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Rating Action:

Moody's downgrades First Midwest (senior to Baa1)

04 Jan 2010

New York, January 04, 2010 -- Moody's Investors Service downgraded the bank financial strength rating (BFSR) and long- and short-term deposit and debt ratings of First Midwest Bancorp, Inc. and its subsidiaries. The bank financial strength rating of First Midwest Bank, the lead bank subsidiary, was lowered to C from C+, and its long- and short-term deposit ratings were lowered to A3 and Prime-2 from A2 and Prime-1, respectively. First Midwest Bancorp, Inc.'s issuer rating was lowered to Baa1 from A3 and its subordinated debt rating to Baa2 from Baa1. In the same rating action and in accordance with Moody's new methodology for rating bank hybrid securities and subordinated debt, Moody's downgraded the trust preferred ratings of First Midwest Capital Trust I to Baa3 from Baa1. Following the downgrades, the outlook on First Midwest Bancorp, Inc. and its subsidiaries is negative. This concludes the review for possible downgrade that was initiated on October 12, 2009. First Midwest Bancorp, Inc. and its subsidiaries are collectively referred to hereafter as 'First Midwest'.

Moody's said the downgrade of First Midwest's BFSR and long- and short-term deposit and debt ratings reflects the deterioration in the company's asset quality indicators, coupled with the expectation that the company will continue to incur elevated credit losses during 2010. Moody's said that First Midwest's credit losses, arising primarily from the residential construction component of its commercial real estate portfolio, have so far tracked to within Moody's expectations, and the company appears to have sufficient capital to absorb such losses. Nevertheless, the rating agency said that the company's material concentration in non-owner occupied commercial real estate, which represents approximately 4.6 times the company's adjusted tangible common equity, exposes the company to further sizeable credit losses. In addition, Moody's observed that First Midwest's high commercial real estate exposure is also geographically concentrated in Illinois, an area that has been experiencing considerable stress in recent months.

Beyond the immediate asset quality challenges that First Midwest is working through, Moody's believes that the company could experience a weakening in its franchise value in the longer term due to the reduced commercial real estate lending opportunities in the Illinois marketplace after the current stressed environment is over. This could have implications for the sustainability of First Midwest's business model in light of its dependence on commercial real estate lending and the Illinois market. The combination of First Midwest's asset quality deterioration, the size and geographic profile of its commercial real estate concentration, and potential franchise value challenges resulted in the downgrade to a 'C' BFSR rating, Moody's concluded.

Notwithstanding the downgrade, Moody's notes that a number of First Midwest's primary strengths remain intact, including healthy bank and holding company liquidity, a good core deposit franchise and stable management.

The two-notch downgrade of the trust preferred rating of First Midwest Capital Trust I to Baa3 from Baa1 incorporates an additional notch in accordance with Moody's new methodology for rating bank hybrid securities and subordinated debt. This lowered rating reflects the coupon deferral risk associated with this trust preferred instrument and is in line with Moody's recently published methodology entitled "Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated Debt."

Downgrades:

..Issuer: First Midwest Bancorp, Inc.

....Issuer Rating, Downgraded to Baa1 from A3

....Subordinate Regular Bond/Debenture, Downgraded to Baa2 from Baa1

..Issuer: First Midwest Bank

....Bank Financial Strength Rating, Downgraded to C from C+

....Issuer Rating, Downgraded to A3 from A2

....OSO Rating, Downgraded to P-2 from P-1

....Deposit Rating, Downgraded to P-2 from P-1

....OSO Senior Unsecured OSO Rating, Downgraded to A3 from A2

....Senior Unsecured Deposit Rating, Downgraded to A3 from A2

..Issuer: First Midwest Capital Trust I

....Preferred Stock Preferred Stock, Downgraded to Baa3 from Baa1

Outlook Actions:

..Issuer: First Midwest Bancorp, Inc.

....Outlook, Changed To Negative From Rating Under Review

..Issuer: First Midwest Bank

....Outlook, Changed To Negative From Rating Under Review

..Issuer: First Midwest Capital Trust I

....Outlook, Changed To Negative From Rating Under Review

The last rating action on First Midwest was taken on October 12, 2009 when its ratings were placed on review for possible downgrade.

The principal methodologies used in rating First Midwest were Moody's "Bank Financial Strength Ratings: Global Methodology", published in February 2007, and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology", published in March 2007, and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

First Midwest Bancorp, Inc. is a bank holding company, headquartered in Itasca, Illinois, with reported assets of $7.7 billion as of September 2009.

New York
Robert Young
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Michael L. Mascarenhas
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades First Midwest (senior to Baa1)
No Related Data.
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