141	)
Financing Activities
Proceeds from the issuance of subordinated debt		-			-			99,887
Proceeds from the issuance of preferred stock		193,000			-			-
Proceeds from the issuance of common stock		-			-			143,623
Net purchases of treasury stock		(138	)		(61,733	)		(844	)
Cash dividends paid		(60,298	)		(58,499	)		(53,757	)
Exercise of stock options and restricted stock activity		245			4,721			4,610
Excess tax (expense) benefit related to share-based compensation		(37	)		361			924
Net cash provided by (used in) financing activities		132,772			(115,150	)		194,443
Net increase (decrease) in cash and cash equivalents		129,496			(8,904	)		24,275
Cash and cash equivalents at beginning of year		79,699			88,603			64,328
Cash and cash equivalents at end of year	$	209,195		$	79,699		$	88,603

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ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON

ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A.    CONTROLS AND PROCEDURES

As of the end of the period covered by 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 and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 and 15d-15 of the Securities and Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, the President and Chief Executive Officer and Executive Vice President and Chief Financial 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. There were no changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2008 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Report On Internal Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Accordingly, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008. In making this assessment, management used the criteria set forth in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that the Company’s internal control over financial reporting as of December 31, 2008 is effective based on the specified criteria.

Ernst & Young LLP, the independent registered public accounting firm that audited the Company’s consolidated financial statements included in this Annual Report on Form 10-K, has issued an attestation report on the Company’s internal control over financial reporting as of December 31, 2008. The report, which expresses an unqualified opinion on the Company’s internal control over financial reporting as of December 31, 2008, is included in this Item under the heading “Attestation Report of Independent Registered Public Accounting Firm.”

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Attestation Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

First Midwest Bancorp, Inc.:

We have audited First Midwest Bancorp, Inc.’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). First Midwest Bancorp, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, First Midwest Bancorp, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial condition of First Midwest Bancorp, Inc. as of December 31, 2008 and 2007, 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, 2008 of First Midwest Bancorp, Inc. and our report dated February 27, 2009 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Chicago, Illinois

February 27, 2009

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ITEM 9B.    OTHER INFORMATION

None.

PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

The Company’s executive officers are elected annually by the Company’s Board of Directors, and the Bank’s executive officers are elected annually by the Bank’s Board of Directors. Certain information regarding the Company’s and the Bank’s executive officers is set forth below.

Name (Age)	Position or Employment for Past Five Years	Executive Officer Since
Michael L. Scudder (48)	President and Chief Executive Officer of the Company since 2008. Previously, since 2007, Mr. Scudder served as the Company’s President and Chief Operating Officer as well as Group Executive Vice President of the Bank, before which he served as the Company’s Executive Vice President and Chief Financial Officer of the Company and Group Executive Vice President and Chief Financial Officer of the Bank.	2002
Kent S. Belasco (57)	Executive Vice President and Chief Information Officer of the Bank.	2004
Victor P. Carapella (59)	Executive Vice President and Commercial Banking Group Manager of the Bank since 2008; prior thereto, Sales Manager since 2001;	2008
Paul F. Clemens (56)	Executive Vice President and Chief Financial Officer of the Company; prior thereto, Senior Vice President, Chief Accounting Officer, and Principal Accounting Officer of the Company since 2006; prior thereto, Chief Financial Officer of the western Michigan market of Fifth Third Bank.	2006
James P. Hotchkiss (52)	Executive Vice President and Treasurer of the Bank since 2004; prior thereto, Senior Vice President and Teasurer of the Bank since 2000; prior thereto, Director of International Money Markets of Bank of Montereal.	2004
Michael J. Kozak (57)	Executive Vice President and Chief Credit Officer of the Bank since 2004; prior thereto, Senior Vice President, Regional Credit Officer of the Bank.	2004
Cynthia A. Lance (40)	Executive Vice President and Corporate Secretary since 2007; prior thereto, Assistant General Counsel of CBOT Holdings, Inc. since 2006, and Assistant General Counsel of NYSE Group, Inc. (formerly Archipelago Holdings, Inc.) from 2004 to 2006; and prior thereto, corporate attorney for the Chicago law office of Sonnenschein, Nath and Rosenthal.	2007
Thomas J. Schwartz (59)	Executive Vice President of the Company since 2007; also, President and Chief Executive Officer of the Bank since 2008; prior thereto, President and Chief Operating Officer of the Bank since 2007; prior thereto, Group President, Commercial Banking of the Bank.	2002
Janet M. Viano (53)	Group President, Retail Banking of the Bank.	2002
Stephanie R. Wise (41)	Executive Vice President, Business and Institutional Services since 2003; prior thereto, Executive Vice President, E-Commerce Division Manager of the Bank.	2004

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Information relating to our directors, including our audit committee and audit committee financial experts and the procedures by which stockholders can recommend director nominees, will be in our definitive Proxy Statement for our 2009 Annual Meeting of Stockholders to be held on May 20, 2009, which will be filed within 120 days of the end of our fiscal year ended December 31, 2008 (the “2009 Proxy Statement”) and is incorporated herein by reference.

ITEM 11.    EXECUTIVE COMPENSATION

Information relating to our executive officer and director compensation will be in the 2009 Proxy Statement and is incorporated herein by reference.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN

BENEFICIAL OWNERS AND MANAGEMENT

AND RELATED STOCKHOLDER MATTERS

Information relating to security ownership of certain beneficial owners of our common stock and information relating to the security ownership of our management will be in the 2009 Proxy Statement and is incorporated herein by reference.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND

DIRECTOR INDEPENDENCE

Information regarding certain relationships and related transactions and director independence will be in the 2009 Proxy Statement and is incorporated herein by reference.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information regarding principal accountant fees and services will be in the 2009 Proxy Statement and is incorporated herein by reference.

PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) Financial Statements

The following consolidated financial statements of the Registrant and its subsidiaries are filed as a part of this document under “Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.”

Report of Independent Registered Public Accounting Firm.

Consolidated Statements of Financial Condition as of December 31, 2008 and 2007.

Consolidated Statements of Income for the years ended December 31, 2008, 2007, and 2006.

Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2008, 2007, and 2006.

Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007, and 2006.

Notes to Consolidated Financial Statements.

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(a)(2) Financial Statement Schedules

The schedules for the Registrant and its subsidiaries are omitted because of the absence of conditions under which they are required, or because the information is set forth in the consolidated financial statements or the notes thereto.

(a)(3) Exhibits

See Exhibit Index beginning on the following page.

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EXHIBIT INDEX

Exhibit Number	Description of Documents
3.1	Restated Certificate of Incorporation of First Midwest Bancorp, Inc.
3.2	Restated By-laws of First Midwest Bancorp, Inc.
4.1	Amended and Restated Rights Agreement 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.
4.2	First Amendment to Rights Agreements dated June 18, 1997, is incorporated herein by reference to Exhibit 4 of the Company’s Amendment No. 2 to the Registration Statement on Form 8-A filed with the Securities and Exchange Commission on June 30, 1997.
4.3	Amendment No. 2 to Rights Agreements dated November 14, 2005, is incorporated herein by reference to Exhibit 4.1 of the Company’s Amendment No. 3 to the Registration Statement on Form 8-A filed with the Securities and Exchange Commission on November 16, 2005.
4.4	Amendment No. 3 to Rights Agreements dated December 8, 2008, is incorporated herein by reference to Exhibit 4.4 of the Company’s Amendment No. 4 to the Registration Statement on Form 8-A filed with the Securities and Exchange Commission on December 9, 2008.
4.5	Certificate of Designation for Fixed Rate Cumulative Perpetual Preferred Stock Series B dated December 5, 2008, is incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 9, 2008.
4.6	Form of Warrant for Purchase of Shares of Common Stock, dated December 5, 2008, is incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 9, 2008.
4.7	Amended and Restated Declaration of Trust of First Midwest Capital Trust I dated November 18, 2003 is incorporated herein by reference to Exhibit 4.4 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 9, 2004.
4.8	Indenture dated as of November 18, 2003 is incorporated herein by reference to Exhibit 4.5 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 9, 2004.
4.9	Series A Capital Securities Guarantee Agreement dated November 18, 2003 is incorporated herein by reference to Exhibit 4.6 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 9, 2004.
10.1	Letter Agreement by and between First Midwest Bancorp, Inc. and the United States Department of the Treasury dated December 5, 2008, is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 9, 2008.
10.2	Senior Executive Letter Agreement under the TARP Capital Purchase Program by and between First Midwest Bancorp, Inc. and the United States Department of the Treasury dated December 5, 2008, is incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 9, 2008.
10.3	First Midwest Savings and Profit Sharing Plan as Amended and Restated effective January 1, 2008.
10.4	Short-term Incentive Compensation Plan is incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 4, 2006.

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10.5	First Midwest Bancorp, Inc. Omnibus Stock and Incentive Plan is incorporated herein by reference to Exhibit 10 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 7, 2003.
10.6	Amendment to the First Midwest Bancorp, Inc. Omnibus Stock and Incentive Plan is incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly report on Form 10-Q filed with the Securities and Exchange Commission on August 4, 2006.
10.7	First Midwest Bancorp, Inc. Amended and Restated Non-Employee Directors Stock Plan dated May 21, 2008.
10.8	Restated First Midwest Bancorp, Inc. Nonqualified Stock Option-Gain Deferral Plan effective January 1, 2008 is incorporated herein by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2008.
10.9	Restated First Midwest Bancorp, Inc. Deferred Compensation Plan for Non-employee Directors effective January 1, 2008 is incorporated herein by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2008.
10.10	Restated First Midwest Bancorp, Inc. Nonqualified Retirement Plan effective January 1, 2008 is incorporated herein by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2008.
10.11	Form of Non-Employee Director Restricted Stock grant between the Company and directors of the Company pursuant to the First Midwest Bancorp, Inc. Amended and Restated Non-Employee Directors Stock Plan is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities Exchange Commission on May 28, 2008.
10.12	Form of Nonqualified Stock Option grant between the Company and directors of the Company pursuant to the First Midwest Bancorp, Inc. Non-Employee Directors Stock Option Plan is incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the Securities Exchange Commission on May 12, 2008.
10.13	Form of Nonqualified Stock Option grant between the Company and certain officers of the Company pursuant to the First Midwest Bancorp, Inc. Omnibus Stock and Incentive Plan is incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 12, 2008.
10.14	Form of Restricted Stock Unit grant between the Company and certain officers of the Company pursuant to the First Midwest Bancorp, Inc. Omnibus Stock and Incentive Plan is incorporated herein by reference to Exhibit 10.17 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2008.
10.15	Form of Restricted Stock grant between the Company and certain officers of the Company pursuant to the First Midwest Bancorp, Inc. Omnibus Stock and Incentive Plan is incorporated herein by reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2008.
10.16	Form of CEO Promotion Restricted Stock grant dated December 22, 2008 between the Company and Michael L. Scudder pursuant to the First Midwest Bancorp, Inc. Omnibus Stock and Incentive Plan.
10.17	Form of Indemnification Agreement executed between the Company and certain officers and directors of the Company is incorporated herein by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 9, 2007.
10.18	Form of Class I Employment Agreement is incorporated herein by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 9, 2007.

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10.19		Form of Class IA Employment Agreement is incorporated herein by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 9, 2007.
10.20		Form of Class II Employment Agreement between the Company and certain executive officers is incorporated herein by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 9, 2007.
10.21		Retirement and Consulting Agreement and Continuing Participant Agreement to the First Midwest Bancorp, Inc. Omnibus Stock and Incentive Plan executed between the Company and a former executive of the Company is incorporated herein by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 7, 2003.
10.22		Retirement and Consulting Agreements executed between the Company and a former executive of the Company is incorporated herein by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 9, 2007.
10.23		Summary of Executive Compensation
10.24		Summary of Director Compensation
11		Statement re: Computation of Per Share Earnings - The computation of basic and diluted earnings per share is included in Note 13 of the Company’s Notes to Consolidated Financial Statements included in “ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” on Form 10-K for the year ended December 31, 2008.
12		Statement re: Computation of Ratio of Earnings to Fixed Charges.
14.1		Code of Ethics and Standards of Conduct is incorporated herein by reference to Exhibit 14.1 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2008.
14.2		Code of Ethics for Senior Financial Officers is incorporated herein by reference to Exhibit 14.2 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2008.
21		Subsidiaries of the Registrant.
23		Consent of Independent Registered Public Accounting Firm.
31.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.
31.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.
32.1	(1)	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.
32.2	(1)	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

⁽¹⁾ Furnished, not filed.

131

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/ MICHAEL L. SCUDDER
Michael L. Scudder President, Chief Executive Officer, and Director
February 27, 2009

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 indicated on February 27, 2009.

Signatures
/S/ ROBERT P. O’MEARA Robert P. O’Meara	Chairman of the Board
/s/ MICHAEL L. SCUDDER Michael L. Scudder	President, Chief Executive Officer, and Director
/S/ PAUL F. CLEMENS Paul F. Clemens	Executive Vice President, Chief Financial Officer, and Principal Accounting Officer
/S/ BARBARA A. BOIGEGRAIN Barbara A. Boigegrain	Director
/S/ VERNON A. BRUNNER Vernon A. Brunner	Director
/S/ BRUCE S. CHELBERG Bruce S. Chelberg	Director
/S/ JOHN F. CHLEBOWSKI, JR. John F. Chlebowski, Jr.	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

132

Signatures
/S/ JOHN E. ROONEY John E. Rooney	Director
/S/ ELLEN A. RUDNICK Ellen A. Rudnick	Director
/S/ THOMAS J. SCHWARTZ Thomas J. Schwartz	Executive Vice President and Director
/S/ JOHN L. STERLING John L. Sterling	Director
/S/ J. STEPHEN VANDERWOUDE J. Stephen Vanderwoude	Director

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EX-3.1

Exhibit 3.1

RESTATED CERTIFICATE OF INCORPORATION

OF

FIRST MIDWEST BANCORP, INC.

UNDER SECTION 245

OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE

First Midwest Bancorp, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows:

1. The name of the Corporation is FIRST MIDWEST BANCORP, INC.

2. The date of filing of the Corporation’s original Certificate of Incorporation with the Secretary of State of the State of Delaware was May 14, 1982.

3. This Restated Certificate of Incorporation only restates and integrates and does not further amend the provisions of the Certificate of Incorporation of this Corporation as heretofore amended or supplemented and there is no discrepancy between those provisions and the provisions of this Restated Certificate of Incorporation.

4. The text of the Certificate of Incorporation as amended or supplemented heretofore is hereby restated without further amendment or changes to read as herein set forth on EXHIBIT A.

5. The Restated Certificate of Incorporation of the Corporation, in the form attached hereto as EXHIBIT A, was duly adopted by the Board of Directors of the Corporation in accordance with Section 245 of the General Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, said First Midwest Bancorp, Inc. has caused this Certificate to be signed by its Executive Vice President and Corporate Secretary this 25^th day of February 2009.

FIRST MIDWEST BANCORP, INC.

/s/ CYNTHIA A. LANCE

Cynthia A. Lance

Executive Vice President and Corporate Secretary

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EXHIBIT A

To the Restated Certificate of Incorporation

RESTATED CERTIFICATE OF INCORPORATION OF

FIRST MIDWEST BANCORP, INC.

ARTICLE FIRST. Name.

The name of the Corporation is FIRST MIDWEST BANCORP, INC.

ARTICLE SECOND. Registered Agent.

The registered office of the Corporation in the State of Delaware is located at 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808, New Castle County. The name of its registered agent at such address is United States Corporation Company.

ARTICLE THIRD. Purpose.

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.

ARTICLE FOURTH. Authorized Stock.

The total number of shares of stock which the Corporation shall have authority to issue is One Hundred One Million (101,000,000) shares, of which One Million (1,000,000) shares shall be shares of Preferred Stock without par value (hereinafter sometimes referred to as “Preferred Stock”), and One Hundred Million (100,000,000) shares shall be shares of Common Stock, $0.01 par value per share (hereinafter sometimes referred to as “Common Stock”).

PART I—PREFERRED STOCK

The Board of Directors is expressly authorized to adopt, from time to time, a resolution or resolutions providing for the issue of Preferred Stock in one or more series, to fix the number of shares in each such series and to fix the designations and the powers, preferences and relative, optional or other special rights, and the qualifications, limitations and restrictions thereof, of each such series. The authority of the Board of Directors with respect to each such series shall include a determination of the following (which may vary as between the different series of Preferred Stock):

(a) The number of shares constituting the series and the distinctive designation of the series;

(b) The dividend rate on the shares of the series, the conditions and dates upon which dividends thereon shall be payable, the extent, if any, to which dividends thereon shall be cumulative, and the relative rights of preference, if any, of payment of dividends thereon;

(c) Whether or not the shares of the series are redeemable and, if redeemable, including whether such shares shall be redeemable for cash, property or rights or any combination thereof and the times during which such shares shall be redeemable and the amount per share payable in case of redemption, which amount may, but need not, vary according to the time and circumstances of such action;

1

(d) The amount payable in respect of the shares of the series, in the event of any liquidation, dissolution or winding up of the Corporation, which amount may, but need not, vary according to the time or circumstances of such action, and the relative rights of preference, if any, of payment of such amount;

(e) Any requirement as to a sinking fund for the shares of the series, or any requirement as to the redemption, purchase or other retirement by the Corporation of the shares of the series;

(f) The right, if any, to exchange or convert shares of the series into shares of any other series or class of stock of the Corporation and the rate or basis, time, manner and condition of exchange or conversion;

(g) The voting rights, if any, to which the holders of shares of the series shall be entitled; and

(h) Any other term, condition or provision [not involving any further participation in the assets or profits of the Corporation other than as permitted and provided for pursuant to the provisions of paragraphs (b), (c), (d), (e) and (f) of this Part I] with respect to the series as the Board of Directors may deem advisable and as shall not be inconsistent with the provisions of this Article Fourth.

(i) Pursuant to the authority conferred upon the Board of Directors by Article FOURTH of the Restated Certificate of Incorporation of the Corporation, the Board of Directors on November 19, 2008, adopted a resolution creating a series of Preferred Stock designated as Fixed Rate Cumulative Perpetual Preferred Stock, Series B. The designation and number of shares of such series, and the voting and other powers, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions thereof, of the shares of such series, adopted pursuant to such resolution are set forth at Exhibit B to this Restated Certificate of Incorporation.

PART II—COMMON STOCK

(a) Dividends. Subject to any rights to receive dividends to which the holders of any outstanding Preferred Stock may be entitled, the holders of the common Stock shall be entitled to receive dividends, if and when declared payable from time to time by the Board of Directors from any funds legally available therefore.

(b) Liquidation. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, after payment or provision for payment of the debts and other liabilities of the Corporation and the preferential amounts to which the holders of any outstanding Preferred Stock shall be entitled, the holders of the Common Stock shall be entitled to share ratably in the remaining assets of the Corporation. The merger or consolidation of the Corporation into

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or with any other corporation, or the merger of any other corporation into it, or a sale of all or substantially all of the assets of the Corporation, or any purchase or redemption of shares of stock of the Corporation of any class, shall not be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this paragraph (b).

(c) Voting. Each outstanding share of Common Stock of the Corporation shall entitle the holder thereof to one vote, and, except as otherwise stated or expressed in a resolution or resolutions adopted by the Board of Directors providing for the issue of any Preferred stock or as otherwise provided by law, the exclusive voting power for all purposes shall be vested in the holders of Common Stock.

PART III—GENERAL PROVISIONS

(a) No Stockholder Consents in Lieu of Voting. No action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied.

(b) Right to Call Special Meetings. Special meetings of the stockholders of the Corporation may be called only by the Board of Directors or the Chairman of the Board of Director or President of the Corporation; provided, however, that, notwithstanding the foregoing, a special meeting of stockholders may be called by the holders of at least 51% of the voting power of the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (the “Voting Stock”) solely for the purpose of removing a director or directors for cause [it being understand that, for purposes of this paragraph (b), each share of the Voting Stock shall have the number of votes granted to it pursuant to this Article Fourth].

(c) Removal of Directors. No director may be removed from office except for cause; provided, that, in addition to any affirmative vote required by law or any other provision of this Restated Certificate of Incorporation, the removal of any director shall require the affirmative vote of the holders of at least 67% of the voting power of the then outstanding Voting Stock [it being understood that, for purposes of this paragraph (c), each share of the Voting Stock shall have the number of votes granted to it pursuant to this Article Fourth], 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.

(d) Advance Notice of Stockholder Proposals. At any annual or special meeting of stockholders, proposals by stockholders and persons nominated by stockholders for election as directors shall be considered only if advance notice thereof has been timely given as provided herein by a stockholder of record as of the time of such notice who is entitled to vote at the meeting and such proposals or nominations are otherwise proper for consideration under applicable law and this Restated

3

Certificate of Incorporation and the By-laws of the Corporation. Notice of any proposal to be presented by any stockholder or of the name of any person to be nominated by any stockholder for election as a director of the Corporation at any meeting of stockholders shall be delivered to the Secretary of the Corporation at its principal executive office not less than 120 nor more than 180 days prior to the date of the meeting; provided, however, that if the date of the meeting is first publicly announced or disclosed (in a public filing or otherwise) less than 130 days prior to the date of the meeting, such advance notice shall be given not more than 10 days after such date is first so announced or disclosed. Public notice shall be deemed to have been given more than 130 days in advance of the annual meeting if the Corporation shall have previously disclosed, in the By-laws or otherwise, that the annual meeting in each year is to be held on a determinable date, unless and until the Board determines to hold the meeting on a different date. Any stockholder who gives notice of any such proposal shall deliver therewith the text of the proposal to be presented and a brief written statement of the reasons why such stockholder favors the proposal and setting forth such stockholder’s name and address, the number and class of all shares of each class of stock of the Corporation beneficially owned by such stockholder and any material interest of such stockholder in the proposal (other than as a stockholder). Any stockholder desiring to nominate any person for election as a director of the Corporation shall deliver with such notice a statement in writing setting forth the name of the person to be nominated, the number and class of all shares of each class or stock of the Corporation beneficially owned by such person, the information regarding any such person required by paragraphs (a), (e) and (f) of Item 401 of Regulation S-K adopted by the Securities and Exchange Commission (or the corresponding provisions of any regulation subsequently adopted by the Securities and Exchange commission applicable to this Corporation), such person’s signed consent to serve as a director of the Corporation if elected, such stockholder’s name and address and the number and class of all shares of each class of stock of the Corporation beneficially owned by such stockholder. As used herein, shares “beneficially owned” shall mean all shares as to which such person, together with such person’s affiliates and associates (as defined in Rule 12b-2 under the Securities Exchange Act of 1934), may be deemed to beneficially own pursuant to Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as well as all shares as to which such person, together with such person’s affiliates and associates, has the right to become the beneficial owner pursuant to any agreement or understanding, or upon the exercise of warrants, options or rights to convert or exchange (whether such rights are exercisable immediately or only after the passage of time or the occurrence of conditions). The person presiding at the meeting, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall determine whether such notice has been duly given and shall direct that proposals and nominees not be considered if such notice has not been given.

4

ARTICLE FIFTH. Board of Directors.

(a) The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.

(b) The number of directors constituting the Board of Directors of the Corporation shall be such number, not fewer than three nor more than twenty, as shall be fixed from time to time by resolution of the Board of Directors adopted by the affirmative vote of at least a majority of all members thereof.

(c) The Board of Directors shall be and is divided into three classes, Class I, Class II and Class III, which shall be as nearly equal in number as possible. Each director shall serve for a term ending on the date of the third annual meeting of stockholders of the Corporation following the annual meeting at which such director was elected; provided, however, that (1) each director in Class I elected at the annual meeting of stockholders in 1985 shall hold office until the annual meeting of stockholders in 1986, (2) each director in Class II elected at the annual meeting of stockholders in 1985 shall hold office until the annual meeting of stockholders in 1987, and (3) each director in Class III elected at the annual meeting of stockholders in 1985 shall hold office until the annual meeting of stockholders in 1988.

(d) In the event of any increase or decrease in the authorized number of directors, (1) each director then serving as such shall nevertheless continue as a director of the class of which he or she is a member until the expiration of his or her current term, or his or her prior death, retirement, resignation, or removal, and (2) the newly created or eliminated directorships resulting from such increase or decrease shall be apportioned by the Board of Directors among the three classes of directors so as to maintain such classes as nearly equal in number as possible.

(e) Notwithstanding any of the foregoing provisions of this Article Fifth, each director shall serve until his or her successor is elected and qualified or until his or her death, retirement, resignation or removal. Should a vacancy occur or be created, whether arising through death, retirement, resignation or removal of a director or through an increase in the number of directors of any class, such vacancy shall be filled by a majority vote of the remaining directors of all classes then in office although less than a quorum, or by the sole remaining director. A director so elected to fill a vacancy shall serve for the remainder of the then present term of office of the class in which the vacancy shall have occurred or shall have been created.

(f) Notwithstanding any of the foregoing provisions of this Article Fifth, whenever the holders of any outstanding class or series of Preferred Stock shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of this Restated Certificate of Incorporation and of the resolution of the Board of Directors providing for the issue of such class or series of Preferred Stocked applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Article Fifth, unless expressly provided by such terms.

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(g) 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 Voting Stock, voting together as a single class [it being understood that, for purposes of this paragraph (g), each share of the Voting Stock shall have the number of votes granted to it pursuant to Article Fourth hereof], 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.

(h) Wherever the term “Board of Directors” is used in this Restated Certificate of Incorporation, such term shall mean the Board of Directors of the Corporation; provided, however, that, to the extent any committee of directors of the Corporation is lawfully entitled to exercise the powers of the Board of Directors, such committee, to the extent provided by resolution of the Board of Directors or the By-laws, may exercise any power or authority of the Board of Directors under this Restated Certificate of Incorporation in the management of the business and affairs of the Corporation.

(i) The books of the Corporation (subject to the provisions of the laws of the State of Delaware) may be kept outside of the State of Delaware at such places as may be from time to time designated by the Board of Directors. Elections of directors need not be by ballot unless the By-laws so provide.

(j) No Director of the Corporation shall be personally liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a Director, except to the extent that such exemption from liability or limitation thereof is not permitted under the General Corporation Law of the State of Delaware, as it may be in effect from time to time. No amendment to or repeal of this paragraph (j) shall apply to or have any effect on the liability or alleged liability of any Director of the Corporation for or with respect to any acts or omissions of such Director occurring prior to such amendment or repeal.

ARTICLE SIXTH. Indemnification.

Without limiting in any manner any power of the Corporation conferred by statute, each person who is or was a director or officer of the Corporation shall be indemnified by the Corporation to the full extent permitted by the General Corporation Law of the State of Delaware, as it may be in effect from time to time, against any liability, cost or expense incurred by him in his capacity as a director or officer or arising out of his status as a director or officer.

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ARTICLE SEVENTH. Certain Business Combinations.

(a) Higher Vote for Certain Business Combinations.

In addition to any affirmative vote required by law or any other provision of this Restated Certificate of Incorporation, and except as otherwise expressly provided in paragraph (b) of this Article Seventh:

(1) Any merger or consolidation of the Corporation or any Subsidiary with any (A) Interested Stockholder or (B) any other corporation (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate of an Interested Stockholder; or

(2) Any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of any assets of the Corporation or any Subsidiary having an aggregate Fair Market Value of $5 million or more; or

(3) The issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market value of $5 million or more; or

(4) The adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposal by or on behalf of an Interested Stockholder or any Affiliate of any Interested Stockholder; or

(5) Any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder or any Affiliate of any Interested Stockholder;

shall require the affirmative vote of the holders of at least 80% of the voting power of the then outstanding Voting Stock, voting together as a single class [it being understood that, for purposes of this paragraph (a), each share of the Voting Stock shall have the number of votes granted to in pursuant to Article Fourth hereof]. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. The term “Business Combination”, as used in this Article Seventh, means any transaction which is referred to in any one or more of clauses (1) through (5) of this paragraph (a).

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(b) When Higher Vote is Not Required.

The provisions of paragraph (a) of this Article Seventh shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote, if any, as is required by law or any other provision of this Restated Certificate of Incorporation or the By-laws of the Corporation, if all the conditions specified in either subparagraph (b)(1) or (2) below are met:

(1) Approval by Disinterested Directors.

Such Business Combination shall have been approved by a majority of the Disinterested Directors.

(2) Price and Procedure Requirements.

All of the following conditions shall have been met:

(A) The aggregate amount of the cash and the Fair Market value as of the date of the consummation of such Business Combination of consideration other than cash to be received per share by holders of Common Stock in such Business Combination shall be at least equal to the highest of the following:

(i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers’ fees) paid by the Interested Stockholder involved for any shares of Common Stock acquired by it (I) within the two-year period ending on the date of the first public announcement of the proposal of such Business Combination (the “Announcement Date”) or (II) in the transaction in which it became an Interested Stockholder, whichever is higher;

(ii) (if applicable) an amount which bears the same or a greater percentage relationship to the Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Interested Stockholder involved became an Interested Stockholder (such latter date is referred to in this Article Seventh as the “Determination Date”), whichever is higher, as the highest per share price determined under subparagraph (b)(2)(A)(1) bears to the Fair Market Value per share of Common Stock on the first

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day within the two-year period ending on the Announcement Date on which such Interested Stockholder acquired beneficial ownership of any share of Common Stock; and

(iii) the Fair Market Value per share of Common Stock on the Announcement Date or on the Determination Date, whichever is higher,

(B) The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of such Business Combination of consideration other than cash to be received per share by holders of shares of any class of outstanding Voting Stock, shall be at least equal to the highest of the following [it being intended that the requirements of this subparagraph (b)(2)(B) shall be required to be met with respect to each class of outstanding Voting Stock, other than Common Stock, whether or not the Interested Stockholder involved has previously acquired any shares of such class of Voting Stock]:

(i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers’ fees) paid by the Interested Stockholder involved for any share of such class of Voting Stock acquired by it (I) with the two-year period ending on the Announcement Date or (II) in the transaction in which it became an Interested Stockholder, whichever is higher;

(ii) (if applicable) the highest preferential amount per share to which the holders of shares of such class of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation;

(iii) (if applicable) an amount which bears the same or a greater percentage relationship to the Fair Market Value per share of such class of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher, as the highest per share price determined under subparagraph (b)(2)(B)(i) bears to the Fair Market Value per share of such class of Voting Stock on the first day within two year period ending on the Announcement Date on which the Interested Stockholder involved acquired beneficial ownership of any share of such class of Voting Stock; and

(iv) the Fair Market Value per share of such class of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher.

