When Northwest Bank of Davenport, Iowa, developed a sweep program nine years ago to boost the profitability of its own business checking accounts, it didn't imagine that the software would become one of its best-selling products.

Just three years after Northwest brought it to market, Bank Sweep Manager is being used by 131 banks, said Mark Daubert, Northwest's sweep program manager. In order to offer interest on checking accounts, banks either put customers' money in money market accounts or enter repurchase agreements. In the latter case, they give customers Treasury bonds as collateral and are able to lend the money.

The lending component makes the collateral option more profitable but is not practical for smaller banks because federal law requires them to give customers daily status reports on the repurchase agreements.

Bank Sweep Manager helps small banks meet that requirement affordably, Northwest says. It charges $3,495 for the software and license, which a bank usually recoups in a matter of months through fees and loan interest, Mr. Daubert said.

Such products are becoming increasingly important to community banks because loan demand is outpacing deposit supply. These products let banks attract deposits and avoid expensive borrowing to fund loans.

"Compliance and back-office is the core of the product," Mr. Daubert said. Bank Sweep Manager's software generates the required daily documents and notifies the bank when a customer is slipping out of compliance. Northwest also offers custodial services to banks that buy the program, and 42 banks are using these services, Mr. Daubert said.

Chris Wewers, president of $153 million-asset Community Bank of North Arkansas in Fayetteville, said using Bank Sweep Manager will help his company compete with big national players like Bank of America as well as larger regionals.

It will also give the bank an edge in going after the booming small-business community in northern Arkansas, Mr. Wewers said. Local entrepreneurs are usually happy to support local banks as long as they can provide competitive returns, he said.

The Arkansas bank will charge $50 a month initially for the service, which it expects to become a $20 million to $30 million business, Mr. Wewers added.

Mr. Daubert said many community banks are using such products as a defensive measure. Bank Sweep Manager differs from another recently issued sweep product - developed by Reserve Funds in New York - in that it is limited to six transactions per month.

Most banks using the service have assets in the $100 million to $600 million range, said Mr. Daubert, though one client has $4 billion.

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