The accompanying unaudited interim consolidated financial statements of First Midwest Bancorp, Inc. ("First Midwest" or the "Company") have been prepared in accordance with generally accepted accounting principles and with the rules and regulations of the Securities and Exchange Commission for interim financial reporting. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of Management, all normal and recurring adjustments which are necessary to fairly present the results for the interim periods presented have been included. The preparation of financial statements requires Management to make estimates and assumptions that affect the recorded amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. In addition, certain reclassifications have been made to the 1999 data to conform to the 2000 presentation. For further information with respect to significant accounting policies followed by First Midwest in the preparation of its consolidated financial statements, refer to First Midwest's Annual Report on Form 10-K for the year ended December 31, 1999.

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

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities", as amended by FASB No. 138. The Statement establishes accounting and reporting standards requiring that derivative instruments (including certain derivative instruments embedded in other contracts) be recorded on the balance sheet as either assets or liabilities measured at fair value. FASB No. 133 requires that changes in the fair value of derivative instruments be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related changes in value of the hedged item and requires that a company document, designate, and assess the effectiveness of transactions that qualify for hedge accounting. The effective date for FASB No. 133 was delayed by one year pursuant to the issuance of Statement No. 137 "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement 133". The revised effective date for FASB No. 133 is for fiscal years beginning after June 15, 2000. FASB No. 133 cannot be applied retroactively; it must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts that were issued, acquired, or substantively modified after December 31, 1997 (and, at the company's election, before January 1, 1998). Based upon its evaluation to date, First Midwest anticipates that the adoption of FASB No. 133 on January 1, 2001 will not have a material impact on the consolidated financial statements.

2.  SECURITIES

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

For additional details of the securities available for sale portfolio and the related impact of unrealized gains/(losses) thereon, see Note 6 to the interim consolidated financial statements on page 9.

3.  LOANS

The major classifications of loans are as follows:

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

For additional details of the securities available for sale portfolio and the related impact of unrealized gains/(losses) thereon, see Note 2 to the interim consolidated financial statements on page 7.

Supplemental disclosures to the consolidated statements of cash flows for the nine months ended September 30, 2000 and 1999 are as follows:

The discussion presented below provides an analysis of First Midwest's results of operations and financial condition for the quarter and nine months ended September 30, 2000 as compared to the same periods in 1999. Management's discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes presented elsewhere in this report as well as First Midwest's 1999 Annual Report on Form 10-K. Results of operations for the quarter and nine months ended September 30, 2000 are not necessarily indicative of results to be expected for the full year of 2000.  Unless otherwise stated, all earnings per share data included in this section and throughout the remainder of this discussion are presented on a diluted basis. All financial information is presented in thousands, except per share data.

Net income for the quarter ended September 30, 2000 increased to $19,402, or $.47 per share, as compared to 1999's like quarter of $18,002, or $.43 per share, representing an increase of 9.3% on a per share basis. Performance for the current quarter resulted in annualized returns on average stockholders' equity and assets of 19.1% and 1.30%, respectively, as compared to returns of 18.3% and 1.33% for the like quarter of 1999.

For the first nine months of 2000, net income increased to $56,105, or $1.36 per share, as compared to 1999's $52,778, or $1.23 per share, representing an increase of 10.6% on a per share basis. Performance for the first nine months of 2000 resulted in annualized returns on average stockholders' equity and assets of 19.51% and 1.30%, respectively, as compared to returns of 16.77% and 1.35% for the like period of 1999.

Net interest income for the third quarter of 2000 declined 3% from last year's like quarter. This decline occurred despite continued loan growth across all categories resulting in total loans at September 30, 2000 standing at 15% above levels existent a year earlier.

The provision for loan losses of $2,625 recorded during third quarter 2000 exceeded net charge-offs experienced during the quarter by $937 and at the same time exceeded the provision recorded for the like quarter of 1999 by $841. For the nine months of 2000, provisions for loan losses exceeded net charge-offs by $2,404 and exceeded the provisions recorded for the 1999 period by $2,823. Provisioning for the current quarter and nine-months was made to maintain the reserve for loan losses at a level consistent with the loan growth experienced, even as credit quality remained stable and net charge-offs declined (as discussed below).

Total noninterest income for the quarter grew 13.4% over last year's third quarter with the three major categories of service charges and fees growing 11.5%. Mortgage banking revenues decreased by $903 incident to the realignment of residential mortgage banking activities earlier in 2000. Net security gains of $1,111 were realized during the quarter related in part to the restructuring of certain positions within the securities available for sale portfolio.

Noninterest expenses for the current quarter declined 5.8% versus last year's third quarter, following a decline of 1.5% in the second quarter of 2000 versus 1999's like quarter. The reduction in noninterest expenses for the quarter is related primarily to the mortgage banking activities realignment completed in the second quarter of 2000 which saw the elimination of approximately 100 full time equivalent employee positions. This reduction was offset in part by a contribution of $259 to First Midwest's self-insured healthcare fund required by extraordinary claims experienced during the third quarter 2000.