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(C) The consideration to be received by holders of a particular class of outstanding Voting Stock (including Common Stock) shall be in cash or in the same form as the Interested Stockholder involved has previously paid for shares of such class of Voting Stock. If such Interested Stockholder has paid for shares of any class of Voting Stock with varying forms of consideration, the form of consideration for such class of Voting Stock shall be either cash or the form used to acquire the largest number of shares of such class of Voting Stock previously acquired by it. The prices determined in accordance with subparagraphs (b)(2)(A) and (b)(2)(B) shall be subject to appropriate adjustment in the event of any stock dividend, stock split, combination of shares or similar event.

(D) After the Interested Stockholder involved has become an Interested Stockholder and prior to the consummation of such Business Combination: (i) there shall have been (I) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), except as approved by a majority of the Disinterested Directors, and (II) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of the Common Stock, unless the failure so to increase such annual rate is approved by a majority of the Disinterested Directors; and (ii) such Interested Stockholder shall not have become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such Interested Stockholder becoming an Interested Stockholder.

(E) After the Interested Stockholder involved has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise.

(F) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to public stockholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions).

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(c) Certain Definitions.

For purposes of this Restated Certificate of Incorporation:

(1) The term “person” means any individual, firm, corporation or other entity.

(2) The term “Interested Stockholder” means any person (other than the Corporation or any Subsidiary and other than any profit-sharing, employee stock ownership or other employee benefit plan of the Corporation or any Subsidiary or any trustee of or fiduciary with respect to any such plan when acting in such capacity) who or which:

(A) is the beneficial owner, directly or indirectly, of 5% or more of the voting power of the outstanding Voting Stock; or

(B) is an Affiliate of the Corporation and at any time within the two-year period ending on the date in question was the beneficial owner, directly or indirectly, of 5% or more of the voting power of the then outstanding Voting Stock; or

(C) is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period ending on the date in question beneficially owned by any Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933, as amended.

(3) A person shall be a “beneficial owner” of any Voting Stock:

(A) which such person or any of his or its Affiliates or Associates beneficially owns, directly or indirectly, or

(B) which such person or any of his or its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding; or

(C) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock.

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(4) For purposes of determining whether a person is an Interested Stockholder pursuant to subparagraph (c)(2), the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of subparagraph (c)(3) but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. The phrase “Interested Stockholder involved” means, in respect of any Business Combination, the Interested Stockholder that, or whose Affiliate, is a party to or otherwise involved (other than merely as a stockholder of the Corporation) in such Business Combination.

(5) The terms “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on March 1, 1985.

(6) The term “Subsidiary” means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the corporation; provided, however, that, for purposes of the definition of Interested Stockholder set forth in subparagraph (c)(2), the term “Subsidiary” shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation.

(7) The term “Disinterested Director” means, in respect of any Business Combination, any member of the Board of Directors who is unaffiliated with the Interested Stockholder involved in such Business Combination and who was a member of the Board of Directors prior to the time that such Interested Stockholder became an Interested Stockholder, and any successor of a Disinterested Director who is unaffiliated with such Interested Stockholder and who is recommended to succeed a Disinterested Director by a majority of Disinterested Directors then on the Board of Directors.

(8) The term “Fair Market Value” means: (A) in the case of stock, the highest closing sale price during the 30-day period ending on the date in question of a share of such stock on the Composite Tape for New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period ending on the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by the Board of Directors in good faith; and (B) in the case of property other than cash or stock, the fair market value on such property on the date in question as determined by the Board of Directors in good faith.

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(9) In the event of any Business Combination in which the Corporation survives, the phrase “consideration other than cash to be received”, as used in subparagraphs (b)(2)(A) and (b)(2)(B), shall include the shares of any Common Stock and the shares of any other class of outstanding Voting Stock retained by the holders of such shares.

(d) Certain Powers of the Board of Directors.

A majority of the Board of Directors shall have the power and duty to determine, for purposes of this Article Seventh, on the basis of information known to them after reasonable inquiry, (1) whether a person is an Interested Stockholder, (2) the number of shares of Voting Stock beneficially owned by any person, (3) whether a person is an Affiliate or Associate of another, and (4) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market Value of $5 million or more. A majority of the Board of Directors shall have the further power to interpret all of the terms and provisions of this Article Seventh.

(e) No Effect on Fiduciary Obligations of Interested Stockholders.

Nothing contained in this Article Seventh shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law.

ARTICLE EIGHTH. Considerations for Board of Directors in Evaluation of Certain Acquisition Proposals.

In connection with the exercise of its judgment in determining what is in the best interests of the Corporation and its stockholders when evaluating a proposal by another person or persons to make a tender or exchange offer for any equity security of the Corporation or any Subsidiary, to merge or consolidate with the Corporation or any Subsidiary or to purchase or otherwise acquire all or substantially all of the assets of the Corporation or any Subsidiary, the Board of Directors of the Corporation shall, in addition to considering the adequacy of the amount to be paid in connection with any such transaction, consider all of the following factors and any other factors which it deems relevant: (a) the social and economic effects of the transaction on the Corporation and its Subsidiaries, the employees, depositors, loan and other customers and creditors of the Corporation and its Subsidiaries and the other elements of the communities in which the Corporation and its Subsidiaries operate or are located; (b) the business and financial condition and earnings prospects of the acquiring person or persons, including, but not limited to, debt service and other existing or likely financial obligations of the acquiring person or persons, and the possible effect of such conditions upon the Corporation and its Subsidiaries and the other elements of the communities in which the Corporation and its Subsidiaries operate or are located; and (c) the competence, experience, and integrity of the acquiring person or persons and its or their management.

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ARTICLE NINTH. Perpetual Existence.

The Corporation shall have perpetual existence.

ARTICLE TENTH. Amendments and Repeal.

(a) Notwithstanding the fact that a lesser percentage vote for the amendment or repeal of this Restated Certificate of Incorporation shall be specified by law or in any agreement with any national securities exchange or otherwise, and in addition to any affirmative vote required by law or any other provision of this Restated Certificate of Incorporation, the provisions of this Article Tenth and of Articles Fourth through Ninth hereof may not be amended or repealed in any respect, unless such action is approved by the affirmative vote of the holders of at least 80% of the voting power of the then outstanding Voting Stock, voting together as a single class [it being understood that, for purposes of this paragraph (a), each share of the Voting Stock shall have the number of votes granted to it pursuant to Article Fourth hereof]; provided, however, that the foregoing provisions of this paragraph (a) shall not be applicable to any particular proposal to amend or repeal any provision of this Restated Certificate of Incorporation, and such proposed amendment or repeal shall require only such affirmative vote as is required by law or any other provision of this Restated Certificate of Incorporation or the By-laws of the Corporation, if such proposed amendment or repeal shall have been approved by resolution of the Board of Directors adopted by the affirmative vote of at least 80% of all members thereof.

(b) Subject to paragraph (a) of this Article Tenth, the Corporation reserves the right to amend, alter, change or repeal any provision of this Restated Certificate of Incorporation, in the manner now or hereafter prescribed by the laws of the State of Delaware, and all rights and powers conferred herein upon stockholders and directors are granted subject to this reservation. All references herein to “this Restated Certificate of Incorporation” shall be deemed to encompass this Restated Certificate of Incorporation, as the same shall be amended from time to time.

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Exhibit B

To the Restated Certificate of Incorporation

CERTIFICATE OF DESIGNATIONS

OF

FIXED RATE CUMULATIVE PERPETUAL PREFERRED STOCK, SERIES B

OF

FIRST MIDWEST BANCORP, INC.

First Midwest Bancorp, Inc., a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), in accordance with the provisions of Section 101 of the General Corporation Law of the State of Delaware thereof, does hereby certify:

The board of directors of the Corporation (the “Board of Directors”) or an applicable committee of the Board of Directors, in accordance with the certificate of incorporation and bylaws of the Corporation and applicable law, adopted the following resolution on November 19, 2008 creating a series of 193,000 shares of Preferred Stock of the Corporation designated as “Fixed Rate Cumulative Perpetual Preferred Stock, Series B”.

RESOLVED, that pursuant to the provisions of the certificate of incorporation and the bylaws of the Corporation and applicable law, a series of Preferred Stock, no par value per share, of the Corporation be and hereby is created, and that the designation and number of shares of such series, and the voting and other powers, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions thereof, of the shares of such series, are as follows:

Part 1. Designation and Number of Shares. There is hereby created out of the authorized and unissued shares of preferred stock of the Corporation a series of preferred stock designated as the “Fixed Rate Cumulative Perpetual Preferred Stock, Series B” (the “Designated Preferred Stock”). The authorized number of shares of Designated Preferred Stock shall be 193,000.

Part 2. Standard Provisions. The Standard Provisions contained in Annex A attached hereto are incorporated herein by reference in their entirety and shall be deemed to be a part of this Certificate of Designations to the same extent as if such provisions had been set forth in full herein.

Part. 3. Definitions. The following terms are used in this Certificate of Designations (including the Standard Provisions in Annex A hereto) as defined below:

(a) “Common Stock” means the common stock, par value $0.01 per share, of the Corporation.

(b) “Dividend Payment Date” means February 15, May 15, August 15 and November 15 of each year.

(c) “Junior Stock” means the Common Stock, and any other class or series of stock of the Corporation the terms of which expressly provide that it ranks junior to Designated Preferred Stock as to dividend rights and/or as to rights on liquidation, dissolution or winding up of the Corporation.

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(d) “Liquidation Amount” means $1,000 per share of Designated Preferred Stock.

(e) “Minimum Amount” means $48,250,000

(f) “Parity Stock” means any class or series of stock of the Corporation (other than Designated Preferred Stock) the terms of which do not expressly provide that such class or series will rank senior or junior to Designated Preferred Stock as to dividend rights and/or as to rights on liquidation, dissolution or winding up of the Corporation (in each case without regard to whether dividends accrue cumulatively or non-cumulatively).

(g) “Signing Date” means December 5, 2008.

Part. 4. Certain Voting Matters. Holders of shares of Designated Preferred Stock will be entitled to one vote for each such share on any matter on which holders of Designated Preferred Stock are entitled to vote, including any action by written consent.

[Remainder of Page Intentionally Left Blank]

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ANNEX A

To the Certificate of Designations

STANDARD PROVISIONS

Section 1. General Matters. Each share of Designated Preferred Stock shall be identical in all respects to every other share of Designated Preferred Stock. The Designated Preferred Stock shall be perpetual, subject to the provisions of Section 5 of these Standard Provisions that form a part of the Certificate of Designations. The Designated Preferred Stock shall rank equally with Parity Stock and shall rank senior to Junior Stock with respect to the payment of dividends and the distribution of assets in the event of any dissolution, liquidation or winding up of the Corporation.

Section 2. Standard Definitions. As used herein with respect to Designated Preferred Stock:

(a) “Applicable Dividend Rate” means (i) during the period from the Original Issue Date to, but excluding, the first day of the first Dividend Period commencing on or after the fifth anniversary of the Original Issue Date, 5% per annum and (ii) from and after the first day of the first Dividend Period commencing on or after the fifth anniversary of the Original Issue Date, 9% per annum.

(b) “Appropriate Federal Banking Agency” means the “appropriate Federal banking agency” with respect to the Corporation as defined in Section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. Section 1813(q)), or any successor provision.

(c) “Business Combination” means a merger, consolidation, statutory share exchange or similar transaction that requires the approval of the Corporation’s stockholders.

(d) “Business Day” means any day except Saturday, Sunday and any day on which banking institutions in the State of New York generally are authorized or required by law or other governmental actions to close.

(e) “Bylaws” means the bylaws of the Corporation, as they may be amended from time to time.

(f) “Certificate of Designations” means the Certificate of Designations or comparable instrument relating to the Designated Preferred Stock, of which these Standard Provisions form a part, as it may be amended from time to time.

(g) “Charter” means the Corporation’s certificate or articles of incorporation, articles of association, or similar organizational document.

(h) “Dividend Period” has the meaning set forth in Section 3(a).

(i) “Dividend Record Date” has the meaning set forth in Section 3(a).

(j) “Liquidation Preference” has the meaning set forth in Section 4(a).

(k) “Original Issue Date” means the date on which shares of Designated Preferred Stock are first issued.

(l) “Preferred Director” has the meaning set forth in Section 7(b).

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(m) “Preferred Stock” means any and all series of preferred stock of the Corporation, including the Designated Preferred Stock.

(n) “Qualified Equity Offering” means the sale and issuance for cash by the Corporation to persons other than the Corporation or any of its subsidiaries after the Original Issue Date of shares of perpetual Preferred Stock, Common Stock or any combination of such stock, that, in each case, qualify as and may be included in Tier 1 capital of the Corporation at the time of issuance under the applicable risk-based capital guidelines of the Corporation’s Appropriate Federal Banking Agency (other than any such sales and issuances made pursuant to agreements or arrangements entered into, or pursuant to financing plans which were publicly announced, on or prior to October 13, 2008).

(o) “Share Dilution Amount” has the meaning set forth in Section 3(b).

(p) “Standard Provisions” mean these Standard Provisions that form a part of the Certificate of Designations relating to the Designated Preferred Stock.

(q) “Successor Preferred Stock” has the meaning set forth in Section 5(a).

(r) “Voting Parity Stock” means, with regard to any matter as to which the holders of Designated Preferred Stock are entitled to vote as specified in Sections 7(a) and 7(b) of these Standard Provisions that form a part of the Certificate of Designations, any and all series of Parity Stock upon which like voting rights have been conferred and are exercisable with respect to such matter.

Section 3. Dividends.

(a) Rate. Holders of Designated Preferred Stock shall be entitled to receive, on each share of Designated Preferred Stock if, as and when declared by the Board of Directors or any duly authorized committee of the Board of Directors, but only out of assets legally available therefor, cumulative cash dividends with respect to each Dividend Period (as defined below) at a rate per annum equal to the Applicable Dividend Rate on (i) the Liquidation Amount per share of Designated Preferred Stock and (ii) the amount of accrued and unpaid dividends for any prior Dividend Period on such share of Designated Preferred Stock, if any. Such dividends shall begin to accrue and be cumulative from the Original Issue Date, shall compound on each subsequent Dividend Payment Date (i.e., no dividends shall accrue on other dividends unless and until the first Dividend Payment Date for such other dividends has passed without such other dividends having been paid on such date) and shall be payable quarterly in arrears on each Dividend Payment Date, commencing with the first such Dividend Payment Date to occur at least 20 calendar days after the Original Issue Date. In the event that any Dividend Payment Date would otherwise fall on a day that is not a Business Day, the dividend payment due on that date will be postponed to the next day that is a Business Day and no additional dividends will accrue as a result of that postponement. The period from and including any Dividend Payment Date to, but excluding, the next Dividend Payment Date is a “Dividend Period”, provided that the initial Dividend Period shall be the period from and including the Original Issue Date to, but excluding, the next Dividend Payment Date.

Dividends that are payable on Designated Preferred Stock in respect of any Dividend Period shall be computed on the basis of a 360-day year consisting of twelve 30-day months. The amount of dividends payable on Designated Preferred Stock on any date prior to the end of a Dividend Period, and for the initial Dividend Period, shall be computed on the basis of a 360-day year consisting of twelve 30-day months, and actual days elapsed over a 30-day month.

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Dividends that are payable on Designated Preferred Stock on any Dividend Payment Date will be payable to holders of record of Designated Preferred Stock as they appear on the stock register of the Corporation on the applicable record date, which shall be the 15th calendar day immediately preceding such Dividend Payment Date or such other record date fixed by the Board of Directors or any duly authorized committee of the Board of Directors that is not more than 60 nor less than 10 days prior to such Dividend Payment Date (each, a “Dividend Record Date”). Any such day that is a Dividend Record Date shall be a Dividend Record Date whether or not such day is a Business Day.

Holders of Designated Preferred Stock shall not be entitled to any dividends, whether payable in cash, securities or other property, other than dividends (if any) declared and payable on Designated Preferred Stock as specified in this Section 3 (subject to the other provisions of the Certificate of Designations).

(b) Priority of Dividends. So long as any share of Designated Preferred Stock remains outstanding, no dividend or distribution shall be declared or paid on the Common Stock or any other shares of Junior Stock (other than dividends payable solely in shares of Common Stock) or Parity Stock, subject to the immediately following paragraph in the case of Parity Stock, and no Common Stock, Junior Stock or Parity Stock shall be, directly or indirectly, purchased, redeemed or otherwise acquired for consideration by the Corporation or any of its subsidiaries unless all accrued and unpaid dividends for all past Dividend Periods, including the latest completed Dividend Period (including, if applicable as provided in Section 3(a) above, dividends on such amount), on all outstanding shares of Designated Preferred Stock have been or are contemporaneously declared and paid in full (or have been declared and a sum sufficient for the payment thereof has been set aside for the benefit of the holders of shares of Designated Preferred Stock on the applicable record date). The foregoing limitation shall not apply to (i) redemptions, purchases or other acquisitions of shares of Common Stock or other Junior Stock in connection with the administration of any employee benefit plan in the ordinary course of business (including purchases to offset the Share Dilution Amount (as defined below) pursuant to a publicly announced repurchase plan) and consistent with past practice, provided that any purchases to offset the Share Dilution Amount shall in no event exceed the Share Dilution Amount; (ii) purchases or other acquisitions by a broker-dealer subsidiary of the Corporation solely for the purpose of market-making, stabilization or customer facilitation transactions in Junior Stock or Parity Stock in the ordinary course of its business; (iii) purchases by a broker-dealer subsidiary of the Corporation of capital stock of the Corporation for resale pursuant to an offering by the Corporation of such capital stock underwritten by such broker-dealer subsidiary; (iv) any dividends or distributions of rights or Junior Stock in connection with a stockholders’ rights plan or any redemption or repurchase of rights pursuant to any stockholders’ rights plan; (v) the acquisition by the Corporation or any of its subsidiaries of record ownership in Junior Stock or Parity Stock for the beneficial ownership of any other persons (other than the Corporation or any of its subsidiaries), including as trustees or custodians; and (vi) the exchange or conversion of Junior Stock for or into other Junior Stock or of Parity Stock for or into other Parity Stock (with the same or lesser aggregate liquidation amount) or Junior Stock, in each case, solely to the extent required pursuant to binding contractual agreements entered into prior to the Signing Date or any subsequent agreement for the accelerated exercise, settlement or exchange thereof for Common Stock. “Share Dilution Amount” means the increase in the number of diluted shares outstanding (determined in accordance with generally accepted accounting principles in the United States, and as measured from the date of the Corporation’s consolidated financial statements most recently filed with the Securities and Exchange Commission prior to the Original Issue Date) resulting from the grant, vesting or exercise of equity-based compensation to employees and equitably adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction.

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When dividends are not paid (or declared and a sum sufficient for payment thereof set aside for the benefit of the holders thereof on the applicable record date) on any Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a dividend payment date falling within a Dividend Period related to such Dividend Payment Date) in full upon Designated Preferred Stock and any shares of Parity Stock, all dividends declared on Designated Preferred Stock and all such Parity Stock and payable on such Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a dividend payment date falling within the Dividend Period related to such Dividend Payment Date) shall be declared pro rata so that the respective amounts of such dividends declared shall bear the same ratio to each other as all accrued and unpaid dividends per share on the shares of Designated Preferred Stock (including, if applicable as provided in Section 3(a) above, dividends on such amount) and all Parity Stock payable on such Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a dividend payment date falling within the Dividend Period related to such Dividend Payment Date) (subject to their having been declared by the Board of Directors or a duly authorized committee of the Board of Directors out of legally available funds and including, in the case of Parity Stock that bears cumulative dividends, all accrued but unpaid dividends) bear to each other. If the Board of Directors or a duly authorized committee of the Board of Directors determines not to pay any dividend or a full dividend on a Dividend Payment Date, the Corporation will provide written notice to the holders of Designated Preferred Stock prior to such Dividend Payment Date.

Subject to the foregoing, and not otherwise, such dividends (payable in cash, securities or other property) as may be determined by the Board of Directors or any duly authorized committee of the Board of Directors may be declared and paid on any securities, including Common Stock and other Junior Stock, from time to time out of any funds legally available for such payment, and holders of Designated Preferred Stock shall not be entitled to participate in any such dividends.

Section 4. Liquidation Rights.

(a) Voluntary or Involuntary Liquidation. In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, holders of Designated Preferred Stock shall be entitled to receive for each share of Designated Preferred Stock, out of the assets of the Corporation or proceeds thereof (whether capital or surplus) available for distribution to stockholders of the Corporation, subject to the rights of any creditors of the Corporation, before any distribution of such assets or proceeds is made to or set aside for the holders of Common Stock and any other stock of the Corporation ranking junior to Designated Preferred Stock as to such distribution, payment in full in an amount equal to the sum of (i) the Liquidation Amount per share and (ii) the amount of any accrued and unpaid dividends (including, if applicable as provided in Section 3(a) above, dividends on such amount), whether or not declared, to the date of payment (such amounts collectively, the “Liquidation Preference”).

(b) Partial Payment. If in any distribution described in Section 4(a) above the assets of the Corporation or proceeds thereof are not sufficient to pay in full the amounts payable with respect to all outstanding shares of Designated Preferred Stock and the corresponding amounts payable with respect of any other stock of the Corporation ranking equally with Designated Preferred Stock as to such distribution, holders of Designated Preferred Stock and the holders of such other stock shall share ratably in any such distribution in proportion to the full respective distributions to which they are entitled.

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(c) Residual Distributions. If the Liquidation Preference has been paid in full to all holders of Designated Preferred Stock and the corresponding amounts payable with respect of any other stock of the Corporation ranking equally with Designated Preferred Stock as to such distribution has been paid in full, the holders of other stock of the Corporation shall be entitled to receive all remaining assets of the Corporation (or proceeds thereof) according to their respective rights and preferences.

(d) Merger, Consolidation and Sale of Assets Not Liquidation. For purposes of this Section 4, the merger or consolidation of the Corporation with any other corporation or other entity, including a merger or consolidation in which the holders of Designated Preferred Stock receive cash, securities or other property for their shares, or the sale, lease or exchange (for cash, securities or other property) of all or substantially all of the assets of the Corporation, shall not constitute a liquidation, dissolution or winding up of the Corporation.

Section 5. Redemption.

(a) Optional Redemption. Except as provided below, the Designated Preferred Stock may not be redeemed prior to the first Dividend Payment Date falling on or after the third anniversary of the Original Issue Date. On or after the first Dividend Payment Date falling on or after the third anniversary of the Original Issue Date, the Corporation, at its option, subject to the approval of the Appropriate Federal Banking Agency, may redeem, in whole or in part, at any time and from time to time, out of funds legally available therefor, the shares of Designated Preferred Stock at the time outstanding, upon notice given as provided in Section 5(c) below, at a redemption price equal to the sum of (i) the Liquidation Amount per share and (ii) except as otherwise provided below, any accrued and unpaid dividends (including, if applicable as provided in Section 3(a) above, dividends on such amount) (regardless of whether any dividends are actually declared) to, but excluding, the date fixed for redemption.

Notwithstanding the foregoing, prior to the first Dividend Payment Date falling on or after the third anniversary of the Original Issue Date, the Corporation, at its option, subject to the approval of the Appropriate Federal Banking Agency, may redeem, in whole or in part, at any time and from time to time, the shares of Designated Preferred Stock at the time outstanding, upon notice given as provided in Section 5(c) below, at a redemption price equal to the sum of (i) the Liquidation Amount per share and (ii) except as otherwise provided below, any accrued and unpaid dividends (including, if applicable as provided in Section 3(a) above, dividends on such amount) (regardless of whether any dividends are actually declared) to, but excluding, the date fixed for redemption; provided that (x) the Corporation (or any successor by Business Combination) has received aggregate gross proceeds of not less than the Minimum Amount (plus the “Minimum Amount” as defined in the relevant certificate of designations for each other outstanding series of preferred stock of such successor that was originally issued to the United States Department of the Treasury (the “Successor Preferred Stock”) in connection with the Troubled Asset Relief Program Capital Purchase Program) from one or more Qualified Equity Offerings (including Qualified Equity Offerings of such successor), and (y) the aggregate redemption price of the Designated Preferred Stock (and any Successor Preferred Stock) redeemed pursuant to this paragraph may not exceed the aggregate net cash proceeds received by the Corporation (or any successor by Business Combination) from such Qualified Equity Offerings (including Qualified Equity Offerings of such successor).

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The redemption price for any shares of Designated Preferred Stock shall be payable on the redemption date to the holder of such shares against surrender of the certificate(s) evidencing such shares to the Corporation or its agent. Any declared but unpaid dividends payable on a redemption date that occurs subsequent to the Dividend Record Date for a Dividend Period shall not be paid to the holder entitled to receive the redemption price on the redemption date, but rather shall be paid to the holder of record of the redeemed shares on such Dividend Record Date relating to the Dividend Payment Date as provided in Section 3 above.

(b) No Sinking Fund. The Designated Preferred Stock will not be subject to any mandatory redemption, sinking fund or other similar provisions. Holders of Designated Preferred Stock will have no right to require redemption or repurchase of any shares of Designated Preferred Stock.

(c) Notice of Redemption. Notice of every redemption of shares of Designated Preferred Stock shall be given by first class mail, postage prepaid, addressed to the holders of record of the shares to be redeemed at their respective last addresses appearing on the books of the Corporation. Such mailing shall be at least 30 days and not more than 60 days before the date fixed for redemption. Any notice mailed as provided in this Subsection shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of shares of Designated Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Designated Preferred Stock. Notwithstanding the foregoing, if shares of Designated Preferred Stock are issued in book-entry form through The Depository Trust Corporation or any other similar facility, notice of redemption may be given to the holders of Designated Preferred Stock at such time and in any manner permitted by such facility. Each notice of redemption given to a holder shall state: (1) the redemption date; (2) the number of shares of Designated Preferred Stock to be redeemed and, if less than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (3) the redemption price; and (4) the place or places where certificates for such shares are to be surrendered for payment of the redemption price.

(d) Partial Redemption. In case of any redemption of part of the shares of Designated Preferred Stock at the time outstanding, the shares to be redeemed shall be selected either pro rata or in such other manner as the Board of Directors or a duly authorized committee thereof may determine to be fair and equitable. Subject to the provisions hereof, the Board of Directors or a duly authorized committee thereof shall have full power and authority to prescribe the terms and conditions upon which shares of Designated Preferred Stock shall be redeemed from time to time. If fewer than all the shares represented by any certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without charge to the holder thereof.

(e) Effectiveness of Redemption. If notice of redemption has been duly given and if on or before the redemption date specified in the notice all funds necessary for the redemption have been deposited by the Corporation, in trust for the pro rata benefit of the holders of the shares called for redemption, with a bank or trust company doing business in the Borough of Manhattan, The City of New York, and having a capital and surplus of at least $500 million and selected by the Board of Directors, so as to be and continue to be available solely therefor, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date dividends shall cease to accrue on all shares so called for redemption, all shares so called for redemption shall no longer be deemed outstanding and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable on such

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redemption from such bank or trust company, without interest. Any funds unclaimed at the end of three years from the redemption date shall, to the extent permitted by law, be released to the Corporation, after which time the holders of the shares so called for redemption shall look only to the Corporation for payment of the redemption price of such shares.

(f) Status of Redeemed Shares. Shares of Designated Preferred Stock that are redeemed, repurchased or otherwise acquired by the Corporation shall revert to authorized but unissued shares of Preferred Stock (provided that any such cancelled shares of Designated Preferred Stock may be reissued only as shares of any series of Preferred Stock other than Designated Preferred Stock).

Section 6. Conversion. Holders of Designated Preferred Stock shares shall have no right to exchange or convert such shares into any other securities.

Section 7. Voting Rights.

(a) General. The holders of Designated Preferred Stock shall not have any voting rights except as set forth below or as otherwise from time to time required by law.

(b) Preferred Stock Directors. Whenever, at any time or times, dividends payable on the shares of Designated Preferred Stock have not been paid for an aggregate of six quarterly Dividend Periods or more, whether or not consecutive, the authorized number of directors of the Corporation shall automatically be increased by two and the holders of the Designated Preferred Stock shall have the right, with holders of shares of any one or more other classes or series of Voting Parity Stock outstanding at the time, voting together as a class, to elect two directors (hereinafter the “Preferred Directors” and each a “Preferred Director”) to fill such newly created directorships at the Corporation’s next annual meeting of stockholders (or at a special meeting called for that purpose prior to such next annual meeting) and at each subsequent annual meeting of stockholders until all accrued and unpaid dividends for all past Dividend Periods, including the latest completed Dividend Period (including, if applicable as provided in Section 3(a) above, dividends on such amount), on all outstanding shares of Designated Preferred Stock have been declared and paid in full at which time such right shall terminate with respect to the Designated Preferred Stock, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent default of the character above mentioned; provided that it shall be a qualification for election for any Preferred Director that the election of such Preferred Director shall not cause the Corporation to violate any corporate governance requirements of any securities exchange or other trading facility on which securities of the Corporation may then be listed or traded that listed or traded companies must have a majority of independent directors. Upon any termination of the right of the holders of shares of Designated Preferred Stock and Voting Parity Stock as a class to vote for directors as provided above, the Preferred Directors shall cease to be qualified as directors, the term of office of all Preferred Directors then in office shall terminate immediately and the authorized number of directors shall be reduced by the number of Preferred Directors elected pursuant hereto. Any Preferred Director may be removed at any time, with or without cause, and any vacancy created thereby may be filled, only by the affirmative vote of the holders a majority of the shares of Designated Preferred Stock at the time outstanding voting separately as a class together with the holders of shares of Voting Parity Stock, to the extent the voting rights of such holders described above are then exercisable. If the office of any Preferred Director becomes vacant for any reason other than removal from office as aforesaid, the remaining Preferred Director may choose a successor who shall hold office for the unexpired term in respect of which such vacancy occurred.

