Fitch Downgrades First Midwest Bancorp, Inc. & Subs IDR to 'BBB'; Outlook Negative

Fitch has lowered FMBI's long-term ratings and assigned a Negative Rating Outlook based on FMBI's deteriorating credit quality and Fitch's expectation of higher credit costs over the near term. FMBI began reporting deteriorating asset quality in its residential land and development portfolio a year ago as the housing market in the Chicagoland area began to experience significant stress. This portfolio has continued to exhibit considerable weakness, and now represents nearly 60% of the company's nonaccrual assets. However, more recently, signs of weakness in other portfolios have emerged. Most notably, nonaccruing commercial loans increased 113% in the first quarter of 2009, and now represent 2.20% of this portfolio segment. In addition, several commercial real estate categories, including office, retail, and industrial, have deteriorated. Although FMBI has a history of solid operating performance, the need to build reserves given the level of asset quality deterioration will likely erode earnings through higher provisioning expenses. Accordingly, Fitch has downgraded the company's ratings to reflect a weaker credit profile, and assigned a Negative Rating Outlook given the uncertainty surrounding the economic environment and its effects on the bank's credit quality and earnings.

Fitch has also widened the notching on FMBI's outstanding hybrid equity, which includes $193 million of preferred stock issued under the Capital Purchase Program and $125 million in trust preferred securities. The widened notching to two notches below the IDR is typical for issuers at the 'BBB' IDR level. Fitch acknowledges several mitigating factors, including solid levels of capital and parent company liquidity; albeit both are enhanced by the recent government preferred stock investment. Prior to considering any narrower notching of preferred securities in the future, Fitch would like to see stabilization in the company's profitability profile. In resolving the Rating Outlook, Fitch will also seek evidence that any credit deterioration is not translating into higher loan losses.

Fitch views FMBI's solid capital base, diversified and stable funding profile, and stable net interest margin as areas that help mitigate the aforementioned areas of weakness and help support the ratings at the newly assigned level. FMBI maintains solid levels of regulatory capital, which were augmented in the fourth quarter 2008 with the issuance of nearly $200 million in preferred stock to the U.S. Treasury. FMBI also recently cut its common dividend to $0.01 per share, which will facilitate capital accumulation through annual savings of $42 million. FMBI's funding profile remains good given its core deposit franchise, large investment portfolio, and access to multiple sources of liquidity. Profitability has been pressured in recent periods due to higher provisioning expenses and securities losses; however, FMBI's margin has remained relatively stable during this difficult operating environment and the company's cost structure highlights an efficient operation for the mix of FMBI's business activities.

Fitch downgrades the following ratings:

First Midwest Bancorp, Inc.

--Long-term Issuer Default Rating (IDR) to 'BBB' from 'BBB+';

--Individual to 'C' from 'B/C';

--Subordinated debt to 'BBB-' from 'BBB';

--Preferred stock to 'BB+' from 'BBB'.

First Midwest Bank

--Long-term IDR to 'BBB' from 'BBB+';

--Individual to 'C' from 'B/C';

--Long-term deposits to 'BBB+' from 'A-'.

First Midwest Capital Trust I

--Preferred stock to 'BB+' from 'BBB'.

Fitch affirms the following ratings:

First Midwest Bancorp, Inc.

--Short-term IDR 'F2';

--Support '5';

--Support floor 'NF'.

First Midwest Bank

--Short-term IDR 'F2';

--Short-term deposits 'F2';

--Support '5';

--Support floor 'NF'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

SOURCE: Fitch Ratings

Fitch Ratings, Chicago 
Julie Solar,+1-312-368-5472 
Doris Hoffmann, +1-312-368-2057 
Media Relations, New York 
Brian Bertsch, +1-212-908-0549 
brian.bertsch@fitchratings.com