Magazine article American Banker

Now Mature, Bankers' Banks Rely More on Fees

Magazine article American Banker

Now Mature, Bankers' Banks Rely More on Fees

Article excerpt

The growth sprint bankers' banks experienced in the first half of the decade has halted, signaling a maturation of this niche business.

In 1995, assets of bankers' banks - 16 community-bank owned institutions that popped up in the late 1980s as an alternative to traditional correspondent banks - grew by just 3.4% in 1995. In 1992, the growth rate was 20%. "The bankers' banks have become mature," said Helge Christensen, president of Bankers' Bank, Madison, Wis.

Indeed, the youngest bankers' bank is now five years old, and in some states better than 80% of the community banks are bankers' bank customers.

But while the assets of several bankers' banks declined in 1995, all posted increases - in some cases sizable - in net income. In addition, more of that bottom line is fed with fee income, not the large correspondent balances from small-town banks that fueled the run-up in asset sizes at bankers' banks in the late 1980s.

Bankers' banks act as stand-alone correspondent banks, typically with one office and a small staff. They market their services to community banks, trying to steal away customers from the correspondent departments of large banks.

Bankers' banks are concentrated in the Midwest. Their stockholders are community banks that had an interest in starting a correspondent institution that would serve only their own kind, and not be a sideline in a large metropolitan retail bank.

The strategy has largely worked, though there have been some notable problems in some institutions. Bankers' banks now have $1.48 billion in assets and $122 million in equity capital, a fall-off from previous years.

The slowdown in asset growth is a natural condition of the correspondent business. A combination of higher interest rates and higher load demand has led community banks to pay a smaller portion of their correspondent charges with compensating balances. …

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