(c) Class Voting Rights as to Particular Matters. So long as any shares of Designated Preferred Stock are outstanding, in addition

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to any other vote or consent of stockholders required by law or by the Charter, the vote or consent of the holders of at least 66  ²/3% of the shares of Designated Preferred Stock at the time outstanding, voting as a separate class, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating:

(i) Authorization of Senior Stock. Any amendment or alteration of the Certificate of Designations for the Designated Preferred Stock or the Charter to authorize or create or increase the authorized amount of, or any issuance of, any shares of, or any securities convertible into or exchangeable or exercisable for shares of, any class or series of capital stock of the Corporation ranking senior to Designated Preferred Stock with respect to either or both the payment of dividends and/or the distribution of assets on any liquidation, dissolution or winding up of the Corporation;

(ii) Amendment of Designated Preferred Stock. Any amendment, alteration or repeal of any provision of the Certificate of Designations for the Designated Preferred Stock or the Charter (including, unless no vote on such merger or consolidation is required by Section 7(c)(iii) below, any amendment, alteration or repeal by means of a merger, consolidation or otherwise) so as to adversely affect the rights, preferences, privileges or voting powers of the Designated Preferred Stock; or

(iii) Share Exchanges, Reclassifications, Mergers and Consolidations. Any consummation of a binding share exchange or reclassification involving the Designated Preferred Stock, or of a merger or consolidation of the Corporation with another corporation or other entity, unless in each case (x) the shares of Designated Preferred Stock remain outstanding or, in the case of any such merger or consolidation with respect to which the Corporation is not the surviving or resulting entity, are converted into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent, and (y) such shares remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges and voting powers, and limitations and restrictions thereof, taken as a whole, as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers, and limitations and restrictions thereof, of Designated Preferred Stock immediately prior to such consummation, taken as a whole;

provided, however, that for all purposes of this Section 7(c), any increase in the amount of the authorized Preferred Stock, including any increase in the authorized amount of Designated Preferred Stock necessary to satisfy preemptive or similar rights granted by the Corporation to other persons prior to the Signing Date, or the creation and issuance, or an increase in the authorized or issued amount, whether pursuant to preemptive or similar rights or otherwise, of any other series of Preferred Stock, or any securities convertible into or exchangeable or exercisable for any other series of Preferred Stock, ranking equally with and/or junior to Designated Preferred Stock with respect to the payment of dividends (whether such dividends are cumulative or non-cumulative) and the distribution of assets upon liquidation, dissolution or winding up of the Corporation will not be deemed to adversely affect the rights, preferences, privileges or voting powers, and shall not require the affirmative vote or consent of, the holders of outstanding shares of the Designated Preferred Stock.

(d) Changes after Provision for Redemption. No vote or consent of the holders of Designated Preferred Stock shall be required pursuant to Section 7(c) above if, at or prior to the time when any such vote or consent would otherwise be required pursuant to such Section, all outstanding shares of the Designated Preferred Stock shall have been redeemed, or shall have been called for redemption upon proper notice and sufficient funds shall have been deposited in trust for such redemption, in each case pursuant to Section 5 above.

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(e) Procedures for Voting and Consents. The rules and procedures for calling and conducting any meeting of the holders of Designated Preferred Stock (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other aspect or matter with regard to such a meeting or such consents shall be governed by any rules of the Board of Directors or any duly authorized committee of the Board of Directors, in its discretion, may adopt from time to time, which rules and procedures shall conform to the requirements of the Charter, the Bylaws, and applicable law and the rules of any national securities exchange or other trading facility on which Designated Preferred Stock is listed or traded at the time.

Section 8. Record Holders. To the fullest extent permitted by applicable law, the Corporation and the transfer agent for Designated Preferred Stock may deem and treat the record holder of any share of Designated Preferred Stock as the true and lawful owner thereof for all purposes, and neither the Corporation nor such transfer agent shall be affected by any notice to the contrary.

Section 9. Notices. All notices or communications in respect of Designated Preferred Stock shall be sufficiently given if given in writing and delivered in person or by first class mail, postage prepaid, or if given in such other manner as may be permitted in this Certificate of Designations, in the Charter or Bylaws or by applicable law. Notwithstanding the foregoing, if shares of Designated Preferred Stock are issued in book-entry form through The Depository Trust Corporation or any similar facility, such notices may be given to the holders of Designated Preferred Stock in any manner permitted by such facility.

Section 10. No Preemptive Rights. No share of Designated Preferred Stock shall have any rights of preemption whatsoever as to any securities of the Corporation, or any warrants, rights or options issued or granted with respect thereto, regardless of how such securities, or such warrants, rights or options, may be designated, issued or granted.

Section 11. Replacement Certificates. The Corporation shall replace any mutilated certificate at the holder’s expense upon surrender of that certificate to the Corporation. The Corporation shall replace certificates that become destroyed, stolen or lost at the holder’s expense upon delivery to the Corporation of reasonably satisfactory evidence that the certificate has been destroyed, stolen or lost, together with any indemnity that may be reasonably required by the Corporation.

Section 12. Other Rights. The shares of Designated Preferred Stock shall not have any rights, preferences, privileges or voting powers or relative, participating, optional or other special rights, or qualifications, limitations or restrictions thereof, other than as set forth herein or in the Charter or as provided by applicable law.

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EX-3.2

Exhibit 3.2

FIRST MIDWEST BANCORP, INC.

AMENDED AND RESTATED BY-LAWS

(ADOPTED BY THE BOARD OF DIRECTORS MAY 20, 2003

AND AMENDED AUGUST 16, 2006, NOVEMBER 15, 2006 AND AUGUST 15, 2007)

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 First Midwest Bancorp, Inc. (the “Corporation”) in charge thereof.

Section 1.2 Other Offices. 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 for the election of directors or as otherwise provided by the Certificate of Incorporation or the laws of the State of Delaware. Each director shall be elected by the vote of the majority of the votes cast with respect to the director at any meeting for the election of directors at which a quorum is present, provided that if (i) the Secretary of the Corporation receives a notice that a stockholder proposes to nominate a person for election to the Board of Directors in compliance with the advance notice requirements for stockholder nominees for director set forth in Article Fourth, Part III (d) of the Certificate of Incorporation and (ii) such notice has not been withdrawn by such stockholder on or prior to the fifth business day next preceding the date of the notice to stockholders for such meeting, the directors shall be elected by the vote of a plurality of the shares represented in person or by proxy at any such meeting and entitled to vote on the election of directors. For purposes of the preceding sentence, “the majority of the votes cast” means that the number of shares voted “for” a director must exceed the number of votes cast “against” that director. If a nominee for director who is an incumbent director is not elected and no successor has been elected at such meeting, the director shall tender his or her resignation to the Board of Directors. The Nominating and Corporate Governance Committee will make a recommendation to the Board of Directors on whether to accept or reject the resignation, or whether other action should be taken. The Board of Directors will act on the Committee’s recommendation and publicly disclose its decision and the rationale behind it within 90 days from the date of the certification of the election results. The director who tenders his or her resignation will not participate in the recommendation of the Nominating and Corporate Governance Committee or the decision of the Board of Directors with respect to such director’s resignation. If there are not at least two members of the Nominating and Corporate Governance Committee who either were elected at the meeting or did not stand for election, then each of the independent members of the Board of Directors who either were elected at the meeting or did not stand for election shall appoint a committee amongst themselves to consider any resignation offer and recommend to the Board of Directors whether to accept such resignation (which committee of the members shall act in lieu of the Nominating and Corporate Governance Committee with respect to the tendered resignation in such situation). 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 written 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.

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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.

Section 2.9 Advance Notice of Stockholder Proposals. Any notice which is required to be delivered pursuant to Article Fourth, Part III (d) of the Certificate of Incorporation must include the following additional information: (i) whether the stockholder delivering the notice is providing the notice at the request of a beneficial holder of shares, whether such stockholder, any such beneficial holder or any nominee for director has any agreement, arrangement or understanding with, or has received any financial assistance, funding or other consideration from, any other person with respect to the investment by the stockholder or such beneficial holder in the Corporation or the proposal to which the notice relates to, and the details thereof, including the name of such other person (the stockholder delivering the notice, any beneficial holder on whose behalf the notice is being delivered, any nominees listed in the notice and any persons with whom such agreement, arrangement or understanding exists or from whom such assistance has been obtained are hereinafter collectively referred to as “Interested Person”), (ii) the name and address of all Interested Persons, (iii) a complete listing of the record and beneficial ownership positions (including number or amount) of all equity securities and debt instruments, whether held in the form of loans or capital market instruments, of the Corporation or any of its subsidiaries held by all Interested Persons, (iv) whether and the extent to which any hedging, derivative or other transaction is in place or has been entered into within the prior six months preceding the date of delivery of such notice by or for the benefit of any Interested Person with

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respect to the Corporation or its subsidiaries or any of their respective securities, debt instruments or credit ratings, the effect or intent of which transaction is to give rise to gain or loss as a result of changes in the trading price of such securities or debt instruments or changes in the credit ratings for the Corporation, its subsidiaries or any of their respective securities or debt instruments (or, more generally, changes in the perceived creditworthiness of the Corporation or its subsidiaries), or to increase or decrease the voting power of such Interested Person, and if so, a summary of the material terms thereof, and (v) a representation that the stockholder is a holder of record of stock of the Corporation that would be entitled to vote at the meeting and intends to appear in person or by proxy at the meeting to propose the matter set forth in the notice. As used herein, the term “beneficially owned” has the meaning provided in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934 (the “Exchange Act”), together with all securities beneficially owned by such person’s affiliates and associates (as defined in Rule 12b-2 under the Exchange Act. The notice delivered pursuant to Article Fourth, Part III (d) of the Certificate of Incorporation and this Section 2.9 shall be updated not later than 10 days after the record date for the determination of stockholders entitled to vote at the meeting to provide any material changes in the foregoing information as of the record date. Such notice must also provide whether each nominee named therein is eligible for consideration as an independent director under the relevant standards contemplated by Item 407(a) of Regulation S-K (or the corresponding provisions of any successor regulation). The Corporation may also require any proposed nominee to furnish such other information, including completion of the Corporation’s director questionnaire, as it may reasonably require to determine whether the nominee would be considered “independent” as a director or as a member of the audit committee of the Board of Directors under the various rules and standards applicable to the Corporation. Notwithstanding the provisions of Article Fourth, Part III (d) of the Certificate of Incorporation and this Section 2.9, if the stockholder or a qualified representative of the stockholder does not appear at the meeting of the Corporation to present any such nomination, or make any such proposal, such nomination or proposal shall be disregarded, notwithstanding that proxies in respect of such vote may have been received by the Corporation.

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.

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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 Vice Chairman of The Board. The Board of Directors may, in its discretion, elect one or more of its members to be a Vice Chairman of the Board of Directors. Each Vice Chairman shall assist the Chairman and have such other duties as may be assigned by the Board of Directors or the Chairman. In the absence of the Chairman, or in the event of his inability or refusal to act, the Vice Chairman shall preside at any meetings of stockholders and of the Board of Directors and otherwise perform whatever duties that are performed by the Chairman and shall have all the powers that usually attach or pertain to such position.

Section 3.8 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 of Directors may be called by or at the request of the Chairman of the Board of Directors, the Chief Executive Officer or such number of directors as shall constitute at least one-third 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 Vice Chairman of the Board of Directors, or in the absence of the Vice 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.

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Section 3.9 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 of Directors 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 3.10 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 3.11 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 3.12 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 3.13 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 3.14 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 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.

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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 other Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers, as the Board of Directors in its discretion may deem proper. None of the officers of the Corporation need be directors, however both the Chairman of the Board of Directors and the Vice Chairman of the Board of Directors may be deemed officers of the Corporation as the Board of Directors in its discretion may deem proper. The officers shall be elected at the first meeting of the Board of Directors after each annual meeting. Any two or more 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. Any two or more offices may be held by the same person.

Section 4.3 Compensation. The compensation of the Chief Executive Officer and senior officers 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 both the Chairman of the Board of Directors and the Vice Chairman of the Board of Directors, at all meetings of the Board of Directors.

Section 4.6 President. The President shall assist the Chief Executive Officer and have such other duties and have such powers as may be assigned or prescribed by the Chief Executive Officer from time to time. 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.

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

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designation, then in the order of 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 of Directors 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 Vice 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, provided that the Board of Directors of the Corporation may provide by resolution or resolutions that some all of any or all classes or series of stock in the Corporation shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to 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 and subject to the limits of applicable Federal law and regulation, 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,

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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 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 and subject to the limits of applicable Federal law and regulation, 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.

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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.

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.

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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.

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

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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-10.3

Exhibit 10.3

FIRST MIDWEST BANCORP, INC.

SAVINGS AND PROFIT SHARING PLAN

In accordance with the authorizations and directions of the Board of Directors of First Midwest Bancorp, Inc., the attached First Midwest Bancorp, Inc. Savings and Profit Sharing Plan, As Amended and Restated Effective January 1, 2008, except as expressly provided otherwise, is hereby adopted effective as of such date by the undersigned duly authorized officer.

FIRST MIDWEST BANCORP, INC.
By:	/s/ MICHAEL L. SCUDDER
	Michael L. Scudder
	President and Chief Executive Officer

ATTEST:

/s/ CYNTHIA A. LANCE

Cynthia A. Lance

Corporate Secretary

FIRST MIDWEST BANCORP, INC.

SAVINGS AND PROFIT SHARING PLAN

As Amended and Restated Effective January 1, 2008,

Except as Expressly Provided Otherwise

TABLE OF CONTENTS

		Page
ARTICLE 1	GENERAL	1
1.1	Purpose	1
1.2	Source of Funds	1
1.3	Effective Date	1
1.4	Definitions	1
	Account or Accounts	1
	Active Participant	2
	Actual Deferral Percentage and Actual Deferral Percentage Test	2
	Affiliate	2
	Annual Addition	3
	Before-Tax Contributions	3
	Board of Directors	3
	Business Day	3
	Catch-Up Contributions	3
	Code	3
	Committee	3
	Company	3
	Considered Compensation	3
	Defined Contribution Dollar Limitation	3
	Determination Date	4
	Early Retirement Date	4
	Eligible Employee	4
	Eligible Participant	4
	Eligibility Period	4
	Employer	4
	Employer Contribution	4
	Employment Commencement Date	5
	Entry Date	5
	ERISA	5
	Excess Tentative Contribution	5
	Five-Percent Owner	5
	Heritage Fund	5
	Heritage Plan	5
	Highly Compensated Employee	5
	Hour of Service	5
	Individual Beneficiary	6
	Investment Options	6
	Leased Employee	6
	Limitation Year	7
	Limited Participant	7
	Matching Employer Contributions	7
	McHenry Plan	7

i

TABLE OF CONTENTS

(continued)

		Page
	Member of a Collective Bargaining Unit	7
	Non-Highly Compensated Employee	7
	Normal Retirement Date	7
	One-Year Break in Service	7
	Participant	8
	Plan	8
	Plan Year	8
	Prior Plan	8
	Provisional Annual Addition	9
	Qualified Military Service	9
	Required Beginning Date	9
	Rollover Contribution	9
	Severance Date	9
	Taxable Compensation	10
	Tentative Employer Contribution	10
	Total Compensation	10
	Trust	11
	Trustee	11
	Valuation Date	11
	Year of Service	11
1.5	EGTRRA Compliance	11
ARTICLE 2	ELIGIBILITY AND PARTICIPATION	12
2.1	Eligibility Requirements	12
2.2	Leaves of Absence	13
2.3	Years of Service to be Credited	13
2.4	Years of Service to be Disregarded	14
2.5	Leased Employees	14
2.6	Qualified Military Service	14
ARTICLE 3	CONTRIBUTIONS BY EMPLOYER AND ROLLOVER CONTRIBUTIONS	15
3.1	Contributions to the Plan.	15
3.2	Before-Tax and Catch-Up Contribution	15
3.3	Limitations on Before-Tax Contributions and Matching Employer Contributions	16
3.4	Employer Contribution	18
3.5	Matching Employer Contribution	19
3.6	Rollover Contributions	19
ARTICLE 4	ACCOUNTING PROVISIONS AND ALLOCATIONS	20
4.1	Participant’s Accounts	20
4.2	Common Fund	20

ii

TABLE OF CONTENTS

(continued)

		Page
4.3	Allocation Procedure	21
4.4	Determination of Value of Trust Fund and of Net Earnings or Losses	22
4.5	Allocation of Net Earnings or Losses	22
4.6	Eligibility to Share in the Employer Contributions	22
4.7	Allocation of Before-Tax Contributions	23
4.8	Allocation of Matching Employer Contributions	24
4.9	Allocation of Employer Contribution	24
4.10	Provisional Annual Addition	24
4.11	Limitation on Annual Additions	24
ARTICLE 5	AMOUNT OF PAYMENTS TO PARTICIPANTS	26
5.1	General Rule	26
5.2	Normal Retirement	26
5.3	Death	26
5.4	Disability	27
5.5	Vesting	27
5.6	Resignation or Dismissal	27
5.7	Treatment of Forfeitures	28
ARTICLE 6	DISTRIBUTIONS	30
6.1	Commencement of Distributions	30
6.2	Form of Distributions	30
6.3	Distributions to Beneficiaries	31
6.4	Beneficiaries	31
6.5	Form of Elections and Applications for Benefits	32
6.6	Unclaimed Distributions	32
6.7	Loans	32
6.8	Withdrawals Prior to Termination of Employment	33
6.9	Facility of Payment	35
6.10	Claims Procedure	35
6.11	Eligible Rollover Distributions	36
6.12	Minimum Required Distributions	38
6.13	Automatic Rollover	42
ARTICLE 7	TOP-HEAVY PLAN REQUIREMENTS	43
7.1	Definition of Top-Heavy Plan	43
7.2	Top-Heavy Plan Requirements	43
7.3	Definitions	44
7.4	Cessation of Top-Heavy Requirements	44
7.5	EGTRRA Top-Heavy Provisions	45
ARTICLE 8	POWERS AND DUTIES OF PLAN COMMITTEE	46
8.1	Appointment of Plan Committee	46

iii

TABLE OF CONTENTS

(continued)

		Page
8.2	Powers and Duties of Committee	46
8.3	Committee Procedures	47
8.4	Consultation with Advisors	47
8.5	Committee Members as Participants	47
8.6	Records and Reports	47
8.7	Investment Policy	47
8.8	Designation of Other Fiduciaries	48
8.9	Obligations of Committee	48
8.10	Indemnification of Committee	49
ARTICLE 9	TRUSTEE AND TRUST FUND	50
9.1	Trust Fund	50
9.2	Payments to Trust Fund and Expenses	50
9.3	Trustee’s Responsibilities	50
9.4	Reversion to the Employer	50
9.5	Investment Options	50
9.6	Rollover from Prior Plan	51
ARTICLE 10	AMENDMENT OR TERMINATION	53
10.1	Amendment	53
10.2	Termination	53
10.3	Form of Amendment, Discontinuance of Employer Contributions, and Termination	53
10.4	Limitations on Amendments	53
10.5	Level of Benefits upon Merger	53
10.6	Vesting upon Termination or Discontinuance of Employer Contributions; Liquidation of Trust	54
ARTICLE 11	ADOPTION BY AFFILIATES	55
11.1	Adoption of Plan	55
11.2	The Company as Agent for Employer	55
11.3	Adoption of Amendments	55
11.4	Termination	55
11.5	Data to be Furnished by Employers	55
11.6	Joint Employees	55
11.7	Expenses	55
11.8	Withdrawal	56
11.9	Prior Plans	56
11.10	Merger of the Heritage Plan into the Plan	56
ARTICLE 12	MISCELLANEOUS	57
12.1	No Guarantee of Employment, etc	57
12.2	Rights of Participants and Others	57

iv

TABLE OF CONTENTS

(continued)

		Page
12.3	Qualified Domestic Relations Order	57
12.4	Controlling Law	57
12.5	Severability	57
12.6	Notification of Addresses	57
12.7	Gender and Number	58
ARTICLE 13	ESOP PROVISIONS	59
13.1	General	59
13.2	Treatment of the ESOP Fund	59
13.3	Allocation of Employer Contribution	59
13.4	Allocation of Net Earnings and Losses and Dividends	59
13.5	ESOP Provisions	60

v

ARTICLE 1

GENERAL

1.1 Purpose. It is the intention of the Company to continue to provide for the administration of the First Midwest Bancorp Savings and Profit Sharing Plan and a Trust Fund in conjunction therewith for the benefit of Eligible Employees of the Employers, in accordance with the provisions of Sections 401 and 501 of the Code and in accordance with other provisions of law relating to defined contribution plans. Except as provided in this Plan or the Trust, upon the transfer by the Employer of any funds to the Trust Fund in accordance with the provisions of this Plan, all interest of the Employer therein shall cease and terminate, and no part of the Trust Fund shall be used for, or diverted to, purposes other than the exclusive benefit of Participants and their beneficiaries.

1.2 Source of Funds. The Trust Fund shall be created, funded and maintained by contributions of the Employers, by contributions of Participants, and by such net earnings as are obtained from the investment of the funds of the Trust Fund.

1.3 Effective Date. The provisions of the Plan as herein restated shall be effective as of January 1, 2008, except as expressly provided otherwise. Except as may be required by ERISA or the Code, the rights of any person whose status as an employee of the Employer and all Affiliates has terminated shall be determined pursuant to the Plan as in effect on the date such employment terminated, unless a subsequently adopted provision of the Plan is made specifically applicable to such person.

1.4 Definitions. Certain terms are capitalized and have the respective meanings set forth in the Plan.

Account or Accounts. “Account” or “Accounts” shall mean the individual accounts established pursuant to Section 4.1 representing a Participant’s allocable share of the Trust Fund. Such Accounts may include:

(a) An “Employer Contribution Account” maintained to record the amount of Employer Contributions, any net earnings or losses of the Trust Fund thereon and any distributions or forfeitures thereof allocated to a Participant in accordance with Article 4.

(b) A “Vested Employer Account” maintained to record the amount of Employer Contributions, if any, made on behalf of a Participant prior to January 1, 1998 which were, under the terms of the Plan in effect at such time, immediately nonforfeitable when contributed, and adjustments for net earnings or losses of the Trust Fund thereon and any distributions or forfeitures thereof allocated to a Participant in accordance with Article 4.

(c) A “Before-Tax Account” maintained to record the amount of Before-Tax Contributions, any net earnings or losses of the Trust Fund thereon and any distributions thereof allocated to a Participant in accordance with Article 4.

(d) A “Matching Account” maintained to record the amount of Matching Employer Contributions and forfeitures, any net earnings or losses of the Trust Fund thereon and any distributions thereof allocated to a Participant in accordance with Article 4.

(e) A “Prior Plan Account” maintained to record the balance of any account under a Prior Plan, other than the McHenry Plan Account and the Heritage Plan Account, attributable to amounts other than after-tax contributions which is transferred to the Trust Fund, adjustments for net earnings or losses of the Trust Fund thereon and any distributions thereof allocated to a Participant in accordance with Article 4.

(f) A “Heritage Plan Account” maintained to record the balance of any contributions made on behalf of a Participant under the Heritage Plan, adjustments for net earnings or losses of the Trust Fund thereon and any distributions thereof allocated to a Participant in accordance with Article 4.

(g) A “McHenry Plan Account” maintained to record the balance of any discretionary employer contributions made on behalf of a Participant under the McHenry Plan, adjustments for net earnings or losses of the Trust Fund thereon and any distributions thereof allocated to a Participant in accordance with Article 4.

(h) An “After-Tax Account” maintained to record the balance of any account under a Prior Plan attributable to after-tax contributions which is transferred to the Trust Fund, adjustments for net earnings or losses of the Trust Fund thereon and any distributions thereof allocated to a Participant in accordance with Article 4.

(i) A “Rollover Account” maintained to record the balance of any Rollover Contribution pursuant to Section 3.6, any net earnings or losses of the Trust Fund thereon and any distributions thereof allocated to a Participant in accordance with Article 4. To the extent applicable to any Rollover Account, an after-tax sub-account shall be maintained as part of the Participant’s Rollover Account to record the balance of any account under a Prior Plan or Rollover Contribution attributable to after-tax contributions, any net earnings or losses of the Trust Fund thereon and any distributions thereof allocated to a Participant in accordance with Article 4.

(j) A “Catch-Up Contribution Account,” maintained to record the amount of Catch-Up Contributions, any net earnings or losses of the Trust Fund thereon and any distributions thereof allocated to a Participant in accordance with Article 4.

Active Participant. “Active Participant” means a Participant who, on a given date, is employed by the Employer as an Eligible Employee.

Actual Deferral Percentage and Actual Deferral Percentage Test. “Actual Deferral Percentage” and “Actual Deferral Percentage Test” are described in Section 3.3.

Affiliate. “Affiliate” means any corporation or enterprise, other than the Company, which, as of a given date, is a member of the same controlled group of corporations, the same group of trades or businesses under common control or the same affiliated service group, determined in accordance with Sections 414(b), (c), (m) or (o) of the Code, as is the Company. For purposes of applying the

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limitations of Section 415 of the Code set forth in Article 4, “Affiliate” shall include any corporation or enterprise, other than the Company, which, as of a given date, is a member of the same controlled group of corporations or the same group of trades or businesses under common control, determined in accordance with Sections 414(b) or (c) of the Code as modified by Section 415(h) thereof, as is the Company.

Annual Addition. “Annual Addition” means for any Limitation Year, the sum of (a) all Before-Tax Contributions, Matching Employer Contributions, Employer Contributions, forfeitures and after-tax contributions allocated to the accounts of the Participant under this Plan; (b) any employer contributions, forfeitures and employee after-tax contributions allocated to such Participant under any other defined contribution plan maintained by an Employer or Affiliate; and (c) amounts allocated to an individual medical account as defined in Code Section 415(l)(2) and amounts attributable to post-retirement medical benefits allocated to an account described in Code Section 419A(d)(2) maintained by the Employer or an Affiliate.

Before-Tax Contributions. “Before-Tax Contributions” mean, with respect to a Participant, the contributions made on behalf of such Participant by the Employer as described in Section 3.2(a) and, with respect to the Employer, the sum of all such contributions made on behalf of all Participants.

Board of Directors. “Board of Directors” means the Board of Directors of the Company.

Business Day “Business Day” means each day on which the Federal Reserve, the New York Stock Exchange and the Trustee are open for business, or if different and to the extent applicable, each day as of which trades are recognized under the rules governing an investment fund of the Plan.

Catch-Up Contributions. “Catch-Up Contributions” means the contributions described in subsection 3.2(c).

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

Committee. “Committee” means the plan administrator and named fiduciary appointed pursuant to Section 8.1.

Company. The “Company” means First Midwest Bancorp, Inc., a corporation organized and existing under the laws of the State of Delaware.

Considered Compensation. A Participant’s “Considered Compensation” for any Plan Year is his Total Compensation, excluding any severance or transitional pay, received from an Employer during such Plan Year paid while he was a Participant; provided, however, Considered Compensation shall not include any amount in excess of $230,000, as adjusted for increases in the cost of living in accordance with Code Section 401(a)(17)(B).

Defined Contribution Dollar Limitation. The “Defined Contribution Dollar Limitation” shall, for any Limitation Year, be equal to $46,000, as adjusted by the Secretary of the Treasury pursuant to Code Section 415(d) (prorated for any Limitation Year of less than 12 months).

3

Determination Date. A Participant’s Determination Date is the Valuation Date coinciding with his termination of employment.

Early Retirement Date. A Participant’s “Early Retirement Date” is the date on which he has completed at least 15 Years of Service and attained age 55. Notwithstanding the foregoing, with respect to any Participant who formerly participated in the Heritage Plan and was an employee of Heritage Bank Country Club Hills (f/n/a 1st Heritage Bank) on January 13, 1992, the effective date of its acquisition by Heritage Financial Services, “Early Retirement Date” means the date on which such Participant attains his 55th birthday and has completed five Years of Service. For purposes of Section 4.6, “Early Retirement Date” also includes a retirement date designated by an Employer in connection with the Participant’s election to participate in a voluntary retirement program offered by the Participant’s Employer. Retirement shall be considered as commencing on the day immediately following a Participant’s last day of employment (or Authorized Leave of Absence, if later).

Eligible Employee. An “Eligible Employee” is any employee of the Employer or an Affiliate but excluding any employee who is: (1) a Member of a Collective Bargaining Unit, (2) an individual providing services to the Employer in the capacity of, or who is or was designated by the Employer as, a Leased Employee or an independent contractor, or (3) reasonably expected to be a continuous employee for no longer than thirteen weeks, with such expectation based on (A) the fact that the employee is providing services during a break period from a post-secondary education institution at which the employee is enrolled or is expected to be enrolled or (B) such other facts that indicate such a limited continuous employment relationship.

Eligible Participant. An “Eligible Participant” is a Participant as defined in Section 4.6.

