Midwest Banc Holdings Inc. in Melrose Park, Ill., said credit quality continued to deteriorate at its subsidiary bank in the fourth quarter, and warned the bank's capital ratios are expected to fall from a well-capitalized level at the end of the third quarter to undercapitalized for the fourth quarter.
The announcement was made in an updated prospectus filed with the Securities and Exchange Commission, where the $3.5 billion-asset company is offering to exchange depositary shares for common shares.
Midwest has been working to beef up capital by converting more of its outstanding securities to common shares, notably preferred shares issued to the Treasury Department under the Troubled Asset Relief Program.
Midwest said in December that it was in talks to convert those preferred shares. One condition imposed by the Treasury was that Midwest also convert preferred shares owned by other investors into common ones.
At the end of the third quarter, the company reported a total risk-weighted asset ratio of 7.95%, a Tier 1 risk-weighted ratio of 6.05% and a leverage ratio of 4.15%.
Midwest's subsidiary bank reported a total risk-weighted ratio of 10.17%, a Tier 1 risk-weighted ratio of 8.88% and a leverage ratio of 6.08%.
For the third quarter, Midwest reported a $41 million loss, down 74% from a year earlier. For the first three quarters of last year, Midwest lost $123 million.
On Dec. 18, Midwest and its subsidiary bank entered into an agreement with the Federal Reserve and the Illinois Division of Banking.
Among the terms of the order, they must address capital and asset quality.
Filings with the SEC also noted that if Midwest does not fulfill its capital requirements a receiver could be named.