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Rating Action:

Moody's affirms First Midwest (Issuer Rating Baa2) following announcement of acquisition of Standard Bancshares

29 Jun 2016

New York, June 29, 2016 -- Moody's Investors Service affirmed all the ratings of First Midwest Bancorp, Inc. and its subsidiaries including First Midwest Bank (collectively First Midwest) following the announcement that it plans to acquire Standard Bancshares, Inc. of Illinois (Standard, not rated) in an all-stock transaction valued at approximately $365 million and that is expected to close in late 2016 or early 2017. First Midwest Bank has long- and short-term deposit ratings of A2 and Prime-1, respectively, and an issuer rating of Baa2. Moody's also affirmed the bank's standalone baseline credit assessment (BCA) and adjusted BCA of baa1 and its Counterparty Risk Assessments of A3(cr) and Prime-2(cr). First Midwest Bancorp has a Baa2 issuer rating and First Midwest Capital Trust I has a cumulative preferred stock rating of Baa3(hyb). The rating outlook is stable.

The following ratings have been affirmed:

Issuer: First Midwest Bancorp, Inc.

.... Issuer Rating, Baa2

Issuer: First Midwest Bank

....Senior Unsecured Deposit Rating, A2

.... Deposit Rating, P-1

.... Issuer Rating, Baa2

.....Baseline Credit Assessment, baa1

.... Adjusted Baseline Credit Assessment, baa1

.... Counterparty Risk Assessment, A3(cr)

.... Counterparty Risk Assessment, P-2(cr)

Issuer: First Midwest Capital Trust I

....Pref. Stock Preferred Stock, Baa3 (hyb)

....Outlook, Remains Stable

RATINGS RATIONALE

The affirmation of First Midwest's ratings with a stable outlook was based on Moody's view that the proposed acquisition of Standard will not weaken First Midwest's credit profile. Moody's expects little change to the combined institution's capital ratios given both institutions' solid tangible capital levels. The acquisition will be conservatively funded, primarily with equity. Moody's also expects little change in First Midwest's earnings profile on a combined basis given the banks' comparable business mix and overhead ratios.

Regarding asset risk, Moody's said that the Standard acquisition increases First Midwest's problem loan ratios modestly. An offset to the increase in problem loans is the credit mark that First Midwest will take on the acquired portfolio. Moody's also highlighted that Standard's nonperforming assets have declined steadily since 2012. Although the acquisition will increase First Midwest's already large exposure to commercial real estate (CRE), it does not increase First Midwest's CRE concentration on a combined basis. CRE lending accounted for approximately 32% and 29% of First Midwest's and Standard's loans, respectively, at 31 March 2016.

As both institutions are largely core funded through deposits, Moody's also expects no change in the funding structure of the combined institution. The agency noted that Standard will add to First Midwest's customer deposit share particularly in the south metro region of Chicago.

Moody's said that First Midwest has a good track record of acquiring banks with limited negative impact to its operations or risk profile. The rating agency expects this record to continue helped by the fact that the Standard acquisition is an in-market acquisition.

After the acquisition is completed, Standard's holding company and bank will be merged into First Midwest's holding company and bank, respectively.

FACTORS THAT COULD LEAD TO AN UPGRADE

An upgrade of the BCA could occur if First Midwest improves its capital ratios and reduces its CRE concentrations.

FACTORS THAT COULD LEAD TO A DOWNGRADE

Downward pressure on the BCA could emerge if Moody's believes that First Midwest is growing aggressively, either organically or through acquisitions, leading to a weakening of the bank's risk profile or its capital position.

The principal methodology used in these ratings was Banks published in January 2016. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

First Midwest Bancorp, Inc. is a regional bank holding company headquartered in Itasca, Illinois, and reported $10.7 billion of consolidated assets as of 31 March 2016. Standard Bancshares, Inc. is a regional bank holding company headquartered in Hickory Hills, Illinois, and reported $2.5 billion of consolidated assets as of 31 March 2016.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Jeanne Del Casino
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Robert Young
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms First Midwest (Issuer Rating Baa2) following announcement of acquisition of Standard Bancshares
No Related Data.
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