Eligibility Period. An “Eligibility Period” is a one-year period used for the purpose of determining when an employee is eligible to participate in the Plan. An employee’s first Eligibility Period shall commence on the date on which he first completes an Hour of Service and subsequent Eligibility Periods shall commence on each anniversary thereof; provided, however, that subsequent Eligibility Periods shall commence on the first day of each Plan Year which begins after the date on which the Participant first completes an Hour of Service. Notwithstanding the foregoing, the initial Eligibility Period of a former employee who is reemployed after incurring one or more One-Year Breaks in Service and who is not eligible for immediate participation pursuant to Section 2.1(c) shall commence on the date on which he first performs duties for the Employer or an Affiliate after such One-Year Break in Service, and subsequent Eligibility Periods shall commence on the anniversary thereof or on the first day of each Plan Year which begins after said date, as determined by applying the preceding sentence as if such date were the first date on which the Participant first completed an Hour of Service.

Employer. “Employer” means the Company or any such Affiliate thereof which adopts the Plan in accordance with Article 11.

Employer Contribution. “Employer Contribution” is the contribution referred to in Section 3.4.

4

Employment Commencement Date. An individual’s “Employment Commencement Date” is the first date on which he performs duties for the Employer or an Affiliate as an employee; provided that in the case of an employee who returns to service following his Severance Date, the employee’s “Employment Commencement Date” is the first date on which he performs duties for the Employer or an Affiliate as an employee following such Severance Date.

Entry Date. January 1 and July 1 of each Plan Year shall be an “Entry Date.”

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

Excess Tentative Contribution. “Excess Tentative Contribution” is the excess contribution described in Section 4.11(d).

Five-Percent Owner. “Five-Percent Owner” means a five-percent owner of the Employer or an Affiliate within the meaning of Section 414(i)(1) of the Code.

Heritage Fund. “Heritage Fund” means the Fund established and maintained under Section 9.5(a)(iv) of the Plan.

Heritage Plan. “Heritage Plan” means the Heritage Financial Services Profit Sharing Plan as in effect on September 30, 1998, which was merged into this Plan effective October 1, 1998.

Highly Compensated Employee. “Highly Compensated Employee” means an employee of the Employer or an Affiliate who was a Participant eligible during the Plan Year to make Before-Tax Contributions and who:

(a) was a Five-Percent Owner at any time during the Plan Year; or

(b) received Total Compensation in excess of $105,000 (as adjusted for increases in the cost of living by the Secretary of the Treasury) during the preceding Plan Year and was among the top 20% of the employees (disregarding those employees excludable under Code Section 415(q)(5)) when ranked on the basis of Total Compensation paid for that year.

To the extent required by Code Section 414(q)(6), a former employee who was a Highly Compensated Employee when he or she separated from service with the Employer and all Affiliates or at any time after attaining age 55 shall be treated as a Highly Compensated Employee.

Hour of Service. An “Hour of Service” is:

(a) each hour for which an employee is paid or entitled to payment for the performance of duties for the Employer or an Affiliate;

(b) each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer or an Affiliate; and

5

(c) each hour for which an employee is paid or entitled to payment for a period during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity, layoff, jury duty, military duty, or leave of absence. In crediting Hours of Service pursuant to this subparagraph (c), all payments made or due shall be taken into account, whether such payments are made directly by the Employer or an Affiliate or indirectly (e.g., through a trust fund or insurer to which the Employer or an Affiliate makes payments, or otherwise), except that:

(i) no more than 501 such Hours of Service shall be credited for any continuous period during which the employee performs no duties;

(ii) no such Hours of Service shall be credited if payments are made or due under a plan maintained solely for the purpose of complying with any workers’ compensation, unemployment compensation or disability insurance laws; and

(iii) no such Hours of Service shall be credited for payments which are made solely to reimburse the employee for medical or medically related expenses.

The Hours of Service, if any, for which an employee is credited for a period in which he performs no duties shall be computed and credited to computation periods in accordance with 29 C.F.R. 2530.200b-2 and other applicable regulations promulgated by the Secretary of Labor. For purposes of computing the Hours of Service to be credited to an employee for whom a record of hours worked is not maintained, an employee shall be credited with 45 Hours of Service for each week in which he completes at least one Hour of Service. In addition, an employee shall be credited with Hours of Service for each week the employee is on a leave of absence in accordance with Section 2.2.

Individual Beneficiary. “Individual Beneficiary” means a natural person designated by the Participant in accordance with Section 6.4 to receive all or any portion of the amounts remaining in the Participant’s Accounts at the time of the Participant’s death. “Individual Beneficiary” also means a natural person who is a beneficiary of a trust designated by the Participant in accordance with Section 6.4 to receive all or a portion of such amount, provided the trust requires that such amounts be paid to the beneficiary in the time and manner that this Plan would require that direct payments be made to an Individual Beneficiary.

Investment Options “Investment Options” mean the investment options to be maintained as set forth in Article 9.

Leased Employee. “Leased Employee” means any individual who is not an employee of the Employer or an Affiliate and who provides services for the Employer or an Affiliate if:

(a) such services are provided pursuant to an agreement between the Employer or an Affiliate and any other person;

(b) such individual has performed such services for the Employer or an Affiliate (or a related person within the meaning of Section 144(a)(3) of the Code) on a substantially full-time basis for a period of at least one year; and

6

(c) such services have been performed under the primary direction or control of the Employer or an Affiliate.

Contributions or benefits provided a Leased Employee by the leasing organization which are attributable to services performed for the Employer shall be treated as provided by the Employer. To the extent and for purposes required by Sections 414(n) and (o), a Leased Employee shall be deemed to be an Employee of the Employer, unless: (i) he or she is covered by a money purchase pension plan providing (1) a nonintegrated employer contribution rate of at least 10 percent of compensation, as defined in Code Section 415(c)(3), but including amounts contributed pursuant to a salary reduction agreement which are excludable from the Employee’s gross income under Code Sections 125, 132(f)(4), 401(e)(3), 402(h) or 403(b), (2) immediate participation, and (3) full and immediate vesting; and (ii) Leased Employees do not constitute more than 20 percent of the Employer’s nonhighly compensated workforce.

Limitation Year. “Limitation Year” means a 12-month period beginning January 1 and ending December 31.

Limited Participant. A “Limited Participant” is a current employee of the Employer or an Affiliate who has become eligible to participate in the Plan on a limited basis pursuant to Subsection 2.1(d)(i).

Matching Employer Contributions. “Matching Employer Contributions” means the contributions described in Section 3.5.

McHenry Plan. “McHenry Plan” means the McHenry State Bank Profit Sharing and Savings Plan & Trust, as in effect prior to its merger with this Plan effective December 31, 1997.

Member of a Collective Bargaining Unit. “Member of a Collective Bargaining Unit” means any employee who is included in a collective bargaining unit and whose terms and conditions of employment are covered by a collective bargaining agreement if there is evidence that retirement benefits were the subject of good-faith bargaining between representatives of such employee and the Employer, unless such collective bargaining agreement makes this Plan applicable to such employee.

Non-Highly Compensated Employee. “Non-Highly Compensated Employee” means, for any Plan Year, any employee of the Employer or Affiliate who (a) at any time during the Plan Year was a Participant and (b) was not a Highly Compensated Employee for such Plan Year.

Normal Retirement Date. A Participant’s “Normal Retirement Date” shall be his 65th birthday.

One-Year Break in Service. A “One-Year Break in Service” is a one-year period, commencing on an employee’s Severance Date, during which such employee does not perform duties for an Employer or an Affiliate. Solely for purposes of determining whether a One-Year Break in Service has occurred, absences shall be disregarded if the employee otherwise would normally have been credited with Hours of Service but for the employee’s absence because of a maternity or paternity absence. No more than one year of absence on a single maternity or paternity absence shall be so disregarded. A maternity or paternity absence is an absence from work:

(a) by reason of the pregnancy of the employee;

7

(b) by reason of the birth of a child of the employee;

(c) by reason of the placement of a child with the employee in connection with the adoption of such child by the employee; or

(d) for purposes of caring for such child for a period beginning immediately following such birth or placement.

Any employee requesting such credit shall promptly furnish the Committee such information as the Committee requires to show that the absence from work is a maternity or paternity absence and the number of days for which there was such an absence. No more than 501 hours shall be credited for a maternity or paternity absence. All such hours shall be credited in the Plan Year in which the absence begins if necessary to prevent a One-Year Break in Service in such Plan Year. If such hours are not necessary to prevent a One-Year Break in Service in such Plan Year, the hours shall be credited in the succeeding Plan Year if necessary to prevent a One-Year Break in Service in such Plan Year. In the event the Committee is unable to determine the hours which otherwise would normally have been credited for such absence, the employee shall be credited with 8 hours per day.

Participant. A “Participant” is (a) a current employee of the Employer or an Affiliate who has become eligible to participate in the Plan pursuant to Section 2.1(d)(ii) or (b) a former employee for whose benefit an Account in the Trust Fund is maintained. Notwithstanding the foregoing, an Eligible Employee who is not otherwise a Participant and who (i) makes a Rollover Contribution to the Plan pursuant to Section 3.6 and/or (ii) makes a Before-Tax Contribution to the Plan pursuant to Limited Participant status per Subsection 2.1(d)(i) shall also be treated as a Participant solely to the extent of such Rollover Contribution and/or Before-Tax Contribution until such time as the Eligible Employee has become eligible to participate in the Plan pursuant to Section 2.1(d)(ii).

Plan. “Plan” means the First Midwest Bancorp, Inc. Savings and Profit Sharing Plan as set forth herein and as from time to time amended.

Plan Year. A “Plan Year” is a 12-month period beginning on January 1 and ending on December 31. References to specific Plan Years are made herein by reference to the calendar year in which the Plan Year began. For example, the “2008 Plan Year” is the Plan Year beginning January 1, 2008.

Prior Plan. “Prior Plan” means a defined contribution plan maintained or previously maintained by an Employer from which accounts held for the benefit of individuals who have become Participants hereunder have been transferred to this Plan for the benefit of such Participants.

8

Provisional Annual Addition. “Provisional Annual Addition” is the amount described in Section 4.10.

Qualified Military Service. “Qualified Military Service” means the performance of duty on a voluntary or involuntary basis in the Uniformed Services of the United States by an Eligible Employee provided he/she is reemployed by the Employer or an Affiliate within the applicable time period specified in Chapter 43 of Title 38 of the United States Code (Employment and Reemployment Rights of Members of the Uniformed Services) and the total length of all such absences does not exceed the maximum specified by law for the retention of reemployment rights. The term “Uniformed Services of the United States” means the Armed Forces, the Army National Guard and the Air National Guard when engaged in active duty for training, inactive duty training, or full-time National Guard duty, or full-time duty in the commissioned corps of the Public Health Service.

Required Beginning Date. “Required Beginning Date” means:

(a) For a Participant whose 70th birthday occurs prior to July 1, 1998, and who is not a Five-Percent Owner as defined in Code Section 416(i)(1), the April 1 following the calendar year in which the Participant attains age 70 ¹/2;

(b) For a Participant whose 70th birthday occurs on or after July 1, 1998, and who is not a Five Percent Owner as defined in Code Section 416(i)(1), the April 1 following the later of the calendar year in which the Participant attains age 70 ¹ /2 or the calendar year in which the Participant terminates employment; or

(c) For a Participant who is a Five-Percent Owner with respect to the Plan Year in which he attains age 70 ¹/2, the April 1 following the calendar year in which he attained age 70 ¹ /2.

Rollover Contribution. A “Rollover Contribution” is (a) all or a portion of a distribution received by an Eligible Employee from a qualified plan described in Code Section 401(a) or 403(a), an annuity contract described in Code Section 403(b), or an eligible plan under Code Section 457(b) which is maintained by a state, political subsidiary of a state, or any agency or instrumentality of a state or political subdivision of a state, which is eligible for tax-free rollover to a qualified plan and which is transferred by the Eligible Employee to this Plan within 60 days following his or her receipt thereof; (b) amounts transferred to this Plan from a conduit individual retirement account which has no assets other than assets (and the earnings thereon) which were (i) previously distributed to the Eligible Employee by another qualified plan as a rollover distribution, (ii) eligible for tax-free rollover to a qualified plan and (iii) deposited in such conduit individual retirement account within 60 days of receipt thereof; (c) amounts distributed to the Eligible Employee from a conduit individual retirement account meeting the requirements of the preceding clause (ii), and transferred by the Eligible Employee to this Plan within 60 days of receipt thereof; and (d) a direct rollover within the meaning of Code Section 401(a)(31) or all or a portion of an Eligible Rollover Distribution to this Plan by the trustee of another qualified plan.

Severance Date. An employee’s “Severance Date” is the earlier of:

(a) the date on which he quits, retires, dies or is discharged; or

9

(b) the first day following any one-year period during which he performed no duties for the Employer or an Affiliate, other than a period which is a period of a leave of absence described in Section 2.2.

Taxable Compensation. A Participant’s “Taxable Compensation” for any Plan Year is his Total Compensation for such Plan Year less his Before-Tax Contribution and any contributions made at his election to a cafeteria plan as defined in Section 125 of the Code or for qualified transportation fringe benefits as defined in Section 132(f)(4) of the Code for such Plan Year.

Tentative Employer Contribution. “Tentative Employer Contribution” is the contribution described in Section 3.1.

Total Compensation. A Participant’s “Total Compensation” for a period is the Participant’s wages, salaries, fees, vacation pay, amounts excluded from the Participant’s income for the period under Code Section 125, 132(f)(4), 402(g)(3) or 457, and other amounts paid to him for personal services actually rendered in the course of employment with the Company and all Affiliates, including, but not limited to, commissions, compensation for services on the basis of a percentage of profits, tips and performance bonuses, but specifically excluding hiring bonuses and stay bonuses and (in accordance with regulations prescribed by the Secretary of the Treasury) also excluding:

(a) Contributions (other than the Before-Tax Contributions and Catch-Up Contributions) made by the Employer to a plan of deferred compensation to the extent that such are not included in the gross income of the Participant in the year made; Employer contributions to simplified employee pension plans which are excluded from compensation by the Participant; and any distribution from any such plan other than an unfunded non-qualified plan;

(b) Amounts realized from the exercise of a non-qualified stock option or when restricted stock either becomes freely transferable or free from a substantial risk of forfeiture;

(c) Amounts realized from the disposition of stock acquired under a qualified stock option; and

(d) Other amounts which receive special tax benefits.

For Plan Years beginning on or after January 1, 2008, payments made after severance from employment (within the meaning of Code Section 401(k)(2)(B)(i)(I)) and by the later of (A) 2-1/2 months after such severance or (B) the last day of the Plan Year in which such severance occurs, will be Total Compensation if such payments are: (i) payments that, absent a severance from employment, would have been paid to the Participant while the Participant continued in employment with the Employer and such amounts are regular compensation for services rendered during the Participant’s regular working hours, compensation for services outside the Participant’s regular working hours (such as overtime or shift differential), commissions, bonuses, or other similar compensation or (ii) payments attributable to unused accrued vacation the Participant would have been able to use if employment had

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continued. Any payments not described above are not considered Total Compensation if paid after severance from employment, even if paid during the Plan Year or within 2- ¹/2 months following severance from employment, except for payments to a Participant who does not currently perform services for the Employer by reason of Qualified Military Service to the extent the payments do not exceed the amounts the Participant would have received if the Participant had continued to perform services for the Employer rather than entering Qualified Military Service.

Trust. “Trust” or “Trust Fund” means the First Midwest Bancorp Savings and Profit Sharing Trust established in accordance with Article 9.

Trustee. “Trustee” means the Trustee or Trustees under the Trust referred to in Article 9.

Valuation Date. “Valuation Date” means any Business Day.

Year of Service. A “Year of Service” is a unit of service credited to an employee pursuant to Sections 2.3 and 2.4, for purposes of determining the percentage of the balance in a Participant’s Employer Contribution Account which is nonforfeitable. An employee who is reemployed shall retain service credited to him in his previous employment with the Employer or an Affiliate, except as otherwise provided in the Plan.

1.5 EGTRRA Compliance. This Plan reflects certain provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”). The provisions of the Plan relating to EGTRRA are intended to demonstrate good faith compliance with the requirements of EGTRRA and are to be construed in accordance with EGTRRA and guidance issued thereunder, including but not limited to IRS Notice 2001-57. Except as otherwise provided, the provisions of the Plan relating to EGTRRA shall be effective as of the first day of the 2002 Plan Year, and shall supercede other provisions of the Plan to the extent such provisions are inconsistent therewith. Notwithstanding any other provisions of the Plan to the contrary, the Committee shall have the full authority to administer the Plan on or after January 1, 2002 in any manner required or permitted by law, including EGTRRA, without the necessity of specific Plan provisions reflecting such administration, unless otherwise required by applicable law.

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ARTICLE 2

ELIGIBILITY AND PARTICIPATION

2.1 Eligibility Requirements.

(a) Every Participant on the effective date of the Plan as herein restated shall continue as such subject to the provisions of the Plan.

(b) Every other Eligible Employee shall be eligible to participate, if he is then employed by the Employer, as follows:

(i) As of the January 1, April 1, July 1 or October 1 immediately following the later of (A) the Eligible Employee’s 30th day of continuous employment with the Company or an Affiliate or (B) his 21st birthday, an Eligible Employee may participate in the Plan for the limited purpose of making Before-Tax Contributions (as described in Section 3.2) and not for receiving Employer Contributions or Matching Employer Contributions (as described in Sections 3.4 and 3.5 respectively). An Eligible Employee who may participate in the Plan on such a limited basis shall be referred to as a “Limited Participant.”

(ii) As of the Entry Date coinciding with or next following the later of (A) the end of the first Eligibility Period in which he completes 1,000 Hours of Service or (B) his 21st birthday, an Eligible Employee may participate in all features of the Plan as applicable to such Eligible Employee. Notwithstanding any other provision of this Plan, hours of service with Heritage Financial Services, Inc., First of America Bank, Crystal Lake Office, The Northern Trust Company, Higgins Road Office, CoVest Bancshares, Inc. (“CoVest”), The Elgin State Bank, Carpentersville Office and Bank Calumet, Inc., shall be deemed to be Hours of Service with the Employer under this Plan for purposes of this Section 2.1.

(c) Any former employee of the Employer or an Affiliate who was a Participant or could have become a Participant under subsection (d) above had he been employed on a prior Entry Date, and is reemployed by the Employer as an Eligible Employee shall be eligible to participate immediately upon reemployment if, on the date of such reemployment, that employee:

(i) has not incurred a One-Year Break in Service; or

(ii) had a nonforfeitable right to any part of the balance in his Employer Contribution Account or Before-Tax Account on the date his most recent employment with the Employer and all Affiliates terminated (or would have had such right if he had been a Participant); or

(iii) has attained age 21 and has incurred a One-Year Break in Service, but has not lost credit for service prior to such One-Year Break in Service pursuant to Section 2.4(b); or

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(iv) terminated his employment because of a maternity or paternity absence defined in Section 1.4, has attained age 21, and has incurred a One-Year Break in Service, but has not lost credit for services prior to such One-Year Break in Service pursuant to Section 2.4(c).

(d) Notwithstanding any provisions of this Plan to the contrary, any individual who was providing services to the Employer in the capacity of, or who was designated by the Employer as, an independent contractor or a Leased Employee, and who is subsequently re-classified as an Eligible Employee for the purposes of this Plan (regardless of whether such re-classification is retrospective or prospective), shall be eligible to participate in the Plan on a prospective basis only from the date of the re-classification and shall not have any retroactive claim for benefits.

2.2 Leaves of Absence. During the period that any Participant is granted a leave of absence, he shall share in Employer Contributions, forfeitures, and net earnings or losses of the Trust Fund in the same manner and subject to the same conditions as if he were not on leave of absence. Any leave of absence under this Section 2.2 must be granted in writing and pursuant to the Employer’s established leave policy, which shall be administered in a uniform and nondiscriminatory manner to similarly situated employees.

2.3 Years of Service to be Credited.

(a) An employee shall be credited with One Year of Service for each full year in the period commencing on his Employment Commencement Date and ending on his Severance Date. An employee shall also be credited with  ¹/12 of a Year of Service for each full calendar month in such period for which he did not receive credit pursuant to the preceding sentence, including, if applicable,  ¹/12 of a Year of Service for the partial calendar month in which the employee’s Employment Commencement Date and in which the employee’s Severance Date occurred. Notwithstanding any other provision of this Plan, the following service shall be deemed to be service with the Employer for purposes of this Section 2.3: (i) with respect to any employee who commenced employment on or prior to September 4, 1998, service with First of America Bank, Crystal Lake Office; (ii) with respect to any employee who commenced employment with the Employer prior to October 1, 1998, service with Heritage Financial Services, Inc.; (iii) with respect to any employee who commenced employment with the Employer prior to July 1, 2003, service with The Northern Trust Company, Higgins Road Office; (iv) with respect to any employee who commenced employment with the Employer prior to January 1, 2004, service with CoVest Bancshares, Inc. and any of its affiliates; (v) with respect to any employee who commenced employment with the Employer prior to February 1, 2006, service with The Elgin State Bank, Carpentersville Office; and (iv) with respect to any employee who commenced employment with Employer prior to April 1, 2006, service with Bank Calumet, Inc.

(b) Notwithstanding Section 2.3(a) above, any Participant who, on September 30, 1998, had completed three (3) years of service under the Heritage Plan, shall be credited with Years of Service under this Section 2.3 equal to the greater of: (i) the Participant’s Years of Service determined under Section 2.3(a) above; or (ii) the Participant’s years of service calculated by crediting him with one Year of Service for each Plan Year during which he has completed at least 1,000 Hours of Service.

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(c) An employee reemployed after his Severance Date but prior to a One-Year Break in Service shall be credited with  ¹/12 of a Year of Service for each calendar month or partial calendar month during the period from his Severance Date to the date of reemployment not otherwise credited pursuant to paragraph (a) above.

2.4 Years of Service to be Disregarded. A Participant shall be credited with all Years of Service, except that the following shall be disregarded:

(a) Years of Service for an Employer or Affiliate prior to the Employer’s adoption of the Plan, except to the extent otherwise provided by the Employer when adopting the Plan;

(b) Years of Service prior to a One-Year Break in Service if the Employee fails to complete one Year of Service after such One-Year Break in Service;

(c) In the case of an employee whose nonforfeitable percentage of the balance of his Employer Contribution Account is 0%, the number of years and portions thereof in the period after the employee’s Severance Date but before he next performs duties for the Employer or an Affiliate equals or exceeds the greater of 5 or the aggregate number of Years of Service and portions thereof before such One-Year Break in Service (excluding any years of Service previously disregarded); or

(d) In the case of an employee whose nonforfeitable percentage of the balance of his Employer Contribution Account is 0%, and who terminated his employment with the Employer and all Affiliates because of a maternity or paternity absence defined in Section 1.4, the number of years and portions thereof in the period after the employee’s Severance Date but before he next performs duties for the Employer or an Affiliate equals or exceeds the greater of six or one plus the aggregate number of Years of Service and portions thereof before such One-Year Break in Service (excluding any Years of Service previously disregarded).

2.5 Leased Employees. To the extent required by Section 414(n) of the Code and the regulations thereunder, a Leased Employee shall be treated as an employee of the Employer or an Affiliate but shall not be eligible for any benefit under the Plan.

2.6 Qualified Military Service. Notwithstanding any provision of this Plan to the contrary, effective December 12, 1994, contributions, benefits and service credit with respect to Qualified Military Service will be provided in accordance with Code Section 414(u).

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ARTICLE 3

CONTRIBUTIONS BY EMPLOYER AND ROLLOVER CONTRIBUTIONS

3.1 Contributions to the Plan. Subject to the right reserved to the Company to alter, amend or discontinue this Plan and Trust, the Employer shall for each Plan Year contribute to the Plan for its Eligible Participants an amount equal to the sum of:

(a) the Employer Contribution;

(b) the Before Tax Contribution;

(c) the Matching Employer Contribution; and

(d) Catch-Up Contributions, as described in subsection 3.2(c) below.

Such sum, which is known as the “Tentative Employer Contribution,” shall be reduced by an amount equal to the Excess Tentative Contribution (as provided in Section 4.11); provided that in no event shall the Tentative Employer Contribution, as reduced by the Excess Tentative Contribution, exceed the amount deductible by the Employer for said year for federal income tax purposes.

3.2 Before-Tax and Catch-Up Contributions.

(a) Subject to the provisions of Sections 3.1 and 3.3, each Participant may for each Plan Year elect to have the Employer make a Before-Tax Contribution on his or her behalf in an amount equal to not less than one percent (1%) and not more than the following percentages:

For Participants in Salary Grade 11 or lower:	45	%
For Participants in Salary Grade 12 or greater:	15	%

(rounded to the nearest dollar) of his or her Considered Compensation, excluding bonuses and any other payment of a similar nature. Such elections shall be made in whole percentages only (e.g., 5%, 20%) and are subject to change in accordance with procedures established by the Committee from time to time.

(b) The amount of the Before-Tax Contributions to be made pursuant to a Participant’s election shall reduce the compensation otherwise payable to him by the Employer.

(c) All employees who are eligible to make elective deferrals under this Plan and who have attained age 50 before the close of a Plan Year shall be eligible to make catch-up contributions in accordance with, and subject to the limitations of, Code Section 414(v), herein referred to as “Catch-Up Contributions.” Such Catch-Up Contributions shall not be taken into account for purposes of the

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provisions of the Plan implementing the required limitations of Code Sections 402(g) and 415. The Plan shall not be treated as failing to satisfy the provisions of the Plan implementing the requirements of Code Sections 401(k)(3), 401(k)(11), 401(k)(12), 410(b), or 416, as applicable, by reason of any such Catch-Up Contributions. Notwithstanding any provision of the Plan to the contrary, Catch-Up Contributions shall not be taken into account for purposes of Matching Employer Contributions under Section 3.5.

3.3 Limitations on Before-Tax Contributions and Matching Employer Contributions.

(a) In no event shall a Participant’s Before-Tax Contributions during any calendar year exceed the dollar limitation in effect under Code Section 402(g) at the beginning of such calendar year. If a Participant’s Before-Tax Contributions, together with any additional employer contributions to a qualified cash or deferred arrangement, any elective deferrals under a tax-sheltered annuity program or a simplified employee pension plan, exceed such dollar limitation for any calendar year, the Participant shall notify the Committee of the amount of such excess allocable to this Plan by March 1 of the following year, and such excess, and any earnings allocable thereto, may be distributed to the Participant by April 15 of such following year; provided, that, if such excess contributions were made to a plan or arrangement not maintained by the Employer or an Affiliate, the Participant must first notify the Committee of the amount of such excess allocable to this Plan by March 1 of the following year.

(b) Notwithstanding any other provision of this Plan to the contrary, the Before-Tax Contributions and Matching Employer Contributions for the Highly Compensated Employees for the Plan Year shall be reduced in accordance with the following provisions:

(i) The Before-Tax Contributions and Matching Employer Contributions of the Highly Compensated Employees shall be reduced if neither of the Actual Deferral Percentage tests set forth in (A) or (B) below is satisfied after taking into account the provisions of subsection (f):

(A) The 1.25 Test. The Actual Deferral Percentage of the Highly Compensated Employees is not more than the Actual Deferral Percentage of all other Eligible Participants multiplied by 1.25.

(B) The 2.0 Test. The Actual Deferral Percentage of the Highly Compensated Employees is not more than 2 percentage points greater than the Actual Deferral Percentage of all other Eligible Participants, and the Actual Deferral Percentage of the Highly Compensated Employees is not more than the Actual Deferral Percentage of all other Eligible Participants multiplied by 2.0.

(ii) (A) As used in this subsection, “Actual Deferral Percentage” means:

(1) With respect to Non-Highly Compensated Employees, the average of the ratios of each Non-Highly Compensated Employee’s Before-Tax Contributions and share of the Matching Employer Contribution with respect to the prior Plan Year to each such Participant’s Considered Compensation for such Plan Year (prior or current, as appropriate); and

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(2) With respect to Highly Compensated Employees, the average of the ratios of each Highly Compensated Employee’s Before-Tax Contributions and share of the Matching Employer Contribution with respect to the current Plan Year, to each such Participant’s Considered Compensation for such Plan Year.

(iii) All Before-Tax Contributions and Matching Employer Contributions made under this Plan and all before-tax and matching contributions made under any other plan that is aggregated with this Plan for purposes of Code Sections 401(a)(4) and 410(b) shall be treated as made under a single plan. If any plan is permissively aggregated with this Plan for purposes of Code Section 401(k), the aggregated plans must also satisfy Code Sections 401(a)(4) and 410(b) as though they were a single plan. The Actual Deferral Percentage ratios of any Highly Compensated Employee will be determined by treating all plans subject to Code Section 401(k) under which the Highly Compensated Employee is eligible as a single plan.

(iv) The sequence for determining the amount of such reductions shall begin with Highly Compensated Employees who elected to defer the greatest percentage of Considered Compensation, then the second greatest percentage amount, continuing until either Actual Deferral Percentage Test is satisfied. This process shall continue through the Before-Tax Contributions and Matching Employer Contribution until either Actual Deferral Percentage Test is satisfied.

