Texas Independent Bank diversified its correspondent banking services at just the right time.

Known as a banker's bank whose only customers are other banks or bank directors, Texas Independent was mired in bad assets during the late 1980s.

The problem has been resolved, the bank says. And now that many Texas banks that offered correspondent services have failed or vanished in takeovers, Texas Independent is pursuing the correspondent business up for grabs - in date processing, student lending, wire transfers, credit cards, and check clearing.

The result is record earnings for the Dallas-based bank.

Last year, the $257 million-asset institution posted $1.7 million in net earnings. That was a $500,000 jump over the 1991 tally and a healthy 12% return on equity.

Correspondent banks also make bank stock loans, which enable bank directors or institutions to take positions in other banks or buy them outright.

For Texas Independent, which made a specialty of these loans, there was trouble ahead as bank failures swept the state.

Founded in 1980, "the bank had 80% of its portfolio in bank stock loans when I arrived" in 1986, said chief executive Gayle M. Earls. "And many of those assets were turning bad." As a result, the bank had four straight years of losses.

But Mr. Earls has diversified the portfolio, and bank stock loans are now only 35% of total assets.

He also has hired a 10-person sales force to pitch correspondent banking services. And there's plenty of business out there, says Christopher L. Williston, president and CEO of the Texas Independent Bankers Association.

"We've had massive banking failures," Mr. Williston said. "Traditional correspondent banking is just drying up. Clearly, this is a service that is sorely needed, and demand will keep increasing."

Major banks expanding into Texas -- Ohio-based Banc One Corp., North Carolina's NationsBank Corp., and Comerica Inc. of Detroit - are aware of the opportunity, but Mr. Williston thinks the heavyweights will have a hard time persuading small banks to buy their services.

Home-Team Advantage Seen

"Community bankers down here have long memories, and they know who was there for them when times were bad," he said. "Certainly they're price conscious, too, but they're even more stability conscious."

Mr. Earls said small Texas banks are unlikely to buy services from interlopers. "There used to be a code of honor that correspondent banks didn't go into communities served by their client institutions," he said. "But that all ended in the 1970s."

Texas Independent now provides services for 600 of the state's 920 community banks, and new business promises to make 1993 another record year, Mr. Earl said. "We're already ahead of last year's pace."

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