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 yeas.

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.

When interest rates were low four years ago, banks would have to put a larger than normal amount on deposit with their correspondent so they could make enough interest to pay the service fee, said Noel Estep, president of Bankers' Bank of Kansas.

Today, with higher interest rates, a smaller balance can earn enough to pay the same fee.

"And our customers are growing," Mr. Estep said. "With their loan demand high, they need all the cash they can get."

Banks are paying straight fees for more of their correspondent services, primarily check clearing and investment services. Non-interest income at the bankers banks went from $15 million in 1990 to $42.5 million in 1995.

"If all the fees I'm getting were converted into equivalent compensating balances, I'd be double my size," Wisconsin's Mr. Christensen said.

Earnings at bankers' banks, however, have been lackluster when compared to other banks'. The group's average return on assets topped out at 0.87% two years ago,, and fell back to 0.75% in 1995.

Only four of the 16 bankers' banks earned more than 1% on assets, and only five had better than a 10% return on equity. Some institutions have had some terrible years; 1994 was particularly rough for the bankers' banks in Missouri and Florida, for instance.

"A 1% ROA is always a goal, but if you took out the correspondent banks out of the large retail institutions I doubt that they would be returning any better than we are," said Mr. Estep.

With the total numbers of community banks dwindling, do bankers banks worry about their core market being merged out of existence?

"It's not really a worry from our standpoint here in the Midwest," said Camden R. Fine, president of Midwest Independent Bank, a bankers' bank in Jefferson City, Mo. "The community banks here are doing very well, and as long as they're healthy we'll continue to grow."

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