(v) Once the total amount of reductions has been determined under 3.3(b)(iv) above, the Committee shall direct the Trustee to distribute as a refund to the appropriate Highly Compensated Employees an allocable portion of such reduction attributable to excess Before-Tax Contributions and to treat as forfeitures the appropriate amount of Matching Employer Contributions, together with the net earnings or losses allocable thereto. The sequence for determining and refunding a Highly Compensated Employee’s allocable portion of excess Before-Tax Contributions shall begin with the Highly Compensated Employee who elected to defer the greatest dollar amount of Before-Tax Contributions. The Before-Tax Contributions of such Participant shall be reduced by the amount required to cause that Participant’s Before-Tax Contributions to equal the dollar amount of the Before-Tax Contributions of the Highly Compensated Employee with the next highest dollar amount of Before-Tax Contributions. If the total amount distributed is less than the total excess contributions, this process shall continue until all excess Before-Tax Contributions are distributed and excess Matching Employer Contributions are forfeited. However, notwithstanding anything in the foregoing to the contrary, if a lesser reduction, when added to the total dollar amount previously reduced, would equal the total excess contributions, such lesser reduction shall be utilized. The Committee shall designate such distribution and forfeiture as a distribution of excess Before-Tax Contributions and forfeiture of excess Matching Employer Contributions, determine the amount of the allocable net earnings or losses to be distributed and forfeited in accordance with subsections 3.3(c) and 3.3(d) below, and cause such distributions and forfeitures to occur prior to the end of the Plan Year following the Plan Year in which the excess Before-Tax Contributions and excess Matching Employer Contributions were made.

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(c) Net earnings or losses to be refunded with the excess Before-Tax Contributions shall be equal to the net earnings or losses on such contributions for the Plan Year in which the contributions were made and, for Plan Years 2006 and 2007, for the period after the close of such Plan Year and through the day before the distributions (the “Gap Period”). The net earnings or losses allocable to excess Before-Tax Contributions for the Plan Year and the Gap Period shall be determined in the manner set forth in Article 4 and in all events in accordance with the provisions of Treasury Regulations Section 1.401(k)-2(b)(2).

(d) Net earnings or losses to be treated as forfeitures together with the Matching Employer Contributions shall be equal to the net earnings or losses on such contributions for the Plan Year in which the contributions were made. Net earnings or losses on Matching Employer Contributions shall be determined in the same manner as in subsection (c) above.

(e) Any Matching Employer Contribution treated as a forfeiture pursuant to subsection (b) above shall be used to reduce the Matching Employer Contribution in Section 3.5.

(f) For the purpose of avoiding the necessity of adjustments pursuant to this Section or Section 4.11, or to comply with any applicable law or regulation:

(i) The Committee may adopt such rules as it deems necessary or desirable to:

(A) impose limitations during a Plan Year on the percentage of Before-Tax Contributions elected by Participants pursuant to Section 3.2; or

(B) increase during a Plan Year the percentage of Considered Compensation with respect to which a Participant may elect a Before-Tax Contribution for the purpose of providing Participants with the opportunity to increase their Before-Tax Contributions within the limitations of this Section 3.3;

(ii) The Employer may at its sole discretion make fully vested contributions to the Plan which will be allocated to the Before-Tax Accounts of one or more Participants who are Non-Highly Compensated Employees in such amounts as the Employer directs for the purpose of complying with the applicable limits on Before-Tax Contributions in the Code. Such contributions will not be taken into account in the allocation of Matching Employer Contributions.

(g) The amount of each Eligible Participant’s Before-Tax Contribution as determined under this Section 3.3 is subject to the provisions of Sections 4.11 and 4.12.

3.4 Employer Contribution. Subject to the provisions of Section 3.1, each Employer shall pay to the Trustee for each Plan Year with respect to its Participants who are Eligible Participants for purposes of the allocation of the Employer Contribution pursuant to Section 4.9, such amount as may be determined by its board of directors, based on guidelines established by the Board of Directors.

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The amount so determined shall be no greater than 15% of such Eligible Participants’ Considered Compensation. Such amount paid to the Trustee pursuant to this Section 3.4 is known as the “Employer Contribution.”

3.5 Matching Employer Contribution.

(a) Subject to the provisions of Section 3.1, each Employer shall pay to the Trustee as of the last day of the applicable calendar quarter an amount which shall be equal to $2 for each $1 of the Participant’s Before-Tax Contributions that do not exceed 2% of the Participant’s Considered Compensation (excluding Before-Tax Contributions made while a Limited Participant) made during the calendar quarter ending on March 31, June 30, September 30 or December 31, as appropriate on behalf of:

(i) Each Participant whose Before-Tax Contributions equal at least 2% of his or her Considered Compensation;

(ii) each Participant employed by such Employer on the last day of the appropriate calendar quarter as of which the contribution is made; and

(iii) each Participant who, prior to the appropriate last day of the calendar quarter, (A) retires on or after his Normal Retirement Date or Early Retirement Date, (B) dies, (C) is initially deemed totally and permanently disabled, (D) was employed at a Company branch located in Streator, Illinois and incurred his or her Severance Date during the last quarter of 2003 due to the sale of the Streator branches; or (E) as expressly provided in the terms of an agreement approved, or a resolution adopted, by the board of directors of an Employer in connection with the termination of the Employer’s participation in the Plan during the calendar quarter, provided such agreement or resolution was authorized by the Board of Directors.

The Employer contributions made pursuant to this Section 3.5 shall be known as the “Matching Employer Contributions.”

3.6 Rollover Contributions. A Participant or Eligible Employee may with the written consent of the Committee make a Rollover Contribution to the Trust Fund. The Committee may adopt such rules and limitations as it deems necessary or appropriate with respect to the approval of Rollover Contributions, including but not limited to the time period or periods during which such requests may be made and the frequency of such requests.

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ARTICLE 4

ACCOUNTING PROVISIONS AND ALLOCATIONS

4.1 Participant’s Accounts.

(a) For each Participant there shall be maintained as appropriate a separate Employer Contribution Account, Vested Employer Account, Before-Tax Account, Matching Account, Prior Plan Account, Heritage Plan Account, McHenry Plan Account, After-Tax Account, Rollover Account, Trustee Transfer Account and Catch-Up Contribution Account. Each account shall be credited with the amount of contributions, interest and earnings of the Trust Fund allocated to such Account and shall be charged with all distributions, withdrawals and losses of the Trust Fund allocated to such Account.

4.2 Common Fund.

(a) The Trust Fund shall be a common fund divided into separate investment funds (“Funds”) as provided in Section 9.5. Each Fund as may from time to time be established shall be a common fund in which each Participant and Beneficiary shall have an undivided interest in the respective assets of the Fund, provided that all Accounts segregated and all loans made pursuant to Section 6.7 shall together with the net earnings or losses of such Accounts or loans be accounted for separately and will not be included in any of the adjustments resulting from the application of this Section 4.2. Except as otherwise provided, the value of each Participant’s Accounts in each Fund shall be measured by the proportion that the net credits to his Accounts bear to the total net credits to all Accounts as of the date such share is being determined. For purposes of allocation of the net earnings and losses and for the valuation of the Trust Fund, each Fund shall be considered separately. No Fund shall share in the net earnings or losses of any other, and no Fund shall be valued by taking into account any assets or distributions for any other.

(b) Each loan made pursuant to Section 6.7 shall be valued as of each Valuation Date. Any changes in value resulting from such valuation, together with any income or expenses attributable thereto, shall be credited or charged as of such Valuation Date to the Accounts of the Participant from which such loan was made.

(c) Except as provided in Subsection (e) below, the interest of each Participant and Beneficiary in the net earnings and losses and of the valuation of one or more of the Funds may be measured by the value of the shares or units of such Fund credited to the Participant’s or Beneficiary’s Accounts as of the date that such valuation is being determined. The value of a unit in each such Fund on any Valuation Date shall be the quotient obtained by dividing the sum of (i) the cash and (ii) the fair market value of all securities or property allocated to such Fund, less any charges and expenses accrued and properly chargeable to such Fund as of said Valuation Date, by the aggregate number of units credited to all Accounts with respect to such Fund. The Trustee will furnish to the Committee a report with respect to the fair market value of all securities and property held in any Fund as of each Valuation Date. To the extent that any assets of a Fund have been invested in one or more separate investment trusts, mutual funds, investment contracts or similar investment media, the net earnings and losses and valuation attributable to such investments shall be determined in accordance with the procedures of such investment media.

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(d) Notwithstanding any other provision of the Plan, effective with respect to the September 30, 1999 Valuation Date, dividends declared by the Company with respect to Company common stock held in the Investment Funds described in Sections 9.5(a)(ii) and 9.5(a)(iv) shall, for purposes of determining and allocating net earnings or losses under Sections 4.4 and 4.5, be deemed to have been paid to the Plan and held in the Trust as of the payment date for such dividends.

(e) Effective with respect to the September 30, 1999 Valuation Date, notwithstanding any other Plan provision, the assets of the Investment Funds described in Sections 9.5(a)(ii) and 9.5(a)(iv) shall be allocated to Participants’ Accounts in shares and fractional shares of Company common stock and dividends receivable and cash, to the extent of such receivables or cash then in the Fund.

4.3 Allocation Procedure. As of each Valuation Date, the Committee shall, with respect to each Account:

(a) First, charge each Account for any withdrawals, loans or distributions made therefrom since the immediately preceding Valuation Date.

(b) Second, credit each Before-Tax Account with one-half of the Before-Tax Contributions made by the Participant since the immediately preceding Valuation Date.

(c) Third, credit each Rollover Contribution Account with the daily weighted average of the amount of any Rollover Contribution made by the Participant since the immediately preceding Valuation Date.

(d) Fourth, credit any Accounts segregated pursuant to Article 6 with one-half of the amount of any loan repayments made since the immediately preceding Valuation Date.

(e) Fifth, credit each Catch-Up Contribution Account with one-half of the Catch-Up Contributions made by the Participant since the immediately preceding Valuation Date.

(f) Sixth, credit or charge the respective Accounts with the net earnings or losses of each Fund allocable thereto in accordance with Section 4.5, or, in the case of Accounts segregated in accordance with Article 6, the net earnings or losses allocable thereto in accordance with Article 6.

(g) Seventh, credit each Before-Tax Account, Matching Account, Rollover Account, and Catch-Up Contribution Account, respectively, with the amount of Before-Tax Contributions, Matching Employer Contributions, Rollover Contributions, and Catch-Up Contributions, respectively, made since the immediately preceding Valuation Date and not already allocated in accordance with paragraphs (b), (c), (d) and (e) above.

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(h) Eighth, credit any Accounts segregated pursuant to Article 6 with the amount of any loan repayments made since the immediately preceding Valuation Date and not already allocated in accordance with paragraph (f) above.

(i) Ninth, if the Valuation Date is the last day of the Plan Year, credit each Employer Contribution Account with the Employer Contribution allocable thereto in accordance with Section 4.9.

4.4 Determination of Value of Trust Fund and of Net Earnings or Losses. As of each Valuation Date the Trustee shall determine for the period then ended the sum of the net earnings or losses of the Trust Fund (excluding any gains and losses attributable to the Accounts and loans to Participants segregated pursuant to Article 6), which shall reflect accrued but unpaid interest, gains or losses realized from the sale, exchange or collection of assets, other income received, appreciation or depreciation in the fair market value of assets, administration expenses, taxes and other expenses paid and, subject to Section 4.2(d), dividends. Gains or losses realized and adjustments for appreciation or depreciation in fair market value shall be computed with respect to the difference between such value as of the date of purchase and the date of disposition.

4.5 Allocation of Net Earnings or Losses. As of each Valuation Date, the net earnings or losses of the Trust Fund or of each Fund established under Section 4.2 shall be allocated to the Accounts (excluding Accounts and loans to Participants segregated pursuant to Section 6.7) of all Participants (or beneficiaries of deceased Participants or an alternate payee under a qualified domestic relations order) having credits in the Trust Fund or Fund on the Valuation Date. Such allocation shall be in the ratio that (i) the net credits to each Account of each Participant on the preceding Valuation Date, plus in the case of the Before-Tax Account and Catch-Up Contribution Account, if applicable, one-half of any Before-Tax Contributions or Catch-Up Contributions, respectively, made to that Account since the preceding Valuation Date, or in the case of the Rollover Account, the weighted average daily balance of any Rollover Contribution made to that Account since the preceding Valuation Date, less in each case the total amount of any distributions and loans from such Account to such Participant since the preceding Valuation Date bears to (ii) the total net credits to all such Accounts of all Participants on the preceding Valuation Date, plus, in the case of the Before-Tax Accounts and the Catch-Up Contribution Account, one-half of the Before-Tax Contributions and the Catch-Up Contributions, respectively, made to such Accounts of all Participants, and in the case of the Rollover Accounts, the weighted average daily balances of any Rollover Contributions made to that Account since the preceding Valuation Date, less the total amount of distributions and loans from all such Accounts since the preceding Valuation Date.

4.6 Eligibility to Share in the Employer Contributions.

(a) An Active Participant shall be eligible to share in Employer Contributions for the Plan Year as of the last day of which such Employer Contributions are being allocated if he is then employed by the Employer as an Eligible Employee and has completed 1,000 Hours of Service in such Plan Year. A Participant who, during a Plan Year, (i) retires on or after his Normal Retirement Date or Early Retirement Date, (ii) dies, (iii) is initially deemed totally and permanently disabled, (iv) was employed at a Company branch located in Streator, Illinois and incurred his Severance Date during the last quarter of 2003 due to the sale of the Streator branches, or

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(v) as expressly provided in the terms of an agreement approved or a resolution adopted by the board of directors of an Employer in connection with the termination of the Employer’s participation in the Plan during the Plan Year, provided such agreement or resolution was authorized by the Board of Directors, shall also be eligible to share in the Employer Contributions for said Plan Year. A Participant who is eligible to share in the Employer Contributions shall be known as an “Eligible Participant.”

(b) Notwithstanding anything in the Plan to the contrary, if the Plan would otherwise fail to meet the requirements of Code Section 410(b) and the regulations thereunder because Employer Contributions have not been allocated to a sufficient number or percentage of Participants for a Plan Year, then the following rules will apply:

(i) The group of Participants eligible to share in the Employer Contribution for the Plan Year will be expanded to include the minimum number of Participants who would not otherwise be eligible as are necessary to satisfy the applicable test specified above. The specific Participants who will become eligible under the terms of this paragraph will be those who are actively employed on the last day of the Plan Year and, when compared to similarly situated Participants, have completed the greatest number of Hours of Service in the Plan Year.

(ii) If after application of the previous paragraph, the applicable test is still not satisfied, then the group of Participants eligible to share in the Employer Contribution for the Plan Year will be further expanded to include the minimum number of former Participants who are (A) not employed on the last day of the Plan Year, (B) Non-Highly Compensated Employees and (C) are vested or partially vested in their Accounts, as are necessary to satisfy the applicable test. The specific former Participants who will become eligible under the terms of this paragraph will be those former Participants, when compared to similarly situated former Participants, who have completed the greatest number of Hours of Service in the Plan Year before terminating employment.

(iii) Nothing in this Section will permit the reduction of a Participant’s benefit. Therefore any amounts that have previously been allocated to Participants may not be reallocated to satisfy these requirements. In the event allocations to additional Participants or former Participants are required, the Employer will make an additional contribution equal to the amount such persons would have received had they been included in the allocations, even if it exceeds the amount which would be deductible under Code Section 404. Any adjustment to the allocations pursuant to this Section will be made by the 15th day of the tenth month after the end of the Plan Year and will be considered a retroactive amendment adopted by the last day of the Plan Year.

4.7 Allocation of Before-Tax Contributions and Catch-Up Contributions

(a) As of each Valuation Date, the Before-Tax Contributions made on behalf of each Participant since the prior Valuation Date shall be allocated to such Participant’s Before-Tax Account.

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(b) As of each Valuation Date, any Catch-Up Contributions made on behalf of each Participant since the prior Valuation Date shall be allocated to such Participant’s Catch-Up Contribution Account.

4.8 Allocation of Matching Employer Contributions. As of the last day of each calendar quarter, the sum of the Matching Employer Contributions made on behalf of each Participant in accordance with Section 3.5 of the Plan shall be allocated to the Matching Account of each such Participant.

4.9 Allocation of Employer Contribution. As of the last day of each Plan Year, the Employer Contribution shall be allocated among the Employer Contribution Accounts of all Eligible Participants in the ratio that each such Participant’s Considered Compensation for the Plan Year from that Employer bears to the total Considered Compensation of all such Eligible Participants from that Employer for the Plan Year.

4.10 Provisional Annual Addition. The sum of the amounts allocated to the Accounts of the Participants pursuant to Section 4.7(a), 4.8 and 4.9 for a Plan Year shall be known as the “Provisional Annual Addition” and shall be subject to the limitation on Annual Additions in Section 4.11.

4.11 Limitation on Annual Additions.

(a) For the purpose of complying with the restrictions on Annual Additions to defined contribution plans imposed by Code Section 415, for each Eligible Participant and each other Participant who has made Before-Tax Contributions during the Plan Year, there shall be computed a Maximum Annual Addition, which shall be the excess of the amount at (i) below over the amount at (ii) below.

(i) Except as permitted under Section 3.5(a)(ii) and Section 414(v) of the Code, if applicable, the amount shall be the lesser of:

(1) 100% of the Participant’s Total Compensation for the Plan Year; or

(2) the Defined Contribution Dollar Limitation for the Plan Year.

(ii) The amount of employer contributions, forfeitures and employee contributions allocated as of any day in the Limitation Year to such Participant’s accounts under any other defined contribution plan maintained by the Employer or an Affiliate.

(b) If a short Limitation Year is created because of an amendment changing the Limitation Year to a different 12 consecutive month period, the Maximum Annual Addition will not exceed the Defined Contribution Dollar Limitation multiplied by the following fraction:

Number of months in the short Limitation Year

12

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The limitation under (a) above shall not apply to any contribution for medical benefits within the meaning of Code Section 419A(f)(2) after separation from service which is otherwise treated as an Annual Addition, or any amount otherwise treated as an annual addition under Code Section 415(l)(2).

(c) If the Maximum Annual Addition for a Participant equals or exceeds the Provisional Annual Addition for that Participant, an amount equal to the Provisional Annual Addition shall be allocated to the Participant’s respective Accounts.

(d) If the Provisional Annual Addition exceeds the Maximum Annual Addition for that Participant, the Provisional Annual Addition shall be reduced as set forth below until the Provisional Annual Addition as so reduced equals the Maximum Annual Addition for such Participant:

(i) first, the Tentative Employer Contribution allocable to such Participant’s Employer Contribution Account shall be reduced;

(ii) second, the amount of forfeiture allocable to the Participant’s Matching Employer Account shall be reduced;

(iii) third, the Before-Tax Contributions shall be reduced; and

(iv) finally, the Matching Employer Contributions shall be reduced.

The Provisional Annual Addition remaining after such reductions shall be allocated to the Participant’s respective Accounts.

(e) The “Excess Tentative Employer Contribution” is an amount equal to the sum of the reductions in the Tentative Employer Contribution allocable to the Accounts of Participants pursuant to subsections (d)(i), (iii) and (iv) above.

(f) Notwithstanding anything to the contrary in this Plan, any Before-Tax Contributions reduced in accordance with subsection (d) above shall be distributed to the Participant with allocable earnings in accordance with Treasury Regulation Section 1.415-6(b)(6)(iv).

(g) Contributions made under Section 3.3 shall be treated as Annual Additions for the Plan to which they relate instead of the Plan Year when they are actually made.

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ARTICLE 5

AMOUNT OF PAYMENTS TO PARTICIPANTS

5.1 General Rule. Upon the retirement, disability, resignation or dismissal of a Participant, he, or in the event of his death, his beneficiary, shall be entitled to receive from his respective Accounts in the Trust Fund as of his Determination Date:

(a) An amount equal to the Participant’s Before-Tax Account, Matching Account, and Catch-Up Contribution Account (if applicable) plus any of the Participant’s contributions made to the Trust Fund but not allocated to the Participant’s Before-Tax Account or Catch-Up Contribution Account as of his Determination Date; and

(b) An amount equal to his Prior Plan Account and After-Tax Account;

(c) An amount equal to his Rollover Account;

(d) An amount equal to his Vested Employer Account; and

(e) The nonforfeitable portion of the Participant’s Employer Contribution Account, Heritage Plan Account and McHenry Plan Account determined as hereafter set forth.

All rights of Participants or of any other person or persons shall be subject to the provisions of Article 6 concerning the time and manner of making distributions.

Notwithstanding anything in this Plan to the contrary, the nonforfeitable portion of the Employer Contribution Account of any Participant whose employment terminates pursuant to the Participant’s participation in a voluntary retirement program applicable to such Participant shall be equal to the greater of such percentage determined on the basis of the Participant’s age and Years of Service as of the date of termination, or such percentage determined on the basis of the Participant’s age as of the date of termination and Years of Service as of the date of termination increased by the number of additional years of Credited Service (as defined in the First Midwest Bancorp Consolidated Pension Plan), if any, with which such Participant is credited under the Pension Plan as a result of his participation in the voluntary retirement program.

5.2 Normal Retirement. Any Participant may retire on or after his Normal Retirement Date, at which date the forfeitable portion, if any, of his Employer Contribution Account, Heritage Plan Account, and McHenry Plan Account, shall become nonforfeitable. If the retirement of a Participant is deferred beyond his Normal Retirement Date, he shall continue in full participation in the Plan and Trust Fund.

5.3 Death. As of the date any Participant shall die while in the employ of the Employer or an Affiliate, the forfeitable portion, if any, of his Employer Contribution Account, Heritage Plan Account, and McHenry Plan Account shall become nonforfeitable, including forfeitures eligible to be restored pursuant to Section 5.7(c).

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5.4 Disability.

(a) As of the date any Participant shall be determined by the Committee to have become totally and permanently disabled because of physical or mental infirmity while in the employ of the Employer or an Affiliate and his employment shall have terminated, the forfeitable portion, if any, of his Employer Contribution Account, Heritage Plan Account and McHenry Plan Account shall become nonforfeitable, including forfeitures eligible to be restored pursuant to Section 5.7(c).

(b) A Participant shall be deemed totally and permanently disabled when, on the basis of qualified medical evidence, the Committee finds such Participant to be unable to satisfactorily perform his normal duties required of him by an Employer or Affiliate as a result of physical or mental infirmity, injury, or disease, either occupational or nonoccupational in cause; provided, however, that disability hereunder shall not include any disability incurred or resulting from the Participant’s having engaged in a criminal enterprise, or any disability consisting of or resulting from the Participant’s chronic alcoholism, addiction to narcotics or an intentionally self-inflicted injury.

5.5 Vesting. A Participant’s interest in his Before-Tax Account, Catch-Up Contribution Account, Matching Account, Vested Employer Account, Prior Plan Account and After-Tax Account shall be nonforfeitable at all times. Except as otherwise provided in this Article 5, a Participant’s nonforfeitable interest in his Employer Contribution Account, Heritage Plan Account and McHenry Plan Account at any point in time shall be determined under Section 5.6.

5.6 Resignation or Dismissal.

(a) If any Participant shall incur his Severance Date, other than by reason of death or disability or on or after his Normal Retirement Date or Early Retirement Date, there shall become nonforfeitable none, a portion, or all of his Employer Contribution Account computed as of his Determination Date in accordance with the following schedule, subject to Sections 2.3 and 2.4:

If His Years of Service Shall Have Been	The Nonforfeitable Percentage of His Employer Contribution Account Shall Be
Less than 2	0	%
2 but less than 3	20	%
3 but less than 4	40	%
4 but less than 5	60	%
5 but less than 6	80	%
6 or more	100	%

If any Participant shall incur his Severance Date, other than by reason of death or disability or on or after his Normal Retirement Date or Early Retirement Date, there shall become nonforfeitable none, a portion, or all of his Heritage Plan Account computed as of his Determination Date in accordance with the following schedule, subject to Sections 2.3 and 2.4:

If His Years of Service Shall Have Been	The Nonforfeitable Percentage of His Employer Contribution Account Shall Be
Less than 2	0	%
2 but less than 3	20	%
3 but less than 4	30	%
4 but less than 5	40	%
5 but less than 6	60	%
6 but less than 7	80	%
7 or more	100	%

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Any part of the Employer Contribution Account and Heritage Plan Account of such Participant which does not become nonforfeitable shall be treated as a forfeiture pursuant to Section 5.7.

(b) If any Participant shall incur his Severance Date, other than by reason of death or disability or on or after his Normal Retirement Date or Early Retirement Date, there shall become nonforfeitable none, a portion, or all of his McHenry Plan Account computed as of his Determination Date in accordance with the following schedule, subject to Sections 2.3 and 2.4:

If His Years of Service Shall Have Been	The Nonforfeitable Percentage of His Employer Contribution Account Shall Be
Less than 2	0	%
2 but less than 3	20	%
3 but less than 4	30	%
4 but less than 5	40	%
5 or more	100	%

Any part of the McHenry Plan Account of such Participant which does not become nonforfeitable shall be treated as a forfeiture pursuant to Section 5.7.

(c) If a Participant is employed at a Company branch located in Streator, Illinois and incurs his Severance Date on the day of the Company’s sale of the Streator branches, then 100% of his Employer Contribution Account computed as of his Determination Date shall be nonforfeitable.

5.7 Treatment of Forfeitures.

(a) Upon termination of a Participant’s employment with the Employer and all Affiliates, the nonvested portion of his Employer Contribution Account, Heritage Plan Account and McHenry Plan Account shall become a forfeiture pursuant to Section 5.6 as of the end of the Plan Year in which the termination of employment occurred if the Participant is not then reemployed by the Employer or an Affiliate. Forfeitures shall be used to reduce the Employer Contributions that would otherwise be paid by the Employer to the Plan pursuant to Section 3.4.

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(b) If a Participant is reemployed by the Employer or an Affiliate without incurring 5 consecutive One-Year Breaks in Service, and before distribution of the nonforfeitable portion of his Employer Contribution Account, Heritage Plan Account and McHenry Plan Account, the amount of the forfeiture shall be restored to his Employer Contribution Account, Heritage Plan Account and McHenry Plan Account, as appropriate, as of the last day of the Plan Year in which he is reemployed.

(c) If the Participant is reemployed by the Employer or an Affiliate without incurring 5 consecutive One-Year Breaks in Service but after distribution of the nonforfeitable portion of his Employer Contribution Account, Heritage Plan Account and McHenry Plan Account, and if the Participant repays, the amount of the Employer Contribution Account, Heritage Plan Account and McHenry Plan Account distributed to him before the earlier of (i) the date which is 5 years after the first date on which the Participant is reemployed by the Employer or an Affiliate, or (ii) the date on which he incurs 5 consecutive One-Year Breaks in Service, then the amount of the forfeiture shall be restored to his Employer Contribution Account, Heritage Plan Account and McHenry Plan Account, as appropriate, as of the last day of the Plan Year in which such repayment is made.

(d) Notwithstanding the foregoing, if a Participant terminated his employment with the Employer and all Affiliates because of a maternity or paternity absence as defined in Section 1.4, then this Section 5.7 shall be read by substituting the word “six” for the number “five” as it appears in Subsections (b) and (c) above.

(e) Amounts restored to a Participant’s Employer Contribution Account, Heritage Plan Account and McHenry Plan Account pursuant to paragraph (b) or (c) above shall be deducted from the forfeitures which otherwise would be allocable for the Plan Year in which such reemployment or repayment occurs or, to the extent such forfeitures are insufficient, shall require a supplemental contribution from the Employer.

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ARTICLE 6

DISTRIBUTIONS

6.1 Commencement of Distributions.

(a) (i) Distribution of a Participant’s Accounts in the Trust Fund shall commence or be made on or as soon as practicable after his 65th birthday or, if later, the Participant’s termination of employment with the Employer and all Affiliates and, unless a Participant and his spouse (if applicable) otherwise request in writing, distributions shall commence no later than the 60th day after the close of the Plan Year in which the later of such events occurs.

(ii) In all events, distribution shall commence no later than the Required Beginning Date, and subsequent distributions required to be made each year for compliance with Code Section 401(a)(9) and the regulations promulgated thereunder shall be made no later than December 31 of such year.

(b) Notwithstanding anything in this Section 6.1 to the contrary, if any further amount becomes due from a Participant’s Accounts after a distribution has occurred, a payment retroactive to such distribution date shall be made no later than 60 days after the earliest date on which such amount can be ascertained.

(c) Notwithstanding anything in this Article 6 to the contrary, the Committee shall direct the Trustee to distribute to the Participant the distributable balance of his Accounts in a lump sum payment at any time after his Determination Date without his written consent to such distribution if, at the time of the distribution, the value of the nonforfeitable portion of the Participant’s Accounts does not exceed $5,000. The $5,000 cashout amount shall apply at the time a distribution is made, regardless of whether the Participant’s vested Account balances exceeded $5,000 at the time of any prior distribution. The value of a Participant’s nonforfeitable accrued benefit may be determined without regard to the portion of the benefit that is attributable to Rollover Contributions (and any earnings allocable to the rollover contributions). Rollover Contributions are defined as any rollover contribution under Code Sections 402(c), 403(a)(4), 403(b)(8), 438(d)(3)(A)(ii) and 457(e)(16).

(d) Any distribution made in accordance with this Article 6 shall, to the extent required by law, be eligible to be distributed in a direct rollover as an Eligible Rollover Distribution in accordance with Section 6.11.

6.2 Form of Distributions.

(a) The Accounts in the Trust Fund distributable to any Participant shall be distributed in one lump sum payment.

(b) Effective for lump sum distributions made with respect to any Determination Date which occurs on or after December 31, 1999, notwithstanding any other Plan provision, shares of Company common stock held in the Investment Funds described in Sections 9.5(a)(ii) and 9.5 (a)(iv), which are allocated to a Participant’s Account hereunder may be distributed in-kind to

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the extent the Participant or, if applicable, the Participant’s designated beneficiary elects a lump sum in-kind form of distribution; provided, however, any fractional shares shall be distributed in the form of cash.

6.3 Distributions to Beneficiaries. The balance of a deceased Participant’s Accounts which is distributable to a beneficiary shall be distributed in one lump sum as soon as practicable (but in no event later than the December 31 of the calendar year in which the fifth anniversary of the Participant’s death occurs) after the Valuation Date immediately following the Participant’s death, based on the value of the Participant’s accounts as of such Valuation Date.