Credit quality at September 30, 2000 remained stable with nonperforming loans to total loans remaining constant at .62% throughout the first nine months of 2000 as compared to .68% for the same period in 1999. Reflective in part of the loan loss provisioning described above, at September 30, 2000 the coverage ratio of the reserve for loan losses to nonperforming loans was 222% up from 210 % at year-end 1999. At .21% for the current quarter and .20% on a 2000 year-to-date basis, net charge-offs to average loans continued to compare favorably with 1999's comparable levels of .26% and .23%, respectively. At September 30, 2000 First Midwest had no shared national credit nor leasing portfolio exposures.

As reported in the 1999 Annual Report on Form 10-K and the June 30, 2000 Report on Form 10-Q, First Midwest has implemented certain strategic changes in its mortgage banking activities to ensure satisfaction of customer needs and to enhance revenue predictability. The changes included the discontinuation of operations of its mortgage banking subsidiary, First Midwest Mortgage Corporation ("FMMC"), the sale of FMMC's $1.8 billion mortgage loan servicing portfolio, the disposition of certain related assets and the transfer of all mortgage origination activities to First Midwest Bank. In conjunction with this realignment, First Midwest entered into a strategic alliance with a leading private label mortgage services provider pursuant to which administrative functions including loan processing, document preparation, secondary market activities and loan servicing were outsourced while the customer contact function will be conducted by the First Midwest Bank's loan origination sales group. As of September 30, 2000, liquidation of FMMC has been substantially completed.

In connection with these changes in operations, First Midwest recognized nonrecurring expenses in the first six months of 2000 totaling $1,702 ($1,021 after tax or, $.025 per diluted share), which consisted primarily of loss on asset dispositions, severance and related costs, loss on sale of servicing and contract termination costs.

Net interest income on a tax equivalent basis totaled $50,841 for the third quarter 2000, representing a decrease of $1,433, or 2.7%, over the year ago quarter which totaled $52,274. As shown in the Volume/Rate Analysis on page 13, the decrease in net interest income is attributable to higher interest expense of $18,709 net of higher interest income of $17,276. Net interest margin for the third quarter 2000 decreased to 3.66% as compared to 4.21% for the same period in 1999. The decrease in net interest margin is primarily due to higher levels of borrowed (wholesale) funds and higher rates paid on interest bearing liabilities, generally, during the 2000 period.

Again, as shown in the Analysis on page 13, the $17,276 increase in interest income is largely attributable to higher volumes of earning assets in both the securities available for sale and loan portfolios which increased $181,256 and $441,809, respectfully, from year-ago levels. The increase of $18,709 in interest expense on paying liabilities is due to higher volumes of borrowed funds coupled with higher rates paid thereon. The effect of these factors on net interest income is discussed below.

Loan volume increases were experienced across all loan categories, as discussed in "Loan Growth" on page 12. Again, as shown in the Analysis on page 13, further contributing to the increase in earning assets in the third quarter of 2000 as compared to 1999 was the investment by First Midwest in certain leveraged arbitrage transactions that resulted in the purchase of U.S. Agency securities financed by repurchase agreements totalling approximately $360 million. As part of the overall transactions, First Midwest also entered into interest rate swaps to fix the financing costs. The leveraged arbitrage transactions account for most of the increase in the securities available for sale portfolio and approximately half of the increase in the borrowed funds average balances as compared to the third quarter of 1999.

In addition to the arbitrage transactions, First Midwest increased its reliance on higher cost, wholesale borrowings primarily in the form of repurchase agreements in order to support loan growth. While First Midwest has always relied on repurchase agreements as an appropriate form of short-term funding, the costs of such funding has increased significantly over the past four quarters due to the general rise in market interest rates. These factors have contributed to First Midwest's increased cost of funds and the reduction in net interest margin for the quarter and nine month period ending September 30, 2000.

In an effort to reduce its reliance on higher cost wholesale funds, First Midwest has been focusing its sales efforts on increasing certain core funding sources including savings deposits, NOW accounts, money market deposits, and time deposits. As indicated in the Analyses on pages 13 and 14, these funding sources are less expensive than borrowed funds. Furthermore, the cost of money market and time deposits for the third quarter of 2000 is reflective of certain interest rate promotions which are of limited duration and will revert to normal pricing over the next two quarters. As a result of its efforts to enhance its core funding sources, First Midwest saw an increase in the aggregate average balance of these funding sources during the third quarter of 2000 which reversed a decline that began in the fourth quarter of 1999 as shown in "Core Funding Sources" on page 12.

The following table summarizes growth in loans as of September 30, 2000 as compared to December 31 and September 30, 1999: