USA, Oct. 13, 2009 (Info-Prod Research) -- Moody's Investors Service placed the bankfinancial (NASDAQ:BFIN) strength rating (BFSR) and long- and short-term deposit anddebt ratings of First Midwest Bancorp, Inc. (NASDAQ:FMBI) and its subsidiaries onreview for possible downgrade. First Midwest Bank, the lead banksubsidiary of First Midwest Bancorp, Inc. is rated C+ for bank financialstrength, and A2 and Prime-1 for long- and short-term deposit ratings,respectively. First Midwest Bancorp, Inc. is rated A3 for senior debt andBaa1 for subordinated debt. First Midwest Bancorp, Inc. and itssubsidiaries are collectively referred to hereafter as 'First Midwest'. Moody's said the rating action placing all of First Midwest's ratings onreview for possible downgrade was prompted by the heightened pace ofdeterioration in First Midwest's asset quality in recent months. Thismore rapid pace, together with First Midwest's loan concentration inIllinois commercial real estate, increases the potential for transitionrisk in its credit profile. Moody's noted that the commercial real estatemarket in Illinois is undergoing considerable stress. Moody's thereforeexpects First Midwest to experience continued weakness in asset quality,causing the company to incur elevated credit costs for the rest of 2009and in 2010. Moody's noted that First Midwest's asset quality metrics have weakenedsuch that they are among the weakest in the similarly rated peer group.Non-performing assets including 90+ days past due amounted toapproximately 48% of First Midwest's adjusted tangible common equity andreserves. The primary driver of the deterioration in First Midwest'sasset quality has been the residential construction component of itsnon-owner occupied commercial real estate portfolio. This residentialconstruction component represents approximately 77% of First Midwest'sadjusted tangible common equity, while the overall non-owner occupiedcommercial real estate portfolio represents a concentration atapproximately four and one-half times the same adjusted figure. Thisadjusted tangible common equity figure includes the boost to commonequity from the recently completed securities exchange transaction, aswell as the hybrid equity credit Moody's gives for First Midwest's TARPpreferred stock. Moody's also expects First Midwest to experience more pronouncedweakening in the asset quality of the commercial construction componentof the portfolio than it has done up to now, based on the ratingagency's analysis of the broader Chicago market. Together, theresidential construction and commercial construction components representapproximately 1.6 times the company's adjusted tangible common equity,Moody's added. Should this expected weakening come to pass, the elevatedcredit losses resulting from the two construction portfolios are likelyto further pressure the company's profitability and weaken its capitaladequacy ratios. Moody's said that the review for possible downgrade of First Midwest's BFSR and long- and short-term deposit and debt ratings will focus on (a)a deeper analysis of First Midwest's loss-given-default experience acrossthe components of the commercial real estate portfolio, and (b) areassessment of whether First Midwest's credit losses are likely toremain within Moody's expectations. Notwithstanding the review, 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 stablemanagement. First Midwest Bancorp, Inc. is a bank holding company, headquartered in Itasca, Illinois, with reported assets of $7.8 billion as of June 2009.