6.4 Beneficiaries.

(a) Except as otherwise provided in this Section 6.4, the distributable balance of a deceased Participant’s Accounts shall be paid to his surviving spouse.

(b) The balance of a deceased Participant’s Accounts shall be distributed to the persons effectively designated by the Participant as his beneficiaries. To be effective, the designation shall be filed with the Committee in such written form as the Committee requires and may include contingent or successive beneficiaries; provided that any designation by a Participant who is married at the time of his death which fails to name his surviving spouse as the sole primary beneficiary shall not be effective unless such surviving spouse has consented to the designation in writing, witnessed by a Plan representative or notary public, acknowledging the effect of the designation and the specific non-spouse beneficiary, including any class of beneficiaries or any contingent beneficiary. Such consent shall not be required if, at the time of filing such designation, the Participant established to the satisfaction of the Committee that the consent of the Participant’s spouse could not be obtained because there is no spouse, the spouse could not be located or by reason of such other circumstances as may be prescribed by regulations. Any consent (or establishment that the consent could not be obtained) shall be effective only with respect to such spouse. Any Participant may change his beneficiary designation at any time by filing with the Committee a new beneficiary designation (with such spousal consent as may be required).

(c) If a Participant dies, and to the knowledge of the Committee after reasonable inquiry leaves no surviving spouse, has not filed an effective beneficiary designation or has revoked all such designations, or has filed an effective designation but the beneficiary or beneficiaries predeceased him or the beneficiary dies before complete distribution of the Participant’s benefits, the distributable portion of the Participant’s Accounts shall be paid in accordance with the following order of priority:

(i) to the Participant’s surviving spouse, or if there be none surviving,

(ii) to the Participant’s children, in equal parts, or if there be none surviving,

(iii) to the Participant’s father and mother, in equal parts, or if there be none surviving,

(iv) to the executor or administrator of the Participant’s estate.

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6.5 Form of Elections and Applications for Benefits. Any election, revocation of an election or application for benefits pursuant to the Plan shall not be effective unless it is (a) made on such form, if any, as the Committee may prescribe for such purpose; (b) signed by the Participant and, if required under Section 6.4, by the Participant’s spouse; and (c) filed with the Committee.

6.6 Unclaimed Distributions. In the event any distribution cannot be made because the person entitled thereto cannot be located and the distribution remains unclaimed for 2 years after the distribution date established by the Committee, then such amount shall be treated as a forfeiture and allocated in accordance with Section 4.8. In the event such person subsequently files a valid claim for such amount, such amount shall be restored to the Participant’s Accounts in a manner similar to the restoration of forfeitures under Section 5.7.

6.7 Loans.

(a) Upon the request of a Participant, the Committee shall authorize a loan to such Participant in accordance with this Section 6.7, provided that the Participant has no outstanding loans from the Plan.

(b) The amount of any loan shall not be less than $1,000, and shall not exceed 50% of the amount which he would be entitled to receive from his Accounts if he had resigned from the service of the Employer and all Affiliates and if his Determination Date was the Valuation Date next preceding the date of such loan request; provided, however, that the amount of such loan shall not exceed $50,000 reduced by the highest outstanding balance of loans from the Trust Fund during the one-year period ending on the day before the date on which such loan is made or modified. Such loans shall be made available to all Participants on a reasonably equivalent basis.

(c) Loans shall be made on such terms as the Committee may prescribe, provided that any such loan shall be evidenced by a note, shall bear a reasonable rate of interest on the unpaid principal thereof, and shall be secured by the Participant’s Accounts and such other security as the Committee in its discretion deems appropriate.

(d) Loans shall be repaid by the Participant by payroll deductions or any other methods approved by the Committee which require level amortization of principal and repayments not less frequently than quarterly. Such loans shall be repaid over a period not to exceed 5 years in accordance with procedures established by the Committee from time to time.

(e) Loans shall be deemed made from the Participant’s Accounts. Amounts necessary to fund such loan shall be deducted from the Participant’s respective Accounts in accordance with the following order:

(i) first, the After-Tax Account;

(ii) second, the Prior Plan Account;

(iii) third, either the McHenry Plan Account or Heritage Plan Account, as applicable;

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(iv) fourth, the Vested Employer Account;

(v) fifth, the Before-Tax Account;

(vi) sixth, the Catch-Up Contribution Account;

(vii) seventh, the Matching Account; and

(viii) eighth, the Employer Contribution Account,

with such deductions taken pro rata from each of the Participant’s Investment Funds held in the respective Accounts.

The portion of each Account used to secure the loan shall be held for the benefit of the Participant and treated in the manner described in Section 4.2(b). Loan repayments shall be credited to the Accounts in the manner described in Section 4.3 and invested in the separate Funds in accordance with the Participant’s investment directions applicable to contributions in effect under Section 9.5 at the time of the repayment. Upon the occurrence of a Participant’s Determination Date, the unpaid balance of any loan shall be charged against the Accounts from which made to the extent not repaid before distribution to the Participant.

6.8 Withdrawals Prior to Termination of Employment.

(a) Subject to paragraph (b) below, a Participant who has not incurred his Severance Date may, upon the determination by the Committee that he has incurred a financial hardship, make a withdrawal from his After-Tax Account and, to the extent necessary, his Before-Tax Account, and his Catch-Up Contribution Account. In any case where the Participant claims financial hardship, he shall submit a written request for such distribution in accordance with procedures prescribed by the Committee. The Committee shall determine whether the Participant has a “financial hardship” on the basis of such written request in accordance with this Section 6.8, and such determination shall be made in a uniform and nondiscriminatory manner. The Committee shall only make a determination of “financial hardship” if the distribution to be made is made on account of (A) an immediate and heavy financial need of the Participant and (B) the amounts to be distributed from the Participant’s After-Tax Account, Before-Tax Account and Catch-Up Contribution Account are necessary to satisfy the Participant’s need.

(b) The determination of whether a Participant has an immediate and heavy financial need is to be made by the Committee on the basis of all relevant facts and circumstances. A distribution will be deemed to be on account of an immediate and heavy financial need only if made on account of:

(i) Medical expenses described in Section 213(d) of the Code incurred by the Participant, the Participant’s spouse, any dependents of the Participant (as defined in Code Section 152 and without regard to Section 152(d)(1)(B));

(ii) The purchase (excluding mortgage payments) of a principal residence for the Participant;

33

(iii) Payment of tuition, related educational fees, and room and board expenses for the next 12 months of post-secondary education for the Participant, the Participant’s spouse, children, or dependents;

(iv) The need to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant’s principal residence;

(v) Payments relating to burial or funeral expenses for the Participant’s deceased parent, spouse, children, dependents (as defined in Code Section 152 and without regard to Section 152(d)(1)(B));

(vi) Expenses for the repair of damage to the Participant’s principal residence that would qualify for the casualty deduction under Code Section 165 (determined without regard to whether the loss exceeds 10% of adjusted gross income); or

(vii) Any other event or expense deemed an immediate and heavy financial need by the Committee or by the Department of the Treasury regulations.

(c) The determination of whether a distribution is necessary to satisfy the immediate and heavy financial need of the Participant shall be made by the Committee on the basis of all relevant facts and circumstances, provided, however, that this requirement shall be met only if the Participant reasonably demonstrates that all of the following requirements are satisfied:

(i) the distribution is not in excess of the amount of the immediate and heavy financial need of the Participant; and

(ii) the Participant has obtained all distributions (other than hardship distributions) and all nontaxable loans currently available under the Plan;

(iii) the Participant will not make any Before-Tax Contributions or Catch-Up Contributions for six months after receiving the hardship distribution; and

(iv) the Participant’s Before-Tax Contributions in the Plan Year following the Plan Year of the hardship distribution do not exceed the limitations in Section 3.2(a) applicable to such following Plan Year, minus the amount of his Before-Tax Contributions for the Plan Year of the hardship distribution.

(d) Any withdrawals under this Section shall not reduce the non-forfeitable portion of the Participant’s Account below the amount of the balance of any outstanding loan made pursuant to Section 6.7. Withdrawals on account of hardship shall be further limited by paragraph (e) below.

(e) Distributions from the Participant’s Before-Tax Account and/or Catch-Up Contribution Account on account of hardship pursuant to this Section 6.8 shall not exceed the lesser of:

(i) the amount needed to relieve the immediate and heavy financial need;

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(ii) the sum of the balances of the Participant’s Before-Tax Account and Catch-Up Contribution Account at the time of the distribution; or

(iii) (A) the sum of the balance of the Before-Tax Account as of December 31, 1988 plus the Participant’s Before-Tax Contributions made on or after January 1, 1989, reduced by (B) the aggregate amount distributed from the Participant’s Before-Tax Account on or after January 1, 1989.

(f) Notwithstanding the foregoing, if a Participant is married at the time he requests a withdrawal, no such withdrawal shall be permitted without the written consent of the Participant’s spouse, which shall be witnessed by a notary public or a Plan representative.

6.9 Facility of Payment. When, in the Committee’s opinion, a Participant or beneficiary is under a legal disability or is incapacitated in any way so as to be unable to manage his affairs, the Committee may direct the Trustee to make payments:

(a) directly to the Participant or beneficiary;

(b) to a duly appointed guardian or conservator of the Participant or beneficiary;

(c) to a custodian for the Participant or beneficiary under the Uniform Gifts to Minors Act;

(d) to an adult relative of the Participant or beneficiary; or

(e) directly for the benefit of the Participant or beneficiary.

Any such payment shall constitute a complete discharge therefore with respect to the Trustee and the Committee.

6.10 Claims Procedure.

(a) Any person who believes that he is then entitled to receive a benefit under the Plan, including one greater than that initially determined by the Committee, may file a claim in writing with the Committee.

(b) The Committee shall within 90 days of the receipt of a claim either allow or deny the claim in writing. If the claim requires a determination of disability the Committee shall within 45 days of receipt of a claim either allow or deny the claim in writing. A denial of a claim shall be written in a manner calculated to be understood by the claimant and shall include:

(i) the specific reason or reasons for the denial;

35

(ii) specific references to pertinent Plan provisions on which the denial is 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 Plan’s claim review procedure.

(c) A claimant whose claim is denied (or his duly authorized representative) may, within 60 days (180 days for disability claims) after receipt of denial of his claim:

(i) submit a written request for review to the Committee;

(ii) review pertinent documents; and

(iii) submit issues and comments in writing.

(d) The Committee shall notify the claimant of its decision on review within 60 days (45 days for disability claims) of receipt of a request for review. The decision on review shall be written in a manner calculated to be understood by the claimant and shall include specific reasons for the decision and specific references to the pertinent Plan provisions on which the decision is based.

(e) The 90-day and 60-day periods described in subsections (b) and (d), respectively, may be extended at the discretion of the Committee for a second 90- or 60-day period. The 45 day period described in subsection (b) may be extended at the discretion of the Committee for two separate 30 day periods. The 45 day period described in subsection (d) may be extended for a period of 45 days at the Committee’s discretion. If the Committee decides it needs an extension it will provide written notice of the extension to the claimant prior to the termination of the initial period, indicating the special circumstances requiring such extension of time and the date by which a final decision is expected.

(f) Participants and beneficiaries shall not be entitled to challenge the Committee’s determinations in judicial or administrative proceedings without first complying with the procedures in this Article. The Committee’s decisions made pursuant to this Section are intended to be final and binding on Participants, beneficiaries and others.

(g) Any judicial or administrative challenge to the Committee’s final determination must be filed with the court or administrative agency within the two-year period immediately following the date benefits were denied by the Committee on review of its initial determination.

6.11 Eligible Rollover Distributions.

(a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee’s election under this Article 6, a distributee may elect, at the time and in the manner prescribed by the Committee, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover.

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(b) Eligible rollover distribution: An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee’s designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Code Section 401(a)(9); the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities); and, any distribution that is a hardship distribution described in Code Section 401(k)(2)(B)(i)(IV).

(c) Eligible retirement plan: An eligible retirement plan is an individual retirement account described in Code Section 408(a), an individual retirement account described in Code Section 408A, an individual retirement annuity described in Code Section 408(b), an annuity plan described in Code Section 403(a), or a qualified trust described in Code Section 401(a), that accepts the distributee’s eligible rollover distribution. An eligible retirement plan shall also mean an annuity contract described in Section 403(b) of the Code and an eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this plan. In addition, with respect to distributions made to a nonspouse beneficiary after December 31, 2006, an eligible retirement plan is an individual retirement account under 408(b) that is established in a manner that identifies it as an individual retirement account with respect to the deceased individual and also identifies the deceased individual and the beneficiary.

(d) A portion of a distribution shall not fail to be an eligible rollover distribution merely because the portion consists of After-Tax Contributions which are not includible in gross income. However, such portion may be transferred only to an individual retirement account or annuity described in section 408(a) or (b) of the Code, or to a qualified defined contribution plan described in section 401(a) or 403(a) of the Code, or, with respect to distributions made after December 31, 2006, to a tax sheltered annuity described in section 403(b) of the Code that agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible.

(e) Distributee: A distributee includes an employee or a former employee. In addition, an employee’s or former employee’s surviving spouse and an employee’s or former employee’s spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), are distributees with regard to the interest of the spouse or former spouse. Effective for distributions made after December 31, 2006, a distributee shall also include an individual who is a designated beneficiary (within the meaning of Code Section 401(a)(9)(E)) and who is not the surviving spouse of the employee or former employee.

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(f) Direct rollover: A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee.

6.12 Minimum Required Distributions.

(a) General Rules.

(i) Effective Date. The provisions of this Section 6.12 will apply for purposes of determining required minimum distributions for calendar years beginning with the 2003 calendar year.

(ii) Precedence. The requirements of this Section 6.12 will take precedence over any inconsistent provisions of the Plan.

(iii) Requirements of Treasury Regulations Incorporated. All distributions required under this Section 6.12 will be determined and made in accordance with the Treasury regulations under Section 401(a)(9) of the Code.

(iv) TEFRA Section 242(b)(2) Elections. Notwithstanding the other provisions of this Section 6.12, distributions may be made under a designation made before January 1, 1984, in accordance with Section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) and the provisions of the Plan that relate to Section 242(b)(2) of TEFRA.

(v) Compliance Savings Provision. As of the effective date of this Section 6.12, a Participant’s Accounts are distributable only in a single lump sum to the Participant or his beneficiaries. The provisions of Sections 6.12(c) and Section 6.12(d) shall apply only to the extent that the Plan otherwise provides that any part of a Participant’s Accounts is distributable in a form other than a single lump sum.

(b) Time and Manner of Distribution.

(i) Required Beginning Date. The Participant’s entire interest will be distributed to the Participant no later than the Participant’s Required Beginning Date.

(ii) Death of Participant Before Distributions Begin. If the Participant dies before distributions begin, the Participant’s entire interest in the Plan will be distributed no later than as follows:

(A) If a Participant’s surviving spouse is the Participant’s sole Designated Beneficiary, then, distributions to the surviving spouse will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died, or by December 31 of the calendar year in which the Participant would have attained age 70  ¹/2, if later.

(B) If the Participant’s surviving spouse is not the Participant’s sole Designated Beneficiary, then distributions to the Designated Beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died.

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(C) If there is no Designated Beneficiary as of September 30 of the year following the year of the Participant’s death, the amount in the Participant’s Accounts will be distributed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

(D) If the Participant’s surviving spouse is the Participant’s sole Designated Beneficiary and the surviving spouse dies after the Participant but before distributions to the surviving spouse begin, this subsection (b)(ii), other than subsection (b)(ii)(A), will apply as if the surviving spouse were the Participant.

For purposes of this subsection (b)(ii) and subsection (d), unless subsection (b)(ii)(D) applies, distributions are considered to begin on the Participant’s Required Beginning Date. If subsection (b)(ii)(D) applies, distributions are considered to begin on the date distributions are required to begin to the surviving spouse under subsection (b)(ii)(A).

(iii) Forms of Distribution. Unless the amount in the Participant’s Accounts is distributed in a single sum on or before the Required Beginning Date, as of the first Distribution Calendar Year, distributions will be made in accordance with Sections 6.12(c) and 6.12(d).

(c) Required Minimum Distributions During Participant’s Lifetime.

(i) Amount of Required Minimum Distribution For Each Distribution Calendar Year. Subject to Section 6.2, during the Participant’s lifetime, the minimum amount that will be distributed for each distribution calendar year is the lesser of:

(A) the quotient obtained by dividing the Participant’s Account balance by the distribution period in the Uniform Lifetime Table set forth in Section 1.401(a)(9)-9 of the Treasury regulations, using the Participant’s age as of the Participant’s birthday in the distribution calendar year; or

(B) if the Participant’s sole designated beneficiary for the distribution calendar year is the Participant’s spouse, the quotient obtained by dividing the Participant’s Account balance by the number in the Joint and Last Survivor Table set forth in Section 1.401(a)(9)-9 of the Treasury regulations, using the Participant’s and spouse’s attained ages as of the Participant’s and spouse’s birthdays in the distribution calendar year.

(ii) Lifetime Required Minimum Distributions Continue Through Year of Participant’s Death. Required minimum distributions will be determined under this Section 6.12(c) beginning with the first distribution calendar year and up to and including the distribution calendar year that includes the Participant’s date of death.

(d) Required Minimum Distributions After Participant’s Death.

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(i) Death On or After Date Distributions Begin.

(A) Participant Survived by Designated Beneficiary: Subject to Section 6.3, if the Participant dies on or after the date distributions begin and there is a designated beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s Account balance by the longer of the remaining life expectancy of the Participant or the remaining life expectancy of the Participant’s designated beneficiary, determined as follows:

(1) The Participant’s remaining life expectancy is calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

(2) If the Participant’s surviving spouse is the Participant’s sole designated beneficiary, the remaining life expectancy of the surviving spouse is calculated for each distribution calendar year after the year of the Participant’s death using the surviving spouse’s age as of the spouse’s birthday in that year. For distribution calendar years after the year of the surviving spouse’s death, the remaining life expectancy of the surviving spouse is calculated using the age of the surviving spouse as of the spouse’s birthday in the calendar year of the spouse’s death, reduced by one for each subsequent calendar year.

(3) If the Participant’s surviving spouse is not the Participant’s sole designated beneficiary, the designated beneficiary’s remaining life expectancy is calculated using the age of the beneficiary in the year following the year of the Participant’s death, reduced by one for each subsequent year.

(B) No Designated Beneficiary: Subject to Section 6.4(c), if the Participant dies on or after the date distributions begin and there is no designated beneficiary as of September 30 of the year after the year of the Participant’s death, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s Account balance by the Participant’s remaining life expectancy calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

(ii) Death Before Date Distributions Begin.

(A) Participant Survived by Designated Beneficiary: If the Participant dies before the date distributions begin and there is a designated beneficiary, the Participant’s entire interest will be distributed to the designated beneficiary by December 31 of the calendar year containing the fifth anniversary of the participant’s death.

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(B) No Designated Beneficiary: If the Participant dies before the date distributions begin and there is no designated beneficiary as of September 30 of the year following the year of the Participant’s death, distribution of the Participant’s entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

(C) Death of Surviving Spouse Before Distributions to Surviving Spouse Are Required to Begin: Notwithstanding any provision of this Plan to the contrary, if the Participant dies before the date distributions begin, the Participant’s surviving spouse is the Participant’s sole designated beneficiary, and the surviving spouse dies before distributions are required to begin to the surviving spouse under Section 6.12(b)(ii)(A), this Section 6.12(d)(ii) will apply as if the surviving spouse were the Participant.

(e) Definitions.

(i) Designated beneficiary. The “designated beneficiary” means the individual who is designated as the beneficiary under Section 6.4 of the Plan and is the designated beneficiary under Section 401(a)(9) of the Code and Section 1.401(a)(9)-1, Q&A-4, of the Treasury regulations.

(ii) Distribution calendar year. The “distribution calendar year” means a calendar year for which a minimum distribution is required. For distributions beginning before the Participant’s death, the first distribution calendar year is the calendar year immediately preceding the calendar year which contains the Participant’s required beginning date. For distributions beginning after the Participant’s death, the first distribution calendar year is the calendar year in which distributions are required to begin under Section 6.12(b)(ii). The required minimum distribution for the Participant’s first distribution calendar year will be made on or before the Participant’s Required Beginning Date. The required minimum distribution for other distribution calendar years, including the required minimum distribution for the distribution calendar year in which the Participant’s required beginning date occurs, will be made on or before December 31 of that distribution calendar year.

(iii) Life expectancy. “life expectancy” means the life expectancy as computed by use of the Single Life Table in Section 1.401(a)(9)-9 of the Treasury regulations.

(iv) Participant’s account balance. The “account balance” means the account balance as of the last Valuation Date in the calendar year immediately preceding the distribution calendar year (‘valuation calendar year’) increased by the amount of any contributions made and allocated or forfeitures allocated to the account balance as of dates in the valuation calendar year after such Valuation Date and decreased by distributions made in the valuation calendar year after such Valuation Date. The account balance for the valuation calendar year includes any amounts rolled over or transferred to the Plan either in the valuation calendar year or in the distribution calendar year if distributed or transferred in the valuation calendar year.

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(v) Required Beginning Date. “Required Beginning Date” is defined at Section 1.4 of the Plan.

6.13 Automatic Rollover. Notwithstanding any other provision of this Plan, in the event an amount greater than $1,000 is distributed pursuant to the provisions of Section 6.1(c) above, if the Participant does not elect to have such distribution paid directly to an eligible retirement plan specified by the Participant in a direct rollover or to receive the distribution directly in accordance with Section 6.11, then the Plan Administrator will pay the distribution in a direct rollover to an individual retirement plan designated by the Plan Administrator.

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ARTICLE 7

TOP-HEAVY PLAN REQUIREMENTS

7.1 Definition of Top-Heavy Plan. The Plan shall be Top-Heavy with respect to a Plan Year if it is a member of a Required Aggregation Group and the present value of the accrued benefits for Key Employees under all plans in the Aggregation Group exceeds 60% of the present value of the accrued benefits for all employees under all plans in the Aggregation Group. This ratio shall be computed as provided in Section 416(g) of the Code. Such present values shall be determined as of the last day of the preceding Plan Year of each plan. If all plans in the Aggregation Group do not have the same Plan Year, then such present values shall be determined as of the last day of each Plan Year ending in the same calendar year as the last day of the preceding Plan Year of this Plan. Under a defined contribution plan, such present values shall be determined by aggregating the value of all accounts of all Key Employees and all employees respectively. As used in this Section, the term “accounts” includes certain prior distributions, Employer contributions payable to the Plan, employee contributions, and rollover accounts, if any, all in accordance with Section 416(g) of the Code or regulations thereunder.

7.2 Top-Heavy Plan Requirements. Notwithstanding any provision of the Plan to the contrary but subject to the Company’s right to terminate the Plan, the following provisions shall apply with respect to any Plan Year in which the Plan is Top-Heavy.

(a) Minimum Vesting. Effective as of the first day of such Plan Year, the following vesting schedule shall be substituted for the schedules set forth in Section 5.6, except to the extent, with respect to any Participant, a schedule in Section 5.6 applicable to such Participant produces a larger Plan benefit:

If His Years of Service Shall Have Been	The Nonforfeitable Percentage of His Employer Contribution Account Shall Be
2 but less than 3	20	%
3 but less than 4	40	%
4 but less than 5	60	%
5 but less than 6	80	%
6 or more	100	%

(b) Minimum Contribution. All Participants who are Non-Key Employees participating in the Plan are also participants in a defined benefit plan maintained by the Employer. Consequently, any minimum benefits required due to the top-heavy status of this Plan will be provided in such defined benefit plan. If the defined benefit plan is terminated and if the Required Aggregation Group is top-heavy, the Employer shall make a supplemental contribution to the Vested Employer Accounts and Employer Contribution Account of any such Participant, in an amount sufficient for the total amount of Employer contributions allocated to accounts of such Participant to equal 5% of such Participant’s Total Compensation for such Plan Year. For purposes of this subsection, the term “Participant” means a Participant who was employed by the Employer on the last day of a Plan Year in which the Plan is Top-Heavy.

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7.3 Definitions. For purposes of this Article:

(a) A “Key Employee” is any employee or former employee (including any deceased employee) who at any time during the Plan Year that includes the determination date was an officer of the Employer having annual compensation greater than $145,000 (as adjusted under section 416(i)(1) of the Code), a 5-percent owner of the Employer, or a 1-percent owner of the Employer having annual compensation of more than $150,000. For this purpose, annual compensation means compensation within the meaning of Section 415(c)(3) of the Code.

The determination of who is a Key Employee will be made in accordance with Code Section 416(i)(1) and the regulations thereunder.

(b) A “Non-Key Employee” is an employee of the Employer other than a Key Employee.

(c) “Employer” means the Employer and all Affiliates.

(d) “Aggregation Group” means a group of qualified plans consisting of this Plan and certain other defined contribution plans and defined benefit plans maintained by the Employer which are aggregated for purposes of determining whether the group as whole is Top-Heavy. The Aggregation Group includes plans which must be aggregated for this purpose (the “Required Aggregation Group”) and other plans which are aggregated for this purpose (the “Permissive Aggregation Group”).

(e) The “Required Aggregation Group” shall include:

(i) each employee benefit plan of the Employer qualified under Section 401(a) of the Code in which a Key Employee is a participant; and

(ii) each other qualified plan which enables any plan described in (i) to meet the anti-discrimination or coverage requirements of the Code.

(f) The “Permissive Aggregation Group” includes such other qualified plan or plans of the Employer as the Committee may in its discretion elect, provided the inclusion of any such plan in the Aggregation Group does not cause it to fail to meet the anti-discrimination or coverage requirements of the Code.

7.4 Cessation of Top-Heavy Requirements.

(a) Once the Plan has been Top-Heavy but is no longer Top-Heavy, this Article shall be inapplicable except as provided in this Section.

(b) The vesting schedule set forth in Section 7.2(a) shall continue to apply to a Participant who had 5 or more Years of Service as of the last day on which the Plan was Top-Heavy.

(c) The Employer Contribution Account of any other Participant constituted as of the last day on which the Plan was Top-Heavy shall be separately accounted for as a subaccount until the nonforfeitable percentage of his Employer Contribution Account

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pursuant to Section 5.6 equals or exceeds the nonforfeitable percentage of his Employer Account on the last day on which the Plan was Top-Heavy. In the event such Participant shall resign or be dismissed from the employ of the Employer while a subaccount is being maintained, his nonforfeitable interest in such subaccount shall be computed pursuant to Section 5.6 but using the same nonforfeitable percentage as was applicable to him on the last day on which the Plan was Top-Heavy.

7.5 EGTRRA Top-Heavy Provisions.

(a) This Section 7.5 shall apply for purposes of determining the present values of accrued benefits and the amounts of account balances of employees as of the determination date.

(i) Distributions during year ending on the determination date. The present values of accrued benefits and the amounts of account balances of an employee as of the determination date shall be increased by the distributions made with respect to the employee under the Plan and any plan aggregated with the Plan under Section 416(g)(2) of the Code during the 1-year period ending on the determination date. The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with the Plan under Section 416(g)(2)(A)(i) of the Code. In the case of a distribution made for a reason other than severance from employment, death, or disability, this provision shall be applied by substituting “5-year period” for “1-year period.”

(ii) Employees not performing services during year ending on the determination date. The accrued benefits and accounts of any individual who has not performed services for the employer during the 1-year period ending on the determination date shall not be taken into account.

(b) Minimum Benefits. For Plan Years beginning on or after January 1, 2002, Employer matching contributions shall be taken into account for purposes of satisfying the minimum contribution requirements of Section 416(c)(2) of the Code and the Plan. The preceding sentence shall apply with respect to matching contributions under the Plan or, if the Plan provides that the minimum contribution requirement shall be met in another plan, such other plan. Employer matching contributions that are used to satisfy the minimum contribution requirements shall be treated as matching contributions for purposes of the actual contribution percentage test and other requirements of Section 401(m) of the Code.

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ARTICLE 8

POWERS AND DUTIES OF PLAN COMMITTEE

8.1 Appointment of Plan Committee.

(a) The Board of Directors of the Company (the “Board of Directors”) shall name a Plan Committee (the “Committee”) to consist of not less than 3 persons to serve as administrator and named fiduciary of the Plan. Any person, including directors, shareholders, officers and employees of the Company, shall be eligible to serve on the Committee. Every person appointed a member of the Committee shall signify his acceptance in writing to the Board of Directors.

(b) Members of the Committee shall serve at the pleasure of the Board of Directors and may be removed by the Board of Directors at any time with or without cause. Any member of the Committee may resign by delivering his written resignation to the Board of Directors, and such resignation shall become effective at delivery or at any later date specified therein. Vacancies in the Committee shall be filled by the Board of Directors.

(c) Usual and reasonable expenses of the Committee may be paid in whole or in part by the Employers and any such expenses not paid by the Employers shall be paid by the Trustee out of the principal or income of the Trust Fund. The members of the Committee who are employees of the Employer or any Affiliate shall not receive any compensation for their services as such.

8.2 Powers and Duties of Committee. The Company shall have final and binding authority to control and manage the operation and administration of the Plan, including all rights and powers necessary or convenient to the carrying out of its functions hereunder, whether or not such rights and powers are specifically enumerated herein. The Committee shall have the specific delegated powers and duties described in this Article 8, and such further powers and duties as may be delegated to it by the Company. In exercising its responsibilities hereunder, the Committee may manage and administer the Plan through the use of agents who may include employees of the Employer.

Without limiting the generality of the foregoing, and in addition to the other powers set forth in this Article 8, the Committee shall have the following express authorities:

(a) To construe and interpret the Plan, decide all questions of eligibility and determine the amount, manner and time of payment of any benefits hereunder.

