First Midwest Bancorp Inc., an Itasca, Ill., company that focuses on Chicago, has expanded its trust services business by using local connections to get deals. It has thrived where smaller companies have faltered because it has developed the resources to play in the trust services game. Last year its trust division's assets under management and custody increased 11%, to around $4.03 billion.
First Midwest pulled off this growth despite difficult market conditions by making the most of its relationships with customers while expanding its services, according to Bob Diedrich, the president of the trust division.
"We're in a sweet spot," Mr. Diedrich said in an interview last week, since his firm is large enough to hire the right people and invest in the right technology, but it is still small enough to have advisers that live in their communities.
First Midwest's trust and investment management revenue accounted for 4.2% of the company's $372 million of overall revenue last year, after adjusting for one-time items like investment securities writedowns.
"It's not a huge contributor to revenue currently, but it's a growing one," said Kenneth James, an analyst at Robert W. Baird & Co. Inc. "It provides them the opportunity to cross-sell with their lending and a more stable and recurring fee-income source."
One example is the city of Moline, Ill., which uses First Midwest to manage its $30 million Police Pension Fund. The company has an office that is less than a block away from where Kathy Carr, the city's finance director, works at Moline's City Hall.
In December, the Quad-City Times reported Rodney Blackwell, a developer and the managing principal of Financial District Properties KP, wanted a loan from the city to help him buy a high-rise owned by the elevator company Kone Corp. First Midwest's banker heard the news and phoned Ms. Carr about the possibility of making the short-term loan to make the deal, she said.
First Midwest has shown its commitment to Moline in many other ways, Ms. Carr said, such as getting involved in this year's local 18-and-under American Softball Association tournament.
Ben Crabtree, an analyst with Stifel, Nicolaus & Co. Inc., said community banks can form deep ties with their clients, but most do not have significant trust operations. The business requires a lot of money to get going, and then the revenue typically builds up slowly over time. "Most of the small banks will say we can't afford to do that," Mr. Crabtree said. "First Midwest is of a size where it does make some sense."
First Midwest's other business areas also help its trust services division grow. Michael Lambert, a vice president at First Midwest Bank, said that a couple weeks ago he got a deal through one of his co-workers on the commercial lending side. When that banker made a $10 million or $12 million loan for a small company, Mr. Lambert persuaded the client to let First Midwest manage its profit-sharing plan, as well.
First Midwest probably will net around $12,000 to $15,000 a year in fees from those investment management services, he said.
It tells all its clients if they do not like the service after a year, they can get their money back. Mr. Lambert said he meets with his clients quarterly, and sometimes once a week as needed.
He used to work at a larger firm, which he would not name, where he met with his clients only once or twice a year. "In a bigger place they're just a number," he said.
In addition, First Midwest has been trying to improve the investment choices it offers clients. It started providing Global and Total Return Equity strategies to its customers in recent years.
Mr. Diedrich said he plans to keep running First Midwest's trust division with a similar approach this year. He expects to keep working with corporate bankers to get more commercial clients. Most of the division's sales so far are coming from the expansion of existing relationships.
