Valley Bank of Kalispell didn't enter the investment products business by choice.

In 1988, A.J. "Jack" King realized he had to stop people from withdrawing deposits from his Montana bank and putting them in higher- yielding mutual funds.

"We were seeing an exodus of about a quarter of a million dollars a week," said Mr. King, president of the $105 million-asset bank. "We had to do something."

And that meant hiring Thomas E. Gunderson, who had already persuaded dozens of Midwest bankers that they could battle the brokerage firms.

Mr. Gunderson is president and chief executive officer of Investment Centers of America, a 15-year-old Bismarck, N.D., firm that runs investment products sales programs for 250 community banks in 22 states.

Starting out with just a handful of North Dakota bankers as clients, the third-party marketing firm pushed mutual funds, annuities, stocks, and bonds in some of the nation's smallest towns.

Investment Centers of America and its sister company, Invest Financial Corp., Tampa, were bought last year by Nashville-based First American Corp.

Mr. Gunderson said the deal did not affect his company's strategy of targeting towns in the country's midsection where Merrill Lynch doesn't want to tread. Investment Centers of America does go head-to-head with Edward D. Jones & Co., the St. Louis-based investment house. "We just like to say we're Edward Jones inside of a bank," Mr. Gunderson said.

A bank's size isn't important, he said. What matters is a community's demand for investment products.

Still, neither Merrill Lynch nor Edward Jones need fear community banks just yet. Currently, fewer than 10% of the roughly 7,000 banks with less than $500 million of assets sell investment products.

But community banks are increasingly discovering that they're losing deposits to uninsured investments. Often, it's a big city investment firm or even a larger commercial bank luring customers away with promises of higher yields.

And when customers leave, they take away with them the community bank's bread and butter.

"In today's world, the brokerage companies will also take the person's checking and money market account," said David E. Broyles, president of First National Bank in Alamosa, Colo. The $125 million-asset bank started selling mutual funds through Mr. Gunderson's firm in 1993.

Mr. Gunderson said he's signed up about two banks a month since 1982-and the business is still growing. His clients now average about $175,000 of gross revenue a year from investment product sales, he said, compared with an average of $80,000 five years ago.

Community banks lease space to Investment Centers of America, which pays rent on the basis of fees earned.

Mr. Gunderson estimated that it costs about $25,000 for a community bank to start an investment program through his firm.

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