(b) To prescribe procedures to be followed by Participants or beneficiaries filing applications for benefits.

(c) To prepare and distribute, in such manner as the Committee determines to be appropriate, information explaining the Plan.

(d) To receive from the Employers, Participants and others such information as shall be necessary for the proper administration of the Plan.

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(e) To furnish the Company upon request such annual and other reports with respect to the administration of the Plan as are reasonable and appropriate.

(f) To receive, review and maintain on file reports of the financial condition and of the receipts and disbursements of the Trust Fund from the Trustee.

8.3 Committee Procedures.

(a) The Committee may adopt such bylaws and regulations as it deems desirable for the conduct of its affairs.

(b) A majority of the members of the Committee at the time in office shall constitute a quorum for the transaction of business. All resolutions or other actions taken by the Committee at any meeting shall be by the vote of the majority of the members of the Committee present at the meeting. The Committee may act without a meeting by written consent of a majority of its members.

(c) The Committee may elect one of its members as chairman and may appoint a secretary, who may or may not be a Committee member, and shall advise the Trustee and the Employer of such actions in writing. The secretary shall keep a record of all actions of the Committee and shall forward all necessary communications to the Employer or the Trustee.

(d) Filing or delivery of any document with or to the secretary of the Committee in person or by registered or certified mail, addressed in care of the Employer, shall be deemed a filing with or delivery to the Committee.

8.4 Consultation with Advisors. The Committee (or any fiduciary designated by the Committee pursuant to Section 8.8) may employ or consult with counsel, actuaries, accountants, physicians or other advisors (who may be counsel, actuaries, accountants, physicians or other advisors for the Employer).

8.5 Committee Members as Participants. Any Committee member may also be a Participant, but no Committee member shall have power to take part in any discretionary decision or action affecting his own interest as a Participant under this Plan unless such decision or action is upon a matter which affects all other Participants similarly situated and confers no special right, benefit or privilege not simultaneously conferred upon all other such Participants.

8.6 Records and Reports. The Committee shall take all such action as it deems necessary or appropriate to comply with governmental laws and regulations relating to the maintenance of records, notifications to Participants, registrations with the Internal Revenue Service, reports to the U.S. Department of Labor and all other requirements applicable to the Plan.

8.7 Investment Policy.

(a) The Committee from time to time shall determine the short-term and long-term financial needs of the separate Investment Funds comprising the Trust Fund and such needs shall be communicated from time to time to the Trustee, Investment Managers or others having responsibility and control of the Trust Fund.

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(b) Subject to subsection (c) below, the Trustee shall have the exclusive authority and discretion to manage and control the assets of the respective Investment Funds pursuant to the investment policy determined by the Committee.

(c) The Committee may in its discretion:

(i) appoint one or more Investment Managers to manage (including the power to direct the Trustee to acquire or dispose of) any assets of the Plan pursuant to the investment policy determined by the Committee, in which case the Trustee shall not be liable for the acts or omissions of any such Investment Manager or be under an obligation to invest or otherwise manage any asset of the Plan which is subject to the management of any such Investment Manager; and

(ii) direct the Trustee with respect to the investment of the assets of the Plan in any mutual fund, insurance company separate account or collective investment fund maintained by a bank or trust company (including but not limited to such funds maintained by the Trustee or any affiliate thereof), or similar pooled investment vehicle, pursuant to the investment policy of any Investment Fund determined by the Committee.

(d) For purposes of this Section 8.7, an Investment Manager shall mean (i) a registered investment adviser under the Investment Advisers Act of 1940, (ii) a bank as defined in such Act, or (iii) an insurance company qualified under the laws of more than one state to manage, acquire and dispose of plan assets. Any Investment Manager appointed by the Committee shall acknowledge in writing that it is a fiduciary with respect to the Plan.

8.8 Designation of Other Fiduciaries. The Committee may designate in writing other persons to carry out a specified part or parts of its responsibilities hereunder (including the power to designate other persons to carry out a part of such designated responsibility), but not including the power to appoint Investment Managers. Any such designation shall be accepted by the designated person, who shall acknowledge in writing that he is a fiduciary with respect to the Plan.

8.9 Obligations of Committee.

(a) The Committee or its properly authorized delegate shall make such determinations as are necessary to accomplish the purposes of the Plan with respect to individual Participants or classes of such Participants. The Employer shall notify the Committee of facts relevant to such determinations, including, without limitation, length of service, compensation for services, dates of death, permanent disability, granting or terminating of leaves of absence, ages, retirement and termination of service for any reason (but indicating such reason), and termination of participation. The Employer shall also be responsible for notifying the Committee of any other facts which may be necessary for the Committee to discharge its responsibilities hereunder.

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(b) The Committee is hereby authorized to act solely upon the basis of such notifications from the Company and to rely upon any document or signature believed by the Committee to be genuine and shall be fully protected in so doing. For the purpose of this Section, a letter or other written instrument signed in the name of the Company by any officer thereof shall constitute a notification therefrom; except that any action by the Company or its Board of Directors with respect to the appointment or removal of a member of the Committee or the amendment of the Plan and Trust or the designation of a group of employees to which the Plan is applicable shall be evidenced by an instrument in writing, signed by a duly authorized officer or officers, certifying that said action has been authorized and directed by a resolution of the Board of Directors of the Company.

(c) The Committee shall notify the Trustee of its actions and determinations affecting the responsibilities of the Trustee and shall give the Trustee directions as to payments or other distributions from the Trust Fund to the extent they may be necessary for the Trustee to fulfill the terms of the Trust Agreement.

(d) The Committee shall be under no obligation to enforce payment of contributions hereunder or to determine whether contributions delivered to the Trustee comply with the provisions hereof relating to contributions, and is obligated only to administer this Plan pursuant to the terms hereof.

8.10 Indemnification of Committee. The Employers shall indemnify members of the Committee and its authorized delegates who are employees of the Employer for any liability or expenses, including attorneys’ fees, incurred in the defense of any threatened or pending action, suit or proceeding by reason of their status as members of the Committee or its authorized delegates, to the full extent permitted by the law of the Employer’s state of incorporation.

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ARTICLE 9

TRUSTEE AND TRUST FUND

9.1 Trust Fund. A Trust Fund to be known as the First Midwest Bancorp Savings and Profit Sharing Trust (herein referred to as the “Trust” or the “Trust Fund”) has been established by the execution of a trust agreement with one or more Trustees and is maintained for the purposes of this Plan. 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 benefit of the Participants and their beneficiaries.

9.2 Payments to Trust Fund and Expenses. All contributions hereunder will be paid into and credited to the Trust Fund and all benefits hereunder and expenses chargeable thereto will be paid from the Trust Fund and charged thereto.

9.3 Trustee’s Responsibilities. The powers, duties and responsibilities of the Trustee shall be as set forth in the Trust Agreement and nothing contained in this Plan, either expressly or by implication, shall impose any additional powers, duties or responsibilities upon the Trustee.

9.4 Reversion to the Employer. The Employer has no beneficial interest in the Trust Fund and no part of the Trust Fund shall ever revert or be repaid to the Employer, directly or indirectly, except that the Employer shall upon written request have a right to recover:

(a) within one year of the date of payment of a contribution by the Employer, any amount (less any losses attributable thereto) contributed through a mistake of fact;

(b) within one year of the date on which any deduction for a contribution by the Employer under Section 404 of the Code is disallowed, an amount equal to the amount disallowed (less any losses attributable thereto); and

(c) at the termination of the Plan, any amounts remaining in the Excess Forfeiture Suspense Account.

9.5 Investment Options. Each Participant shall direct the Trustee with respect to the Investment Fund or Funds in which the Participant’s contributions and Accounts are to be invested.

(a) Subject to the discretion of the Committee to establish additional Funds or to consolidate Funds, Funds shall be maintained as follows:

(i) At least one Fund shall be established, maintained and invested with the objective of protection of principal and substantial liquidity, with a rate of return consistent with such objective.

(ii) A second Fund shall be established, maintained and invested in common stock of the Company purchased (i) in the open market, (ii) by participation in a dividend reinvestment or similar plan available to stockholders of the Company, or (iii) privately from the Company or any other person; provided that amounts allocated to this Fund may be invested in short-term interest bearing accounts to facilitate investments in common stock of the Company, transfers among Funds or distributions to Participants.

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(iii) At least two additional Funds shall be established, maintained and invested with objectives which, when combined with the other Funds, provide Participants with the opportunity to designate the investment of their Accounts among diversified Funds providing a range of risk and return consistent with the requirements of the regulations of the Department of Labor under Section 404(c) of ERISA, specifically regulations Section 2550.404c-1(b)(3).

(iv) With respect to any Participant that participated in the Heritage Plan on September 30, 1998, a Fund holding Employer securities transferred to this Plan from the Heritage Plan as part of the merger of the Heritage Plan into this Plan effective October 1, 1998.

(b) A Participant shall designate the Fund or Funds into which any contributions made to the Plan on behalf of the Participant shall be invested at the time of initial Participation in the Plan. Thereafter, a Participant may change the mix of the investment of future contributions and may transfer existing Account balances among the Funds no less frequently than quarterly in accordance with procedures established by the Committee from time to time. Notwithstanding any other provision of the Plan, a Participant may not direct that any contributions to the Plan be invested in, and no existing Account balances may be transferred to, the Heritage Fund. However, existing Account balances invested in the Heritage Fund may be transferred from the Heritage Fund to any other Fund maintained under the Plan under such rules as may be established and uniformly applied by the Committee from time to time.

(c) Designations under this Section 9.5 shall be made by filing with the Committee the appropriate written form required thereby at such times and in accordance with such procedures and limitations as the Committee may from time to time establish. The Trustee shall invest the assets of the Plan attributable to the Participant’s Accounts in accordance with such properly filed designations.

9.6 Rollover from Prior Plan. Notwithstanding any other provision contained in this Plan, the Trustee, at the written direction of the Committee, may accept and hold for the account of a Participant, funds transferred from an Employer’s trust described in Section 401(a) of the Code, and which is exempt from tax under Section 501(a) of the Code, and which: (1) relates to the merger of the Heritage Plan into the Plan effective October 1, 1998; (2) relates to the merger of the McHenry Plan into the Plan effective December 31, 1997; or (3) is or was maintained by either the Continental Illinois Bank of Deerfield, N.A., or the Continental Bank of Buffalo Grove, N.A., so long as such transferred amount constitutes an eligible rollover distribution, within the meaning of Code Section 402(c)(4) or any corresponding predecessor Code Section, from the transferor plan. In the event of such a transfer, the Trustee shall establish and maintain a Prior Plan Account, consisting of any employer and rollover contributions to the Prior Plan and adjustments relating thereto, and an After-Tax Account, consisting of any after-tax contributions to the Prior Plan and adjustments relating thereto, in the name of the Participant, which Accounts shall not be forfeitable for any reason. As regards the Heritage Plan and the McHenry Plan, however, a Heritage Plan Account and McHenry Plan Account, respectively, shall be established with respect

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to the employer contributions accrued under the Heritage Plan and McHenry Plan, which Accounts shall vest in accordance with Section 5.6. All funds or assets which are transferred to the Prior Plan Account and the After-Tax Account shall be invested and accounted for separately; provided that to the extent that any such balances have been generated by after-tax contributions of the Participant, such Participant and his spouse may withdraw such amounts to the extent of their after-tax contributions on request to the Committee in writing. Assets in the Prior Plan Account and After-Tax Account shall be accounted for in such manner as shall be determined by the Trustee.

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ARTICLE 10

AMENDMENT OR TERMINATION

10.1 Amendment. The Company reserves the right to amend this Plan at any time to take effect retroactively or otherwise, in any manner which it deems desirable including, but not by way of limitation, the right to increase or diminish contributions to be made by the Employer hereunder, to change or modify the method of allocation of its contributions, to change any provision relating to the distribution or payment, or both, of any assets of the Trust.

10.2 Termination. The Company further reserves the right to terminate this Plan at any time.

10.3 Form of Amendment, Discontinuance of Employer Contributions, and Termination. Any such amendment, discontinuance of Employer Contributions or termination shall be made only by resolution of the Board of Directors of the Company.

10.4 Limitations on Amendments. The provisions of this Article are subject to the following restrictions:

(a) Except as provided in Section 9.4, no amendment shall operate either directly or indirectly to give the Employer any interest whatsoever in any funds or property held by the Trustee under the terms hereof, or to permit corpus or income of the Trust to be used for or diverted to purposes other than the exclusive benefit of the Participants and their beneficiaries.

(b) Except to the extent necessary to conform to the laws and regulations or to the extent permitted by any applicable law or regulation, no amendment shall operate either directly or indirectly to deprive any Participant of his nonforfeitable beneficial interest in his Accounts as they are constituted at the time of the amendment.

(c) No amendment shall change any vesting schedule unless each Participant who has completed 3 or more Years of Service is permitted to elect to have the nonforfeitable percentage of his Employer Account computed under the Plan without regard to such amendment. The period for making such amendment shall expire no later than the latest of the following dates: (i) the date which is 60 days after the date the Plan amendment is adopted, (ii) the date which is 60 days after the date the Plan amendment becomes effective, or (iii) the date which is 60 days after the Participant is issued written notice of the Plan amendment by the Committee. Notwithstanding the foregoing, no election need be offered to a Participant whose nonforfeitable percentage of his Employer Contribution Account cannot at any time be lower than such percentage determined without regard to such amendment.

(d) Except as permitted by applicable law, no amendment shall eliminate or reduce an early retirement benefit or a retirement-type subsidy or eliminate an optional form of benefit.

10.5 Level of Benefits upon Merger. This Plan shall not merge or consolidate with, or transfer assets or liabilities to, any other plan, unless each Participant shall be entitled to receive a benefit immediately after said merger, consolidation or transfer (if such other plan were then terminated) which shall be not less than the benefit he would have been entitled to receive immediately before said merger, consolidation or transfer (if this Plan were then terminated).

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10.6 Vesting upon Termination or Discontinuance of Employer Contributions; Liquidation of Trust.

(a) This Plan shall be deemed terminated if and only if the Plan terminates by operation of law or pursuant to Section 10.2. In the event of any termination or partial termination within the meaning of the Code, or in the event the Employer permanently discontinues the making of contributions to the Plan, the Employer Contribution Account of each affected Participant who is employed by the Employer on the date of the occurrence of such event shall be nonforfeitable; provided, however, that in no event shall any Participant or beneficiary have recourse to other than the Trust Fund for the satisfaction of benefits hereunder.

(b) In the event an Employer permanently discontinues the making of contributions to the Plan, the Trustee shall make or commence distribution to each Participant or his beneficiaries of the value of such Participant’s Accounts as provided herein within the time prescribed in Article 6. However, if, after such discontinuance the Company shall determine it to be impracticable to continue the Trust any longer, the Company may, in its discretion, declare a date to be the Determination Date for all Participants whose Determination Date has not yet occurred, and the Trustee shall thereupon, as promptly as shall then be reasonable under the circumstances, liquidate the Trust assets and distribute to each such Participant his Accounts in the Trust Fund. Such date shall also constitute the final distribution date for each Participant or beneficiary whose Accounts are being distributed in installments. Upon completion of such liquidation and distribution, the Trust shall finally and completely terminate.

(c) The liquidation of the Trust, if any, in connection with any Plan termination shall be accomplished by the Committee acting on behalf of the Company. After directing that sufficient funds be set aside to provide for the payment of all expenses incurred in the administration of the Plan and the Trust, to the extent not paid or provided for by the Employer, the Committee shall, as promptly as shall then be reasonable under the circumstances, liquidate the Trust assets and distribute to each Participant his Accounts in the Trust Fund. Upon completion of such liquidation and distribution, the Trust shall finally and completely terminate. In the event the Committee is no longer in existence, the actions to be taken by the Committee pursuant to this Section shall be taken by the Trustee.

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ARTICLE 11

ADOPTION BY AFFILIATES

11.1 Adoption of Plan. Any Affiliate may adopt this Plan for the benefit of its eligible employees if authorized to do so by a resolution or the terms of an agreement approved by the Board of Directors of the Company. Such adoption shall be by resolution of such Affiliate’s board of directors, a certified copy of which shall be filed with the Company, the Committees and the Trustee. Upon such adoption, such Affiliate shall become an “Employer.”

11.2 The Company as Agent for Employer. Each Employer which has adopted this Plan pursuant to Section 11.1 hereby irrevocably gives and grants to the Company full and exclusive power conferred upon it by the terms of the Plan and Trust to take or refrain from taking any and all action which such Employer might otherwise take or refrain from taking with respect to the Plan, including sole and exclusive power to exercise, enforce or waive any rights whatsoever which such Employer might otherwise have with respect to the Trust, and each such Employer, by adopting this Plan, irrevocably appoints the Company its agent for such purposes. Neither the Trustee nor the Committee nor any other person shall have any obligation to account to any such Employer or to follow the instructions of or otherwise deal with any such Employer, the intention being that all persons shall deal solely with the Company as if it were the sole company which had adopted this Plan. Each such Employer shall contribute such amounts as determined under Article 3.

11.3 Adoption of Amendments. Any Employer which adopts this Plan pursuant to Section 11.1 may amend this Plan with respect to its own employees by resolution of its board of directors, if authorized to do so by the Board of Directors of the Company.

11.4 Termination. Any Employer which adopts this Plan pursuant to Section 11.1 may terminate this Plan with respect to its own employees by resolution of its board of directors, if authorized to do so by the Board of Directors.

11.5 Data to be Furnished by Employers. Each Employer which adopts this Plan pursuant to Section 11.1 shall furnish information and maintain such records with respect to its employee Participants as called for hereunder, and its determinations and notifications with respect thereto shall have the same force and effect as comparable determinations by the Company with respect to its employee Participants.

11.6 Joint Employees. If a Participant receives Considered Compensation simultaneously from more than one Employer, the total amount of such Considered Compensation shall be considered for the purposes of the Plan, and the respective Employers shall share in contributions to the Plan on account of said Participant based on the Considered Compensation paid to such Participant by the Employer.

11.7 Expenses. To the extent that the Employers shall pay any of the necessary expenses incurred in the administration of the Plan or Trust pursuant to the Trust, then each Employer shall pay such portion thereof as the Company shall determine.

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11.8 Withdrawal. An Employer may withdraw from the Plan by giving 60 days’ written notice of its intention to the Company and the Trustee, unless a shorter notice shall be agreed to by the Company.

11.9 Prior Plans. If an Employer adopting the Plan already maintains a defined contribution plan covering employees who will be covered by this Plan, it may, with the consent of the Company, provide in its resolution adopting this Plan for the termination of its own Plan or for the merger, restatement and continuation, of its own plan by this Plan. In either case, such Employer may, subject to the approval of the Company, provide in its resolution of adoption of this Plan for the transfer of the assets of such plan to the Trust for this Plan for the payment of benefits accrued under such other plan. Any such plan is referred to herein as a “Prior Plan”.

11.10 Merger of the Heritage Plan into the Plan. The Heritage Plan merged into this Plan October 1, 1998. On and after January 1, 1999, the provisions of this Plan as amended from time to time, and without respect to the Heritage Plan, shall govern the terms , conditions and benefits of employees who previously participated in the Heritage Plan.

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ARTICLE 12

MISCELLANEOUS

12.1 No Guarantee of Employment, etc. Neither the creation of the Plan nor anything contained in the Plan or Trust Agreement shall be construed as giving any Participant hereunder or other employee of the Employer any right to remain in the employ of the Employer, any equity or other interest in the assets, business or affairs of the Employer, or any right to complain about any action taken or any policy adopted or pursued by the Employer.

12.2 Rights of Participants and Others.

(a) Except as provided in the Plan with respect to loans to a Participant, no Participant shall have any right to sell, assign, pledge, hypothecate, anticipate or in any way create a lien upon any part of the Trust Fund. Except to the extent required by law or provided in the Plan, no interest in the Trust Fund, or any part thereof, shall be assignable in or by operation of law, or be subject to liability in any way for the debts or defaults of Participants, their beneficiaries, spouses or heirs-at-law, whether to the Employer or to others.

(b) Prior to the time that distributions are to be made hereunder, the Participants, their spouses, beneficiaries, heirs-at-law or legal representatives shall have no right to receive cash or other things of value from the Employer or the Trustee from or as a result of the Plan and Trust.

12.3 Qualified Domestic Relations Order. Notwithstanding anything in this Plan to the contrary, the Committee shall distribute a Participant’s Accounts, or any portion thereof, in accordance with the terms of any domestic relations order entered on or after January 1, 1985, which the Committee determines to be a qualified domestic relations order described in Section 414(p) of the Code. Further notwithstanding any other provision of this Plan to the contrary, such distribution of a Participant’s Accounts or any portion thereof, to an alternate payee under a qualified domestic relations order shall, unless such order otherwise provides, be made in one lump sum as soon as administratively practicable after the Committee has determined that a domestic relations order is a qualified domestic relations order described in Code Section 414(p).

12.4 Controlling Law. To the extent not preempted by the laws of the United States of America, the laws of the State of Illinois shall be controlling state law in all matters relating to the Plan.

12.5 Severability. If any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts of this Plan, but this Plan shall be construed and enforced as if said illegal or invalid provision had never been included herein.

12.6 Notification of Addresses. Each Participant and each beneficiary of a deceased Participant shall file with the Committee from time to time in writing his post-office address and each change of post-office address. Any communication, statement or notice addressed to the last post-office address filed with the Committee, or if no such address was filed with the Committee, then to the last

57

post-office address of the Participant or beneficiary as shown on the Employer’s records, will be binding on the Participant and his beneficiary for all purposes of this Plan and neither the Committee nor the Employer shall be obliged to search for or ascertain the whereabouts of any Participant or beneficiary.

12.7 Gender and Number. Whenever the context requires or permits, the gender and number of words shall be interchangeable.

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ARTICLE 13

ESOP PROVISIONS

13.1 General. The provisions of this Article, together with other provisions of this Plan relating to the ESOP Fund, are intended to constitute an employee stock ownership plan (“ESOP”) within the meaning of Code Section 4975(e)(7). The provisions of this Article shall supersede contrary provisions of the Plan.

(a) Establishment of the ESOP Fund. The portion of the Plan represented by the portion of the Accounts invested in the Investment Fund described in Section 9.5(a)(ii) and 9.5(a)(iv) of the Plan shall constitute the ESOP Fund.

13.2 Treatment of the ESOP Fund. The ESOP Fund shall constitute an ESOP. Amounts allocated to the ESOP shall be invested in shares of the common stock of the Company, provided that amounts allocated to the ESOP Fund may be invested in short-term interest bearing accounts to facilitate investments in common stock of the Company, transfers from the ESOP Fund to other Investment Funds or distributions to Participants. The ESOP Fund shall be treated as an Investment Fund for purposes of Sections 4.2 and Section 9.5(b), provided, that Participants shall not be permitted to direct any contributions into the ESOP Fund and no existing Account balances may be transferred to the ESOP Fund. Account balances invested in the ESOP Fund may be transferred from the ESOP Fund to any other Investment Fund maintained under the Plan in accordance with Section 9.5(b).

13.3 Allocation of Employer Contribution. Such portion, as determined by the Board of Directors, if any, of the Employer Contribution credited to the Employer Contribution Accounts of Participants who are Eligible Participants for purposes of the allocation of the Employer Contribution pursuant to Section 4.9 shall be invested in the ESOP Fund. No Before-Tax or Matching Employer Contributions shall be credited to the ESOP Fund.

13.4 Allocation of Net Earnings and Losses and Dividends. Net earnings and losses, and the valuation of the amounts credited to the ESOP Fund shall be determined in the manner described in Section 4.2, as applicable to an Investment Fund invested primarily in common stock of the Company. To the extent provided below, cash dividends paid on common stock of the Company allocated to Accounts invested in the ESOP Fund shall, at the election of the Participant:

(a) be paid in cash to the Participant as soon as practicable after the last day of the quarter during which such dividends are paid to the Plan, provided that in no event shall such cash dividends be paid later than 90 days after the close of the Plan Year during which such dividends were paid to the Plan, or

(b) reinvested in shares of common stock of the Company and held in the ESOP Fund.

The election under this Section 13.4 shall not apply with respect cash dividends paid prior to January 1, 2002 or to any cash dividends attributable to the portion, if any, of a Participant’s Employer Contribution Account, Heritage Plan Account and McHenry Account which was not vested under Section 5.5 as of the last day of the Plan Year immediately preceding the Plan Year in which the dividend

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is paid to the Plan. Cash dividends not subject to this election shall be reinvested in common stock of the Company. The cash payment of dividends by the Plan under this Section 13.5 shall not be subject to the limitations or provisions of Article 6. Elections pursuant to this Section 13.5 shall be made by filing with the Committee the appropriate written form (which may be filed electronically via the Internet or Company intranet, or via a voice response system) at such times and in accordance with such procedures and limitations which the Committee may from time to time establish. Notwithstanding the foregoing, the procedures established by the Committee shall provide a reasonable opportunity before a dividend is paid or distributed for Participants to make the election and to have a reasonable opportunity to change the election at least annually, shall establish a default election if a Participant fails to make an affirmative election within the time established for making elections, may provide that the election is applicable for a Plan Year and cannot be revoked with respect to such Plan Year, and shall otherwise be implemented in a manner such that the dividends paid or reinvested will constitute “applicable dividends” which may be deducted by the Company under Code Section 404(k) as amended by Section 662 of the Economic Growth and Tax Relief Reconciliation Act of 2001.

13.5 ESOP Provisions. The following provisions shall apply to the ESOP Fund:

(a) The ESOP Fund is intended to be invested primarily in shares of common stock of the Company which constitute “employer securities” as defined in Code Section 409(l). In the event of any merger, consolidation, reorganization, recapitalization or similar transaction in which the common stock of the Company is converted into or exchanged for other stock or securities, the stock or securities received upon such conversion or exchange shall be deemed to be common stock of the Company for purposes of this Article 13.

(b) Each Participant shall be entitled to direct the Trustee with respect to the voting or tendering of shares of common stock of the Company held in the ESOP Fund and allocated to such Participant’s accounts. Such directions shall be provided in the manner set forth in the Trust Agreement.

(c) A Participant, a Participant’s beneficiary or an alternate payee under a qualified domestic relations order shall be entitled to transfer amounts allocated to the ESOP Fund to the other Investment Funds maintained under the Plan in the manner described in Section 9.5(b), regardless of whether or not the Participant has attained the age of 55 and regardless of the Participant’s number of years of service.

(d) A Participant or a Participant’s beneficiary may elect to receive that portion of his Accounts held in the ESOP Fund which has become distributable pursuant to Section 6.1 in cash or in shares of common stock of the Company in the manner described in Section 6.2(b).

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EX-10.7

Exhibit 10.7

AMENDED AND RESTATED

NON-EMPLOYEE DIRECTORS STOCK PLAN

*****

PLAN DOCUMENT

As amended through May 21, 2008

First Midwest Bancorp, Inc.

Non-Employee Directors Stock Plan

Plan Document

Table of Contents

SECTION 1 – ESTABLISHMENT, PURPOSES AND EFFECTIVE DATE OF PLAN	A-1
1.1 – Establishment	A-1
1.2 – Purposes	A-1
1.3 – Effective Date	A-1
SECTION 2 – DEFINITIONS	A-1
SECTION 3 – PARTICIPATION, ADMINISTRATION AND AWARD AGREEMENTS	A-3
3.1 – Participation	A-3
3.2 – Administration	A-3
3.3 – Award Agreements	A-3
SECTION 4 – COMMON STOCK AVAILABLE	A-3
4.1 – Number	A-3
4.1 – Unused Stock	A-3
4.3 – Adjustment in Capitalization	A-3
SECTION 5 – Awards	A-4
5.1 – Grant of Options	A-4
5.2 – Grant of Stock Appreciation Rights	A-4
5.3 – Grant of Restricted Stock or Restricted Stock Units	A-4
5.4 – Grant of Other Awards	A-4
SECTION 6 – COORDINATION WITH OMNIBUS STOCK AND INCENTIVE PLAN	A-5
6.1 – Change-in-Control	A-5
6.2 – Limited Transferability of Options Beneficiary Designations	A-5
SECTION 7 – AMENDMENT AND TERMINATION	A-5
7.1 – Amendment, Modification or Termination of the Plan	A-5
7.2 – Amendment or Modification of Awards	A-5
SECTION 8 – MISCELLANEOUS	A-5
8.1 – Rights of Directors	A-5
8.2 – Indemnification	A-6
8.3 – Requirements of Law	A-6
8.4 – Governing Law	A-6

FIRST MIDWEST BANCORP, INC.

AMENDED AND RESTATED

NON-EMPLOYEE DIRECTORS STOCK PLAN

Plan Document

Section 1. Establishment, Purposes and Effective Date

1.1 Establishment. First Midwest Bancorp, Inc., a Delaware corporation (the “Company” or “FMBI”), hereby amends and restates the “FIRST MIDWEST BANCORP, INC. AMENDED AND RESTATED NON-EMPLOYEE DIRECTORS’ STOCK OPTION PLAN” (as last amended on May 20, 2003) as the “FIRST MIDWEST BANCORP, INC. AMENDED AND RESTATED NON-EMPLOYEE DIRECTORS STOCK PLAN”.

1.2 Purposes. The purpose of the Plan is to advance the interests of the Company and its stockholders by enabling the Company to provide a Non-Employee Director compensation program that attracts and retains the services of sophisticated and qualified independent directors whose judgment, initiative, leadership, and efforts are important to the success of the Company, as well as by aligning the interest of the Company’s Non-Employee Directors with those of the Company’s stockholders.

1.3 Effective Date. The Plan, as amended and restated, shall become effective immediately upon receipt of approval by the Company’s stockholders on May 21, 2008.

