Whether its branches are new or old, St. Louis-based Southwest Bank likes them to come in one size - big.

So the subsidiary of $1.6 billion-asset Mississippi Valley Bancshares of St. Louis has been running expensive rate specials that have pushed deposits at its two newest branches near to or above $100 million, each within two years. And the bank's chief executive said he wants each of these two branches, both in the suburbs of St. Louis, to get to more than $200 million of assets in the next two years. That would be more than twice the industry average but in line with Southwest's five other offices.

"We don't want to get stuck with a bunch of little branches struggling to grow," said Andrew N. Baur, the chairman and CEO of both the bank and the holding company. "We want to get these branches throwing off a return of 1.5% on assets as quickly as we can. We're willing to endure whatever pain we have to in order to get there. We're believers in taking our lumps early."

The bank is bidding up deposits in an effort to boost the new branches toward a size at which they can turn a profit and pay down the roughly $3.5 million that each cost to build.

Southwest, which historically has had little trouble finding loans, hopes the strategy will make it unnecessary to seek other funding.

In April the bank began its latest deposit special for the new branches in Des Peres, Mo., and Belleville, Ill., which were opened in 1999 and 1998, respectively.

The offer, which runs through the end of July, gives customers a 6.5% rate on money-market accounts above $50,000 and a 6.35% rate on accounts over $25,000. Before the special, the highest rate paid by competitors was 5.75%, Mr. Baur said.

This is not the first time that Southwest has paid up for deposits.

The bank last year paid an average of 3.9% interest for its funding, more than the banking industry average of 3.7%, according to the Federal Deposit Insurance Corp.

Though its funding is expensive, Mr. Baur said, the bank tries to more than make up for it through savings elsewhere.

"We might have a high deposit cost, but we make up for that by operating larger branches and being more efficient," he said.

At the end of last year, Southwest had $190 million of deposits per branch, compared with an industry average of $54 million, according to the FDIC. It also had assets of $228 million per branch compared with an industry average of $81 million.

"A lot of companies are happy once a branch hits $50 million," said Joseph A. Stieven, an analyst at Stifel, Nicolaus & Co. in St. Louis. "A $100 million-asset branch is considered very good if not awesome, and their average size is twice that. They've easily been one of the most successful banks in the Midwest and the country at growing internally."

The holding company's performance numbers reflect that, analysts said.

Mississippi Valley's efficiency ratio last year was 41%, far better than the 59% average for all banking companies, according to the FDIC. Its 1.5% return on assets in 1999 also outpaced the 1.3% industry average.

"There's not too many ways to argue with their track record," said Jeffrey D. Bittner, an analyst at Keefe, Bruyette & Woods Inc. in New York. "Paying up for deposits can bring some pitfalls, but they have a good sense of how much they can pay."


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