A small Iowa bank is proving that correspondent banks can come in all shapes and sizes - and ages.

Just two years after opening its doors, $95 million-asset Quad City Bank and Trust Co. is already providing the state's tiny community banks with a small-town alternative to the large out-of-state regionals.

Through its three-person correspondent department, the Bettendorf-based de novo bank is offering its 18 Iowa and Illinois customers a range of correspondent services, as well as providing general consulting.

That's generated about $3 million in correspondent balances for Quad City, about 5% of total demand deposits at the bank.

Already, Quad City is breaking even with its correspondent venture, while the bank overall has earned $96,000 in the last six months. Generally, start-ups lose money for the first three years after opening.

And bank officials are hoping to expand Quad City's customer base at a rate of one to two new bank clients per month, eventually attracting more than 40 in the two-state region. That would allow Quad City to make a solid profit and gain the efficiencies that large banks already maintain.

"It's not a hard business to get into when there are as many people letting business go out of the door as there are," said president and chief executive Michael A. Bauer, a former correspondent banker at Davenport Bank and Trust Co. before that $1.6 billion-asset bank was bought by Norwest in 1992. "It's something that we've been thinking about."

Mr. Bauer's efforts have earned him the respect of competitors and the appreciation of customers, such as Bennett State Bank in Iowa, which switched from Norwest Corp. to Quad City six months ago, a move based partly on Bennett management's wish to support a local bank that would reinvest in the community.

"We knew the people involved were very experienced in the banking industry," said Bennett president and chief executive Gus Barker. "We wanted to give them the opportunity to grow as a small community bank, as we are. We felt like we had to stick together."

"There's a real need over there in eastern Iowa," said David L. Miller, chairman of West Des Moines State Bank, a competitor. "He's aggressive and intelligent, but I don't think he'll stumble much. He'll run a profitable operation."

Shortly after they opened the bank, Quad City executives detected a desire among nearby community banks for a correspondent provider that wouldn't compete with them or threaten their independence. So Quad City opted to begin offering those services.

The bank already had the skills and talent needed to offer the services, because 90% of Quad City's original staff of 20 had come from Davenport Bank, which had built up correspondent relationships with many local institutions.

"We had a sense that if we were out there offering the services, that a number of them would do business with us," Mr. Bauer said. "It just seemed like a natural fit that we ought to go out and test the waters."

Mr. Bauer explained that a small bank like Quad City has advantages over large regionals in both size and stability. Because correspondent banking is a relationship-based business, community bankers, much like their own small-business customers, prefer to do business at a bank where the personnel will remain the same.

"I think there's some comfort level to that, especially here in the Midwest," Mr. Bauer said. "It's nice to be able to pick up the phone and call the president and know that he'll know who you are and know some particulars about the bank. I think that's our advantage."

Quad City's customers can now turn to the bank for help with check- processing, federal funds sales and purchases, overline help, coin-and- currency, wire transfers, and even bank stock loans for acquisitions.

And rather than seek additional services to sell downstream to customers, Quad City is exploring cooperative ventures with other small community banks in areas such as image-processing.

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