Bankers' Banks offer independent alternative

Northwestern Financial Review, Sep 4, 1999 by Mattson, Beth

Correspondent bank shareholders

and customers are one in the same

in the Banker-s' Bank system

Community bankers are fueling their own correspondent banking source with the Bankers' Bank concept.

Since the first Bankers' Bank was founded in 1975, the system has grown to include 18 Bankers' Banks across the country - all of which are individually chartered and operate independently. Bankers' Banks are exactly what their name implies. Their clientele consists solely of banks. Bankers' Banks do not serve the general public and, therefore, do not compete with their clients.

"By law and by business plan, a Bankers' Bank is like any other bank you know. We take deposits, we make loans, provide investment services, and provide a variety of operations services like check clearing, and coin and currency," says Peter Sposito, president and CEO of Bankers' Bank Northeast in Glastonbury, Conn. "But we have two restrictions on our charter that other banks don't. We must be owned by other banks, and we can only offer services to other banks or depository institutions."

"The primary advantage for community banks to do business with a Bankers' Bank is that the financial institution is owned by the banks that it serves. So there is no competition," says William Fallon, president and CEO of The Bankers' Bank of Kentucky in Frankfort, Ky. In addition, the board of directors of each Bankers' Bank is comprised of its stockholders. "Among the people who serve on the board of directors, virtually all are executives at banks in the regions served," Fallon says.

"We can't overemphasize the fact that we're owned by our clients," Sposito agrees. Those shareholders play a key role in shaping correspondent bank products and services. "When they come to a board meeting, their primary concern is that we're offering services that community banks need, and that we provide those services in a cost effective manner," Sposito says. Essentially, Bankers' Bank customers are telling the banks what to build, how to build it and how to operate it. In addition, no bank can legally own over 5 percent of stock in a Bankers' Bank, which ensures stability of ownership and reinforces the longevity of the institutions.

The Bankers' Bank system has enjoyed significant growth over the past five years. Total assets went from $1.3 billion in 1993 to $2.5 billion in 1998. Net income nearly doubled from $10.8 million in 1995 to $19.1 million in 1998. "The growth we have enjoyed can be attributed to two factors," says Bruce Schriefer, president and CEO of Bankers' Bank of Kansas, N.A. in Wichita, Kan. One component is responsiveness and professional lending teams who pride themselves on doing a quality job. A second factor is loan pricing that is keenly competitive, especially for grade A credits, Schriefer says.

Specialization in correspondent banking is another key to their success. "When your only focus is on correspondent banking, you're not worrying about teller lines or safe deposit boxes. It allows us to focus on delivery of quality service to our customers," Fallon says.

In addition, while Bankers' Banks operate independently, bank executives network and support each other through their affiliation on the Bankers' Bank Council. The group meets on a regular basis to help each other solve problems or brainstorm about new products and services. "We do help each other quite a bit through the council," Sposito says.

Bankers' Banks are continually evaluating new strategies to be more competitive and capture new business. "We see the issues facing community banking today as technology, core funding, industry consolidation, and new financial services," Schriefer says. However, because each Bankers' Bank operates independently, their products and services are customized to meet the needs of the markets they serve. A service or product that is highly successful for Arkansas may not have the same demand in Wisconsin.

For example, new services that the Bankers' Bank of Kansas has introduced over the past year include an Internet banking product, flood zone determination services, real estate tax payment reporting services and leasing services. "We are currently evaluating a commercial Internet cash management product, as well as a new state-of-the-art correspondent communication program," Schriefer says.

Other Bankers' Banks are entering areas such as municipal bond underwriting, trust services, bank valuation services, human resources management and other financial related areas. Bankers' Bank Northeast has introduced services such as confidential document destruction or "shredding" services. And depending on what develops with financial modernization legislation, Bankers' Banks will be instrumental in the development of additional services to meet constituents' needs.

A key issue that most Bankers' Banks are addressing today is how to help their community bank customers provide Internet services. "Technology is probably the leading issue right now," Fallon says. "Bankers Banks have always been on the leading edge of technology, primarily because it keeps our overhead down, and allows us to provide services at the lowest cost possible." Many of the banks are pursuing and introducing new technology-related innovations. For example, the Georgia and Texas Bankers' Banks have joined forces to create a new communications program, he notes.