Section 2. Definitions

As used herein, the following terms shall have the meanings hereinafter set forth:

(a) “Award” means any Stock Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit 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) “Code” means the Internal Revenue Code of 1986, as amended.

(e) “Committee” means the Compensation Committee of the Board or such other committee appointed from time to time by the Board to administer the 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.

(f) “Common Stock” means the common stock, par value $.01 per share, of the Company or such other class of shares or other securities as may be applicable pursuant to the provisions of Subsection 4.3.

(g) “Effective Date” means May 21, 2008, the date on which the Plan is approved by the Company’s stockholders.

(h) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(i) “Fair Market Value” shall have the meaning set forth in the Omnibus Plan.

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(j) “Gain Deferral Plan” means the “FIRST MIDWEST BANCORP, INC. STOCK OPTION GAIN DEFERRAL PLAN” as such plan may be amended from time to time and which is only available to certain non-employee directors who were participants in such plan prior to January 1, 2005.

(k) “Non-Employee Director” means any person who is a member of the Board and who is not, as of the applicable Award grant date, an employee of the Company or any of its subsidiaries. A Non-Employee Director who, with the approval of the Board, enters into a “Continuing Participant Agreement” with the Company effective upon such person ceasing to be a member of the Board shall continue to be deemed to be a Non-Employee Director for purposes of the Plan and shall not be deemed to incur a cessation of directorship during the term of such “Continuing Participant Agreement”.

(l) “Omnibus Plan” means the “FIRST MIDWEST BANCORP, INC. OMNIBUS STOCK AND INCENTIVE PLAN”, as such plan may be amended from time to time.

(m) “Option” means the right to purchase shares of Common Stock at a stated price for a specified period of time. For purposes of the Plan, an Option is a “Nonstatutory (Nonqualified) Stock Option,” or “NSO” as defined by Code Section 422.

(n) “Other Award” means an Award, other than a Stock Option, Stock Appreciation Right, Restricted Stock or Restricted Stock Unit granted under this Plan, including the right to receive shares of Common 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.

(o) “Plan” means the “FIRST MIDWEST BANCORP, INC. AMENDED AND RESTATED NON-EMPLOYEE DIRECTORS STOCK PLAN” as set forth herein and any amendments hereto.

(p) “Restricted Stock” means shares of Common Stock granted to a Non-Employee Director pursuant to Subsection 5.3 of the Plan.

(q) “Restricted Stock Unit” means a right to receive a payment equal to the value of a share of Common Stock, pursuant to Subsection 5.3 of the Plan.

(r) “Retirement” means termination of the Non-Employee Director’s Board membership upon the expiration of the Non-Employee Director’s term of office (unless such Non-Employee Director is then elected for another term of office), or upon such other circumstances as the Board may in its discretion determine to constitute “Retirement”.

(s) “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.

(t) “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 Common 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.

A-2

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. Participation, Administration and Award Agreements

3.1 Participation. Each Non-Employee Director as of the Effective Date and each person who becomes a Non-Employee Director after the Effective Date shall be eligible to participate in the Plan.

3.2 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. 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.

3.3 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.

Section 4. Common Stock Available

4.1 Number. The total number of shares of Common Stock subject to issuance under this Plan, and subject to adjustment upon occurrence of any of the events indicated in Subsection 4.3, may not exceed 200,000 plus the number of shares of Common Stock subject to Awards outstanding as of the Effective Date. The Common Stock 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.

4.2 Unused Stock. In the event an Option expires or terminates 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 Common Stock related to the Option are not issued (including as the result of a share-for-share exercise or the use of shares for withholding taxes, if any), the shares of Common Stock subject thereto which have not become outstanding shall (unless the Plan shall have terminated) remain available for issuance under the Plan. In the event an Award is forfeited for any reason, or settled in cash in lieu of Common Stock or in a manner such that some or all of the shares of Common Stock related to the Award are not issued (including as a result of the use of shares for tax withholding), such shares of Common Stock shall (unless the Plan shall have terminated) remain available for issuance under the Plan.

4.3 Adjustment in Capitalization. In the event of any change in the outstanding shares of Common Stock 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 Common Stock subject to an Award to be granted or outstanding pursuant to the Plan, and/or the stated exercise price (if applicable), shall be appropriately adjusted by the Committee, whose determination shall be conclusive; provided, however, that fractional shares shall be rounded to the nearest whole share.

A-3

Section 5. Awards

5.1 Grant of Options. Subject to the provisions of Sections 4 and 6, Options may be granted to Non-Employee Directors 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 Non-Employee Director.

(a) No Option granted pursuant to the Plan shall have an exercise price that is less than the Fair Market Value of the Common Stock on the date the Option is granted.

(b) 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.

(c) Options may be exercised in the manner set forth in the Omnibus Plan. The exercise price payable upon the exercise of an Option by a Non-Employee Director who has a deferral election in effect under the Gain Deferral Plan shall be made solely by tendering previously-acquired shares of Common Stock.

(d) Each Option shall vest and become exercisable as determined by the Committee, including vesting terms upon termination of service to the Board due to death, disability or retirement. Once vested, Options shall expire upon the date which is three years following termination of the Non-Employee Director’s service to the Board for any reason; provided, however, in no event may any Option be exercised beyond the tenth anniversary of its date of grant, or such shorter period which may be set forth in the Award Agreement.

5.2 Grant of Stock Appreciation Rights. Subject to the provisions of Sections 4 and 6, Stock Appreciation Rights (“SARs”) may be granted to Non-Employee Directors at any time and from time 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 in connection with previously awarded Options: (a) in lieu of Options; (b) in addition to Options; (c) upon lapse of Options and; (d) independent of Options. The terms, conditions and material provisions of an Award of SARs issued to a Non-Employee Director shall be made in accordance with and subject to the provisions relating to SARs set forth in the Omnibus Plan.

5.3 Grant of Restricted Stock or Restricted Stock Units. Subject to the provisions of Sections 4 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 Non-Employee Directors 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 Non-Employee Director to defer receipt of any Restricted Stock Units beyond the expiration of any applicable period of restriction. The terms, conditions and material provisions of an Award of shares of Restricted Stock or Restricted Stock Units issued to a Non-Employee Director shall be made in accordance with and subject to the provisions relating to shares of Restricted Stock or Restricted Stock Units set forth in the Omnibus Plan.

5.4 Grant of Other Awards. Subject to the provisions of Sections 4 and 6, Other Awards may be granted to Non-Employee Directors at any time and from time to time as shall be determined by the Committee. The terms, conditions and material provisions of an Other Award issued to a Non-Employee Director shall be made in accordance with and subject to the provisions relating to Other Awards set forth in the Omnibus Plan.

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Section 6. Coordination with Omnibus Stock and Incentive Plan

The following provisions of the Omnibus Plan, shall be applicable to the Director Options as if such provisions were set forth in this Plan in full:

6.1 Change-in-Control. For purposes of this Plan, a “Change-in-Control” shall be deemed to have occurred on the date a Change-in-Control occurs under the Omnibus Plan. In the event of a Change-in-Control of the Company, 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 all Other Awards shall be paid out based on the terms thereof.

6.2 Limited Transferability of Awards; Beneficiary Designations. No Award granted under this Plan may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, otherwise than by will or the laws of descent and distribution. Notwithstanding the foregoing, the Board may, in its discretion, authorize all or a portion of an Award to be on terms which permit the transfer by the Non-Employee Director to the extent the Committee under the Omnibus Plan may permit such transfers. Non-Employee Directors may designate beneficiaries with respect to Awards granted hereunder on the same basis as applicable to awards under the Omnibus Plan.

Section 7. Amendment and Termination

7.1 Amendment, Modification or Termination of the Plan. The Committee, or any committee to the extent authorized by the Board, may make such modifications to, or may terminate, the Plan as it shall deem advisable; provided, however, that except as contemplated by Subsection 4.3, no modification that increases the number of shares of Common Stock subject to issuance under the Plan or that amends the provisions of Subsection 7.2 to remove the prohibition regarding Award re-pricing shall be made without approval of the Company’s shareholders; and provided, further, that no modification or termination shall adversely affect the rights under any Award then outstanding without the written consent of the holder.

7.2 Amendment or Modification of Awards. The Committee, or any committee to the extent authorized by the Board, may amend or modify any outstanding Awards in any manner to the extent that the Committee would have had the authority under the Plan initially to make such Award as so modified or amended, including without limitation, to change the date or dates as of which Awards may be exercised, to remove the restrictions on Awards, or to modify the manner in which Awards are determined and paid. Notwithstanding the foregoing or any other provision of this Plan, except in circumstances described in Subsection 4.3, the terms and outstanding Awards may not be amended to reduce the exercise price of outstanding Options or SARs, or exchange for cash, other Awards or Options or SARs with an exercise price that is less than the exercise price of the original Options or SARs, without shareholder approval.

Section 8. Miscellaneous

8.1 Rights of Directors. Neither the Plan nor any action taken hereunder shall be construed as giving any Non-Employee Director any right to continue to serve as a member of the Board or otherwise to be retained in the service of the Company.

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8.2 Indemnification. To the extent permitted by law, each person who is or shall have been a member 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 such member, provided such member shall give the Company an opportunity, at its 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 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.

8.3 Requirements of Law. The granting of Awards and the issuance of Common Stock with respect to an Award, 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.

8.4 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-10.16

Exhibit 10.16

Proposed Form of Performance-Vesting Restricted Stock Letter Agreement

December 22, 2008

Michael W. Scudder

President and Chief Executive Officer

First Midwest Bancorp, Inc.

One Pierce Place, Suite 1500

Itasca, IL 60143

RE: Letter Agreement dated December 22, 2008, Restricted Stock Number                     

Grant of Performance-Vesting Restricted Stock (the “Agreement”)

Dear Mike:

I am pleased to advise you that on December 22, 2008 (the “Date of Grant”), in recognition of your having assumed the position of President and Chief Executive Officer of First Midwest Bancorp, Inc. (the “Company”) and pursuant to the First Midwest Bancorp, Inc. Omnibus Stock and Incentive Plan, as Amended (the “Plan”), the Compensation Committee (the “Committee”) and the Board of Directors of the Company approved a grant to you of a “Performance-Vesting Restricted Stock Award” (the “Award”). The Award provides you with the opportunity to earn 30,920 shares of the Company’s Common Stock.

The Award 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) Award

The Company hereby grants to you an Award of 30,920 shares of Common Stock, subject to the restrictions and other conditions set forth herein. Such shares are referred to in this Letter Agreement as the “Restricted Shares.” Restricted Shares may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated. Within a reasonable time after the date of this Award, the Company shall instruct its transfer agent to establish a book entry account representing the Restricted Shares in your name effective as of the Date of Grant, provided that the Company shall retain control of such account until the Restricted Shares have become vested in accordance with the Award.

(2) Restrictions; Vesting

Except as otherwise provided in paragraphs (3) and (4) below, all of the Restricted Shares shall vest and become transferable on March 15, 2012 if (a) the Company achieves an average annual core return on average assets (“ROAA”) during the three-year period commencing January 1, 2009 and ending December 31, 2011 which equals or exceeds the average median annual ROAA achieved by the financial institutions in the Company’s peer group for the same three-year performance period (all as more fully

This Letter Agreement constitutes part of a prospectus covering securities that have been

registered under the Securities Act of 1933, as amended.

described on Exhibit A to this Letter Agreement), and (b) you continue in the employment of the Company through December 31, 2011. In the event the Company’s average annual ROAA for the three-year performance period does not equal or exceed such average median ROAA of the Company’s peer group, all of the Restricted Shares shall be immediately forfeited as of December 31, 2011, all your rights thereunder shall terminate and no vesting shall occur after such date.

(3) Termination of Employment

If your employment with the Company or any of its subsidiaries terminates due to your death or Disability, all restrictions will lapse and the Restricted Shares will become immediately vested and transferable in full. If your employment with the Company or any of its subsidiaries terminates for any other reason prior to the full vesting of the Restricted Shares, all non-vested Restricted Shares shall be immediately forfeited, all your rights thereunder shall terminate and no vesting shall occur after such date.

(4) Merger, Consolidation or Change in Control

In the event of a Change in Control, all restrictions will lapse and the Restricted Shares shall be vested and fully transferable. For purposes of this Letter Agreement, “Change in Control” shall be as defined in Section 14 of the Plan, provided that notwithstanding the provisions of Section 14(c) of the Plan relating to stockholder approval of a transaction constituting a Business Combination (as defined in Section 14(c)), a Change in Control with respect to a Business Combination shall not occur prior to the date of consummation of such transaction.

(5) Non-Transferability

This Award is personal to you and, until vested and transferable hereunder, may not be sold, transferred, pledged, assigned or otherwise alienated, otherwise than by will or by the laws of descent and distribution.

(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 Common Stock received under the Award.

Executive Officers of the Company subject to the two (2) day reporting rules of Section 16(a) and short-swing profit recovery rules of Section 16(b) of the Securities Exchange Act of 1934 should consult the Company’s Corporate Secretary prior to selling any such shares.

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(7) Stockholder Rights

Upon the effective date of the book entry pursuant to paragraph (1), you shall have the rights of a stockholder with respect to the Shares, including, the right to vote the shares; provided that all cash dividends or other cash distributions paid or made available with respect to such shares shall not be paid to you, but shall be used to purchase additional shares of Common Stock. Any shares purchased with cash dividends or distributions and any stock dividends or other in-kind dividends or distributions shall be held by the Company until the related Restricted Shares have become vested in accordance with this Award and shall remain subject to the forfeiture provisions applicable to the Restricted Shares to which such dividends or distributions related.

(8) Withholding

You shall pay all applicable federal, state and local income and employment taxes (including taxes of any foreign jurisdiction) which the Company is required to withhold at any time with respect to the Restricted Shares, which will generally occur as the Restricted Shares vest, or as of the date of grant if you file an election under Section 83(b) of the tax code. Payment of withholding upon vesting of the Shares will be accomplished through withholding by the Company of Shares then vesting under this Award with a value equal to such minimum statutory withholding amount. Shares withheld as payment of required withholding shall be valued at Fair Market Value on the date such withholding obligation arises. Payment of withholding as a result of an 83(b) election must be made by you to the Company in cash or by delivering previously-acquired shares with a Fair Market Value equal to the required withholding.

(9) Tax Consequences

Information regarding federal tax consequences of the Award can be found in the Plan’s “Summary Description” and the document entitled “Rules Applicable to Restricted Shares”. You are strongly encouraged to contact your tax advisor regarding such tax consequences as they relate to you.

(10) Employment; Future Awards; 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. Nothing herein shall create any right for you to receive, or obligation on the part of the Company grant to you, any future Awards under the Plan. This Agreement shall be binding upon, and inure to the benefit of, any successor or successors of the Company.

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(11) Conformity with Plan

The Award 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 hereof and of the Plan. Except as otherwise expressly provided herein, all definitions stated in the Plan shall be fully applicable to this Letter Agreement.

Any action taken or decision made by the Compensation Committee of the Company’s Board of Directors arising out of or in connection with the construction, administration, interpretation or effect of this Agreement or the Plan, shall lie within sole and absolute discretion, as the case may be, and shall be final, conclusive and binding on you and all persons claiming under or through you. This Agreement shall be binding upon your heirs, executors, administrators and successors.

This Agreement shall be construed and interpreted in accordance with the laws of the Sate of Delaware.

(12) TARP Capital Purchase Program

You acknowledge that this Letter Agreement and the Performance-Vesting Restricted Stock Award described herein constitutes a “Compensation Arrangement” subject to the provisions of the CPP Senior Executive Officer Agreement Under the TARP Capital Purchase Program you entered in to with the Company on or about December 5, 2008 in connection with the participation by the Company in the United States Department of the Treasury’s TARP Capital Purchase Program.

To confirm your understanding and acceptance of the Award 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 Secretary of First Midwest Bancorp, Inc. at (630) 875-7345.

Very truly yours,

Cynthia A. Lance

Executive Vice President, Corporate Secretary

First Midwest Bancorp, Inc.

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Exhibit A to Performance-Vesting Restricted Stock Letter Agreement

Provisions Relating to Performance-Vesting Condition

As provided in paragraph (2) of the Performance-Vesting Restricted Stock Letter Agreement, except as provided in paragraph (3) and (4) of the Letter Agreement, the vesting of the Restricted Shares on March 15, 2012 is subject to continued employment through December 31, 2011 and to the Company’s average annual core return on average assets (“ROAA”) for the three-year period ending December 31, 2011 (the “Performance Period”) being equal to or exceeding the average median annual ROAA of a Selected Peer Group during the Performance Period.

As promptly as practicable after the end of the Performance Period and prior to March 15, 2012, the Compensation Committee shall certify the Company’s

(a) average annual ROAA for the Performance Period;

(b) the ROAA and relative ranking of each member of the Selected Peer Group for each year of the Performance Period;

(c) the median ROAA achieved by the members of the Selected Peer Group for each such year;

(d) the resulting average median annual ROAA;

(e) whether the Company’s average annual ROAA equals or exceeds such average median ROAA. If the Committee certifies that the Company’s average annual ROAA equals or exceeds such average median ROAA then the performance-vesting condition shall be deemed satisfied; and

(f) If the Committee determines that the Company’s average annual ROAA does not equal or exceed such average median ROAA or otherwise fails to certify achievement of the required level of Company ROAA, then the performance-vesting condition shall not be deemed satisfied.

For purposes of making such determination and providing such certification:

Core return on net assets is the quotient, rounded to two decimal places, obtained by dividing (1) the aggregate core income (net income before extraordinary items less the after-tax portion of gains/losses on investment securities and nonrecurring gains) for each year during the Performance Period by (2) the average assets for such year, in each case as determined based on the core income and average assets reported by each of the Company and the Selected Peer Group Companies in their respective Annual Reports on Form 10-K; and

The Selected Peer Group Companies shall be companies listed in the following table, subject to modification as set forth below.

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First Midwest Bancorp, Inc.

Omnibus Stock and Incentive Plan

Results for 3 Year Performance Period Ending December 31, 2011

Selected Peer Group Companies (SPGCs)

(see note below)

AMCORE Financial, Inc.

BOK Financial Corporation

Commerce Bancshares, Inc.

Cullen/Frost Bankers, Inc.

First Commonwealth Financial Corporation

Fulton Financial Corporation

MB Financial, Inc.

Old National Bancorp

Provident Bankshares Corporation

Susquehanna Bancshares, Inc.

UCBH Holdings, Inc.

Valley National Bancorp

Whitney Holding Corporation

Wintrust Financial Corporation

Performance Grid for 3 Year Period Ending December 31, 2011

Relative Average Annual Core ROAA To Average Annual Median Core ROAA of Peers	% of Restricted Shares Vested
Equal to or Above Average Median	100	%
Below Average Median	0	%

Note: If during the measurement period any Selected Peer Group Company (an “SPGC”) shall incur a disqualifying event, that SPGC shall be excluded from the Selected Peer Group as of the first day of the calendar year of the disqualifying event. The disqualified SPGC’s results during the portion of the Performance Period prior to the year of disqualification shall be combined with the performance of the Replacement Peer Group Company (as selected below)(an “RPGC”) during the remainder of the Performance Period for purposes of determining the median level of ROAA of the Selected Peer Group.

An SPGC will incur a disqualifying event if the SPGC:

(a) becomes party to any agreement the consummation of which would cause such SPGC to cease to be publicly traded, or

Page 6

(b) announces an intention to be sold, to cease to be publicly traded or to take actions which would cause it to cease to be publicly-traded.

Any SPGC excluded due to a disqualifying event will be replaced as of the first day of that calendar year by one of the following companies, provided such RPGC has not incurred a disqualifying event during the Performance Period:

First Merit Corp

Cathay General Bancorp

UMPQUA Holdings Corp

The process for determining the RPGC to be added to the Select Peer Group Companies for the disqualified SPGC(s) shall be as follows:

(1) The initial SPGCs, RPGCs and the Company will be ranked based on market capitalization as of December 31, 2008;

(2) The RPGC closest in rank to the disqualified SPGC shall be added to the Select Peer Group Companies (in the event of a tie (for example, if one RPGC is ranked right above the excluded SPGC and one is right below), the higher ranking RPGC shall be chosen); and

(3) If there is more than one disqualified SPGC, then step (2) shall be applied in the order in which the disqualifying events occurred, starting with the earliest disqualifying event.

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EX-10.23

Exhibit 10.23

Summary of Executive Compensation

The Compensation Committee of the Board of Directors (the “Compensation Committee”) of First Midwest Bancorp, Inc. (the “Company”), after considering a market review of total compensation for certain executive officers expected to be named in the Company’s 2009 Proxy Statement, determined the 2009 base salary for such officers, which is presented in the table below.

Name and Principal Positions	2009 Base Salary
Mr. Michael L. Scudder, President and Chief Executive Officer	$	600,000
Mr. Thomas J. Schwartz, Group President Commercial Banking		475,000
Mr. Paul F. Clemens, Executive Vice President and Chief Financial Officer		295,000
Mr. Victor P. Carapella, Executive Vice President and Commercial Banking Group Manager		280,000
Ms. Janet M. Viano, Group President Retail Banking		231,000

Each of these officers is also eligible to receive certain benefits and to participate in the Company’s employee benefit plans applicable to executive officers, including the Company’s Savings and Profit Sharing Plan, Pension Plan, Short-Term Incentive Compensation Plan, the Omnibus Stock and Incentive Plan, and Nonqualified Retirement Plan in accordance with the terms and conditions of such plans. These officers are also parties to Indemnification Agreements and Employment Agreements that, among other things, entitle them to payments upon severance or upon a change in control.

EX-10.24

Exhibit 10.24

Summary Of Director Compensation

We use a combination of cash and equity-based compensation to attract and retain qualified candidates to serve on the Company’s board of directors (“Board”). In setting director compensation, we consider the significant amount of time that directors expend in fulfilling their duties and comparative data regarding director compensation of our peers. Neither Michael L. Scudder (our President and Chief Executive Officer) nor Thomas J. Schwartz (our Executive Vice President) receive compensation for serving as a member of the Board.

Cash Compensation. In 2008, the cash component of our director compensation program consisted of an annual fixed retainer of $40,000 for each non-employee director plus additional annual retainers of: (1) $8,000 for the chair of the audit committee; (2) $4,000 for each audit committee member; (3) $4,000 for the chair of the Compensation Committee; and (4) $4,000 for the chair of the Nominating and Corporate Governance Committee. As of September 14, 2008, we implemented an annual cash retainer for our non-employee Chair of the Board in the amount of $100,000. Each annual retainer was paid in equal quarterly installments in arrears. Payment of each annual retainer was contingent upon the director’s service during the preceding quarter. We also reimburse our directors for any Board and committee attendance-related expenses.

Equity-Based Compensation. In 2008, the equity component of our director compensation program consisted of the issuance of both nonqualified stock options in February of 2008 and shares of restricted common stock of the Company in May of 2008. For each director, the aggregate value of his or her grants of nonqualified stock options and restricted common stock was $56,000. The number of shares granted under each award was equal to the average of the high and low sales price of common stock on the date of grant. These equity awards have a vesting period of one year from the date of grant, and are nontransferable except to family members, family trusts or partnerships.

Deferred Compensation Plan for Non-Employee Directors. The First Midwest Bancorp, Inc. Deferred Compensation Plan for Non-employee Directors (Directors Deferred Plan) allows non-employee directors to defer receipt of either fifty or one hundred percent of any director fees and retainers. Deferral elections are made in December of each year for amounts to be earned in the following year. Accounts are deemed to be invested in separate investment accounts under the plan, with the same investment alternatives as those available under the our Retirement Plan, including an investment account deemed to be invested in shares of Company Common Stock.

EX-12

Exhibit 12

First Midwest Bancorp, Inc.

Ratio of Earnings to Fixed Charges ⁽¹⁾

(Dollar amounts in thousands)

	Years ended December 31,
	2008			2007			2006			2005			2004
Ratio 1—Including Interest on Deposits
Earnings available for fixed charges:
Income from continuing operations	$	49,336		$	80,159		$	117,246		$	101,377		$	99,136
Add:
Income tax provision		(13,291	)		13,853			35,052			34,452			32,848
Fixed charges		163,680			237,930			225,585			131,690			87,185
Total earnings available for fixed charges	$	199,725		$	331,942		$	377,883		$	267,519		$	219,169
Fixed charges (2):
Interest on deposits	$	110,622		$	166,267		$	148,118		$	86,675		$	57,432
Interest on borrowed funds		37,192			55,540			62,974			35,834			20,980
Interest on subordinated debt		14,796			15,025			13,458			8,341			8,066
Total interest expense		162,610			236,832			224,550			130,850			86,478
Portion of rental expense representative of interest factor		1,070			1,098			1,035			840			707
Total fixed charges		163,680			237,930			225,585			131,690			87,185
Preference security dividend (3)		520			—			—			—			—
Total fixed charges and preferred stock dividends	$	164,200		$	237,930		$	225,585		$	131,690		$	87,185
Ratio of earnings to fixed charges		1.22	x		1.40	x		1.68	x		2.03	x		2.51	x
Ratio of earnings to combined fixed charges preferred stock dividends		1.22	x		1.40	x		1.68	x		2.03	x		2.51	x
Ratio 2—Excluding Interest on Deposits
Earnings available for fixed charges:
Income from continuing operations	$	49,336		$	80,159		$	117,246		$	101,377		$	99,136
Add:
Income tax provision		(13,291	)		13,853			35,052			34,452			32,848
Fixed charges .		53,058			71,663			77,467			45,015			29,753
Total earnings available for fixed charges	$	89,103		$	165,675		$	229,765		$	180,844		$	161,737
Fixed charges (2):
Interest on borrowed funds	$	37,192		$	55,540		$	62,974		$	35,834		$	20,980
Interest on subordinated debt		14,796			15,025			13,458			8,341			8,066
Portion of rental expense representative of interest factor		1,070			1,098			1,035			840			707
Total fixed charges		53,058			71,663			77,467			45,015			29,753
Preference security dividend (3)		520			—			—			—			—
Total fixed charges and preferred stock dividends	$	53,578		$	71,663		$	77,467		$	45,015		$	29,753
Ratio of earnings to fixed charges		1.68	x		2.31	x		2.97	x		4.02	x		5.44	x
Ratio of earnings to combined fixed charges preferred stock dividends		1.66	x		2.31	x		2.97	x		4.02	x		5.44	x

⁽¹⁾ The ratio of earnings to fixed charges represents the number of times “fixed charges” are covered by “earnings.”

⁽²⁾ “Fixed charges consist of interest on outstanding debt plus one-third (the proportion deemed representative of the interest factor) of operating lease expense.

⁽³⁾ This is computed as the amount of the $712 preferred dividend divided by (1 minus the effective income tax rate, or - -1.369).

EX-21

Exhibit 21

SUBSIDIARIES OF THE REGISTRANT

Subsidiary	State of Jurisdiction of Organization	Type of Subsidiary
First Midwest Bank	Illinois	Corporation
First Midwest Insurance Company	Arizona	Corporation
First Midwest Capital Trust I	Delaware	Statutory Business Trust

1

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in this Annual Report (Form 10-K) of First Midwest Bancorp, Inc. of our report dated February 27, 2009, with respect to the consolidated financial statements of First Midwest Bancorp, Inc., included in the 2008 Annual Report to Shareholders of First Midwest Bancorp, Inc.

We consent to the incorporation by reference in the following Registration Statements:

• 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-3 No. 333-132137) pertaining to a First Midwest Bancorp, Inc. debt and equity securities offering,

• Registration Statement (Form S-4 No. 333-114406) pertaining to First Midwest Capital Trust I,

• Registration Statement (Form S-8 No. 33-25136) pertaining to the First Midwest Bancorp, Inc. Savings and Profit Sharing 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. 333-42273) pertaining to the First Midwest Bancorp, Inc. 1989 Omnibus Stock and Incentive Plan,

• Registration Statement (Form S-8 No. 333-61090) pertaining to the First Midwest Bancorp, Inc. 1989 Omnibus Stock and Incentive 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. 333-63095) 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 of First Midwest Bancorp, Inc., and

• Registration Statement (Form S-8 No. 333-151072) pertaining to the First Midwest Bancorp, Inc. Amended and Restated Non-employee Director Stock Plan.

of our report dated February 27, 2009, with respect to the consolidated financial statements of First Midwest Bancorp, Inc. incorporated herein by reference, and our report dated February 27, 2009, with respect to the effectiveness of internal control over financial reporting of First Midwest Bancorp, Inc. included in this Annual Report (Form 10-K) of First Midwest Bancorp, Inc. for the year ended December 31, 2008.

/s/ Ernst & Young LLP

Chicago, Illinois

February 27, 2009

EX-31.1

Exhibit 31.1

CERTIFICATION

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-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 27, 2009	/S/ MICHAEL L. SCUDDER
	[Signature] President and Chief Executive Officer

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EX-31.2

Exhibit 31.2

CERTIFICATION

I, Paul F. Clemens, 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-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 27, 2009	/S/ PAUL F. CLEMENS
	[Signature] Executive Vice President and Chief Financial Officer

135

EX-32.1

Exhibit 32.1

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, the undersigned officer of First Midwest Bancorp, Inc. (the “Company”), hereby certifies that:

(1) The Company’s Annual Report on Form 10-K for the year ended December 31, 2008 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities and Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/S/ MICHAEL L. SCUDDER
Name:	Michael L. Scudder
Title:	President and Chief Executive Officer

Dated: February 27, 2009

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

136

EX-32.2

Exhibit 32.2

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, the undersigned officer of First Midwest Bancorp, Inc. (the “Company”), hereby certifies that:

(1) The Company’s Annual Report on Form 10-K for the year ended December 31, 2008 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities and Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/S/ PAUL F. CLEMENS
Name:	Paul F. Clemens
Title:	Executive Vice President and Chief Financial Officer

Dated: February 27, 2009

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

137