For more than a decade, West Des Moines State Bank has been developing relationships with a small family of rural Iowa banks by farming out loan participations.
Now, the $470 million-asset bank is betting that it can copy its relationship style all over the state and build it into a formal correspondent banking business. Recently the bank, adding to its correspondent menu of services, put another 14 banks on its list of "downstream" loan participants, bringing the total to 29.
"We've got such a reputation here," said David L. Bluder, vice president of West Bank, as it is known locally. "Our bank's been so successful and people like that and people respect that. Our customers have a lot of loyalty to us."
Led by president and chief executive David L. Miller, a former bank examiner, West Bank has built a reputation among the state's community banks for protecting its customers from the kind of faulty loan partnerships that caused disasters in Texas and other states in the 1980s and early 1990s.
Officials have maintained a strict policy of farming out only the most creditworthy and safest loans to rural customers. And they pay off the participating banks' portion of the loans first, before West Bank.
"We don't want to sell a loan that might be questioned by examiners," Mr. Miller said. "There's no way we'd sell that off to them. There's a lot of good bankers out here in those rural banks and they just have an awful time getting loans anymore."
"West Bank is really finding a niche in this market. It has a very fine reputation for judging credit," said Bill Hess, president of $85 million- asset Iowa Savings Bank, Coon Rapids. "They don't do it unless it's top quality to begin with and they feel a moral obligation to service what they've sold before they take care of anything in-house."
For the rural banks, many of which have trouble keeping loan-to-deposit ratios above 50%, West Bank's downstreaming helps them put their extra money to good use, while deflating public criticism that they're not serving the communities. The banks are particularly hungry for good short- term credit each year after local farmers have sold their crops and before they're ready to borrow again to buy new seed.
Participating in very short-term downstreamed loans from West Bank offers a more profitable alternative to the rural banks than simply buying federal funds, which don't provide high yields. The loans usually have terms of less than 100 days, tying up the loose cash, but not preventing them from having it available later.
So far, Mr. Miller has shied away from trying to compete with the more technologically advanced large banks, the Federal Reserve Bank of Des Moines, or the Federal Home Loan Bank of Des Moines for other traditional correspondent services, particularly check clearing and data processing. Even West Bank uses the Federal Home Loan Bank.
But West Bank's tradition of helping rural banks has made its customers demand more. Since it began accepting federal funds from its bank customers in June, West Bank has brought in $55 million without even marketing the new service. Officials are now considering offering correspondent trust services from a department the bank just opened.
"If we actually spent a lot of time at it, I'd hate to say how large we'd actually be," Mr. Bluder said.
"We're kind of stumbling at this," Mr. Miller said. "But from conversations with the bankers, we're hearing all kinds of stuff that we can help them with. What's good for one isn't necessarily good for the others. They all have different needs."
Though it may be stepping gingerly into full-service correspondent banking, West Bank doesn't have a history of "stumbling." It consistently reports returns on assets and equity of more than 2% and 20% respectively, and spends only about 34 cents to generate a dollar of income.
And the bank is looking to parlay its strong financial performance into a new service for clients. Officials have already found themselves giving advice to other bankers and Mr. Miller said they plan to offer special seminars on growth and controlling costs.
West Bank has also given the rural banks access to its old advertising materials at no cost, solving a problem for banks that either can't afford to hire a firm or don't have one in the area.
"It helps them out, makes them happy, and they carry their accounts with us," Mr. Miller said. "It's been a real market for us and by this time next year, we'll probably have a full-time correspondent banking officer."
