Small-Business Push Scoring Points for Ill.'s First Midwest

First Midwest Bancorp's foray into the suburban Chicago small-business market has piqued the interest of Goldman Sachs & Co.

The Itaska, Ill., banking company "has carved a niche as the local provider of community banking services to small and middle-market businesses," Goldman analyst Lori B. Appelbaum said, initiating coverage with a "market perform" rating.

Since 1996, First Midwest has completed a series of acquisitions, which have given it a small-business lending presence in suburban Chicago and boosted assets to $5.2 billion, from $3.1 billion.

"With these acquisitions materially integrated, First Midwest's management team is now concentrating on improving its focus on core business lines and enhancing the company's overall profitability," Ms. Appelbaum said.

The company's management stresses the importance of relationship banking through its programs for lending to local businesses, Ms. Appelbaum said.

For instance, loan officers are not only compensated on the basis of selling products, but also paid quarterly bonuses based on maintaining and retaining relationships.

First Midwest is also building its retail program and using incentives for this effort as well.

Each employee negotiates performance standards with his or her supervisor and is rewarded on a quarterly basis when objectives are met. The incentive bonus can equal up to 6% of an employee's base salary, Ms. Appelbaum said. "Incentives and performance standards are tailored to each job function and are aiding in driving results."

Shares of First Midwest gained 37.5 cents, to $38.875, on Monday.

The Standard & Poor's bank index fell 1.98%, and the Nasdaq bank index 0.57%. The Dow Jones industrial average rose 0.23%, and the S&P 500 was up 0.47%.

Shares of thrifts were mixed on Monday, with many near their 52-week lows.

Washington Mutual dropped 68.75 cents, to $28.125; Astoria Financial Corp. 37.5 cents, to $29.9375; Dime Bancorp 6.25 cents, to $16.5625; and Golden State Bancorp 31.25 cents, to $17.5625.

The stocks are trading at 30% and 40% off from May, when they hit their highs for the year.

Analysts say thrifts may have further to go, especially if the Fed votes to raise interest rates when it next meets.

"The thrift group has been under some pressure for some time," said Thomas Theurkauf, an analyst at Keefe, Bruyette & Woods Inc. "Interest rate concerns continue to weigh down the group."

The group could also see earnings impacted in the third quarter by the falloff in mortgage originations, analysts said.

"The market is valuing thrifts as though there was going to be a drought on mortgage originations like we saw in 1994," said Charlotte Chamberlain, a thrift analyst at Jefferies & Co. in Los Angeles.

"It's very, very tough to be a thrift investor right now," said David Dusenbury, an analyst at Credit Suisse First Boston.

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