CHICAGO (AP) ¿ Fitch Ratings said Friday it has downgraded the long-term issuer default ratings of First Midwest Bancorp Inc. and its subsidiary, First Midwest Bank, citing deteriorating credit quality and expected higher credit costs.

The agency also assigned the bank and its holding company a "Negative" ratings outlook.

Fitch lowered the companies' long-term issuer default ratings to "BBB" from "BBB+" and affirmed their short-term issuer default ratings of "F2."

It said it based the changes on First Midwest's "deteriorating credit quality and Fitch's expectation of higher credit costs over the near term."

First Midwest started reporting worsening 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," Fitch said.

"This portfolio has continued to exhibit considerable weakness, and now represents nearly 60 percent of the company's nonaccrual assets," the agency said. "However, more recently, signs of weakness in other portfolios have emerged."

Most notable among those, Fitch said, was the bank's nonaccruing commercial loans, which increased 113 percent in the first quarter of 2009 and now represent 2.2 percent of that part of its portfolio.

The ratings agency said several commercial real estate categories, including office, retail, and industrial, also have deteriorated.

"Although (First Midwest Bancorp) 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," it said in a statement.

Fitch has also widened the notching on the bank's outstanding hybrid equity to two notches below the issuer default rating.

Shares of First Midwest Bancorp rose 31 cents, or 3.6 percent, to $9.04 in afternoon trading.
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