Investors are hopping mad about Illinois-based Amcore Financial Inc.'s first-quarter performance and are vowing to agitate more aggressively for the company to be sold.

Last week executives of the $4.3 billion-asset Rockford banking company told analysts that its net interest margin is under pressure from rising market rates. Salomon Smith Barney and Keefe, Bruyette & Woods Inc. cut their first-quarter earnings estimates. Investors - who were expecting a strong quarter - stampeded out of the stock, driving its price to a two-year low of $17.875 on Friday.

"Investors have told me that they are mad as hell and they are not going to take it anymore," said Christopher R. Raffo, senior vice president at Podesta & Co., an independent research firm in Chicago.

"Some shareholders are so upset that they most likely will push the company to explore strategic options at its annual meeting in May," said Brock Vandervliet, an analyst at Salomon Smith Barney.

Mr. Vandervliet cut his first-quarter estimate to 38 cents, from 40 cents; his 2000 estimate to $1.68, from $1.75; and his 2001 estimate to $1.85, from $1.90. Joseph Duwan, an analyst at Keefe Bruyette, reduced his first-quarter estimate to 39 cents, from 42 cents; his 2000 estimate to $1.70, from $1.80; and his 2001 estimate to $1.90, from $1.95. The consensus estimates for the first quarter, 2000, and 2001 now are 39 cents, $1.72, and $1.87, respectively, according to First Call/Thomson.

Podesta, which does not have a position in Amcore, was the first to give voice publicly to the idea of Amcore's putting itself on the auction block.

In a January report about the company's fourth-quarter earnings, analyst David B. Moore said that Amcore should consider selling itself because its improved profitability was "a case of too little too late."

An acquirer could improve earnings far better than the company can independently and give shareholders a premium of at least 40%, the analyst said. The company is attractive because of its strong market share in southern Wisconsin and northern Illinois. It also boasts profitable trust operations.

Among the banking companies that might be interested in buying Amcore are Firstar Corp. and Marshall & Ilsley Corp., both based in Milwaukee; Fifth Third Bancorp of Cincinnati; Old Kent Financial Corp., Grand Rapids, Mich.; and Wells Fargo & Co. of San Francisco, according to Mr. Moore, who has a "speculative buy" recommendation on Amcore.

Management has been able to placate investors by promising better quarters to come. Executives have moved to shore up the company's lagging profitability by combining its nine bank charters into one, effective last Oct. 1. This was expected to produce $7.3 million of annual cost savings beginning this year.

Some of the savings, however, have been eaten away by the pressure on net interest margins, and this is fueling shareholder anxiety, some analysts said.

"The significance about this is that this was supposed to be the quarter where we saw better performance," said Mr. Vandervliet. "And we're not seeing it, so investors are more critical than they have been in the past."

Amcore is suffering as many other banking companies have since the Federal Reserve began raising rates, compressing lenders' margins. However, Amcore may be hurting more than the others.

Mr. Vandervliet said he expects its net interest margin for the first quarter to be almost 20 basis points lower. Its margin is significantly lower than those of many peers, said Mr. Vandervliet "They are relying on a lower-value set of earning assets to generate that spread income," he said.

And most of Amcore's margin compression is expected to come from the $800 million of investment securities that make up 33% of the company's portfolio.

The company's investment securities-to-earning assets ratio is also higher when compared to other banking companies, said Mr. Vandervliet. Amcore has a ratio of 20% ($800 million of securities to $4.05 billion of earning assets) compared with 15% at companies of similar size, which means that it does not have as "rich [an] earning assets mix as others."

An Amcore spokeswoman said, "Our management and board of directors are always focused on shareholder value. Amcore, like many other banks, is dealing with the inverted-yield-curve environment. All bank stocks are under pressure. I don't think Amcore can be singled out."


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