William Bosshard, president and chief executive of Bank of Alma, Wis., says there is no magic formula for being a diehard tightwad.
"You're going to find no real secrets other than the fact that we're tight with money," he said. "There isn't anything that stands out that makes us any different than anything else."
But Bank of Alma does stand out.
It boasts the best combination of efficiency ratio and overhead ratio of any community bank in the country. Its low cost structure was the primary reason the $74 million-asset bank has enjoyed a 2.44% return on assets over the last three years.
"My focus is to keep costs low and have multitrained people," Mr. Bosshard said. "Whatever shakes out in this industry, the low-cost provider is going to survive."
Mr. Bosshard's focus on his people is significant. He at first declined to be the subject of this article, claiming his employees do more to save money than he does. He also declined to be photographed, saying, "I don't want to put myself out to be the genius here. They all do the work."
An American Banker analysis of cost ratios examined banks with less than $3 billion of assets, loan-to-deposit ratios of at least 65%, and overhead ratios of less than 2% for each year from 1992 through Sept. 30, 1995.
The best cost hawks excelled in a combination of return on average assets, overhead ratio, and efficiency ratio during that period.
Overhead ratio is noninterest expense to average assets. Banks with $3 billion or less of assets averaged a 3.61% overhead ratio for the first nine months of 1995. The average efficiency ratio, a measure of how much it costs a bank to make $1 of operating income, was 63%.
"To be competitive in community banking today, you must be frugal, you must be efficient," said Robert H. Cramer, a former banker who teaches bank performance measurement at the University of Wisconsin's Graduate School of Banking and does valuation work for wholesale businesses.
"Inefficiency will be weeded out," he said. "You cannot substitute service for efficiency. You have to have both."
Mr. Bosshard, a banker since 1978, acquired Bank of Alma in 1986 after the Federal Deposit Insurance Corp. had taken it over. The FDIC forced the writeoff of about half the bank's loans, leaving some $13 million.
Buying a shuttered bank allowed Mr. Bosshard to give it a management make-over, he said.
"At the closing we kind of started from scratch," he said. "We just looked at everything. Just because of the way they looked at it for 10, 20, 50 years, that doesn't mean that's the way to do it."
Bank of Alma, located on the Mississippi River in western Wisconsin, had nearly $51 million of loans at Sept. 30. It is part of a two-bank holding company, Dairyland Bank Holding Corp., which also owns LaFarge State Bank.
Curbing costs has been the doctrine at all of Mr. Bosshard's financial institutions: His family owns eight Wisconsin banks with a total of $500 million of assets.
"Everybody's got a different way of looking at things," he said. "I'm not saying what I do is right for everybody. I don't want to say what I've got is some kind of formula. It's not just something you push a button and say it's going to happen. It's easy to hand money out, much tougher to say 'no'."
However, keeping costs low doesn't mean that he signs off on every expense at Bank of Alma, just as he doesn't make every such decision at any of his banks.
"I've got CEOs running their own ships," he said. And his employees - including Bank of Alma's 18 - have bought into his low-cost strategy, he said. "I've always just generally let the people know that it's an important thing to me."
He said he tells employees: "Treat your money at the bank as you would at home."
In some areas, keeping costs low has meant sticking to the basics at the Alma bank: no automated teller machines, no voice-response system.
But that's not to say the bank doesn't keep up with the competition in other respects, offering investment, insurance, and realty services.
And small banks like his can have a hard time determining whether new technologies are worth their cost, he said. "I'm a follower when it comes to technology," he said. "Everything in the end has to pay for itself."
In that respect, his family's banks trade ideas back and forth, he said.
And some new ideas have shaved even more off costs. For instance, check truncation has reduced check-handling costs.
But some things still can be done the old-fashioned way, reinforcing the notion that many community bank executives also curtail costs by wearing many hats.
Mr. Bosshard ended a recent conversation saying, "I've got to run out and shovel the walk."
