WICHITA, Kan. - Between Hutchinson and Kingman, Kan., Gary L. Baugh, president of Railroad Savings Bank, powers his 1992 Bonneville on a stretch of highway that's as flat as a tabletop.

Three times a year, the 52-year-old Mr. Baugh burns up the roadways to check in with Railroad's 80 "agents." They are paid a commission by the thrift to scour the state's smallest towns for deposits and loans, allowing Railroad to avoid setting up branches.

"I think I've met them all," said Mr. Baugh, as a cattle truck blasts by with a whoosh. "Nobody has an operation to the extent that Railroad does. That's our niche."

Railroad, which is based in Wichita, has six branches. It is one of a handful of thrifts in the country that use agents, and it boasts the largest network. Railroad's agents operate in small, dusty towns like Moline (population 500), Norton (3,500), and Dodge City (20,000).

They typically run their own businesses selling real estate and insurance. But for the $421 million-asset Railroad, they act like a statewide branching system offering certificates of deposit, annuities, and home loans.

"Many of these towns couldn't support a full-service branch office," Mr. Baugh said. "That's where the agent really fits in."

60% of Deposits

The agents have worked the small towns so effectively that they have gathered 60% of Railroad's $323.8 million of deposits. And they have originated about 30% of the thrift's $153 million in mortgage loans generated in Kansas.

To boost productivity, some agents are using laptop computers so they can originate loan applications on the road and zap them to headquarters for quick approval.

Low interest rates and the refinancing boom have helped agents generate hefty commissions. Last year, Railroad paid agents a record $1.4 million in commissions for deposit, loan, and annuity originations, up from $865,000 in 1991.

"It's been busy," said Stanley "Bud" Benson, who owns Benson Insurance and Real Estate in Kingman (population 3,200).

$1 Million in Annuities Sales

Mr. Benson claims to know about 90% of the people in town. He isn't a big lender, but he and his two-person staff have drummed up $15 million in deposits in Kingman and Cheney, a smaller neighboring town. Last year, Mr. Benson generated $1 million in sales of annuities for Railroad.

He said the Railroad business brings in $68,000 in commissions last year, well above the $2,000 it generated in 1976 when he bought the business.

D. Cliff Goggans, an agent in Arkansas City, is originating loans at record pace. So far this year he's closed about 100 loans, compared with 90 last year.

"We are well ahead of last year, and we thought last year was a phenomenal year," said Mr. Goggans, who uses a laptop to make house calls.

Agents like Mr. Benson and Mr. Goggans are formidable competitors to local banks.

"They have kind of roughed us up in the last year or so," said John Nye, executive vice president and cashier with First

National Bank of Kingman. "We've seen a lot of deposits move from here to, say, Railroad. It's been substantial enough that it has got our attention."

Railroad depends on the agents as part of a twofold strategy: Agents generate a stable core of deposits - mainly CDs - while the thrift builds fee income by originating home loans in Kansas, California, and Colorado. Most adjustable-rate loans originated in Kansas are kept on the books, and fixed-rate loans are sold into the secondary market. Railroad retains the servicing rights.

"That takes the reliance off the spread," Mr. Baugh said.

Last year, Railroad's RSL Mortgage Corp. in Orange County, Calif., originated $915 million in loans, which were sold into the secondary market. Loan servicing for the year rose to $680 million, up 46% from the prior year.

Respectable Returns

Railroad earned $1.2 million in the second quarter, up 46% from the year-earlier period. It also turned in a respectable 0.94% return on average assets, and a return on average equity of 18.74%.

Agents have worked for the thrift since it was founded in 1896 by a group of railroadmen in nearby Newton. They've stuck by Railroad during good times and bad. Problems surfaced in the late 1980s when several out-of-state commercial real estate loans soured. Mr. Baugh, who was chief financial officer, was named president, replacing Larry Kirchoff in 1988.

That year, he boosted Railroad's provision for loan losses, and the thrift lost money two years in a row.

In 1989, the thrift didn't meet its risk-based capital requirements and was forced to file a capital plan with the Office of Thrift Supervision in July 1990.

In January 1992, Railroad raised $6.9 million in a secondary offering and was released from the order. Now, it's considered a "well-capitalized" institution.

Cleansed of Nonperformers

"It's a pretty solid organization," said Raymond Cabillot, a research analyst with Piper Jaffray Inc., Minneapolis, who is recommending Railroad's stock. "They did a pretty good job of cleansing their portfolio of nonperformers."

Mr. Baugh said Railroad may expand its mortgage banking operations and could start hunting for acquisitions of healthy thrifts. But no matter how big Railroad grows, the agents won't be forgotten.

"They are very important," Mr. Baugh said. "We have always been committed to the agents."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.