A $94 million-asset bank in the San Diego suburbs is making a name for itself in a line of business still considered the territory of big banks: check processing.

Four-year-old Southwest Community Bank in Encinitas, Calif., is the founder and majority owner of Financial Data Solutions Inc., which uses imaging technology to process more than four million checks a month for about 15 Southern California banks and credit unions.

Southwest Community and its minority partner, Business Bank of California in San Bernardino, in March opened their second Financial Data Solutions office, in the Los Angeles suburb of El Monte.

Steve Didion, director of bank research at Hoefer & Arnett in San Francisco, said it is unusual for a data processing partnership to be headed by a bank of Southwest Community’s size.

“It’s very rare that Southwest is driving the ship because it takes a bit of expertise to do that and it also takes some big up-front spending.” Mr. Didion said. “Most new banks would usually be customers of centers like this, not founders.”

Leading the venture is Frank Mercardante, Southwest Community’s president and chief executive officer. He has directed data processing centers at banks since 1967.

After starting his career in the data center at the former San Diego Trust and Savings Bank, Mr. Mercardante took over a similar operation in 1972 at the former Southwest Bank in nearby Vista. By the time Security Pacific National Bank (now part of Bank of America Corp.) bought the $500 million-asset Southwest Bank in 1989, the center was processing items for more than 140 financial institutions in six western states.

Mr. Mercardante joined the newly formed Southwest Community in March 1998 and shortly thereafter persuaded its board of directors that he could repeat his earlier success. Several months after Financial Data Solutions opened its first facility last year in Murrieta, Calif., he convinced Business Bank to buy a stake in it.

Alan J. Lane, president and CEO of $311 million-asset Business Bank, said he would never have considered a partnership with a start-up bank for such an enterprise if it were not for Mr. Mercardante’s track record.

“Clearly, the deciding factor for our board of directors on making this investment was Frank’s level of expertise,” Mr. Lane said.

So far the two banks have invested more than $1 million, and both are hoping that it will pay off in fee income. Financial Data Solutions’ monthly revenue averaged $50,000 last year but reached $200,000 this January. Mr. Mercardante said he expects monthly revenue to grow to $270,000 by July when seven new clients are scheduled to come on board.

“We’re still putting money into the operation, so the income earned is not really contributing to” Southwest Community’s bottom line, he said. “But this has the potential to significantly add to the bank’s overall noninterest income.”

The subsidiary is already planning to open offices outside Southern California, possibly in the San Francisco Bay area, and it is also considering expanding its product line, Mr. Mercardante said.

Mr. Didion agreed that the operation could pay off handsomely for its investors.

“All of the banks we follow in the country that trade at high multiples are those that produce consistent fee income,” he said. If Southwest Community and Business Bank’s “outside imaging processing business is successful, they can generate substantial fee income, which should help the banks’ value in the long term.”

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